<PAGE>
Semiannual Report
CALIFORNIA
TAX-FREE
FUNDS
August 31, 1998
[PICTURE APPEARS HERE]
T. Rowe Price
<PAGE>
REPORT HIGHLIGHTS
---------------------------------------------------------------------------
CALIFORNIA TAX-FREE FUNDS
. Municipal bonds, including those of California, continued to post solid
returns in a favorable interest rate environment.
. Both funds' 6- and 12-month returns exceeded those of their Lipper peer
group averages.
. Performance benefited from relatively long maturities and an emphasis on
credit quality.
. California's economy continued to grow at a strong pace, with healthy
increases in employment and personal income.
. We believe the trend toward lower interest rates remains intact, and that
investors will increasingly recognize the favorable yield relationship
between tax-free and taxable bonds.
<PAGE>
FELLOW SHAREHOLDERS
The municipal market and your funds continued to provide solid returns during
the six months ended August 31. Against a backdrop of low inflation, budget
surpluses at the federal and state levels, and asset shifts to fixed income
investments, bond prices rose and yields fell across the maturity spectrum. As a
result, municipals and other types of bonds have provided some of the best
returns among all asset classes thus far in 1998.
MARKET ENVIRONMENT
Interest rates continued to decline during the past six months but did
not drop as far as over the previous six-month period. Because many
investors around the globe sought refuge in the Treasury market from
problems in Asia, Russia, and Latin America, yield declines were
[GRAPH steepest on Treasury securities. For example, the 30-year Treasury
bond yield fell 60 basis points over the period, with most of the drop
APPEARS occurring in August, but the 30-year AAA general obligation bond fell
only 15 basis points. (One hundred basis points equal one percent.)
HERE] The difference also reflected the heavy supply of new municipal issues
in recent months and the continued contraction of Treasury issuance.
As a result of these developments, yields on tax-exempt investments
are now only slightly lower than yields on fully taxable securities.
When income taxes are taken into account, municipals now yield
substantially more than most other types of bonds.
California tax-exempt bonds generally followed the national municipal
market, but declined only about 8 basis points over the period, as
shown in the chart.
1
<PAGE>
PREPARING FOR THE YEAR 2000
- -------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We plan to complete all
reprogramming efforts for the major application systems, including business
applications required to service our customers and processing infrastructure
necessary to ensure the integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. Our goal is to
identify any noncompliant files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION EXPECTED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors and
participants, and we are taking steps to make modifications where necessary for
the Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party software and hardware vendors can send, receive, and process files and
transactions accurately. T. Rowe Price will participate in this industry-wide
effort.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
2
<PAGE>
California's economy continued to grow at a strong pace, adding nearly 400,000
jobs over the past year. In July, the state's unemployment rate dropped to an
eight-year low, and personal income growth has been strong. Growth is expected
to continue through the end of the year. To date, the state's resilience in the
face of Asia's economic problems has been impressive, with exports in the first
quarter showing a 6% increase over the first three months of 1997. The state
does, however, remain susceptible to economic weakness in the Pacific Rim.
California's financial picture continued to brighten, and two rating agencies
maintain a positive outlook for the state. Fitch IBCA upgraded California
general obligation bonds from A+ to AA- in late 1997. The improved sentiment
reflects healthy tax revenue and a large increase in the state's general fund
surplus. The state's new fiscal year budget provides for several tax reductions
and a modest drawdown of the surplus.
CALIFORNIA TAX-FREE MONEY FUND
Your fund's performance was modestly above the peer group average for both the
6- and 12-month periods, as shown in the table. These favorable results were due
in part to a somewhat longer average maturity, which averaged nine days longer
than competitive funds over the period and at one point was 21 days longer. This
more aggressive posture boosted the fund's yield. We focused on finding value at
both ends of the short-term yield curve. Rates traded in a narrow range at the
longer end of the curve, and on average one-year maturities offered only 20
basis points of additional yield compared with the shortest maturities. Stable
Federal Reserve policy allowed us to pick up the incremental yield at the long
end with little fear of rising rates.
Greater volatility at the shortest end of the curve provided an opportunity to
capture higher yields by correctly anticipating supply-and-demand flows. We
overweighted the variable rate sector, which includes overnight and seven-day
demand notes, when those rates appeared to be at the upper end of their range.
Positive cash flows into money market funds, combined with a sharp decline in
new issuance, gave us confidence that variable rate notes would continue to
trade
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON
- --------------------------------------------------------
<S> <C> <C>
Periods Ended 8/31/98 6 Months 12 Months
- --------------------------------------------------------
CALIFORNIA TAX-FREE MONEY FUND 1.43% 2.93%
- --------------------------------------------------------
LIPPER CALIFORNIA TAX-EXEMPT
MONEY MARKET FUNDS AVERAGE 1.41 2.90
- --------------------------------------------------------
</TABLE>
3
<PAGE>
within their existing range. The supply of new issues in the municipal note
market for 1998 through August 31 was 27% below the first eight months of last
year, and total short-term issuance may finish the year at the lowest level
since 1990. The state of California is a good example of this trend, reducing
its annual short-term borrowing to $1.7 billion, a reduction of more than 40%
from last year. Short-term borrowing has slackened because of low long-term
interest rates and the improved financial condition of municipalities. There is
no reason to believe that issuance will pick up in the remainder of 1998.
CALIFORNIA TAX-FREE BOND FUND
Your fund posted returns solidly above its Lipper peer group average for both
the 6- and 12-month periods ended August 31, as shown in the table. In each
period, this was accomplished through a combination of dividend income and
modest price appreciation. The net asset value rose from $10.88 to $10.98 per
share during the six months. The fund also benefited from low expenses relative
to its peers, relatively long portfolio duration, and careful credit research.
(Duration is a measure of a bond fund's sensitivity to interest rates. For
example, a fund with a duration of eight years would fall or rise about 8% in
price in response to a one-percentage-point rise or fall in interest rates.)
Over the past six months we focused on managing the duration of the portfolio in
line with our interest rate outlook, preserving income in a low interest rate
environment, and keeping a close eye on credit quality. The fund's duration
ranged from approximately 7.25 to 8 years, with a generally longer position from
June through August. We consider this posture to be slightly aggressive, and the
fund benefited accordingly when rates declined in July and August. The
California market has seen record bond supply this year, with new issuance up
65% overall versus the same period in 1997. While the supply has been absorbed,
it did contribute to the underperformance of the municipal market compared with
the Treasury market, where supply has been shrinking. Positive cash flow into
the fund allowed us to take advantage of the new issue deluge.
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON
- ------------------------------------------------------
<S> <C> <C>
Periods Ended 8/31/98 6 Months 12 Months
- ------------------------------------------------------
CALIFORNIA TAX-FREE BOND FUND 3.49% 8.89%
- ------------------------------------------------------
Lipper California Municipal
DEBT FUNDS AVERAGE 3.27 8.51
- ------------------------------------------------------
</TABLE>
4
<PAGE>
The fund's yield is drifting lower as we invest new money at lower rates and as
older, higher-yielding holdings mature or are retired by issuers. We tend to
hold onto older investments purchased in higher interest rate environments
because of the attractive yields they provide, but eventually they must be
replaced. One option to boost income would be to buy lower-quality bonds with
higher yields. The yield advantage available from these bonds versus higher-
quality issues has widened slightly over the past six months but still remains
near record lows. While we increased our exposure to BBB rated bonds slightly,
we are still underweighted in lower-quality bonds, and we think a patient
approach will lead to better opportunities down the road. The portfolio has a
high average credit quality, with more than 50% of our holdings insured with AAA
ratings from Standard & Poor's and Moody's Investors Service, a reflection of
the large number of California bond issuers coming to market with insurance.
In choosing bonds for the portfolio, we emphasized issues backed by dedicated
taxes, primarily sales and property taxes. These revenue sources perform well in
a strong economy, and our focus on them reflects our positive outlook on
California. While we are attentive to the economic problems affecting the
Pacific Rim, to date we have not seen a material impact on the state's economy,
as domestic demand continues to be strong.
IN CHOOSING BONDS...
WE EMPHASIZED ISSUES BACKED BY DEDICATED TAXES, PRIMARILY SALES AND PROPERTY
TAXES.
OUTLOOK
Federal Reserve Chairman Alan Greenspan recently implied that the Fed's next
move could well be a lowering of key short-term rates in the face of turmoil
overseas. Just weeks before, it was widely antici-pated that the Fed was leaning
toward a possible interest rate hike because of concerns about tight labor
markets and wage pressures.
We believe the rate of domestic economic growth will slow through the remainder
of the year. Exports may fall further because of weak international markets and
the strong dollar, and growth in consumer spending could decline in the
aftermath of the correction in stock prices. Commodity prices have also been
under pressure, further restraining inflation. In this environment, the trend
toward lower overall interest rates should remain intact. Our outlook for the
California
5
<PAGE>
economy continues to be positive, but we would note again the state's
significant exposure to Asian trade.
We expect municipal securities to remain undervalued compared with Treasuries
until demand catches up with heavy supply, which could accelerate in the fall
following the pattern of recent years. However, investors should eventually
recognize the attractive yields available in the municipal market compared with
taxable yields, and rising demand would benefit municipal bond investors over
the long term.
Respectfully submitted,
/s/ Patrice L. Berchtenbreiter
Patrice L. Berchtenbreiter
Chairman of the Investment Advisory Committee
California Tax-Free Money Fund
/s/ Mary J. Miller
Mary J. Miller
Chairman of the Investment Advisory Committee
California Tax-Free Bond Fund
September 24, 1998
6
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE FUNDS
- --------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
KEY STATISTICS
CALIFORNIA TAX-FREE MONEY FUND 2/28/98 8/31/98
----------------------------------------------------------------------
Price Per Share $1.00 $1.00
.......................................................................
Dividends Per Share
.......................................................................
For 6 months 0.015 0.014
..................................................................
For 12 months 0.030 0.029
.......................................................................
Dividend Yield (7-Day Compound) * 2.75% 2.62%
.......................................................................
Weighted Average Maturity (days) 50 49
.......................................................................
Weighted Average Quality ** First Tier First Tier
.......................................................................
CALIFORNIA TAX-FREE BOND FUND
-----------------------------------------------------------------------
Price Per Share $10.88 $10.98
.......................................................................
Dividends Per Share
.......................................................................
For 6 months 0.27 0.26
..................................................................
For 12 months 0.54 0.53
..................................................................
Dividend Yield *
.......................................................................
For 6 months 5.07% 4.89%
.......................................................................
For 12 months 5.21 5.05
.......................................................................
30-Day Standardized Yield 4.12 4.23
.......................................................................
Weighted Average Maturity (years) 17.0 17.7
.......................................................................
Weighted Average Effective Duration (years) 7.2 7.6
.......................................................................
Weighted Average Quality *** AA- AA-
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
7
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE FUNDS
- ----------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- ----------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/98 8/31/98
CALIFORNIA TAX-FREE MONEY FUND
- ----------------------------------------------------------------------
Hospital Revenue 19% 23%
......................................................................
General Obligation - Local 12 13
......................................................................
Prerefunded Bonds 5 11
......................................................................
Air and Sea Transportation Revenue 10 11
......................................................................
Water and Sewer Revenue 10 10
......................................................................
Lease Revenue 11 8
......................................................................
Nuclear Revenue 7 8
......................................................................
Industrial and Pollution Control Revenue 3 7
......................................................................
Dedicated Tax Revenue 3 5
......................................................................
General Obligation - State 11 2
......................................................................
All Other 9 3
......................................................................
Other Assets Less Liabilities - -1
- ----------------------------------------------------------------------
Total 100% 100%
CALIFORNIA TAX-FREE BOND FUND
- ----------------------------------------------------------------------
Dedicated Tax Revenue 21% 26%
......................................................................
Lease Revenue 15 10
......................................................................
Water and Sewer Revenue 10 9
......................................................................
Prerefunded Bonds 8 9
......................................................................
General Obligation - Local 6 7
......................................................................
Housing Finance Revenue 6 5
......................................................................
Air and Sea Transportation Revenue 7 5
......................................................................
Hospital Revenue 5 5
......................................................................
General Obligation - State 3 5
......................................................................
Nuclear Revenue 6 4
......................................................................
Electric Revenue 2 3
......................................................................
Ground Transportation Revenue 3 3
......................................................................
Escrowed to Maturity 3 2
......................................................................
All Other 6 6
......................................................................
Other Assets Less Liabilities -1 1
- ----------------------------------------------------------------------
Total 100% 100%
8
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE FUNDS
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based average
or index. The index return does not reflect expenses, which have been
deducted from the fund's return.
CALIFORNIA TAX-FREE MONEY FUND
---------------------------------------------------------------------------
[GRAPH APPEARS HERE]
CALIFORNIA TAX-FREE BOND FUND
---------------------------------------------------------------------------
[GRAPH APPEARS HERE]
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended 8/31/98 1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------
California Tax-Free Money Fund 2.93% 2.96% 2.81% 3.35%
...........................................................................
California Tax-Free Bond Fund 8.89 8.06 6.09 8.04
...........................................................................
Investment return represents past performance and will vary. Shares of the
bond fund may be worth more or less at redemption than at original
purchase. The money fund's $1.00 share price is not guaranteed, nor is the
fund insured by the U.S. government.
9
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE MONEY FUND
- ---------------------------------------------------------------
Unaudited
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 MONTHS YEAR
ENDED ENDED
8/31/98 2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income 0.014* 0.030* 0.028* 0.032* 0.025* 0.019*
Distributions
Net investment income (0.014) (0.030) (0.028) (0.032) (0.025) (0.019)
NET ASSET VALUE
END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
TOTAL RETURN/*/ 1.43%* 3.01%* 2.87%* 3.24%* 2.55%* 1.92%*
....................................................................................................................
Ratio of expenses to
average net assets 0.55%*+ 0.55%* 0.55%* 0.55%* 0.55%* 0.55%*
....................................................................................................................
Ratio of net investment
income to average
net assets 2.84%*+ 2.98%* 2.82%* 3.20%* 2.51%* 1.90%*
....................................................................................................................
Net assets, end of period
(in thousands) $105,452 $92,406 $ 82,210 $ 72,739 $ 76,289 $ 74,016
....................................................................................................................
</TABLE>
. Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 0.55% voluntary expense limitation in effect
through 2/28/99.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
8/31/98 2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 10.88 $ 10.47 $ 10.45 $ 10.00 $ 10.43 $ 10.65
.................................................................
Investment activities
Net investment income 0.26 0.54 0.55 0.55 0.55* 0.56*
Net realized and
unrealized gain (loss) 0.11 0.41 0.02 0.45 (0.41) 0.01
.................................................................
Total from
investment activities 0.37 0.95 0.57 1.00 0.14 0.57
.................................................................
Distributions
Net investment income (0.26) (0.54) (0.55) (0.55) (0.55) (0.56)
Net realized gain (0.01) - - - (0.02) (0.23)
.................................................................
Total distributions (0.27) (0.54) (0.55) (0.55) (0.57) (0.79)
.................................................................
NET ASSET VALUE
END OF PERIOD $ 10.98 $ 10.88 $ 10.47 $ 10.45 $ 10.00 $ 10.43
-----------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
TOTAL RETURN 3.49% 9.31% 5.64% 10.28% 1.60%* 5.37%*
...................................................................................................
Ratio of expenses to
average net assets 0.59%+ 0.58% 0.62% 0.63% 0.60%* 0.60%*
...................................................................................................
Ratio of net investment
income to average
net assets 4.84%+ 5.09% 5.29% 5.40% 5.60%* 5.19%*
...................................................................................................
Portfolio turnover rate 17.1% 35.0% 47.3% 61.9% 78.0% 73.4%
...................................................................................................
net assets, end of period
(in thousands) $208,943 $195,100 $160,813 $146,194 $131,953 $151,936
...................................................................................................
</TABLE>
* Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 0.60% voluntary expense limitation in effect
through 2/28/95.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1998
<TABLE>
<CAPTION>
Statement of Net Assets Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CALIFORNIA 97.5%
Alameda County, GO, TAN, 4.50%, 7/7/99 $2,000 $2,015
............................................................................
California, GO, VRDN (Currently 3.30%)
(FGIC Insured) 2,200 2,200
............................................................................
California Dept. of Water Resources, TECP, 3.50%, 9/3/98 303 303
............................................................................
California EFA
California Institute of Technology
VRDN (CURRENTLY 2.35%) 500 500
........................................................................
Stanford Univ., VRDN (Currently 2.45%) 500 500
............................................................................
California HFFA
VRDN (CURRENTLY 2.50%) (MBIA INSURED) 2,500 2,500
........................................................................
Catholic Healthcare West
VRDN (CURRENTLY 2.35%) (MBIA INSURED) 2,100 2,100
........................................................................
Hosp. Adventist
VRDN (CURRENTLY 3.15%) (MBIA INSURED) 3,800 3,800
........................................................................
Pooled Loan Program
VRDN (CURRENTLY 2.40%) (FGIC INSURED) 2,900 2,900
........................................................................
Santa Barbara Cottage Hosp.
VRDN (CURRENTLY 2.60%) 3,325 3,325
........................................................................
St. Joseph's Health System
VRDN (CURRENTLY 3.10%) 700 700
........................................................................
VRDN (CURRENTLY 3.15%) 1,600 1,600
........................................................................
Unihealth
7.625%, 10/1/15 (AMBAC Insured)
(Prerefunded 10/1/98+) 6,000 6,139
............................................................................
California Pollution Control Fin. Auth., PCR
Pacific Gas and Electric
VRDN (CURRENTLY 2.45%) * 1,800 1,800
........................................................................
VRDN (CURRENTLY 2.60%) * 400 400
........................................................................
Shell Oil
VRDN (CURRENTLY 3.10%) * 4,300 4,300
........................................................................
VRDN (Currently 3.20%) * 1,000 1,000
............................................................................
California Statewide CDA, St. Joseph Health Systems
VRDN (Currently 3.15%) 300 300
............................................................................
Chula Vista IDA, San Diego Gas and Electric
VRDN (Currently 3.75%) * 2,300 2,300
............................................................................
</TABLE>
12
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Contra Costa County, Merrithew Memorial Hosp., COP
5.70%, 11/1/98 (Escrowed to Maturity) $ 125 $ 125
...........................................................................
Contra Costa Water Dist., 7.625%, 10/1/18
(Prerefunded 10/1/98+) 1,725 1,765
...........................................................................
Elk Grove Unified School Dist., GO
4.50%, 6/30/99 1,500 1,511
...........................................................................
Fontana Redev. Agency, North Fontana
8.00%, 9/1/18 (Prerefunded 9/1/98+) 1,030 1,051
...........................................................................
Goleta Sanitation and Water Dist.
7.50%, 12/1/12 (Prerefunded 12/1/98+) 2,250 2,316
...........................................................................
Irvine Public Fac. and Infrastructure Auth.
VRDN (Currently 2.50%) 3,345 3,345
...........................................................................
Irvine Ranch Water Dist., VRDN (Currently 3.15%) 2,000 2,000
...........................................................................
Long Beach Harbor, TECP, 3.25 - 3.50%, 9/3 - 11/5/98 * 3,400 3,400
...........................................................................
Los Angeles, GO, 4.00%, 6/30/99 2,000 2,007
...........................................................................
Los Angeles County, GO, TRAN, 4.50%, 6/30/99 4,000 4,028
...........................................................................
Los Angeles County Wastewater, TECP, 3.20%, 11/9/98 1,000 1,000
...........................................................................
Los Angeles County Metropolitan Transportation Auth.
VRDN (CURRENTLY 3.55%) (AMBAC INSURED) 2,000 2,000
......................................................................
VRDN (CURRENTLY 3.26%) (AMBAC INSURED) 3,000 3,000
......................................................................
Los Angeles County Unified School Dist.
Belmont Learning Complex, COP
VRDN (Currently 2.50%) 600 600
...........................................................................
Metropolitan Water Dist. of Southern California
VRDN (CURRENTLY 2.40%) 1,000 1,000
......................................................................
TECP, 3.30 - 3.40%, 10/8 - 11/6/98 2,400 2,400
...........................................................................
MSR Public Power Agency, San Juan
VRDN (Currently 2.45%) (AMBAC Insured) 1,000 1,000
...........................................................................
Newport Beach, Hoag Memorial Hosp.
VRDN (Currently 3.25%) 6,900 6,900
...........................................................................
Oakland, COP, VRDN (Currently 3.05%) 4,400 4,400
...........................................................................
Sacramento Utility Dist., 5.75%, 7/1/99 (FGIC Insured) 500 509
...........................................................................
San Bernardino County, West Valley Detention Center
7.70%, 11/1/18 (Prerefunded 11/1/98+) 250 257
...........................................................................
San Diego County, GO, TRAN, 4.50%, 9/30/98 500 500
...........................................................................
</TABLE>
13
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
- ------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
San Diego County
Regional Transportation Commission
7.375%, 4/1/06 (Prerefunded 4/1/99+) $ 275 $ 286
...............................................................................
San Diego County Water Auth., TECP, 3.30%, 1/13/99 1,000 1,000
...............................................................................
San Francisco City and County Int'l. Airport
VRDN (CURRENTLY 3.95%) (FGIC INSURED) 4,000 4,000
.....................................................................
TECP, 3.50%, 11/17/98 * 3,075 3,075
...............................................................................
San Francisco Unified School Dist., GO, 4.50%, 9/22/99 1,000 1,011
...............................................................................
San Jose/Santa Clara Water Fin. Auth.
VRDN (Currently 2.25%) 1,000 1,000
...............................................................................
Santa Clara County, GO, TRAN, 4.75%, 10/1/98 2,100 2,102
...............................................................................
Santa Clara/El Camino Hosp. Dist., Valley Med. Center
VRDN (Currently 2.50%) 490 490
...............................................................................
Southern California Public Power Auth.
VRDN (CURRENTLY 2.25%) (AMBAC INSURED) 3,000 3,000
.....................................................................
VRDN (CURRENTLY 3.21%) (AMBAC INSURED) 1,000 1,000
........................................................................
Vallecitos Water Dist., Twin Oaks Reservoir
VRDN (Currently 2.35%) 2,000 2,000
...............................................................................
Total California (Cost $102,760) 102,760
..........
FLORIDA 0.9%
Greater Orlando Aviation Auth.
VRDN (CURRENTLY 4.05%) (FGIC INSURED) 1,000 1,000
...............................................................................
Total Florida (Cost $1,000) 1,000
..........
LOUISIANA 0.9%
Plaquemines Parish, British Petroleum
VRDN (Currently 3.50%) * 300 300
...............................................................................
Saint Charles Parish, PCR, Shell Oil
VRDN (Currently 3.45%) * 600 600
...............................................................................
Total Louisiana (Cost $900) 900
..........
TEXAS 0.9%
Gulf Coast IDA, Marine Terminal, Amoco Oil
VRDN (Currently 3.45%) * 500 500
...............................................................................
</TABLE>
14
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Gulf Coast Waste Disposal Auth., PCR, Amoco Oil
VRDN (Currently 3.45%) * $ 300 $ 300
...........................................................................
Harris County Health Fac. Dev., Methodist Hosp.
VRDN (Currently 3.35%) 200 200
...........................................................................
Total Texas (Cost $1,000) 1,000
.......
WYOMING 0.4%
Lincoln County, PCR, Exxon, VRDN (Currently 3.30%) * 400 400
...........................................................................
Total Wyoming (Cost $400) 400
.......
</TABLE>
15
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- ---------------------------------------------------------------------------------------
In thousands
<S> <C>
TOTAL INVESTMENTS IN SECURITIES
100.6% of Net Assets (Cost $106,060
Other Assets Less Liabilities (608)
--------
NET ASSETS $105,452
--------
NET ASSETS CONSIST OF:
Accumulated net investment income - net of distributions $ 4
Accumulated net realized gain/loss - net of distributions (92)
Paid-in-capital applicable to 105,544,544 no par value shares of beneficial
interest outstanding; unlimited number of shares authorized 105,540
--------
NET ASSETS $105,452
--------
NET ASSET VALUE PER SHARE $ 1.00
--------
</TABLE>
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
GO General Obligation
HFFA Health Facility Financing Authority
IDA Industrial Development Authority
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1998
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS PAR VALUE
- ----------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CALIFORNIA 95.3%
Alameda County, Public Fac., COP
6.00%, 9/1/21 (MBIA Insured) $ 960 $1,055
-----------------------------------------------------------------------------
Anaheim PFA, Public Improvements
5.00%, 9/1/27 (FSA Insured) 2,435 2,415
-----------------------------------------------------------------------------
Brea PFA, Tax Allocation, 6.75%, 8/1/22 (MBIA Insured) 1,435 1,570
-----------------------------------------------------------------------------
California, GO
5.25%, 10/1/20 1,700 1,724
------------------------------------------------------------------------
5.40%, 12/1/16 (FSA INSURED) * 1,000 1,023
------------------------------------------------------------------------
5.45%, 12/1/25 3,000 3,046
------------------------------------------------------------------------
6.40%, 2/1/20 * 2,200 2,248
------------------------------------------------------------------------
Veterans
5.05%, 12/1/11 1,485 1,509
-----------------------------------------------------------------------------
California Dept. of Water Resources, Central Valley
7.00%, 12/1/11 1,730 2,160
------------------------------------------------------------------------
7.00%, 12/1/12 1,000 1,251
-----------------------------------------------------------------------------
California EFA
Pooled College and Univ.
5.60%, 12/1/14 1,000 1,059
------------------------------------------------------------------------
5.60%, 12/1/20 1,000 1,049
------------------------------------------------------------------------
St. Mary's College of California
7.50%, 10/1/20 (Prerefunded 10/1/00+) 2,000 2,195
-----------------------------------------------------------------------------
California HFA, Sutter Health
VRDN (Currently 3.15%) (FSA Insured) 100 100
-----------------------------------------------------------------------------
California HFFA
Catholic Healthcare West
5.25%, 7/1/23 (AMBAC INSURED) 1,000 1,015
------------------------------------------------------------------------
Kaiser Permanente
5.00%, 6/1/24 (FSA INSURED) 2,000 1,977
------------------------------------------------------------------------
Pomona Valley Hosp.
5.75%, 7/1/15 (MBIA INSURED) 1,800 1,957
------------------------------------------------------------------------
St. Joseph's Health System
VRDN (Currently 3.15%) 400 400
-----------------------------------------------------------------------------
California Housing Fin. Agency
6.15%, 8/1/16 * 1,000 1,070
------------------------------------------------------------------------
6.70%, 8/1/15 1,100 1,190
------------------------------------------------------------------------
6.70%, 8/1/25 * 930 1,000
------------------------------------------------------------------------
</TABLE>
17
<PAGE>
T. Rowe Price California Tax-Free Money Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- ----------------------------------------------------------------------------------
In thousands
<S> <C> <C>
California Housing Fin. Agency
6.85%, 8/1/17 $3,015 $3,212
------------------------------------------------------------------------
7.20%, 8/1/09 190 198
------------------------------------------------------------------------
7.25%, 8/1/10 185 193
------------------------------------------------------------------------
7.25%, 8/1/17 1,000 1,085
------------------------------------------------------------------------
7.625%, 8/1/09 245 252
------------------------------------------------------------------------
7.875%, 8/1/19 365 373
------------------------------------------------------------------------
8.00%, 8/1/19 175 178
-----------------------------------------------------------------------------
California Pollution Control Fin. Auth., PCR
LAIDLAW ENVIROMENTAL, 6.70%, 7/1/07 * 1,000 1,059
---------------------------------------------------------------------------
Pacific Gas and Electric
5.85%, 12/1/23 (MBIA INSURED) * 2,000 2,114
------------------------------------------------------------------------
Shell Oil
VRDN (CURRENTLY 3.10%) 300 300
------------------------------------------------------------------------
VRDN (CURRENTLY 3.20%) * 100 100
------------------------------------------------------------------------
Waste Disposal, 5.00%, 6/1/18 2,500 2,509
-----------------------------------------------------------------------------
California Public Works Board
Dept. of Corrections
6.875%, 11/1/14 (PREREFUNDED 11/1/04+) 1,000 1,179
------------------------------------------------------------------------
Univ. of California
5.50%, 6/1/14 2,000 2,181
------------------------------------------------------------------------
6.40%, 12/1/16 (AMBAC Insured)
(Prerefunded 12/1/02+) 1,000 1,122
-----------------------------------------------------------------------------
California Statewide CDA
St. Joseph Health
5.125%, 7/1/17 1,000 1,004
------------------------------------------------------------------------
Sutter Health, COP
5.50%, 8/15/23 (MBIA Insured) 2,000 2,072
-----------------------------------------------------------------------------
Castaic Lake Water Agency
Water System Improvement
7.00%, 8/1/12 (MBIA INSURED) 1,000 1,237
------------------------------------------------------------------------
7.00%, 8/1/13 (MBIA Insured) 1,700 2,116
-----------------------------------------------------------------------------
Castaic Union School Dist., GO
Zero Coupon, 5/1/18 (FGIC Insured) 5,175 1,948
-----------------------------------------------------------------------------
Central Coast Water Auth.
State Water Project Regional Fac.
6.60%, 10/1/22 (AMBAC Insured)
(Prerefunded 10/1/02+) 1,000 1,126
-----------------------------------------------------------------------------
</TABLE>
18
<PAGE>
T.ROWE PRIE CALIFORNIA TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
PAR VALUE
- --------------------------------------------------------------------------------
in thousands
Contra Costa County, Merrithew Memorial Hosp., COP
5.375%, 11/1/17 (MBIA Insured) $2,185 $2,268
.............................................................................
Contra Costa Water Dist., 7.625%, 10/1/08
(Prerefunded 10/1/98+) 500 512
.............................................................................
Corona Redev. Agency, Tax Allocation
6.25%, 9/1/13 (FGIC Insured) 1,000 1,124
.............................................................................
Coronado CDA, Tax Allocation, 5.70%, 9/1/12 (FSA Insured) 1,000 1,092
Dry Creek Joint Elementary School Dist., GO
Capital Appreciation
Zero Coupon, 8/1/13 (FSA INSURED) 1,300 631
...................................................................
Zero Coupon, 8/1/14 (FSA Insured) 1,340 614
.............................................................................
East Bay Municipal Utility Dist., Water Systems
6.00%, 6/1/12 (FSA Insured) 2,000 2,169
.............................................................................
Emeryville PFA, Housing Increment Loan, 6.20%, 9/1/25 1,000 1,105
.............................................................................
Escondido, Multi-Family Housing, Terrace Gardens Apartments
5.40%, 1/1/27 1,000 1,058
.............................................................................
Fontana Redev. Agency, Jurupa Hills, 5.50%, 10/1/27 2,000 2,050
.............................................................................
Foothill / Eastern Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/17 4,000 1,552
...................................................................
Zero Coupon, 1/1/25 850 215
...................................................................
Zero Coupon, 1/1/27 1,910 434
.............................................................................
Fresno Joint Powers Fin. Auth, 5.75%, 9/2/98 300 300
.............................................................................
Fresno Unified School Dist.
6.40%, 8/1/16 (MBIA INSURED) 1,000 1,190
...................................................................
6.55%, 8/1/20 (MBIA Insured) 1,000 1,200
.............................................................................
Gateway Refinancing Auth., 5.50%, 9/1/19 2,000 2,035
.............................................................................
Inglewood Redev. Agency, Century Redev., 6.125%, 7/1/23 2,800 2,952
.............................................................................
Inland Empire Solid Waste Fin. Auth.
San Bernardino County Landfills
6.25%, 8/1/11 (FSA Insured) * 1,000 1,138
.............................................................................
Kern County Union High School Dist., GO
7.00%, 8/1/10 (MBIA Insured)
(Escrowed to Maturity) 1,000 1,242
.............................................................................
Long Beach Harbor, 6.00%, 5/15/17 (FGIC Insured) * 1,000 1,134
.............................................................................
Los Angeles City
DEPT. OF WATER AND POWER, 6.40%, 5/15/28 2,500 2,693
........................................................................
Wastewater, 7.10%, 6/1/18 1,000 1,043
.............................................................................
19
<PAGE>
T.ROWE PRIE CALIFORNIA TAX-FREE BOND FUND
<TABLE>
- ------------------------------------------------------------------------------
PAR VALUE
- ------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Los Angeles County, Marina del Rey, COP, 6.50%, 7/1/08 $1,000 $1,089
..............................................................................
Los Angeles County Metropolitan Transportation Auth.
Sales Tax
6.00%, 7/1/26 (MBIA INSURED) 2,000 2,194
..............................................................................
7.40%, 7/1/15 515 540
..............................................................................
Los Angeles County Public Works Fin. Auth.
Multiple Capital Fac.
5.125%, 6/1/17 (AMBAC INSURED) 2,000 2,024
..............................................................................
Rowland Heights
5.50%, 10/1/18 (FSA Insured) 1,500 1,634
..............................................................................
Los Angeles Harbor Dept.
6.50%, 8/1/25 (PREREFUNDED 8/1/02+) 1,000 1,117
..............................................................................
6.625%, 8/1/19 * 2,500 2,747
..............................................................................
7.60%, 10/1/18 (Escrowed to Maturity) 3,000 3,888
..............................................................................
Los Angeles Municipal Improvement, Central Library
6.35%, 6/1/20 1,500 1,618
..............................................................................
Los Angeles Unified School Dist.
5.375%, 7/1/16 (FGIC Insured) 3,000 3,138
..............................................................................
Midpeninsula Regional Open Space Dist., Fin. Auth.
5.90%, 9/1/14 (AMBAC Insured) 1,250 1,372
..............................................................................
Modesto Irrigation Dist. Fin. Auth.
Domestic Water, 4.75%, 9/1/22 (AMBAC INSURED) 1,500 1,445
..............................................................................
Geysers, 6.00%, 10/1/15 (MBIA Insured) 1,500 1,655
..............................................................................
Mojave Water Agency, Morongo Basin
5.75%, 9/1/15 (FGIC Insured) 2,000 2,179
..............................................................................
Mountain View Shoreline Regional Park, Tax Allocation
5.50%, 8/1/21 (MBIA Insured) 3,000 3,152
..............................................................................
Mt. Diablo Hosp. Dist.
8.00%, 12/1/11 (AMBAC Insured)
(Prerefunded 12/1/00+) 1,250 1,391
..............................................................................
Newport Beach, Hoag Memorial Hosp.
VRDN (Currently 3.25%) 300 300
..............................................................................
Orange County
Juvenile Justice Center, COP
7.625%, 6/1/19 (PREREFUNDED 6/1/99+) 1,750 1,839
..............................................................................
Recovery
6.00%, 6/1/10 (MBIA INSURED) 4,120 4,715
COP, 6.00%, 7/1/26 (MBIA Insured) 1,000 1,100
..............................................................................
</TABLE>
20
..
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- -------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Orange County Local Transportation Auth., Sales Tax
6.00%, 2/15/09 (AMBAC Insured) $ 750 $ 854
................................................................................
Orange County PFA, Waste Management
5.75%, 12/1/09 (AMBAC Insured) * 2,000 2,224
................................................................................
Orchard School Dist., 6.50%, 8/1/19 (FGIC Insured) 1,000 1,154
................................................................................
Palmdale Civic Auth., Redev. Project, 6.60%, 9/1/34 5,000 5,568
................................................................................
Pasadena Parking Fac., COP, 6.25%, 1/1/18 3,000 3,424
................................................................................
Placentia PFA, Special Tax, 6.60%, 9/1/15 1,000 1,047
................................................................................
Pomona Unified School Dist., GO, 6.15%, 8/1/15 (MBIA Insured) 1,000 1,168
................................................................................
Poway Community Fac. Dist., 6.75%, 8/15/15 1,275 1,398
................................................................................
Riverside County, Desert Justice Fac., COP
6.00%, 12/1/12 (MBIA Insured) 1,000 1,123
................................................................................
Riverside County Asset Leasing, Riverside County Hosp.
Zero Coupon, 6/1/20 (MBIA Insured) 2,835 946
................................................................................
Riverside Water, 5.00%, 10/1/27 3,000 2,973
................................................................................
Sacramento City Fin. Auth., Lease, 5.00%, 11/1/14 2,000 2,056
................................................................................
Sacramento County Public Fac., Coroner Crime Lab., COP
6.375%, 10/1/14 (AMBAC Insured) 1,000 1,131
................................................................................
Sacramento Redev. Agency
5.25%, 11/1/13 (FSA Insured) 2,240 2,373
................................................................................
Saddleback Valley Unified School Dist.
Special Tax
ZERO COUPON, 9/1/19 (FSA INSURED) 2,370 832
............................................................................
6.00%, 9/1/15 (FSA Insured) 1,375 1,581
................................................................................
San Bernardino County, West Valley Detention Center
7.70%, 11/1/18 (Prerefunded 11/1/98+) 500 513
................................................................................
San Diego Community College Dist.
6.125%, 12/1/16 (MBIA Insured) 1,250 1,453
................................................................................
San Diego, IDR, San Diego Gas and Electric
6.40%, 9/1/18 (MBIA Insured) 1,175 1,296
................................................................................
San Francisco Bay Area Rapid Transit
Sales Tax
4.75%, 7/1/23 (AMBAC INSURED) 2,000 1,932
............................................................................
5.50%, 7/1/15 (FGIC Insured) 1,800 1,898
................................................................................
San Francisco City and County
Int'l. Airport
5.80%, 5/1/21 (FGIC INSURED) * 1,000 1,060
............................................................................
6.30%, 5/1/25 (FGIC INSURED) * 1,000 1,090
............................................................................
6.50%, 5/1/18 (AMBAC Insured) * 4,000 4,460
................................................................................
</TABLE>
21
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- -------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
San Joaquin Hills Transportation Corridor Agency, Toll Road
Zero Coupon, 1/15/14 (MBIA Insured) $ 7,500 $ 3,532
................................................................................
Santa Ana Housing Auth., Villa Del Sol Apartments
5.65%, 11/1/21 * 1,000 1,064
................................................................................
Santa Clara, Electric, 6.25%, 7/1/19 (MBIA Insured) 2,000 2,176
................................................................................
Santa Clara County Fin. Auth., VMC Fac.
7.75%, 11/15/11 (AMBAC Insured) 1,000 1,313
................................................................................
Santa Clara Redev. Agency, Bayshore North
7.00%, 7/1/10 (AMBAC Insured) 3,000 3,673
................................................................................
Santa Margarita/Dana Point Auth.
7.25%, 8/1/10 (MBIA Insured) 1,000 1,261
................................................................................
South Orange County PFA, 7.00%, 9/1/07 (MBIA Insured) 2,000 2,416
................................................................................
Southern California Public Power Auth.
6.75%, 7/1/10 2,100 2,515
............................................................................
6.75%, 7/1/12 1,700 2,053
................................................................................
Temecula Community Fac.
5.45%, 9/1/11 1,045 1,050
............................................................................
5.625%, 9/1/17 1,000 1,007
................................................................................
Torrance, Little County of Mary Hosp., 6.875%, 7/1/15 1,240 1,355
................................................................................
Torrance Redev. Agency, Torrance Ind. Redev. Project
5.50%, 9/1/28 (MBIA Insured) 2,000 2,031
................................................................................
Tri City Hosp. Dist.
7.50%, 2/1/17 (MBIA Insured)
(Prerefunded 2/1/02+) 2,000 2,273
................................................................................
Tulare County, Capital Improvement, COP
6.00%, 2/15/16 (MBIA Insured) 1,000 1,100
................................................................................
Walnut Valley Unified School Dist., GO
7.20%, 2/1/16 (MBIA Insured) 1,000 1,254
................................................................................
Total California (Cost $183,117) 199,086
.........
PUERTO RICO 2.9%
Puerto Rico Electric Power Auth.
4.75%, 7/1/24 3,000 2,871
............................................................................
7.00%, 7/1/21 (Prerefunded 7/01/01+) 1,000 1,106
................................................................................
Puerto Rico Public Fin., Commonwealth Appropriation
5.375%, 6/1/17 (AMBAC Insured) 2,000 2,146
................................................................................
Total Puerto Rico (Cost $ 5,828) 6,123
.........
</TABLE>
22
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- -------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
U. S. VIRGIN ISLANDS 1.2%
Virgin Islands Water and Power Auth.
Electric System
5.125%, 7/1/12 $1,000 $ 1,010
............................................................................
5.375%, 7/1/10 1,500 1,574
................................................................................
Total U. S. Virgin Islands (Cost $2,532) 2,584
........
</TABLE>
23
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
- -------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
TOTAL INVESTMENTS IN SECURITIES
99.4% of Net Assets (Cost $191,477) $ 207,793
Other Assets Less Liabilities 1,150
----------
NET ASSETS $ 208,943
----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 7
Accumulated net realized gain/loss - net of distributions 84
Net unrealized gain (loss) 16,316
Paid-in-capital applicable to 19,033,166 no par shares of beneficial
interest outstanding; unlimited number of shares authorized 192,536
----------
NET ASSETS $ 208,943
----------
NET ASSET VALUE PER SHARE $ 10.98
----------
* Interest subject to alternative minimum tax
+ Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
COP Certificates of Participation
EFA Educational Facility Authority
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance Corp.
HFA Health Facility Authority
HFFA Health Facility Financing Authority
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
T. Rowe Price California Tax-Free Funds
- ---------------------------------------
Unaudited
Statement of Operations
- -------------------------------------------------------------------------------
In thousands Money Fund Bond Fund
6 Months 6 Months
Ended Ended
8/31/98 8/31/98
INVESTMENT INCOME
Interest income $ 1,655 $ 5,434
-----------------------------
Expenses
Investment management 155 422
Shareholder servicing 48 76
Custody and accounting 45 62
Prospectus and shareholder reports 7 10
Legal and audit 6 6
Trustees 3 3
Registration 2 5
Miscellaneous 2 2
-----------------------------
Total expenses 268 586
-----------------------------
Net investment income 1,387 4,848
-----------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Securities - 427
Futures - (58)
-----------------------------
Net realized gain (loss) - 369
Change in net unrealized gain or loss on
securities - 1,755
-----------------------------
Net realized and unrealized gain (loss) - 2,124
-----------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,387 $ 6,972
-----------------------------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
T. Rowe Price California Tax-Free Funds
- ---------------------------------------
Unaudited
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
In thousands Money Fund Bond Fund
6 Months Year 6 Months Year
Ended Ended Ended Ended
8/31/98 2/28/98 8/31/98 2/28/98
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 1,387 $ 2,545 $ 4,848 $ 8,911
Net realized gain (loss) - 13 369 1,067
Change in net unrealized
gain or loss - - 1,755 5,761
-----------------------------------------
Increase (decrease) in
net assets from operations 1,387 2,558 6,972 15,739
-----------------------------------------
Distributions to shareholders
Net investment income (1,387) (2,545) (4,848) (8,911)
Net realized gain - - (182) -
-----------------------------------------
Decrease in net assets from
distributions (1,387) (2,545) (5,030) (8,911)
-----------------------------------------
Capital share transactions*
Shares sold 47,645 86,397 26,102 47,467
Distributions reinvested 1,299 2,371 3,470 6,191
Shares redeemed (35,898) (78,585) (17,671) (26,199)
-----------------------------------------
Increase (decrease) in
net assets from capital
share transactions 13,046 10,183 11,901 27,459
-----------------------------------------
Net Assets
Increase (decrease)
during period 13,046 10,196 13,843 34,287
Beginning of period 92,406 82,210 195,100 160,813
-----------------------------------------
End of period $105,452 $ 92,406 $208,943 $195,100
-----------------------------------------
*Share information
Shares sold 47,645 86,397 2,411 4,460
Distributions reinvested 1,299 2,371 320 581
Shares redeemed (35,898) (78,585) (1,637) (2,466)
-----------------------------------------
Increase (decrease)
in shares outstanding 13,046 10,183 1,094 2,575
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
T. Rowe Price California Tax-Free Funds
- --------------------------------------------------------------------------------
Unaudited August 31, 1998
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price California Tax-Free Income Trust (the trust) is registered
under the Investment Company Act of 1940. The California Tax-Free Money Fund
(the Money Fund) and the California Tax-Free Bond Fund (the Bond Fund),
diversified, open-end management investment companies, are two of the
portfolios established by the trust and commenced operations on September
15, 1986.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
VALUATION Debt securities are generally traded in the over-the-counter
market. Except for securities held by the Money Fund, investments in
securities are stated at fair value as furnished by dealers who make markets
in such securities or by an independent pricing service, which considers
yield or price of bonds of comparable quality, coupon, maturity, and type,
as well as prices quoted by dealers who make markets in such securities.
Securities held by the Money Fund are valued at amortized cost.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of that fund, as authorized by the Board of Trustees.
PREMIUMS AND DISCOUNTS Premiums and original issue discounts on municipal
securities are amortized for both financial reporting and tax purposes.
Market discounts are recognized upon disposition of the security as gain or
loss for financial reporting purposes and as ordinary income for tax
purposes.
OTHER Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Distributions to shareholders are
recorded by each fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with
generally accepted accounting principles.
27
<PAGE>
T. Rowe Price California Tax-Free Funds
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities for the Bond Fund, other than
short-term securities, aggregated $50,574,000 and $33,055,000, respectively,
for the six months ended August 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since each fund intends to
continue to qualify as a regulated investment company and distribute all of
its income. The Money Fund has unused realized capital loss carryforwards for
federal income tax purposes of $93,000, all of which expires in 2003. The
Money Fund intends to retain gains realized in future periods that may be
offset by available capital loss carryforwards.
At August 31, 1998, the aggregate costs of investments for the Money and Bond
Funds for federal income tax and financial reporting purposes were
$106,060,000 and $191,477,000, respectively. For the Money Fund, amortized
cost is equivalent to value; and for the Bond Fund, net unrealized gain
aggregated $16,316,000, all of which was related to appreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $27,000 and $73,000 were payable at August 31, 1998 by the
Money and Bond Funds, respectively. The fee is computed daily and paid
monthly, and consists of an individual fund fee equal to 0.10% of average
daily net assets and a group fee. The group fee is based on the combined
assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At
August 31, 1998, and for the six months then ended, the effective annual
group fee rate was 0.32%. Each fund pays a pro-rata share of the group fee
based on the ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through February 28, 1999, which would cause
the Money Fund's ratio of expenses to average net assets to exceed 0.55%.
28
<PAGE>
T. Rowe Price California Tax-Free Funds
- --------------------------------------------------------------------------------
Pursuant to this agreement, $50,000 of management fees were not accrued by
the Money Fund for the six months ended August 31, 1998. In total, $149,000
remain subject to reimbursement through February 28, 2001, and an additional
$271,000 related to a previous expense limitation are subject to
reimbursement through February 28, 1999. Subject to shareholder approval, the
Money Fund may reimburse the manager for these expenses, provided that
average net assets have grown or expenses have declined sufficiently to allow
reimbursement without causing the fund's ratio of expenses to average net
assets to exceed 0.55%.
In addition, each fund has entered into agreements with the manager and a
wholly owned subsidiary of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of each fund. T. Rowe Price Services, Inc. is
each fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the funds. The Money and Bond Funds incurred
expenses pursuant to these related party agreements totaling approximately
$73,000 and $97,000, respectively, for the six months ended August 31, 1998,
of which $13,000 and $18,000, respectively, were payable at period-end.
29
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access/(R)/:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price California Tax-Free Funds.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor
