- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
California Tax-Free Funds
- --------------------------------------------------------------------------------
February 28, 1998
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REPORT HIGHLIGHTS
================================================================================
CALIFORNIA TAX-FREE FUNDS
* Municipal bonds performed well during the six and 12 months ended February
28, spurred by a low-inflation environment and credit upgrades.
* The California Tax-Free Money Fund's 6- and 12-month returns of 1.48% and
3.01%, respectively, narrowly surpassed its peer group average. The
California Tax-Free Bond Fund's returns of 5.22% and 9.31% for the same
periods exceeded its peer group average for the shorter period but not for
the year.
* The Money Fund's longer-than-average maturity strategy provided a
performance edge over the past six months.
* The Bond Fund's move to a longer duration helped it take advantage of last
fall's interest rate decline.
* Our outlook for the municipal market, including California securities,
remains positive, although we are prepared to see the state's economy
constrained somewhat by the recessions in Asia.
<PAGE>
FELLOW SHAREHOLDERS
Municipal bonds provided strong returns for the six months and year ended
February 28 as longer-term interest rates declined against a background of
subdued inflation. Money market rates fell over the past six months but were
little changed for the year as a whole. Because of their lower risk profiles,
most fixed income investments in the U.S. benefited from the jitters experienced
by worldwide stock markets in the wake of Southeast Asian currency and economic
crises.
MARKET ENVIRONMENT
During the six months ended February 28, 1998, municipal bond prices rose
and yields declined, with long-term AAA-rated bonds breaking below the 5% level.
Both the taxable and tax-free markets flourished in the positive environment of
continued low inflation. However, yields on tax-free securities fell less than
on comparable Treasury issues because of a sharp increase in supply. Municipal
issuance increased by 20% in 1997, and supply for 1998 is the highest ever for
the first two months of the year. As a result, Treasury securities outperformed
municipals for the past six months.
[Interest Rate Levels. A 2-line chart showing the T. Rowe Price index of
California bond and money market yields from 2/28/97 to 2/28/98]
Yields on long-term AAA municipal bonds fell about 27 basis points (100
basis points equal one percent) from the end of August, and California bonds
generally followed national trends. Intermediate yields fell in tandem with
long-term rates, but short-term rates fell less sharply. As a result, the yield
curve flattened throughout most of the past six months, except in late February
when long-term rates rose more than short-term rates. Yields on 6- and 12-month
tax-exempt securities closed the fiscal year at 3.50% and 3.60%, respectively,
20 to 25 basis points lower than on August 31 but only 5 to 10 basis points
below their close a year ago. All in all, the rate environment has been
remarkably docile for short maturities, with most of the movement to lower
yields occurring during the first two months of 1998.
The major influence on rates was, and continues to be, the lack of rising
inflationary pressures. At the end of 1997, consumer prices were rising at a
1.7% annual rate, the lowest since 1986. The economy grew at an impressive rate
of 3.8%, which led to improving credit quality in the municipal market and
strong gains by lower-quality bonds. With inflation low despite the robust
economy, the Federal Reserve left short-term interest rates unchanged after
raising the federal funds rate in March 1997.
<PAGE>
California's economy continued to expand in 1997, with employment and
personal income growing slightly faster than the national averages. The state's
financial outlook continued to improve, with healthy revenue gains and declining
health and welfare caseloads. Reflecting this, the rating agencies carry a
positive outlook for the state, and Fitch upgraded California general obligation
bonds from A+ to AA-. On the local scene, a notable event last year was the
return of Orange County debt to investment grade status. Looking forward, as the
nation's largest exporter with 50% of its exports going to Asia, California is
directly exposed to the current economic downturn in Southeast Asia and could
see its future growth rate trimmed as a result.
CALIFORNIA TAX-FREE MONEY FUND
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/98 6 Months 12 Months
- --------------------------------------------------------------------------------
California Tax-Free Money Fund 1.48% 3.01%
Lipper California Tax-Exempt
Money Market Funds Average 1.46 2.99
================================================================================
Your fund's returns were slightly higher than 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. The fund ended
its fiscal year with a weighted average maturity of 50 days, longer than that of
six or 12 months ago and six days longer than the peer group average. Our
increased holdings at the longer end of the yield curve provided an additional
yield pickup of 10 to 20 basis points on average.
We moved the fund to a longer-than-average maturity once the market had
waded through the large seasonal calendar of California offerings. This past
year, the state's annual short-term borrowing was delayed until early September,
when $3.0 billion of Revenue Anticipation Notes were marketed. Our longer
maturity posture was supported by a stable monetary policy and by strong flows
into the short tax-exempt sector, both nationally and in California. Tax-exempt
money fund assets rose almost $25 billion to a record $172.3 billion in 1997,
and California money fund assets climbed 20% to more than $21 billion. As
investors have been more willing to accept a lower rate of return for the
certainty of principal stability, money funds across the board have benefited.
Attesting to this, the assets of all money funds, tax-exempt and taxable,
surpassed the $l trillion milestone during 1997.
<PAGE>
CALIFORNIA TAX-FREE BOND FUND
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/98 6 Months 12 Months
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund 5.22% 9.31%
Lipper California Municipal
Debt Funds Average 5.06 9.37
================================================================================
The fund posted strong total returns for the past six months and year. In
each period, dividend income was augmented by appreciation, as the fund's share
price rose from $10.47 at the end of the preceding fiscal year to $10.88 at the
close of the most recent one. Six-month results compared favorably with the
Lipper peer group average while 12-month results were marginally lower.
We adopted a more aggressive maturity posture during the last six months,
extending duration from 7.1 to 7.7 years when interest rates rose temporarily in
August. (Duration measures a fund's sensitivity to interest rate changes. For
instance, a duration of seven years tells you that the fund's price would fall
or rise about 7% in response to a one percentage point increase or decrease in
interest levels.) This greater interest rate sensitivity helped fund performance
when interest rates subsequently fell in response to events in Asia. Toward the
close of the fiscal year in February, we shortened the portfolio to 7.2 years as
interest rates backed up in the face of heavy supply in the municipal market and
evidence of the economy's strength.
We modestly increased our holdings of lower-quality bonds (BBB and below)
from 4% to 6%, but in hindsight the fund would have benefited from a larger
commitment. Declining interest rates and the surge of credit-rating upgrades
boosted demand for lower-quality issues, which appreciated nicely as a result.
However, we were constrained by our own reluctance to purchase bonds with weak
fundamentals and by the high level of bond insurance in the California market,
which limits opportunities to participate in improving credits. At this point,
we do not expect lower-quality bonds to repeat their 1997 price performance, as
their yields have little room for further decline versus higher-rated issues. In
other words, their advantage is already unusually low relative to the additional
credit risk they represent. Nevertheless, we will continue to look for
opportunities.
Compared with six months ago, we have smaller commitments to prerefunded
bonds and housing finance revenue bonds, which typically do not perform as well
as some others in falling rate environments. During the past six months, we
increased holdings of bonds backed by dedicated taxes, such as Los Angeles
Metropolitan Transportation Authority debt, from 16% to 21% of net assets. Such
bonds are benefiting from California's strong economy.
<PAGE>
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off 1998
growth, but the so-called Asian flu does not appear serious enough to
precipitate an overall downturn while domestic consumer demand remains healthy.
Closer to home, our outlook on California continues to be positive, although we
are prepared to see some slowdown in growth triggered by its ties to Asian
trade.
Recent Congressional testimony from the Federal Reserve suggests that
monetary policy will not change in the near future, which is good news for the
bond market. Although municipal bonds have recently come under some pressure
from both heavy supply and the rise in Treasury yields, they produced good
results over the past 12 months. Compared with Treasuries on an after-tax basis,
yields on municipals remain attractive and could entice investors looking to
take advantage of their relative appeal. In summary, we anticipate slower
economic growth in 1998, continued low inflation, and a stable monetary policy,
all of which should be favorable for the bond market.
Respectfully submitted,
/s/
Patrice L. Berchtenbreiter
Chairman of the Investment Advisory Committee
California Tax-Free Money Fund
/s/
Mary J. Miller
Chairman of the Investment Advisory Committee
California Tax-Free Bond Fund
March 20, 1998
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
Key statistics
8/31/97 2/28/98
California Tax-Free Money Fund
Price Per Share .................................... $ 1.00 $ 1.00
Dividends Per Share
For 6 months ............................... 0.015 0.015
For 12 months .............................. 0.029 0.030
Dividend Yield (7-Day Compound) * .................. 2.80% 2.75%
Weighted Average Maturity (days) ................... 46 50
Weighted Average Quality ** ........................ First Tier First Tier
California Tax-Free Bond Fund
Price Per Share $ .................................. 10.60 $ 10.88
Dividends Per Share
For 6 months ............................... 0.27 0.27
For 12 months .............................. 0.55 0.54
Dividend Yield *
For 6 months ............................... 5.21% 5.07%
For 12 months .............................. 5.35 5.21
Weighted Average Maturity (years) .................. 17.3 17.0
Weighted Average Effective Duration (years) ........ 7.1 7.2
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.
================================================================================
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
Sector Diversification
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
California Tax-Free Money Fund
- --------------------------------------------------------------------------------
Hospital Revenue ....................................... 22% 19%
General Obligation - Local ............................. 10 12
General Obligation - State ............................. -- 11
Lease Revenue .......................................... 13 11
Water and Sewer Revenue 15 ............................. 10
Air and Sea Transportation Revenue ..................... 7 10
Nuclear Revenue 8 ...................................... 7
Prerefunded Bonds ...................................... 2 5
Electric Revenue ....................................... 6 5
Dedicated Tax Revenue .................................. 5 3
Pooled Loan Revenue .................................... 4 3
Industrial and Pollution Control Revenue ............... 4 3
All Other .............................................. 1 1
Other Assets Less Liabilities .......................... 3 --
- --------------------------------------------------------------------------------
Total .................................................. 100% 100%
California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
Dedicated Tax Revenue .................................. 16% 21%
Lease Revenue .......................................... 14 15
Water and Sewer Revenue 11 ............................. 10
Prerefunded Bonds ...................................... 9 8
Air and Sea Transportation Revenue ..................... 9 7
General Obligation - Local ............................. 7 6
Nuclear Revenue 6 ...................................... 6
Housing Finance Revenue 7 .............................. 6
Hospital Revenue ....................................... 5 5
Ground Transportation Revenue .......................... 1 3
Escrowed to Maturity ................................... 2 3
General Obligation - State ............................. 3 3
All Other .............................................. 8 8
Other Assets Less Liabilities .......................... 2 -1
- --------------------------------------------------------------------------------
Total .................................................. 100% 100%
================================================================================
<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 SEC graph shown here]
[California Tax-Free Bond Fund SEC graph shown 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 2/28/98 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
California Tax-Free Money Fund 3.01% 3.04% 2.72% 3.43%
California Tax-Free Bond Fund 9.31 8.39 6.39 7.62
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.
================================================================================
<PAGE>
<TABLE>
T. Rowe Price California Tax-Free Money Fund
====================================================================================================================================
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income ....... 0.030* 0.028* 0.032* 0.025* 0.019*
Distributions
Net investment income ....... (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
Ratios/Supplemental Data
Total return ........................ 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%*
Ratio of net investment
income to average
net assets .......................... 2.98%* 2.82%* 3.20%* 2.51%* 1.90%*
Net assets, end of period
(in thousands) ...................... $ 92,406 $ 82,210 $ 72,739 $ 76,289 $ 74,016
<FN>
* Excludes expenses in excess of a 0.55% voluntary expense limitation in effect through 2/28/99.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price California Tax-Free Bond Fund
====================================================================================================================================
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period .................... $ 10.47 $ 10.45 $ 10.00 $ 10.43 $ 10.65
Investment activities
Net investment income .......... 0.54 0.55 0.55 0.55* 0.56*
Net realized and
unrealized gain (loss) ......... 0.41 0.02 0.45 (0.41) 0.01
Total from
investment activities .......... 0.95 0.57 1.00 0.14 0.57
Distributions
Net investment income .......... (0.54) (0.55) (0.55) (0.55) (0.56)
Net realized gain .............. -- -- -- (0.02) (0.23)
Total distributions ............ (0.54) (0.55) (0.55) (0.57) (0.79)
NET ASSET VALUE
End of period .......................... $ 10.88 $ 10.47 $ 10.45 $ 10.00 $ 10.43
Ratios/Supplemental Data
Total return ........................... 9.31% 5.64% 10.28% 1.60%* 5.37%*
Ratio of expenses to
average net assets ..................... 0.58% 0.62% 0.63% 0.60%* 0.60%*
Ratio of net investment
income to average
net assets ............................. 5.09% 5.29% 5.40% 5.60%* 5.19%*
Portfolio turnover rate ................ 35.0% 47.3% 61.9% 78.0% 73.4%
Net assets, end of period
(in thousands) ......................... $ 195,100 $ 160,813 $ 146,194 $ 131,953 $ 151,936
<FN>
* Excludes expenses in excess of a 0.60% voluntary expense limitation in effect through 2/28/95.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price California Tax-Free Money Fund
================================================================================
February 28, 1998
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
In thousands
CALIFORNIA 91.4%
ABAG Fin. Auth. for Nonprofit, Packard Children's, COP
VRDN (Currently 3.00%) (AMBAC Insured) ..... $ 1,500 $ 1,500
Alameda County, GO, TRAN, 4.50%, 7/22/98 ................... 1,000 1,002
California, GO
VRDN (Currently 3.40%) (FGIC Insured) ...... 2,200 2,200
4.625%, 5/1/98 (AMBAC Insured) ............. 150 150
4.75%, 8/1/98 (AMBAC Insured) .............. 300 302
RAN, 4.50%, 6/30/98 ................................ 3,800 3,811
California EFA
California Institute of Technology
VRDN (Currently 2.90%) ..................... 500 500
Stanford Univ., VRDN (Currently 2.90%) ............. 500 500
California HFFA
Catholic Healthcare West
VRDN (Currently 3.00%) (MBIA Insured) ...... 4,100 4,100
Kaiser Permanente, VRDN (Currently 3.50%) .......... 1,100 1,100
Pooled Loan Program
VRDN (Currently 3.35%) (FGIC Insured) ...... 3,000 3,000
Santa Barbara Cottage Hosp .........................
VRDN (Currently 3.00%) ..................... 3,325 3,325
St. Joseph's Health, VRDN (Currently 3.65%) ........ 100 100
California Pollution Control Fin. Auth., PCR
Pacific Gas and Electric
VRDN (Currently 3.10%) * ................... 1,800 1,800
VRDN (Currently 3.20%) * ................... 600 600
Shell Oil, VRDN (Currently 3.40%) * ................ 2,300 2,300
California Statewide CDA
Chevron, VRDN (Currently 3.45%) * .................. 500 500
Kaiser Permanente, VRDN (Currently 3.50%) .......... 3,100 3,100
St. Joseph Health, VRDN (Currently 3.05%) .......... 2,300 2,300
Chula Vista IDA, San Diego Gas and Electric
VRDN (Currently 3.95%) * ................... 2,600 2,600
Contra Costa County, GO, TRAN, 4.50%, 7/1/98 ............... 350 351
Foothill Hosp., Morris L. Johnston Memorial Hosp ...........
8.50%, 6/1/98 (Escrowed to Maturity) ....... 200 203
Irvine Public Fac. and Infrastructure Auth .................
VRDN (Currently 2.95%) ..................... 3,345 3,345
Kern High School Dist., GO, TRAN, 4.50%, 8/20/98 ........... $ 1,000 $ 1,003
Kern High School Dist., Golden Empire School Fin. Auth .....
VRDN (Currently 3.40%) ..................... 1,100 1,100
<PAGE>
La Costa Water Dist.,
7.625%, 10/1/18 (Prerefunded 10/1/98+) ..... 500 522
Long Beach Harbor, TECP, 3.50 - 3.55%, 3/11 - 4/8/98 * ..... 3,100 3,100
Los Angeles County, GO
Pension Obligation
VRDN (Currently 3.00%) (AMBAC Insured) ..... 1,500 1,500
TRAN, 4.50%, 6/30/98 ............................... 2,900 2,906
Los Angeles County, Wastewater, TECP, 3.40%, 6/15 - 8/7/98 . 3,500 3,500
Los Angeles County Health
Olive View Medical, 9.00%, 4/1/98
(AMBAC Insured) (Escrowed to Maturity) ..... 50 50
Los Angeles County Metropolitan Transportation Auth ........
Sales Tax, VRDN (Currently 3.41%)
(AMBAC Insured) ............................ 2,000 2,000
Los Angeles County Unified School Dist .....................
Belmont Learning Complex, COP
VRDN (Currently 3.05%) ..................... 600 600
GO, TRAN, 4.50%, 7/1/98 ............................ 2,000 2,004
Metropolitan Water Dist. of Southern California
VRDN (Currently 2.90%) (AMBAC Insured) ..... 1,390 1,390
TECP, 3.40 - 3.70%, 3/9 - 8/7/98 ................... 2,400 2,400
MSR Public Power Agency, San Juan
VRDN (Currently 3.00%) (AMBAC Insured) ..... 1,000 1,000
Newport Beach, Hoag Memorial Hosp ..........................
VRDN (Currently 3.65%) ..................... 1,900 1,900
Northern California Public Power Agency
8.00%, 7/1/24 (Prerefunded 7/1/98+) ........ 505 512
Oakland, COP, VRDN (Currently 3.50%) ....................... 4,400 4,400
Orange County, Airport, 5.00%, 7/1/98 (MBIA Insured) * ..... 1,500 1,505
San Bernardino County
West Valley Detention Center
7.70%, 11/1/18 (Prerefunded 11/1/98+) ...... 250 262
San Diego County, GO, TRAN, 4.50%, 9/30/98 ................. 500 502
San Diego County Transport Commission, 5.00%, 4/1/98 ....... 1,000 1,001
San Diego County Water Auth., TECP, 3.25%, 3/26/98 ......... 1,000 1,000
San Francisco City and County Int'l. Airport, TECP
3.20 - 3.45%, 3/6 - 5/6/98 ................. $ 3,115 $ 3,115
3.25%, 4/7/98 * ............................ 1,005 1,005
San Jose/Santa Clara Water Fin. Auth .......................
VRDN (Currently 3.00%) ..................... 1,000 1,000
Santa Clara County, GO, TRAN, 4.75%, 10/1/98 ............... 1,500 1,508
Santa Clara/El Camino Hosp. Dist ...........................
Valley Medical Center, VRDN (Currently 2.85%) ...... 490 490
Southern California Public Power Auth ......................
VRDN (Currently 3.00%) (AMBAC Insured) ..... 3,500 3,500
VRDN (Currently 3.38%) (AMBAC Insured) ..... 1,000 1,000
Total California (Cost $84,464) ............................ 84,464
<PAGE>
PUERTO RICO 8.4%
Puerto Rico Aqueduct and Sewer Auth ......................
7.875%, 7/1/17 (Prerefunded 7/1/98+) ..... 1,875 1,938
Puerto Rico Commonwealth, GO, TRAN, 4.50%, 7/30/98 ....... 4,000 4,014
Puerto Rico Commonwealth
Highway and Transportation Auth ..................
8.125%, 7/1/13 (Prerefunded 7/1/98+) ..... 600 620
TRAN, 8.00%, 7/1/06 (Prerefunded 7/1/98+) ........ 50 52
Puerto Rico Electric Power Auth ..........................
8.00%, 7/1/08 (Prerefunded 7/1/98+) ...... 500 517
Puerto Rico Public Building Auth., Ed. and Health Fac ....
7.25%, 7/1/17 (Prerefunded 7/1/98+) ...... 170 175
Puerto Rico University, 6.50%, 6/1/13 (Prerefunded 6/1/98) 400 403
Total Puerto Rico (Cost $7,719) .......................... 7,719
Total Investments in Securities
99.8% of Net Assets (Cost $ 92,183) ...................... $92,183
Other Assets Less Liabilities ............................ 223
NET ASSETS ............................................... $ 92,406
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 92,498,366
no par value shares of beneficial
interest outstanding; unlimited number
of shares authorized ..................................... 92,494
NET ASSETS ............................................... $ 92,406
NET ASSET VALUE PER SHARE ................................ $ 1.00
* 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 RAN Revenue 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.
<PAGE>
T. Rowe Price California Tax-Free Bond Fund
================================================================================
February 28, 1998
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
In thousands
CALIFORNIA 99.5%
Alameda County, Public Fac., COP
6.00%, 9/1/21 (MBIA Insured) ............... $ 980 $1,057
Anaheim PFA, Public Improvements
5.00%, 9/1/27 (FSA Insured) ................ 2,435 2,373
Brea PFA, Tax Allocation, 6.75%, 8/1/22 (MBIA Insured) ..... 1,435 1,571
California, GO
5.25%, 10/1/20 ............................. 1,700 1,710
5.40%, 12/1/16 (FSA Insured) * ............. 1,000 1,015
6.40%, 2/1/20 * ............................ 2,200 2,249
6.50%, 2/1/08 .............................. 1,000 1,163
California Dept. of Water Resources
Central Valley
7.00%, 12/1/11 ............................. 1,730 2,146
7.00%, 12/1/12 ............................. 1,000 1,241
California EFA
Pooled College and Univ ............................
5.60%, 12/1/14 ............................. 1,000 1,037
5.60%, 12/1/20 ............................. 1,000 1,025
St. Mary's College of California
7.50%, 10/1/20 (Prerefunded 10/1/00+) ...... 2,000 2,218
California HFA, Hosp. Adventist
VRDN (Currently 3.60%) (MBIA Insured) ...... 1,000 1,000
California HFFA
Catholic Healthcare West
5.25%, 7/1/23 (AMBAC Insured) .............. 1,000 998
Pomona Valley Hosp .................................
5.75%, 7/1/15 (MBIA Insured) ............... 1,800 1,940
California Housing Fin. Agency
6.15%, 8/1/16 * ............................ 1,000 1,061
6.70%, 8/1/15 .............................. 1,100 1,167
6.70%, 8/1/25 * ............................ 935 1,000
6.85%, 8/1/17 .............................. 3,015 3,220
7.20%, 8/1/09 .............................. 225 236
7.25%, 8/1/10 .............................. 185 194
7.25%, 8/1/17 .............................. 1,000 1,080
7.625%, 8/1/09 ............................. 360 372
California Housing Fin. Agency
7.875%, 8/1/19 ............................. $ 365 $ 375
8.00%, 8/1/19 .............................. 175 180
<PAGE>
California Pollution Control Fin. Auth., PCR
Deutsche Bank, VRDN (Currently 3.60%) * ............ 1,800 1,800
Laidlaw Enviromental, 6.70%, 7/1/07 ................ 1,000 1,051
Pacific Gas and Electric
5.85%, 12/1/23 (MBIA Insured) * ............ 2,000 2,103
Shell Oil, VRDN (Currently 3.55%) * ................ 2,200 2,200
Southern California Edison
6.85%, 12/1/08 (AMBAC Insured) ............. 1,000 1,061
California Public Works Board
Dept. of Corrections
6.875%, 11/1/14 (Prerefunded 11/1/04+) ..... 1,000 1,173
Univ. of California
5.50%, 6/1/14 .............................. 2,000 2,147
6.40%, 12/1/16 (AMBAC Insured)
(Prerefunded 12/1/02+) ..................... 1,000 1,121
California Statewide CDA, COP
St. Joseph Health, 5.125%, 7/1/17 .................. 1,000 985
Sutter Health, 5.50%, 8/15/23 (MBIA Insured) ....... 2,000 2,046
Castaic Lake Water Agency
Water System Improvement, COP
7.00%, 8/1/12 (MBIA Insured) ............... 1,000 1,233
7.00%, 8/1/13 (MBIA Insured) ............... 1,700 2,102
Castaic Union School Dist., GO
Zero Coupon, 5/1/18 (FGIC Insured) ......... 5,175 1,822
Central Coast Water Auth., State Water Project Regional Fac
6.60%, 10/1/22 (AMBAC Insured)
(Prerefunded 10/1/02+) ..................... 1,000 1,126
Chula Vista IDA, San Diego Gas and Electric
VRDN (Currently 3.95%) * ................... 700 700
Contra Costa County, Merrithew Memorial Hosp., COP
5.375%, 11/1/17 (MBIA Insured) ............. 2,185 2,237
Contra Costa Water Dist ....................................
7.625%, 10/1/08 (Prerefunded 10/1/98+) ..... 500 522
Corona Redev. Agency, Tax Allocation
6.25%, 9/1/13 (FGIC Insured) ............... 1,000 1,112
Coronado CDA, Tax Allocation, 5.70%, 9/1/12 (FSA Insured) .. $1,000 $1,069
Dry Creek Joint Elementary School Dist., GO
Capital Appreciation
Zero Coupon, 8/1/13 (FSA Insured) .......... 1,300 604
Zero Coupon, 8/1/14 (FSA Insured) .......... 1,340 588
East Bay Municipal Utility Dist., Water Systems
6.00%, 6/1/12 (FSA Insured) ................ 2,000 2,151
Emeryville PFA, Housing Increment Loan, 6.20%, 9/1/25 ...... 1,000 1,058
Escondido, Multi-Family Housing
Terrace Gardens Apartments, 5.40%, 1/1/27 .......... 1,000 1,049
Fontana Redev. Agency, Jurupa Hills, 5.50%, 10/1/27 ........ 2,000 2,010
Foothill / Eastern Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/17 ........................ 4,000 1,452
Zero Coupon, 1/1/25 ........................ 700 165
<PAGE>
Fresno Joint Powers Fin. Auth, 5.75%, 9/2/98 ............... 300 301
Fresno Unified School Dist., GO
6.40%, 8/1/16 (MBIA Insured) ............... 1,000 1,167
6.55%, 8/1/20 (MBIA Insured) ............... 1,000 1,175
Inglewood Redev. Agency, Century Redev., 6.125%, 7/1/23 .... 2,800 2,930
Inland Empire Solid Waste Fin. Auth ........................
San Bernardino County Landfills
6.25%, 8/1/11 (FSA Insured) * .............. 1,000 1,147
Kern County Union High School Dist., GO
7.00%, 8/1/10 (MBIA Insured)
(Escrowed to Maturity) ..................... 1,000 1,237
Long Beach Harbor
6.00%, 5/15/17 (FGIC Insured) * ............ 1,000 1,116
7.25%, 5/15/19 * ........................... 2,500 2,569
Los Angeles City, Wastewater, 7.10%, 6/1/18 ................ 1,000 1,055
Los Angeles City Dept. of Water and Power, 6.40%, 5/15/28 .. 2,500 2,688
Los Angeles County
Civic Center Heating and Refrigerating Plant, COP
8.00%, 6/1/10 (Prerefunded 6/1/98+) ........ 500 516
Los Angeles County, GO
Marina del Rey, COP, 6.50%, 7/1/08 ......... 1,000 1,085
Los Angeles County Metropolitan Transportation Auth ........
Sales Tax
3.41%, 7/1/17 .............................. $2,225 $2,225
6.00%, 7/1/26 (MBIA Insured) ............... 2,000 2,161
7.40%, 7/1/15 .............................. 515 548
Los Angeles County Public Works Fin. Auth ..................
Multiple Capital Fac ...............................
5.125%, 6/1/17 (AMBAC Insured) ............. 4,000 4,016
5.125%, 12/1/17 (AMBAC Insured) ............ 1,500 1,507
Rowland Heights, 5.50%, 10/1/18 (FSA Insured) ...... 1,500 1,594
Los Angeles Harbor Dept ....................................
6.50%, 8/1/25 (Prerefunded 8/1/02+) ........ 1,000 1,116
6.625%, 8/1/19 * ........................... 2,500 2,743
7.60%, 10/1/18 (Escrowed to Maturity) ...... 3,000 3,813
Los Angeles Municipal Improvement, Central Library
6.35%, 6/1/20 .............................. 1,500 1,611
Metropolitan Water Dist. of Southern California
5.75%, 7/1/13 .............................. 2,600 2,787
Midpeninsula Regional Open Space Dist., Fin. Auth ..........
5.90%, 9/1/14 (AMBAC Insured) .............. 1,250 1,361
Modesto Irrigation Dist. Fin. Auth .........................
Domestic Water
4.75%, 9/1/22 (AMBAC Insured) .............. 1,500 1,417
Geysers, 6.00%, 10/1/15 (MBIA Insured) ............. 1,500 1,651
Mojave Water Agency, Morongo Basin
5.75%, 9/1/15 (FGIC Insured) ............... 2,000 2,161
Mountain View Shoreline Regional Park, Tax Allocation
5.50%, 8/1/21 (MBIA Insured) ............... 3,000 3,101
Mt. Diablo Hosp. Dist ......................................
8.00%, 12/1/11 (AMBAC Insured)
(Prerefunded 12/1/00+) ..................... 1,250 1,408
<PAGE>
Newport Beach, Hoag Memorial Hosp ..........................
VRDN (Currently 3.65%) ..................... 1,300 1,300
Oakland, COP, VRDN (Currently 3.50%) ....................... 2,000 2,000
Oakland, GO, 7.60%, 8/1/21 (FGIC Insured) .................. 3,500 3,626
Orange County
Juvenile Justice Center, COP
7.625%, 6/1/19 (Prerefunded 6/1/99+) ....... 1,750 1,866
Orange County
Recovery
6.00%, 6/1/10 (MBIA Insured) ............... $2,500 $2,825
COP, 6.00%, 7/1/26 (MBIA Insured) .......... 1,000 1,082
Orange County Local Transportation Auth., Sales Tax
6.00%, 2/15/09 (AMBAC Insured) ............. 750 849
Orange County PFA, Waste Management
5.75%, 12/1/09 (AMBAC Insured) * ........... 2,000 2,196
Orchard School Dist., GO, 6.50%, 8/1/19 (FGIC Insured) ..... 1,000 1,133
Pasadena Parking Fac., COP, 6.25%, 1/1/18 .................. 3,000 3,419
Placentia PFA, Special Tax, 6.60%, 9/1/15 .................. 1,000 1,043
Pomona Unified School Dist., GO
6.15%, 8/1/15 (MBIA Insured) ............... 1,000 1,158
Riverside County, Desert Justice Fac., COP
6.00%, 12/1/12 (MBIA Insured) .............. 1,000 1,092
Riverside County Asset Leasing
Riverside County Hosp ..............................
Zero Coupon, 6/1/20 (MBIA Insured) ......... 2,835 891
Sacramento City Fin. Auth., Lease, 5.00%, 11/1/14 .......... 2,000 2,027
Sacramento County Public Fac., Coroner Crime Lab., COP
6.375%, 10/1/14 (AMBAC Insured) ............ 1,000 1,118
Saddleback Valley Unified School Dist ......................
Special Tax
Zero Coupon, 9/1/19 (FSA Insured) .......... 2,370 774
6.00%, 9/1/15 (FSA Insured) ................ 1,375 1,558
San Bernardino County, West Valley Detention Center
7.70%, 11/1/18 (Prerefunded 11/1/98+) ...... 500 524
San Diego, IDR, San Diego Gas and Electric
6.40%, 9/1/18 (MBIA Insured) ............... 1,175 1,293
San Diego Community College Dist ...........................
6.125%, 12/1/16 (MBIA Insured) ............. 1,250 1,390
San Francisco Bay Area Rapid Transit
Sales Tax
5.25%, 7/1/18 .............................. 1,500 1,519
5.50%, 7/1/15 (FGIC Insured) ............... 1,800 1,884
San Francisco City and County
Int'l. Airport
5.625%, 5/1/21 (FGIC Insured) .............. 1,500 1,559
5.80%, 5/1/21 (FGIC Insured) * ............. 1,000 1,054
San Francisco City and County
Int'l. Airport
6.30%, 5/1/25 (FGIC Insured) * ............. $1,000 $1,083
6.50%, 5/1/18 (AMBAC Insured) * ............ 4,000 4,403
<PAGE>
San Joaquin Hills Transportation Corridor Agency
Toll Road
Zero Coupon, 1/15/14 (MBIA Insured) ........ 7,500 3,381
Zero Coupon, 1/15/15 (MBIA Insured) ........ 3,500 1,488
Zero Coupon, 1/1/25 ........................ 5,000 1,274
Santa Ana Housing Auth., Villa Del Sol Apartments
5.65%, 11/1/21 * ........................... 1,000 1,057
Santa Clara, Electric, 6.25%, 7/1/19 (MBIA Insured) ........ 2,000 2,156
Santa Clara County Fin. Auth., VMC Fac .....................
7.75%, 11/15/11 (AMBAC Insured) ............ 1,000 1,320
Santa Clara Redev. Agency, Bayshore North
7.00%, 7/1/10 (AMBAC Insured) .............. 3,000 3,647
Santa Margarita/Dana Point Auth ............................
7.25%, 8/1/10 (MBIA Insured) ............... 1,000 1,253
South Orange County PFA, 7.00%, 9/1/07 (MBIA Insured) ...... 2,000 2,418
Southern California Public Power Auth ......................
6.75%, 7/1/10 .............................. 2,100 2,497
6.75%, 7/1/12 .............................. 1,700 2,033
Stockton HFA, Dameron Hosp., 5.70%, 12/1/14 ................ 300 306
Torrance, Little Co. of Mary Hosp., 6.875%, 7/1/15 ......... 1,275 1,389
Tri City Hosp. Dist ........................................
7.50%, 2/1/17 (MBIA Insured)
(Prerefunded 2/1/02+) ...................... 2,000 2,283
Tulare County, Capital Improvement, COP
6.00%, 2/15/16 (MBIA Insured) .............. 1,000 1,079
Walnut Valley Unified School Dist., GO
7.20%, 2/1/16 (MBIA Insured) ............... 1,000 1,238
Total California (Cost $179,546) ........................... 194,006
PUERTO RICO 2.0%
Puerto Rico Electric Power Auth ............................
7.00%, 7/1/21 (Prerefunded 7/01/01+) ....... 1,000 1,111
Puerto Rico Highway and Transportation Auth., 5.00%, 7/1/38 3,000 2,850
Total Puerto Rico (Cost $3,860) ............................ 3,961
Total Investments in Securities
101.5% of Net Assets (Cost $183,406) ....................... $ 197,967
Other Assets Less Liabilities .............................. (2,867)
NET ASSETS ................................................. $ 195,100
Net Assets Consist of:
Accumulated net investment income -
net of distributions ....................................... $ 7
Accumulated net realized gain/loss -
net of distributions ....................................... (103)
Net unrealized gain (loss) ................................. 14,561
Paid-in-capital applicable to 17,939,049
no par shares of beneficial interest outstanding;
unlimited number of shares authorized ...................... 180,635
NET ASSETS ................................................. $ 195,100
NET ASSET VALUE PER SHARE .................................. $10.88
<PAGE>
* 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.
GO General Obligation
HFA Health Facility Authority
HFFA Health Facility Financing Authority
IDA Industrial Development Authority
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.
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands Money Fund Bond Fund
Year Year
Ended Ended
2/28/98 2/28/98
Investment Income
Interest income ......................................... $3,014 $ 9,925
Expenses
Investment management ........................... 263 744
Custody and accounting .......................... 93 104
Shareholder servicing ........................... 78 114
Legal and audit ................................. 11 10
Prospectus and shareholder reports .............. 10 16
Trustees ........................................ 6 7
Registration .................................... 4 14
Miscellaneous ................................... 4 5
Total expenses .................................. 469 1,014
Net investment income ................................... 2,545 8,911
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ...................................... 13 1,330
Futures ......................................... -- (263)
Net realized gain (loss) ........................ 13 1,067
Change in net unrealized gain or loss on securities ..... -- 5,761
Net realized and unrealized gain (loss) ................. 13 6,828
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS .................................. $2,558 $ 15,739
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price California Tax-Free Funds
====================================================================================================================================
====================================================================================================================================
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
In thousands Money Fund Bond Fund
Year Year
Ended Ended
2/28/98 2/28/97 2/28/98 2/28/97
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income ........................ $ 2,545 $ 2,134 $ 8,911 $ 7,940
Net realized gain (loss) ..................... 13 13 1,067 39
Change in net unrealized
gain or loss ................................. -- -- 5,761 323
Increase (decrease) in
net assets from operations ................... 2,558 2,147 15,739 8,302
Distributions to shareholders
Net investment income ........................ (2,545) (2,134) (8,911) (7,940)
Capital share transactions *
Shares sold .................................. 86,397 78,584 47,467 32,731
Distributions reinvested ..................... 2,371 1,995 6,191 5,523
Shares redeemed .............................. (78,585) (71,121) (26,199) (23,997)
Increase (decrease) in
net assets from capital
share transactions ........................... 10,183 9,458 27,459 14,257
Net Assets
Increase (decrease)
during period ........................................ 10,196 9,471 34,287 14,619
Beginning of period .................................. 82,210 72,739 160,813 146,194
End of period ........................................ $ 92,406 $ 82,210 $ 195,100 $ 160,813
*Share information
Shares sold .................................. 86,397 78,584 4,460 3,166
Distributions reinvested ..................... 2,371 1,995 581 535
Shares redeeemed ............................. (78,585) (71,121) (2,466) (2,328)
Increase (decrease)
in shares outstanding ........................ 10,183 9,458 2,575 1,373
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
February 28, 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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities for the Bond Fund, other than
short-term securities, aggregated $86,145,000 and $58,605,000, respectively, for
the year ended February 28, 1998.
<PAGE>
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 which expires in 2003. Capital loss
carryforwards utilized by the Money Fund in fiscal 1998 amounted to $12,000.
Capital loss carryforwards utilized by the Bond Fund in fiscal 1998 amounted to
$1,085,000. The Money Fund intends to retain gains realized in future periods
that may be offset by available capital loss carryforwards.
In order for the Bond Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended February 28, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
================================================================================
Undistributed net investment income $ 1,000
Undistributed net realized gain (2,000)
Paid-in-capital 1,000
At February 28, 1998, the aggregate costs of investments for the Money and
Bond Funds for federal income tax and financial reporting purposes were
$92,183,000 and $183,406,000, respectively. For the Money Fund, amortized cost
is equivalent to value; and for the Bond Fund, net unrealized gain aggregated
$14,561,000, of which $14,572,000 related to appreciated investments and $11,000
to depreciated 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 $21,000 and $63,000 were payable at February 28, 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 February 28, 1998, and for the
year 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.
<PAGE>
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%. Pursuant
to this agreement, $99,000 of management fees were not accrued by the Money Fund
for the year ended February 28, 1998. Additionally, $271,000 of unaccrued
management fees 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 $127,000 and
$162,000, respectively, for the year ended February 28, 1998, of which $10,000
and $14,000, respectively, were payable at period-end.
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
T. ROWE PRICE CALIFORNIA TAX-FREE FUNDS
We have audited the accompanying statement of net assets of T. Rowe Price
California Tax-Free Money Fund and T. Rowe Price California Tax-Free Bond Fund
(two of the portfolios comprising the T. Rowe Price California Tax-Free Income
Trust) as of February 28, 1998, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
February 28, 1998, by correspondence with the custodian and the brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price California Tax-Free Money Fund and T. Rowe Price California Tax-Free
Bond Fund as of February 28, 1998, the results of their operations, the changes
in their net assets, and financial highlights for each of the periods stated in
the first paragraph, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 18, 1998
<PAGE>
T. Rowe Price California Tax-Free Funds
================================================================================
================================================================================
Tax Information (Unaudited) for the Tax Year Ended 2/28/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Money Fund and Bond Fund's dividend income included $2,534,000 and
$8,805,000, respectively, which qualified as exempt-interest dividends.
================================================================================
<PAGE>
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE 1-800-225-5132 Available Monday through Friday from 8 a.m. to
10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
IN PERSON Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
CHECKING Available on most fixed income funds ($500 minimum).
AUTOMATIC INVESTING From your bank account or paycheck.
AUTOMATIC WITHDRAWAL Scheduled, automatic redemptions.
DISTRIBUTION OPTIONS Reinvest all, some, or none of your
distributions.
AUTOMATED 24-HOUR SERVICES Including Tele*AccessRegistration Mark and
T. Rowe Price OnLine.
DISCOUNT BROKERAGE*
INDIVIDUAL INVESTMENTS Stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
COMBINED STATEMENT Overview of your T. Rowe Price accounts.
SHAREHOLDER REPORTS Fund managers' reviews of their strategies and
results.
T. ROWE PRICE REPORT Quarterly investment newsletter discussing
markets and financial strategies.
PERFORMANCE UPDATE Quarterly review of all T. Rowe Price fund results.
INSIGHTS Educational reports on investment strategies and financial
markets.
INVESTMENT GUIDES Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning
Kit.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
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
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
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900 17th Street, N.W.
Washington, D.C. 20006
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31st Floor
515 South Flower St.
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10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. C05-050 2/28/98
