N-CSR 1 arvab.htm T. Rowe Price Virginia Tax-Free Bond Fund


Item 1: Report to Shareholders

T. Rowe Price Annual Report
 Virginia Tax-Free Bond Fund February 28, 2005

The views and opinions in this report were current as of February 28, 2005. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund’s future investment intent. The report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

REPORTS ON THE WEB

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Fellow Shareholders

Tax-free bonds produced generally positive returns and outperformed their taxable bond counterparts in the one-year period ended February 28, 2005. Most of the municipal market’s gains occurred in the last six months—a period characterized by rising short-term interest rates, steady economic growth, elevated oil prices, and an unexpected decline in long-term interest rates. In both periods, long-term and high-yield municipals fared better than short-term and investment-grade municipal securities, respectively. In line with the national trends, your fund generated modest gains for the year with the bulk of returns earned in the past six months.

ECONOMY AND INTEREST RATES

Twelve months ago, at the beginning of our fiscal year, the economy was growing vigorously, and the Federal Reserve prepared to begin unwinding at a “measured” pace the accommodative monetary policy that had prevailed for almost three years. From June 30, 2004, through the end of February 2005—and despite a brief period of uncertainty about the economic outlook related to geopolitical concerns, rising oil prices, and a tight presidential race—the central bank gradually lifted the federal funds target rate from 1.00% to 2.50%, a three-year high.


As shown in the graph, Virginia municipal yields declined after peaking in the spring of 2004—the opposite of what one would expect when the Fed is raising short-term rates. The result was that longer-term municipal securities outperformed short- and intermediate-term bonds in the last six months and for our entire fiscal year.

Nationally, new municipal supply in 2004 totaled $360 billion, approximately 6.3% below the previous year’s record $384 billion (according to The Bond Buyer). While still high from a historical perspective, the increased participation of property and casualty insurance companies and other nontraditional buyers of municipal securities easily absorbed supply, which reduced downward pressure on municipal bond prices. Many states have recovered nicely from the 2001 recession as higher-than-anticipated revenues, spending cuts, and fee increases have improved many states’ finances and reduced the need to borrow.

Local governments and school districts are also participating in the states’ recovery in that they are receiving more in assistance and transfers. The rise in housing prices over the last three years also benefited local governments since rising property assessments resulted in increased property tax receipts, which are localities’ primary revenue source. Broadly speaking, the outlook for public finance is brighter, though escalating pension and benefit costs may hinder further improvement.

VIRGINIA MARKET NEWS

Virginia has recovered well from the recession earlier in the decade, and the state’s finances reflect that improvement. The Commonwealth’s debt remains in the highest rating category from the three major credit agencies. Moody’s had placed the Commonwealth on “negative” watch (meaning it could be downgraded) in September 2003 but revised its outlook to stable in May 2004. T. Rowe Price analysts also rate Virginia debt at the highest possible level.

Historically, Virginia has demonstrated conservative financial management. Fiscal year 2004 (ended June 30) closed with an unreserved General Fund balance of $677.1 million, nearly 6% of total General Fund revenues. This represents a substantial recovery of unrestricted reserves, which dropped to only $70 million (less than 1% of GF revenues) at the end of fiscal year 2002. Total revenue sources exceeded expenses and uses by $555 million, representing the first time the Commonwealth posted a surplus since the 2000 fiscal year. The Commonwealth transferred a substantial amount of this money to its unrestricted reserves, an action that bondholders view favorably.

In calendar year 2004, Virginia municipalities issued $7.7 billion of debt, the 13th highest out of all states. Virginia’s debt burden has been low to moderate, but it is growing—according to Moody’s 2004 State Debt Medians report, Virginia ranked below average for both debt-per-capita (33rd among all states) and debt as a percentage of personal income (36th).

PERFORMANCE AND PORTFOLIO STRATEGY

The Virginia Tax-Free Bond Fund returned 2.38% during the second half of its fiscal year, reflecting $0.24 per share in dividends and a $0.03 increase in share price. Returns for the full year were only slightly higher due to the weak first six months. We are pleased to report that the fund outpaced its Lipper peer group average for both periods, as shown in the table. Yield curve position mattered more to the portfolio this reporting period, as our short positions lagged while our long positions performed well.

PERFORMANCE COMPARISON   
Periods Ended 2/28/05  6 Months  12 Months 
Virginia Tax-Free     
Bond Fund     2.38%         2.47% 
Lipper Virginia Municipal     
Debt Funds Average     1.93         1.97 

PORTFOLIO CHARACTERISTICS   
Periods Ended  8/31/04  2/28/05 
Price Per Share  $11.72  $11.75 
Dividends Per Share     
         For 6 months  0.25  0.24 
         For 12 months  0.49  0.49 
30-Day Dividend Yield *  4.21%  4.18% 
30-Day Standardized     
Yield to Maturity  3.21  3.13 
Weighted Average     
Maturity (years)  13.4  14.0 
Weighted Average     
Effective Duration (years)  5.2  5.1 
* Dividends earned for the last 30 days of each period indicated 
* are annualized and divided by the fund’s net asset value at 
* the end of the period.     

The fund benefited from our decision to concentrate new investment primarily in longer maturity bonds. We thought that the municipal yield curve was too steep by historical standards and would likely flatten, and we wanted to take advantage of the increase in yield available on the long end. As it happened, the yield curve did flatten as short-term rates rose and longer-term yields declined, and our best returns were in longer-maturity holdings. This strategy meant that the weighted average maturity of the portfolio lengthened a little, to 14.0 years from 13.4 years at the end of August. With yields holding near their lows and most long bonds trading to their call—rather than maturity—dates, overall duration and yields were little changed.

We targeted a conservative interest rate posture for much of the period. While we focused most new investment in long maturities, we offset this with a slightly higher level of cash and other short-maturity holdings to avoid increasing the portfolio’s overall interest rate sensitivity. This “barbell” structure worked well as the yield curve flattened.

We took advantage of our proprietary research to focus our new investment on higher-yielding credits, since we think an improving economy will help this segment sustain its recovery. We added selectively, however, as new issuance in this credit range was limited. Among our additions was a position in bonds backed by Celanese Corporation (Giles County) that are yielding nearly 6.50% . We will continue to look for similar higher-yielding positions that meet our stringent credit requirements. (Please see the portfolio of investments for a complete listing of the fund’s holdings and the amount each represents in the portfolio.)


PORTFOLIO DIVERSIFICATION   
  Percent of  Percent of 
  Net Assets  Net Assets 
Periods Ended  8/31/04  2/28/05 
Prerefunded Bonds  13.2%  18.0% 
Hospital Revenue  14.6  13.9 
Water and Sewer Revenue  6.5  10.4 
Lease Revenue  5.8  7.6 
Air and Sea Transportation Revenue 7.4  7.1 
Dedicated Tax Revenue  9.0  6.9 
General Obligation - Local  11.2  6.1 
Educational Revenue  5.8  5.1 
Housing Finance Revenue  4.5  4.1 
Ground Transportation Revenue  4.6  4.1 
All Other Sectors  16.4  16.3 
Other Assets Less Liabilities  1.0  0.4 
Total  100.0%  100.0% 
Historical weightings reflect current industry/sector 
classifications.     

OUTLOOK

While higher energy prices may dampen consumer spending, strong fundamentals support our outlook for sustained economic expansion. Because the Fed remains committed to removing monetary policy accommodation, interest rates along the yield curve are more likely to rise than fall, suggesting a more challenging bond market environment in the period ahead.

Although it may be time for renewed caution regarding fixed-income investments, we believe several factors are likely to temper a broad increase in interest rates. First, the current cyclical increase in inflation may be modest compared with previous inflationary periods, as forces that encourage price increases—such as dollar weakness and a tighter labor market—may be offset to some degree by forces that tend to restrain inflation, including productivity gains and intense global price competition. Second, reduced supply in a higher interest rate environment should lead to less refinancing issuance, less borrowing, and generally better fiscal conditions. Third, the greater transparency of the Federal Open Market Committee process, as evidenced by the earlier publication of Fed meeting minutes, may lessen the prospect for a surprise rate hike by the central bank and should help mitigate any overreaction to new economic data. Finally, given that the municipal yield curve remains somewhat steep, we believe that bonds with longer maturities still offer value to investors.

Thank you for your continued confidence in T. Rowe Price.

Respectfully submitted,

Hugh D. McGuirk

Chairman of the Investment Advisory Committee

March 21, 2005

The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund’s investment program.

RISKS OF INVESTING

As with all mutual funds, the share price can fall because of weakness in the markets, a particular industry, or specific holdings. Yield and share price will vary with interest rate changes. Investors should note that if interest rates rise significantly from current levels, the fund’s share price will decline and may even turn negative in the short term. There is also a chance that some of the fund’s holdings may have their credit rating downgraded or may default. The fund is less diversified than one investing nationally.

GLOSSARY

Average maturity: The weighted average of the stated maturity dates of the portfolio’s securities. In general, the longer the average maturity, the greater the fund’s sensitivity to interest rate changes. A shorter average maturity usually means less interest rate sensitivity and therefore a less volatile portfolio.

Basis point: One one-hundredth of one percentage point, or 0.01% .

Duration: The average time (expressed in years) it takes investors to receive the present value of the future cash flows on their investment. It is used to measure the sensitivity of bond prices to interest rate changes (the shorter the duration, the less the bond’s price will rise or fall in value when interest rates change). Duration is affected by maturity, the coupon, and the time interval between payments. Other things being equal, a bond with a higher coupon will have a shorter duration, while zero-coupon bonds have the longest.

Federal funds rate: The interest rate charged on overnight loans of reserves by one financial institution to another in the United States. The Federal Reserve sets a target federal funds rate to affect the direction of interest rates.

Investment grade: High-quality bonds as measured by one of the major credit rating agencies. For example, Standard & Poor’s designates the bonds in its top four categories (AAA to BBB) as investment grade.

Lipper averages: The averages of available mutual fund performance returns for specified time periods in defined categories as tracked by Lipper Inc.

Yield curve: A graph depicting the relationship between yields and maturity dates for a set of similar securities. These curves are in constant flux. One of the key activities in managing any fixed-income portfolio is to study trends reflected by comparative yield curves.

GROWTH OF $10,000 

This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.


AVERAGE ANNUAL COMPOUND TOTAL RETURN 

This table shows how the fund and its benchmarks would have performed each year if their actual (or cumulative) returns for the periods shown had been earned at a constant rate.

Periods Ended 2/28/05  1 Year  5 Years  10 Years 
Virginia Tax-Free Bond Fund  2.47%   6.99%   6.20% 
Lehman Brothers Municipal Bond Index  2.96   7.18   6.51 
Lipper Virginia Municipal Debt Funds Average  1.97   6.19   5.58 
Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of 
fund shares. Past performance cannot guarantee future results.       

FUND EXPENSE EXAMPLE 

As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs such as redemption fees or sales loads and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.

Actual Expenses

The first line of the following table (“Actual”) provides information about actual account values and actual expenses. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information on the second line of the table (“Hypothetical”) is based on hypothetical account values and expenses derived from the fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Note: T. Rowe Price charges an annual small-account maintenance fee of $10, generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $25,000 or more, accounts employing automatic investing, and IRAs and other retirement plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although a separate custodial or administrative fee may apply to such accounts). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds.

You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.

T. ROWE PRICE VIRGINIA TAX-FREE BOND FUND   
 
  Beginning  Ending  Expenses Paid 
  Account Value  Account Value  During Period* 
  9/1/2004  2/28/2005  9/1/04 to 2/28/05 
Actual  $1,000.00  $1,023.80  $2.56 
Hypothetical (assumes 5%       
return before expenses)  1,000.00  1,022.27  2.56 
* Expenses are equal to the fund’s annualized expense ratio for the six-month period (0.51%), multi- 
 plied by the average account value over the period, multiplied by the number of days in most recent 
 fiscal half year (181) divided by the days in the year (365) to reflect the half-year period. 

QUARTER-END RETURNS       
 
             Periods Ended 12/31/04  1 Year  5 Years  10 Years 
 
             Virginia Tax-Free Bond Fund  4.03%   7.07%  6.70% 
             Lehman Brothers Municipal Bond Index  4.48   7.20  7.06 
             Lipper Virginia Municipal Debt Funds Average  3.52   6.20  6.20 
 
           Current performance may be higher or lower than the quoted past performance, which cannot 
           guarantee future results. Share price, principal value, and return will vary, and you may have 
           a gain or loss when you sell your shares. For the most recent month-end performance infor- 
           mation, please visit our Web site (troweprice.com) or contact a T. Rowe Price representative 
           at 1-800-225-5132.       
           This table provides returns net of all expenses through the most recent calendar quarter-end rather than 
           through the end of the fund’s fiscal period. Average annual total returns include changes in principal 
           value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the share- 
           holder may pay on fund distributions or the redemption of fund shares.     

FINANCIAL HIGHLIGHTS        For a share outstanding throughout each period 
 
    Year                 
    Ended                 
    2/28/05**    2/29/04    2/28/03    2/28/02    2/28/01 
NET ASSET VALUE                     
Beginning of period  $  11.96  $  11.80  $  11.43  $  11.26  $  10.55 
 
Investment activities                     
 Net investment income (loss)    0.49    0.49    0.52    0.53    0.56 
 Net realized and                     
 unrealized gain (loss)    (0.21)    0.21    0.37    0.17    0.71 
 Total from                     
 investment activities    0.28    0.70    0.89    0.70    1.27 
 
Distributions                     
 Net investment income    (0.49)    (0.49)    (0.52)    (0.53)    (0.56) 
 Net realized gain    –    (0.05)    –    –    – 
 Total distributions    (0.49)    (0.54)    (0.52)    (0.53)    (0.56) 
 
NET ASSET VALUE                     
End of period  $  11.75  $  11.96  $  11.80  $  11.43  $  11.26 
 
 
Ratios/Supplemental Data                     
Total return^    2.47%    6.10%    7.94%    6.40%    12.30% 
Ratio of total expenses to                     
average net assets    0.51%    0.52%    0.52%    0.53%    0.54% 
Ratio of net investment                     
income (loss) to average                     
net assets    4.22%    4.19%    4.49%    4.73%    5.10% 
Portfolio turnover rate    26.5%    29.2%    33.5%    47.1%    38.1% 
Net assets, end of period                     
(in thousands)  $ 441,924  $ 425,000  $ 406,811  $ 361,819  $ 318,387 

^ 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. 
** Per share amounts calculated using average shares outstanding method. 
 
 
The accompanying notes are an integral part of these financial statements. 

 PORTFOLIO OF INVESTMENTS (1)  $ Par  Value 
(Amounts in 000s)     
 
VIRGINIA 88.6%     
Abingdon IDA, Johnston Memorial Hosp., 5.25%, 7/1/16  1,500  1,569 
Albemarle County IDA     
       Martha Jefferson Hosp.     
               5.25%, 10/1/17  2,430  2,599 
               5.25%, 10/1/35  1,000  1,028 
Alexandria, GO     
               5.50%, 6/15/19 (Prerefunded 6/15/10†)  2,230  2,509 
               5.75%, 6/15/20 (Prerefunded 6/15/10†)  2,980  3,390 
Alexandria IDA     
       Episcopal High School     
               5.00%, 1/1/33  4,600  4,777 
               5.875%, 1/1/23  1,250  1,347 
               6.00%, 1/1/17  1,060  1,150 
Amelia County IDA, Waste Management, 4.90%, 4/1/27     
(Tender 4/1/05) #  2,000  2,003 
Arlington County, GO, Public Improvement, 5.00%, 2/1/21  1,415  1,511 
Arlington County IDA     
       The Nature Conservancy     
               5.40%, 7/1/17 (Prerefunded 7/1/07†)  1,815  1,963 
               5.45%, 7/1/27 (Prerefunded 7/1/07†)  2,610  2,826 
       Virginia Hosp. Center     
               5.50%, 7/1/15  1,465  1,585 
               5.50%, 7/1/16  4,555  4,924 
               5.50%, 7/1/17  820  883 
               5.50%, 7/1/18  1,000  1,068 
       Waste Management, 5.25%, 1/1/10 (FSA Insured) #  1,655  1,764 
Bedford County IDA, Georgia-Pacific, 5.60%, 12/1/25 #  1,715  1,709 
Bristol     
               5.25%, 7/15/26 (MBIA Insured)  5,325  5,747 
               5.75%, 7/15/13 (FSA Insured) (Escrowed to Maturity)  1,045  1,211 
Charles City County IDA, IDRB     
       Waste Management     
               4.875%, 2/1/09 #  3,350  3,477 
               6.25%, 4/1/27 (Tender 4/1/12) #  750  836 
Chesapeake Bay Bridge & Tunnel Dist., 5.50%, 7/1/25 (MBIA Insured)  2,400  2,791 
Chesapeake Toll Road     
             5.625%, 7/15/19  1,250  1,340 
             5.625%, 7/15/32  1,500  1,572 
Dinwiddie County IDA, 5.00%, 2/15/34 (MBIA Insured)  5,555  5,770 
Fairfax, GO, 5.00%, 1/15/30  2,000  2,098 
Fairfax County, COP, 6.10%, 4/15/32  3,055  3,516 
Fairfax County Economic Dev. Auth.     
     National Wildlife Federation, 5.25%, 9/1/17     
     (MBIA Insured)  2,000  2,186 
     Route 28, 5.00%, 4/1/33 (MBIA Insured)  6,000  6,244 
     Vienna II Metrorail     
             6.00%, 9/1/19  1,975  2,241 
             6.00%, 9/1/20  2,090  2,369 
Fairfax County Water Auth.     
             5.80%, 1/1/16 (Escrowed to Maturity)  6,045  6,768 
             6.00%, 4/1/15 (Prerefunded 4/1/10†)  1,140  1,305 
             6.00%, 4/1/22  8,725  9,441 
Fredericksburg IDA     
     Medicorp Health Systems     
             5.00%, 8/15/07  1,730  1,807 
             5.00%, 8/15/09  1,000  1,062 
             5.25%, 6/15/16 (AMBAC Insured)  3,350  3,571 
Front Royal & Warren County IDA, 5.00%, 4/1/35 (FSA Insured)  6,650  6,911 
Giles County IDA, PCR     
     Celanese Americas     
             5.95%, 12/1/25 #  1,610  1,596 
             6.625%, 12/1/22 #  1,485  1,491 
Greater Richmond Convention Center     
6.125%, 6/15/29 (Prerefunded 6/15/10†)  4,585  5,162 
Halifax County IDA     
     Halifax Regional Long-Term Care, 5.625%, 7/1/12  1,585  1,474 
     Old Dominion Electric Cooperative, 5.625%, 6/1/28     
     (AMBAC Insured) #  2,955  3,235 
Hampton IDA, Sentara Health System, 5.375%, 11/1/15  5,300  5,575 
Hanover County IDA, Bon Secours Health System, 6.50%, 8/15/10     
(MBIA Insured)  1,300  1,500 
Henrico County Economic Dev. Auth.     
     Bon Secours Health System, 5.60%, 11/15/30  4,300  4,513 
     Henrico Jail, 6.125%, 11/1/19  2,000  2,289 
     Virginia United Methodist Homes, 6.70%, 6/1/27  2,000  2,093 
Henrico County IDA     
     Bon Secours Health System     
             6.00%, 8/15/16 (MBIA Insured)  865  1,009 
             6.25%, 8/15/20 (MBIA Insured)  1,750  2,157 
     Henrico Jail     
             6.00%, 8/1/15 (Prerefunded 8/1/05†)  2,415  2,454 
             7.00%, 8/1/13 (Prerefunded 8/1/05†)  1,485  1,544 
Henry County IDA, Virginia Memorial Hosp., 6.00%, 1/1/27     
(Prerefunded 1/1/07†)  3,250  3,478 
Isle of Wight, GO, 5.00%, 7/1/23 (AMBAC Insured)  1,670  1,775 
Isle of Wight IDA, IDRB     
     Int'l. Paper     
             6.10%, 5/1/27 #  2,000  2,057 
             6.55%, 4/1/24 #  4,250  4,350 
James City & County IDA, Williamsburg Landing, 6.125%, 3/1/32  2,000  2,090 
Lexington IDA, Stonewall Jackson Hosp., 7.00%, 7/1/30  2,295  2,191 
Loudoun County     
             5.25%, 1/1/18 (Prerefunded 1/1/10†)  2,525  2,798 
             5.25%, 5/1/21 (Prerefunded 5/1/12†)  1,755  1,962 
             5.75%, 12/1/18 (Prerefunded 12/1/09†)  1,685  1,904 
Loudoun County, GO     
             5.25%, 1/1/19 (Prerefunded 1/1/10†)  1,650  1,829 
             5.25%, 1/1/20 (Prerefunded 1/1/10†)  2,650  2,937 
             5.25%, 5/1/21  370  406 
             5.375%, 1/1/14 (Prerefunded 1/1/10†)  1,650  1,838 
Loudoun County IDA     
     Falcons Landing, 6.00%, 8/1/24  2,750  2,844 
     Howard Hughes Medical Institute     
             VRDN (Currently 1.80%)  3,600  3,600 
             VRDN (Currently 1.84%)  2,000  2,000 
             VRDN (Currently 1.88%)  1,400  1,400 
     Loudoun Hosp. Center, 6.10%, 6/1/32  1,250  1,354 
Loudoun County Sanitation Auth.     
     Water & Sewer     
             5.00%, 1/1/29  1,500  1,567 
             5.00%, 1/1/33  4,000  4,177 
Lynchburg, GO, Public Improvement, 5.00%, 2/1/09  1,360  1,464 
Newport News, GO, 5.50%, 7/1/12 (Prerefunded 7/1/05†)     
(MBIA Insured)  2,000  2,062 
Norfolk Airport Auth.     
             5.375%, 7/1/16 (FGIC Insured)  1,675  1,849 
             5.375%, 7/1/16 (FGIC Insured) #  1,650  1,778 
             5.375%, 7/1/17 (FGIC Insured) #  1,600  1,722 
Norfolk IDA, Childrens Hosp. of the King's Daughters     
VRDN (Currently 1.87%)  990  990 
Orange County IDA, 5.00%, 2/1/25 (AMBAC Insured)  1,750  1,834 
Peninsula Airport Commission, GO     
     Newport News     
             5.25%, 7/15/12 #  1,200  1,307 
             5.375%, 7/15/15 #  1,080  1,168 
             5.50%, 7/15/21 #  1,385  1,498 
Pocahontas Parkway Assoc.     
             Zero Coupon, 8/15/09  1,000  672 
             Zero Coupon, 8/15/18  1,550  558 
Portsmouth, GO, Public Improvement, 5.50%, 6/1/15 (FGIC Insured)  965  1,037 
Portsmouth, Public Improvement, 5.50%, 6/1/15     
(Prerefunded 6/1/08†) (FGIC Insured)  2,515  2,729 
Powhatan County Economic Dev. Auth., 5.25%, 7/15/25     
(AMBAC Insured)  1,525  1,645 
Prince William County IDA, Potomac Hosp., 5.50%, 10/1/20  1,120  1,217 
Prince William County Park Auth., 5.875%, 10/15/19 ++  4,135  4,461 
Prince William County Service Auth., 5.00%, 7/1/21  3,110  3,344 
Richmond, GO     
             5.50%, 7/15/10 (FGIC Insured)  3,265  3,648 
             5.50%, 1/15/16 (FSA Insured)  5,000  5,571 
Richmond IDA, Virginia Historical Society, VRDN (Currently 1.87%)  1,655  1,655 
Richmond Metropolitan Auth., 5.25%, 7/15/22 (FGIC Insured)  8,475  9,621 
Richmond Public Utilities     
             5.00%, 1/15/27 (FSA Insured)  2,000  2,105 
             5.00%, 1/15/35 (FSA Insured)  4,000  4,174 
Riverside Regional Jail Auth., 5.875%, 7/1/14 (Prerefunded 7/1/05†)     
(MBIA Insured)  4,000  4,130 
Roanoke, GO     
     Public Improvement     
             6.00%, 10/1/17 (Prerefunded 10/1/09†)  500  573 
             6.00%, 10/1/19 (Prerefunded 10/1/09†)  4,810  5,513 
Roanoke IDA     
     Carilion Health System     
             VRDN (Currently 1.80%)  2,700  2,700 
             5.50%, 7/1/20 (MBIA Insured)  2,000  2,178 
             5.50%, 7/1/21 (MBIA Insured)  1,670  1,816 
             5.75%, 7/1/13 (MBIA Insured)  2,375  2,674 
             6.125%, 7/1/17 (MBIA Insured)  7,205  8,603 
Spotsylvania County IDA, School Fac., 5.00%, 8/1/28     
(AMBAC Insured)  2,500  2,610 
Spotsylvania County Water & Sewer Systems     
             5.00%, 6/1/21 (FSA Insured)  2,220  2,386 
             5.00%, 6/1/26 (FSA Insured)  1,000  1,056 
             5.00%, 6/1/35 (FSA Insured)  5,200  5,415 
Staunton, GO     
             6.25%, 2/1/25 (AMBAC Insured)  1,000  1,194 
             6.25%, 2/1/34 (AMBAC Insured)  1,250  1,481 
Univ. of Virginia, 5.25%, 6/1/13  3,880  4,248 
Virginia, GO, 5.00%, 6/1/10  3,585  3,920 
Virginia Beach Dev. Auth.     
     Sentara Health System     
             5.25%, 11/1/14  500  531 
             6.00%, 2/15/10 (AMBAC Insured)  2,000  2,244 
     Westminster-Canterbury Of Hampton Roads, 7.25%, 11/1/32  1,500  1,596 
Virginia Beach Water & Sewer, 5.00%, 10/1/21  1,910  2,030 
Virginia College Building Auth.     
     21st Century College, 5.25%, 2/1/18  1,000  1,101 
     Washington & Lee Univ., 5.75%, 1/1/34  5,000  6,087 
Virginia Commonwealth Univ., 5.75%, 5/1/15 (Prerefunded 5/1/05†)  3,000  3,079 
Virginia HDA     
     Multi-Family     
             5.45%, 2/1/12 #  1,150  1,206 
             5.50%, 2/1/13 #  1,175  1,232 
             5.50%, 5/1/13 #  1,000  1,048 
             5.60%, 11/1/18  5,160  5,448 
             5.60%, 3/1/25 (MBIA Insured) #  4,245  4,425 
             5.75%, 4/1/15  980  1,047 
     Single Family, 5.20%, 7/1/19 (MBIA Insured)  1,845  1,875 
Virginia Polytechnic Institute & State Univ.     
             5.125%, 6/1/22 (AMBAC Insured)  2,205  2,402 
             5.125%, 6/1/23 (AMBAC Insured)  2,320  2,518 
             5.40%, 6/1/11 (Prerefunded 6/1/06†)  1,000  1,055 
             5.50%, 6/1/16 (Prerefunded 6/1/06†)  3,000  3,170 
             5.50%, 6/1/20 (Prerefunded 6/1/06†)  1,600  1,691 
Virginia Port Auth.     
             5.00%, 7/1/19 #  4,415  4,663 
             5.50%, 7/1/07 #  3,500  3,718 
             5.50%, 7/1/11 #  2,270  2,362 
Virginia Public Building Auth., 5.50%, 8/1/15 (Prerefunded 8/1/10†)  4,190  4,682 
Virginia Public School Auth., 6.50%, 8/1/16 (Prerefunded 8/1/05†)  2,890  3,000 
Virginia Public School Auth., GO, 5.00%, 8/1/12  2,500  2,747 
Virginia Resources Auth.     
     Clean Water Revolving Fund     
             5.00%, 10/1/23  1,250  1,336 
             5.625%, 10/1/22  1,450  1,613 
             5.875%, 10/1/14  4,075  4,627 
     Hopewell Wastewater, 5.75%, 10/1/21 #  1,335  1,447 
Virginia Transportation Board     
             5.70%, 5/15/19 (Prerefunded 5/15/09†)  1,000  1,118 
     Oak Grove Connector, 5.25%, 5/15/22  1,485  1,563 
     Route 58     
             5.125%, 5/15/16 (Prerefunded 5/15/06†)  3,500  3,645 
             5.25%, 5/15/16 (Prerefunded 5/15/09†)  5,000  5,499 
Washington County IDA, 6.25%, 7/1/06 (Prerefunded 7/1/05†)  875  900 
York County, Water & Sewer, 5.875%, 6/1/24  1,000  1,113 
York County IDA, Virginia Electric & Power, 5.50%, 7/1/09  1,500  1,580 
Total Virginia (Cost $370,646)    391,521 
 
DISTRICT OF COLUMBIA 6.3%     
Metropolitan Washington D.C. Airports Auth.     
             5.00%, 10/1/34 (FSA Insured) #  5,450  5,559 
             5.25%, 10/1/12 (MBIA Insured) #  4,220  4,500 
             5.25%, 10/1/32 (FGIC Insured)  1,565  1,650 
             5.25%, 10/1/32 (FGIC Insured) #  2,500  2,600 
             5.50%, 10/1/27 (MBIA Insured) #  4,230  4,450 
             5.75%, 10/1/19 (FGIC Insured) #  4,040  4,493 
Washington Metropolitan D.C. Area Transit Auth., 5.00%, 7/1/12     
(MBIA Insured)  4,000  4,413 
Total District of Columbia (Cost $26,832)    27,665 
 
PUERTO RICO 4.5%     
Puerto Rico Electric Power Auth.     
             5.00%, 7/1/06  1,000  1,031 
             5.00%, 7/1/08  1,000  1,063 
Puerto Rico Highway & Transportation Auth.     
             5.00%, 7/1/33 (MBIA Insured)  3,000  3,131 
             5.50%, 7/1/15 (FSA Insured)  2,000  2,307 
             5.50%, 7/1/18  1,000  1,047 
             6.00%, 7/1/31 (Prerefunded 7/1/10†)  1,000  1,145 
             6.25%, 7/1/14  110  130 
             6.25%, 7/1/14 (Escrowed to Maturity)  1,390  1,680 
             6.50%, 7/1/27 (Prerefunded 7/1/10†)  2,470  2,888 
Puerto Rico Housing Fin. Auth., 5.00%, 12/1/20  2,000  2,115 
Puerto Rico Public Fin. Corp., 5.25%, 8/1/29 (Tender 2/1/12)     
(MBIA Insured)  3,000  3,312 
Total Puerto Rico (Cost $18,333)    19,849 
 
U. S. VIRGIN ISLANDS 0.2%     
Virgin Islands PFA, Hovensa Refinery, 6.125%, 7/1/22 #  1,000  1,073 
Total U. S. Virgin Islands (Cost $1,000)    1,073 
 
FUTURES CONTRACTS 0%     
Variation margin receivable (payable) on open futures contracts (2)    37 
Total Futures Contracts    37 
Total Investments in Securities     
99.6% of Net Assets (Cost $416,811)  $  440,145 

(1)  Denominated in U.S. dollars unless other- 
  wise noted 
#  Interest subject to alternative minimum tax 
++  All or a portion of this security is pledged to 
  cover margin requirements on futures con- 
  tracts at February 28, 2005. 
†  Used in determining portfolio maturity 
AMBAC  AMBAC Assurance Corp. 
COP  Certificates of Participation 
FGIC  Financial Guaranty Insurance Company 
FSA  Financial Security Assurance Inc. 
GO  General Obligation 
HDA  Housing Development Authority 
IDA  Industrial Development Authority/Agency 
IDRB  Industrial Development Revenue Bond 
MBIA  MBIA Insurance Corp. 
PCR  Pollution Control Revenue 
PFA  Public Finance Authority 
VRDN  Variable-Rate Demand Note; rate shown is 
  effective rate at period-end 

(2) Open Futures Contracts at February 28, 2005 were as follows:     
($ 000s)           
      Contract    Unrealized 
  Expiration     Value    Gain (Loss) 
Short, 70 U.S. Treasury Notes 10 year           
contracts, $125 par of 5.875% Prince           
William County Park Auth. bonds pledged           
as initial margin  3/05  $       (7,761)  $  107 
Net payments (receipts) of variation           
margin to date          (70) 
Variation margin receivable (payable)           
on open futures contracts        $  37 

STATEMENT OF ASSETS AND LIABILITIES     
(In thousands except shares and per share amounts)     
           Assets     
           Investments in securities, at value (cost $416,811)  $  440,145 
           Cash    11 
           Interest receivable    5,163 
           Receivable for investment securities sold    2,184 
           Receivable for shares sold    488 
           Other assets    5 
           Total assets    447,996 
 
           Liabilities     
           Investment management fees payable    140 
           Payable for investment securities purchased    5,073 
           Payable for shares redeemed    394 
           Due to affiliates    17 
           Other liabilities    448 
           Total liabilities    6,072 
 
           NET ASSETS  $  441,924 
           Net Assets Consist of:     
           Undistributed net investment income (loss)  $  236 
           Undistributed net realized gain (loss)    (1,201) 
           Net unrealized gain (loss)    23,404 
           Paid-in-capital applicable to 37,621,820 no par     
           value shares of beneficial interest outstanding;     
           unlimited number of shares authorized    419,485 
 
           NET ASSETS  $  441,924 
 
           NET ASSET VALUE PER SHARE  $  11.75 

The accompanying notes are an integral part of these financial statements.

STATEMENT OF OPERATIONS     
($ 000s)     
    Year 
    Ended 
    2/28/05 
           Investment Income (Loss)     
           Interest income  $  19,991 
           Expenses     
               Investment management    1,747 
               Shareholder servicing    224 
               Custody and accounting    124 
               Prospectus and shareholder reports    37 
               Legal and audit    15 
               Trustees    6 
               Registration    4 
               Proxy and annual meeting    1 
               Miscellaneous    12 
               Total expenses    2,170 
               Expenses paid indirectly    (2) 
               Net expenses    2,168 
           Net investment income (loss)    17,823 
 
           Realized and Unrealized Gain (Loss)     
           Net realized gain (loss)     
               Securities    (440) 
               Futures    (39) 
               Written options    22 
               Net realized gain (loss)    (457) 
           Change in net unrealized gain (loss)     
               Securities    (7,491) 
               Futures    107 
               Change in net unrealized gain (loss)    (7,384) 
           Net realized and unrealized gain (loss)    (7,841) 
 
           INCREASE (DECREASE) IN NET     
           ASSETS FROM OPERATIONS  $  9,982 

The accompanying notes are an integral part of these financial statements.

STATEMENT OF CHANGES IN NET ASSETS         
($ 000s)         
    Year     
    Ended     
    2/28/05    2/29/04 
 
           Increase (Decrease) in Net Assets         
           Operations         
               Net investment income (loss)  $  17,823  $  17,140 
               Net realized gain (loss)    (457)    1,265 
               Change in net unrealized gain (loss)    (7,384)    5,783 
               Increase (decrease) in net assets from operations    9,982    24,188 
 
           Distributions to shareholders         
               Net investment income    (17,776)    (17,098) 
               Net realized gain    –    (1,738) 
               Decrease in net assets from distributions    (17,776)    (18,836) 
 
           Capital share transactions *         
               Shares sold    71,285    75,688 
               Distributions reinvested    13,088    13,966 
               Shares redeemed    (59,655)    (76,817) 
               Increase (decrease) in net assets from capital         
               share transactions    24,718    12,837 
 
           Net Assets         
           Increase (decrease) during period    16,924    18,189 
           Beginning of period    425,000    406,811 
 
           End of period  $  441,924  $  425,000 
           (Including undistributed net investment income of $236         
           at 2/28/05 and $192 at 2/29/04)         
 
         *Share information         
               Shares sold    6,085    6,415 
               Distributions reinvested    1,121    1,186 
               Shares redeemed    (5,121)    (6,533) 
               Increase (decrease) in shares outstanding    2,085    1,068 

The accompanying notes are an integral part of these financial statements.

NOTES TO FINANCIAL STATEMENTS 

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

T. Rowe Price State Tax-Free Income Trust (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act). The Virginia Tax-Free Bond Fund (the fund), a nondiversified, open-end management investment company, is one portfolio established by the trust. The fund commenced operations on April 30, 1991. The fund seeks to provide, consistent with prudent portfolio management, the highest level of income exempt from federal and Virginia state income taxes by investing primarily in investment-grade Virginia municipal bonds.

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management.

Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Debt securities are generally traded in the over-the-counter market. Securities are valued at prices 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.

Options on futures contracts are valued at the last sale price. Financial futures contracts are valued at closing settlement prices.

Other investments, including restricted securities, and those 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 the T. Rowe Price Valuation Committee, established by the fund’s Board of Trustees.

Credits The fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund’s custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits, which are reflected as expenses paid indirectly.

Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Payments (“variation margin”) made or received to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unsettled variation margin on futures contracts is included in investments in securities, and unrealized gains and losses on futures contracts are included in the change in net unrealized gain or loss in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared on a daily basis and paid monthly. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis.

Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund’s maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.

NOTE 2 - INVESTMENT TRANSACTIONS

Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospectus and Statement of Additional Information.

Futures Contracts During the year ended February 28, 2005, the fund was a party to futures contracts, which provide for the future sale by one party and purchase by another of a specified amount of a specific financial instrument at an agreed upon price, date, time, and place. Risks arise from possible illiquidity of the futures market and from movements in security values and interest rates.

Options Call and put options on futures contracts give the holder the right to purchase or sell, respectively, a particular futures contract at a specified price on a certain date. Risks arise from possible illiquidity of the options market and from movements in underlying futures prices. Transactions in options written and related premiums received during the year ended February 28, 2005, were as follows:

  Number of     
  Contracts    Premiums 
Outstanding at beginning of period  –  $  – 
Written  150    103,000 
Closed  (150)    (103,000) 
 
Outstanding at end of period  –  $  – 

Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $126,291,000 and $109,009,000, respectively, for the year ended February 28, 2005.

NOTE 3 - FEDERAL INCOME TAXES

No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences.

Distributions during the year ended February 28, 2005 totaled $17,776,000 and were characterized as tax-exempt income for tax purposes. At February 28, 2005, the tax-basis components of net assets were as follows:

Unrealized appreciation  $  23,984,000 
Unrealized depreciation    (1,553,000) 
Net unrealized appreciation (depreciation)    22,431,000 
Undistributed tax-exempt income    21,000 
Capital loss carryforwards    (13,000) 
Paid-in capital    419,485,000 
 
Net assets  $  441,924,000 

Federal income tax regulations require the fund to defer recognition of capital losses realized on certain covered option and futures transactions; accordingly, $1,081,000 of realized losses reflected in the accompanying financial statements have not been recognized for tax purposes as of February 28, 2005. The fund intends to retain realized gains to the extent of available capital loss carryforwards for federal income tax purposes. As of February 28, 2005, the fund had $13,000 of capital loss carryforwards that expire in fiscal 2013.

For the year ended February 28, 2005, the fund recorded the following permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to undistributed income on which the fund paid tax. Results of operations and net assets were not affected by these reclassifications.

Undistributed net investment income  $   (3,000) 
Undistributed net realized gain    (19,000) 
Paid-in capital    22,000 
 
At February 28, 2005, the cost of investments for federal income tax purposes 
was $417,784,000.     

NOTE 4 - RELATED PARTY TRANSACTIONS

The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.10% of the fund’s average daily net assets, and the fund’s pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund’s portion of the group fee is determined by the ratio of its average daily net assets to those of the group. At February 28, 2005, the effective annual group fee rate was 0.31%.

In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend disbursing agent. For the year ended February 28, 2005, expenses incurred pursuant to these service agreements were $64,000 for Price Associates and $154,000 for T. Rowe Price Services. The total amount payable at period end pursuant to these service agreements is reflected as due to affiliates in the accompanying financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Trustees of T. Rowe Price State Tax-Free Income Trust and Shareholders of T. Rowe Price Virginia Tax-Free Bond Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Virginia Tax-Free Bond Fund (one of the portfolios comprising T. Rowe Price State Tax-Free Income Trust, hereafter referred to as the “Fund”) at February 28, 2005, the results of its operations for the year then ended, the changes in its 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, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
April 11, 2005

TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/05 

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 fund’s distributions to shareholders included $17,649,000 which qualified as exempt-interest dividends.

INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS 

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC’s Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words “Company Info” at the top of our homepage for individual investors. Then, in the window that appears, click on the “Proxy Voting Policy” navigation button in the top left corner.

Each fund’s most recent annual proxy voting record is available on our Web site and through the SEC’s Web site. To access it through our Web site, follow the directions above, then click on the words “Proxy Voting Record” at the bottom of the Proxy Voting Policy page.

HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS 

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.

ABOUT THE FUND’S TRUSTEES AND OFFICERS 

Your fund is governed by a Board of Trustees that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the fund’s trustees are independent of T. Rowe Price Associates, Inc. (T. Rowe Price); “inside” trustees are officers of T. Rowe Price. The Board of Trustees elects the fund’s officers, who are listed in the final table. The business address of each trustee and officer is 100 East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information includes additional information about the fund trustees and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132.

Independent Trustees   
 
Name   
(Year of Birth)  Principal Occupation(s) During Past 5 Years and 
Year Elected*  Directorships of Other Public Companies 
 
Anthony W. Deering  Chairman, Exeter Capital, LLC, a private investment firm (2004 to pre- 
(1945)  sent); Director, Chairman of the Board, and Chief Executive Officer, 
1986  The Rouse Company, real estate developers (1997 to 2004); Director, 
  Mercantile Bank (4/03 to present) 
 
Donald W. Dick, Jr.  Principal, EuroCapital Advisors, LLC, an acquisition and management 
(1943)  advisory firm; Chairman, President, and Chief Executive Officer, 
2001  The Haven Group, a custom manufacturer of modular homes 
  (1/04 to present) 
 
David K. Fagin  Chairman and President, Nye Corporation (6/88 to present); Director, 
(1938)  Canyon Resources Corporation, Golden Star Resources Ltd. (5/00 to 
2001  present), and Pacific Rim Mining Corporation (2/02 to present) 
 
Karen N. Horn  Managing Director and President, Global Private Client Services, 
(1943)  Marsh Inc. (1999 to 2003); Managing Director and Head of 
2003  International Private Banking, Bankers Trust (1996 to 1999); 
  Director, Eli Lilly and Company and Georgia Pacific (5/04 to present) 
 
F. Pierce Linaweaver  President, F. Pierce Linaweaver & Associates, Inc., consulting environ- 
(1934)  mental and civil engineers 
1986   
 
John G. Schreiber  Owner/President, Centaur Capital Partners, Inc., a real estate invest- 
(1946)  ment company; Partner, Blackstone Real Estate Advisors, L.P.; 
1992  Director, AMLI Residential Properties Trust and The Rouse Company, 
  real estate developers 
 
* Each independent trustee oversees 112 T. Rowe Price portfolios and serves until retirement, resignation, or elec- 
 tion of a successor.   

Inside Trustees   
 
Name   
(Year of Birth)   
Year Elected*   
[Number of T. Rowe Price  Principal Occupation(s) During Past 5 Years and 
Portfolios Overseen]  Directorships of Other Public Companies 
 
Mary J. Miller, CFA  Director and Vice President, T. Rowe Price; Vice President, T. Rowe 
(1955)  Price Group, Inc.; President, State Tax-Free Income Trust 
2004   
[38]   
 
James S. Riepe  Director and Vice President, T. Rowe Price; Vice Chairman of the 
(1943)  Board, Director, and Vice President, T. Rowe Price Group, Inc.; 
1986  Chairman of the Board and Director, T. Rowe Price Global Asset 
[112]  Management Limited, T. Rowe Price Global Investment Services 
  Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price 
  Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; 
  Chairman of the Board, Director, President, and Trust Officer, 
  T. Rowe Price Trust Company; Director, T. Rowe Price International, 
  Inc.; Chairman of the Board, State Tax-Free Income Trust 
 
*Each inside trustee serves until retirement, resignation, or election of a successor. 

Officers   
 
Name (Year of Birth)   
Title and Fund(s) Served  Principal Occupation(s) 
 
Stephen V. Booth, CPA (1961)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc., and T. Rowe Price Trust Company 
 
Linda A. Brisson (1959)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc. 
 
Steven G. Brooks, CFA (1954)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc. 
 
Joseph A. Carrier, CPA (1960)  Vice President, T. Rowe Price, T. Rowe Price 
Treasurer, State Tax-Free Income Trust  Group, Inc., T. Rowe Price Investment Services, 
  Inc., and T. Rowe Price Trust Company 
 
Jonathan M. Chirunga (1966)  Vice President, T. Rowe Price; formerly 
Vice President, State Tax-Free Income Trust  Municipal Credit Analyst/Associate Director, 
  Standard & Poor’s Rating Services (to 2001) 
 
Maria H. Condez (1962)  Assistant Vice President, T. Rowe Price 
Assistant Vice President, State Tax-Free   
Income Trust   
 
G. Richard Dent (1960)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc.; formerly Deputy General Counsel, 
  ACA Financial Guaranty Corporation (to 2001) 
 
Roger L. Fiery III, CPA (1959)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc., T. Rowe Price International, Inc., 
  and T. Rowe Price Trust Company 
 
John R. Gilner (1961)  Chief Compliance Officer and Vice President, 
Chief Compliance Officer, State Tax-Free  T. Rowe Price; Vice President, T. Rowe Price 
Income Trust  Group, Inc., and T. Rowe Price Investment 
  Services, Inc. 
 
Gregory S. Golczewski (1966)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Trust Company 
 
Charles B. Hill, CFA (1961)  Vice President, T. Rowe Price and T. Rowe Price 
Executive Vice President, State Tax-Free  Group, Inc. 
Income Trust   
 
Henry H. Hopkins (1942)  Director and Vice President, T. Rowe Price 
Vice President, State Tax-Free Income Trust  Investment Services, Inc., T. Rowe Price 
  Services, Inc., and T. Rowe Price Trust 
  Company; Vice President, T. Rowe Price, 
  T. Rowe Price Group, Inc., T. Rowe Price 
  International, Inc., and T. Rowe Price 
  Retirement Plan Services, Inc. 
 
T. Dylan Jones (1971)  Assistant Vice President, T. Rowe Price 
Assistant Vice President, State Tax-Free   
Income Trust   
 
Philip J. Kligman, CFA (1974)  Assistant Vice President, T. Rowe Price 
Assistant Vice President, State Tax-Free   
Income Trust   
 
Marcy M. Lash (1963)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc. 
 
Alan D. Levenson, Ph.D. (1958)  Vice President, T. Rowe Price and T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc. 
 
Patricia B. Lippert (1953)  Assistant Vice President, T. Rowe Price and 
Secretary, State Tax-Free Income Trust  T. Rowe Price Investment Services, Inc. 
 
Joseph K. Lynagh, CFA (1958)  Vice President, T. Rowe Price and T. Rowe Price 
Executive Vice President, State Tax-Free  Group, Inc. 
Income Trust   
 
Konstantine B. Mallas (1963)  Vice President, T. Rowe Price and T. Rowe Price 
Executive Vice President, State Tax-Free  Group, Inc. 
Income Trust   
 
James M. McDonald (1949)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc., and T. Rowe Price Trust Company 
 
Hugh D. McGuirk, CFA (1960)  Vice President, T. Rowe Price and T. Rowe Price 
Executive Vice President, State Tax-Free  Group, Inc. 
Income Trust   
 
Timothy G. Taylor, CFA (1975)  Assistant Vice President, T. Rowe Price 
Assistant Vice President, State Tax-Free   
Income Trust   
 
Julie L. Waples (1970)  Vice President, T. Rowe Price 
Vice President, State Tax-Free Income Trust   
 
Edward A. Wiese, CFA (1959)  Vice President, T. Rowe Price, T. Rowe Price 
Vice President, State Tax-Free Income Trust  Group, Inc., and T. Rowe Price Trust Company; 
  Chief Investment Officer, Director, and Vice 
  President, T. Rowe Price Savings Bank 
 
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 
five years.   

Item 2. Code of Ethics.

The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Directors/Trustees has determined that Mr. David K. Fagin qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) – (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant’s principal accountant were as follows:

  2005  2004 
Audit Fees  $7,266  $8,624 
Audit-Related Fees  830  739 
Tax Fees  2,116  2,404 
All Other Fees  -  124 

Audit fees include amounts related to the audit of the registrant’s annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant’s financial statements, specifically the issuance of a report on internal controls. Tax fees include amounts related to tax compliance, tax planning, and tax advice. Other fees include the registrant’s pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant’s Board of Directors/Trustees.

(e)(1) The registrant’s audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.

(2) No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant’s principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $903,000 and $821,000, respectively, and were less than the aggregate fees billed for those same periods by the registrant’s principal accountant for audit services rendered to the T. Rowe Price Funds.

(h) All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. Accordingly, these services were considered by the registrant’s audit committee in maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments.

Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11. Controls and Procedures.

(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.

(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.

(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

(3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.

(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

T. Rowe Price State Tax-Free Income Trust

By  /s/ James S. Riepe 
  James S. Riepe 
  Principal Executive Officer 
 
Date  April 15, 2005 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By  /s/ James S. Riepe 
  James S. Riepe 
  Principal Executive Officer 
 
Date  April 15, 2005 
 
 
 
By  /s/ Joseph A. Carrier 
  Joseph A. Carrier 
  Principal Financial Officer 
 
Date  April 15, 2005