RPMT Rego Payment Architectures Inc (QB)

Item 1. Report to Shareholders

The views and opinions in this report were current as of February 28, 2013. 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, 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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Manager’s Letter

Fellow Shareholders

Despite historically low interest rates, Maryland’s long-term municipal bonds produced good returns in the year ended February 28, 2013, as yields declined further and bond prices rose due to strong investor demand for securities providing attractive levels of tax-free income. Short- and intermediate-term Maryland securities produced smaller returns, short-term tax-free yields fell over the past year, and the potential for capital appreciation in those securities is now appreciably lower. Lower-quality municipals, with their yield advantage, outperformed higher-quality issues. Among the Maryland Tax-Free Funds, the Maryland Tax-Free Bond Fund delivered the strongest absolute and relative returns.

MARKET ENVIRONMENT

The U.S. economy expanded at a modest pace over the last year. Employment growth has been steady, but the national unemployment level remains elevated. The housing market recovery has been gaining traction, although its contribution to overall growth is smaller than in previous expansions. We believe gross domestic product growth will continue in 2013, but uncertainty about U.S. fiscal policy, which restrained economic activity in late 2012, could continue to do so in the months ahead. On January 1, 2013, a lame-duck session of Congress passed legislation to avoid the full brunt of the federal tax increases and automatic spending cuts that had been scheduled to take place at the end of 2012. Tax increases were not as significant as they could have been, although the 39.6% federal tax bracket has been reinstated, and the 2.0% payroll tax cut in place since the beginning of 2011 was allowed to expire. Scheduled budget sequestration was delayed for two months. The new Congress, which did not act by the end of our reporting period to stop the spending cuts from taking effect on March 1, will need to address the approaching legal borrowing limit for the federal government—the “debt ceiling”—in the near future.

The Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range to support the economy over the last year. The central bank is also purchasing $40 billion of agency mortgage-backed securities every month—a plan that started in September. In addition, the Fed announced in late 2012 that it will purchase $45 billion of Treasury securities monthly starting in 2013. The Fed plans to keep short-term rates very low as long as the national unemployment rate remains above 6.5% and inflation is projected to be no more than 2.5% in the next 12 to 24 months.

Shorter-term municipal yields remained low and were little changed over the last 12 months. Long-term, high-quality municipal yields generally declined during our fiscal year. With municipal yields about the same as Treasury yields across the yield curve, tax-free securities are an attractive alternative for fixed income investors on a relative basis. As of February 28, 2013, the 2.91% yield offered by a 30-year tax-free municipal bond rated AAA was about 94% of the 3.09% pretax yield offered by a 30-year Treasury bond. An investor in the 28% federal tax bracket would need to invest in a taxable bond yielding about 4.04% in order to receive the same after-tax income. (To calculate a municipal bond’s taxable-equivalent yield, divide the municipal bond’s yield by the quantity of 1.00 minus your federal tax bracket expressed as a decimal—in this case, 1.00 – 0.28, or 0.72.)

MUNICIPAL MARKET NEWS

Municipal issuance totaled $373 billion in 2012, according to The Bond Buyer . Much of that reflects municipalities refinancing their debts to take advantage of low long-term interest rates, rather than net new issuance. One positive factor for munis is that austerity-minded state and local government leaders have been conservative about adding to indebtedness, despite prevailing low yields. Brisk demand is another favorable factor supporting the market, particularly for long-term issues. Issuance in the first two months of 2013 has been fairly strong, at $47.6 billion, and full-year issuance is likely to approximate that of 2012.

Since the last recession, many states have faced stiff fiscal challenges, and most have acted responsibly by cutting spending and raising taxes and fees to close budget deficits. While tax revenues collected by states are growing again, the pattern has been slower and more uneven than in the past, and expense pressures continue. Balancing state budgets is not easy work and most states do a good job, although those that are not properly funding pensions and other retirement benefits are viewed unfavorably. We believe that many states deserve high credit ratings and that state governments will be able to continue servicing their outstanding debts. However, we have longer-term concerns about some states’ willingness and ability to address sizable pension obligations and other retirement benefits.

Municipal bond performance throughout the last year was driven by investors’ search for higher yields in a low interest rate environment. Revenue bonds outperformed local and state general obligations. We prefer bonds backed by a dedicated revenue stream over GOs, with a bias toward transportation and utility bonds issued by providers of these essential services. Among revenue bonds, industrial revenue issues fared best, especially tobacco names. We are underweight in tobacco bonds because of the poor longer-term fundamentals and declining tobacco consumption trends. Health care bonds also performed well, but we remain selective among hospital revenue bonds, as new issue supply and credit concerns are weighing on the sector. Prerefunded bonds, which are backed by U.S. Treasuries, lagged significantly.

MARYLAND MARKET NEWS

Maryland’s economic profile remains strong compared with other states. Marylanders are relatively prosperous—per capita personal income represented 123% of the national average in 2011 (the latest available data), ranking it fourth in the nation. The state’s unemployment rate was 6.6% as of December 31, 2012, well below the 7.8% national unemployment rate at that time. Maryland’s employment base, however, grew by 0.8% over the past year, somewhat less than the national average of 1.7%.

Maryland’s finances are stabilizing. General fund revenues dropped almost 9% during the last recession, but they have started to climb. In the latest audited fiscal year, ended June 30, 2012, Maryland’s general fund receipts were 7% ahead of where they were in the prior year. However, expense pressures led to a bottom-line loss of 1% in fiscal year 2012, compared with a modest surplus in 2011. For the first seven months of fiscal year 2013, general fund receipts grew 5.5% versus the previous year, which is in line with expectations. The state has always maintained a good cushion in its rainy day fund—on June 30, 2012, Maryland’s reserve fund held $674 million, representing a solid 4.8% of general fund revenues. The state has balanced its budget for fiscal year 2013, and it was passed on time.

Maryland’s debt load is above the national average. According to Moody’s 2012 State Debt Medians , the state’s debt burden, at $10 billion, is in the upper third when measured by debt per capita and only modestly better when measured on a debt-to-personal income basis. Debt service as a percentage of the budget is, nonetheless, very manageable at 3.5% in fiscal year 2012. However, as of June 30, 2012, Maryland’s Retirement and Pension System was only funded at 66% on an actuarial basis. Maryland’s practice of not fully funding its retirement program has led to a rise in its unfunded pension liability. As a result, Maryland faces fairly heavy unfunded liabilities for its pension and benefits plans, at $18 billion and $9 billion, respectively. Modifications to benefits under these programs have been proposed to reduce liabilities and improve funding, and some have been recently adopted. We are closely monitoring these developments.

Maryland has a long history of responsible stewardship and prudent financial management. The state’s general obligation bonds are rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch. While S&P and Fitch maintain stable outlooks, Moody’s revised its outlook on Maryland to negative at the beginning of August 2011 in conjunction with a similar move on the outlook for the debt issued by the federal government. In Moody’s opinion, Maryland has above-average economic sensitivity and dependence on federal employment and procurement.

PERFORMANCE AND PORTFOLIO STRATEGY REVIEW

Maryland Tax-Free Money Fund
Your fund generated a 0.01% return for the 12-month period ended February 28, 2013. The results were in line with the Lipper Other States Tax-Exempt Money Market Funds Average. All money market rates continue to be closely tied to the Federal Reserve’s fed funds target rate of 0.00% to 0.25%. The Maryland Tax-Free Money Fund has performed in line with its competitors over the longer term.

As a result of the Fed’s continuing zero interest rate policy, Maryland municipal money market rate changes were minimal. Yields on Maryland’s short-term credits generally tracked national tax-exempt levels and were unchanged or slightly lower. Rates ranged from about 10 basis points (0.10%) for overnight maturities to approximately 19 basis points (0.19%) for notes maturing in one year. The money market yield curve—a graphic depiction of the relationship between yields and maturity dates for a set of similar securities—steepened a few basis points, as securities with maturities of less than 90 days moved slightly lower, while one-year maturity yields were relatively unchanged. Lower yields for tax-exempt money fund securities were consistent across most other money market sectors, as the quest for any yield continued to grind all rates lower.

New short-term issuance continues to be constrained as many issuers prefer to refinance with longer-dated paper to lock in current rates. The reduction in investable supply is expected to keep yields anchored at these low levels for most money market instruments.

Credit quality continues to play a big role in the management of your fund. We maintain an overweight to highly rated hospitals (health care), local and state general obligations, education, and housing bonds backed by either the Federal Home Loan Bank or the Federal National Mortgage Association. Some of our highest-conviction names include Howard Hughes Medical Institute , University of Maryland , Maryland Community Development Authority , Baltimore County , and Anne Arundel County . Bank liquidity providers play an integral role in the financing of short-term municipal debt. Our largest bank liquidity exposures are to FNMA, Wells Fargo, Federal Home Loan Bank, and J.P. Morgan. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)

Measures implemented by the Securities and Exchange Commission in 2010 that mandated higher liquidity requirements and reduced credit risk for all money market funds have resulted in much more resilient products for shareholders. However, the government’s Financial Stability Oversight Council has weighed in on the regulatory debate after the SEC failed to come to a consensus on the topic. We expect money fund reform to remain a main focus for regulators and the money fund industry.

Yields are expected to remain stable over the next six months, barring a flare-up in the European crisis or other supply dislocations. Given this outlook, and with the Fed on hold, we continue to operate at the longer end of our targeted weighted average maturity of 50 to 55 days. As always, we remain committed to managing a high-quality broadly diversified portfolio with a primary focus on liquidity and principal stability.

Maryland Short-Term Tax-Free Bond Fund
The Maryland Short-Term Tax-Free Bond Fund returned 0.71% for the 12-month period ended February 28, 2013. As shown in the Performance Comparison table, the Maryland Short-Term Tax-Free Bond Fund trailed the Lipper Short Municipal Debt Funds Average of similarly managed funds. The fund’s net asset value declined one penny over the last year to $5.24, and dividend income contributed $0.05 per share to the fund’s return. The portfolio’s net asset value was unchanged during the past six months, and dividends per share remained stable.

There were several reasons that the fund underperformed our peer group average over the last 12 months. The fund’s average maturity and duration (a measure of the portfolio’s interest rate sensitivity) were shorter than that of our peer group and the benchmark in the first half of our fiscal year. Early in the reporting period, we decided the fund was holding too much in cash and bonds maturing within two years. As we trimmed our exposure to short-term bonds and cash, we increased our two- to five-year holdings, which extended the portfolio’s maturity and duration by about one-quarter of a year. We maintained that positioning in the second half of the reporting period and intend to keep the fund’s duration at slightly longer than two years—modestly longer than our benchmark but shorter than our Lipper peer group—for the foreseeable future.

We have limited opportunities to buy lower-rated, high-yielding Maryland debt, given the state’s high-quality rating, and at the end of the period 99% of the portfolio was invested in investment-quality holdings. However, we reduced our exposure to AAA and AA rated bonds over the past six months and increased our holdings in A and BBB securities, which contributed to dividend income and the portfolio’s current yield.

Another reason for our underperformance versus the Lipper peer group average is that we manage a Maryland-only fund within a peer group of national funds. This fund’s focus will remain on generating triple-tax-exempt income for Maryland residents, but because Maryland is a very high-quality state, its bonds generally yield less than the national average. Our new purchases were across a variety of sectors, including state general obligations, education, and health care bonds. As we reduced our holdings in local GOs, we found some decent opportunities to add to sectors offering additional yield. However, finding higher-yielding investments in Maryland, outside of the top credit tiers, remains a big challenge.

We expect to keep a longer maturity and duration position relative to the benchmark because we believe short-term rates will stay low for a long time. Unfortunately, returns are likely to remain muted as most of the Maryland new issues offer very low yields. We believe that the Maryland Short-Term Tax-Free Bond Fund remains an attractive option for investors who want more tax-exempt income than a money fund and are willing to accept modest principal fluctuations.

Maryland Tax-Free Bond Fund
The Maryland municipal market and your fund posted favorable returns in the 12-month period ended February 28, 2013, as municipal rates across the yield curve fell. The fund’s 5.63% return exceeded its Lipper peer group average for the period. The portfolio benefited from curve positioning, sector allocation decisions, our focus on yield, and low fees.

The fund’s net asset value was $11.12 at the end of the reporting period, up $0.19 over the past 12 months. Dividends per share contributed $0.41 to the fund’s annual total return. Dividends were slightly lower over the past 12 months than in the prior year as falling rates reduced the portfolio’s yield. We invested across the yield curve and credit quality spectrum over the past year.

Low interest rates continue to affect the portfolio. Maryland municipal issuers have actively refinanced outstanding debt to reduce interest payments. While lower interest cost is a credit positive for our issuers, this often leads to early redemption of our longer-held positions. For example, Carroll Hospital Center issued long-term debt in July at yields near 4%. With the proceeds, the hospital called away nearly $30 million of securities yielding around 6% that we had held for almost 10 years. As low rates persist, debt maturities and early calls will challenge our portfolio. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)

We hold two key sector overweights designed to keep shareholder income high. Health care-related credits have long provided higher yields relative to other sectors. Hospitals across the nation are facing reimbursement pressures and narrowing margins. While Maryland is not immune to these pressures, the state’s unique reimbursement environment and a high number of well-managed hospitals in the area have given us confidence that the returns are worth the higher risks in this sector. The ever vigilant surveillance of our fundamental credit analyst team is a key element of this strategy. Our largest recent additions in this sector included Anne Arundel Health System and Mercy Medical Center .

The single-family and multifamily housing sector is another major overweight. Though we did not add to this sector over the past year (our holdings actually declined due to bond calls), the sector provided above-average yield to compensate investors for early call risk. Our largest holding in this segment is Maryland Community Development Administration , the state-sponsored housing agency. Should interest rates rise, we believe our holdings in this sector will do well relative to the market.

In recent quarters, the majority of our purchases were in A and BBB rated credits. Our strong fundamental credit research team is the key pillar of this approach. We believe credit spreads, while tighter than they were a year ago, have room to contract further. We also maintained a conservative interest rate risk posture over the past year. At the end of the period, the fund’s duration, at 4.7 years, was low for a long-term bond fund. While we could have generated higher returns had we been more aggressive in this area, we remained cautious given the historically low interest rate environment. While the Fed assures us rate hikes are not imminent, we intend to manage interest rate risk at lower and somewhat conservative levels. Since our semiannual report dated August 31, 2012, our weighted average maturity dropped to 16.3 from 16.7 years, reflecting this somewhat guarded stance. Finally, we reduced our already low exposure to Puerto Rico and other U.S. territories, as these localities face significant long-term financial challenges.

OUTLOOK

While we are pleased with the tremendous performance of municipal bonds over the last two years, we believe that returns in the period ahead will moderate, as the credit and economic environment for municipalities will likely remain challenging and yields are unlikely to fall significantly from current levels. Modest economic growth and improving income and sales tax revenues are providing some support for state and local governments. However, cutbacks in state support for municipalities and persistent downward pressure on property tax revenues could keep local municipal issuers vulnerable. If the economy slides back into a recession—which we are not currently predicting—municipalities will face even tougher challenges.

State and local government liabilities, such as pension benefits and health care costs, are a growing long-term concern. While most state and local governments are maintaining balanced budgets, fewer municipali ties have addressed these longer-term liabilities meaningfully. States will need to continue these efforts on their own, as a federal bailout of state and local governments without some losses to bondholders seems unlikely.

We believe that municipals remain a high-quality market and offer good opportunities for long-term investors. In this low-rate environment, long-term bonds and A rated sectors still represent reasonable value relative to taxable fixed income alternatives. As noted above, we are comforted somewhat by Federal Reserve assurances that interest rate hikes are not imminent and by the demonstrated ability of states to balance their budgets in tough times, and we are mindful that municipal yields are at or near historical lows and that there is the potential for losses if rates rise in response to stronger economic growth or inflation. Although we expect rates to remain range-bound in the period ahead, we will be careful with any investment shift that might increase our portfolios’ interest rate sensitivity materially.

We believe T. Rowe Price’s strong credit research capabilities have been and will remain an asset for our investors. We conduct thorough research and assign our own independent credit ratings before making investment decisions. As always, we are on the lookout for attractively valued bonds issued by municipalities with good long-term fundamentals—an investment strategy that we believe will continue to serve our investors well.

Thank you for investing with T. Rowe Price.

Respectfully submitted,

Joseph K. Lynagh
Chairman of the Investment Advisory Committee
Maryland Tax-Free Money Fund

Charles B. Hill
Chairman of the Investment Advisory Committee
Maryland Short-Term Tax-Free Bond Fund

Hugh D. McGuirk
Chairman of the Investment Advisory Committee
Maryland Tax-Free Bond Fund

March 15, 2013

The committee chairmen have day-to-day responsibility for managing the portfolios and work with committee members in developing and executing the funds’ investment programs.

RISKS OF FIXED INCOME INVESTING

Bonds are subject to interest rate risk (the decline in bond prices that usually accompanies a rise in interest rates) and credit risk (the chance that any fund holding could have its credit rating downgraded or that a bond issuer will default by failing to make timely payments of interest or principal), potentially reducing the fund’s income level and share price. The Maryland Tax-Free Funds are less diversified than those investing nationally. Some income may be subject to state and local taxes and the federal alternative minimum tax.

The money fund seeks to maintain a stable net asset value and provide an appropriate place for money between investments or during uncertain market conditions. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

GLOSSARY

Barclays 3-Year State General Obligation Bond Index: A broadly diversified index of state-issued general obligation tax-exempt bonds with maturities between two and four years.

Barclays Municipal Bond Index: A broadly diversified index of tax-exempt bonds.

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

Duration: A measure of a bond fund’s sensitivity to changes in interest rates. For example, a fund with a duration of five years would fall about 5% in price in response to a one-percentage-point rise in interest rates, and vice versa.

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.

General obligation debt: A government’s strongest pledge that obligates its full faith and credit, including, if necessary, its ability to raise taxes.

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 categories defined by Lipper.

Prerefunded bond: A bond that originally may have been issued as a general obligation or revenue bond but that is now secured by an escrow fund consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

Revenue bonds: Bonds issued to fund specific projects, such as airports, bridges, hospitals, and toll roads, where a portion of the revenue generated is used to service the interest payments on the bond.

SEC yield (7-day simple): A method of calculating a money fund’s yield by annualizing the fund’s net investment income for the last seven days of each period divided by the fund’s net asset value at the end of the period. Yield will vary and is not guaranteed.

SEC yield (30-day): A method of calculating a fund’s yield that assumes all portfolio securities are held until maturity. Yield will vary and is not guaranteed.

Weighted average life: In general, the longer the average life, the greater the fund’s credit quality risk. The average life is the dollar-weighted average maturity of a portfolio’s individual securities without taking into account interest rate readjustment dates. Money funds must maintain a weighted average life of less than 120 days.

Weighted average maturity: In general, the longer the average maturity, the greater the fund’s sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities. Money funds must maintain a weighted average maturity of less than 60 days.

Yield curve: A graphic depiction of the relationship between yields and maturity dates for a set of similar securities such as Treasuries or municipal securities. Securities with longer maturities usually a have higher yield. If short-term securities offer a higher yield, then the curve is said to be “inverted.” If short- and long-term bonds are offering equivalent yields, then the curve is said to be “flat.”

Performance and Expenses

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.

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.

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.

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 expenses based on the fund’s actual returns. You may use the information on 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 on 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 account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). 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.

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

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

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

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

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

Notes to Financial Statements

T. Rowe Price State Tax-Free Income Trust (the trust), is registered under the Investment Company Act of 1940 (the 1940 Act). The Maryland Tax-Free Bond Fund (the fund) is a nondiversified, open-end management investment company established by the trust. The fund commenced operations on March 31, 1987. The fund seeks to provide, consistent with prudent portfolio management, the highest level of income exempt from federal and Maryland state and local income taxes by investing primarily in investment-grade Maryland municipal bonds.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), which require the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.

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. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. 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 on the ex-dividend date. Income distributions are declared daily and paid monthly. Capital gain distributions, if any, are generally declared and paid by the fund annually.

Credits The fund earns credits on temporarily uninvested cash balances held at the custodian, which 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.

New Accounting Guidance In December 2011, the Financial Accounting Standards Board issued amended guidance requiring an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013. Adoption will have no effect on the fund’s net assets or results of operations.

NOTE 2 - VALUATION

The fund’s financial instruments are reported at fair value as defined by GAAP. The fund determines the values of its assets and liabilities 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.

Valuation Methods Debt securities are generally traded in the over-the-counter (OTC) market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the 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 with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service.

Other investments, including restricted securities and private placements, and those financial instruments 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 (the Board). Subject to oversight by the Board, the Valuation Committee develops pricing-related policies and procedures and approves all fair-value determinations. The Valuation Committee regularly makes good faith judgments, using a wide variety of sources and information, to establish and adjust valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of private-equity instruments, the Valuation Committee considers a variety of factors, including the company’s business prospects, its financial performance, strategic events impacting the company, relevant valuations of similar companies, new rounds of financing, and any negotiated transactions of significant size between other investors in the company. Because any fair-value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions.

Valuation Inputs Various inputs are used to determine the value of the fund’s financial instruments. These inputs are summarized in the three broad levels listed below:

Level 1 – quoted prices in active markets for identical financial instruments

Level 2 – observable inputs other than Level 1 quoted prices (including, but not limited to, quoted prices for similar financial instruments, interest rates, prepayment speeds, and credit risk)

Level 3 – unobservable inputs

Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund’s own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level. On February 28, 2013, all of the fund’s financial instruments were classified as Level 2, based on the inputs used to determine their values.

NOTE 3 - DERIVATIVE INSTRUMENTS

During the year ended February 28, 2013, the fund invested in derivative instruments. As defined by GAAP, a derivative is a financial instrument whose value is derived from an underlying security price, foreign exchange rate, interest rate, index of prices or rates, or other variable; it requires little or no initial investment and permits or requires net settlement. The fund invests in derivatives only if the expected risks and rewards are consistent with its investment objectives, policies, and overall risk profile, as described in its prospectus and Statement of Additional Information. The fund may use derivatives for a variety of purposes, such as seeking to hedge against declines in principal value, increase yield, invest in an asset with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration and credit exposure. The risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. Investments in derivatives can magnify returns positively or negatively; however, the fund at all times maintains sufficient cash reserves, liquid assets, or other SEC-permitted asset types to cover the settlement obligations under its open derivative contracts.

The fund values its derivatives at fair value, as described below and in Note 2, and recognizes changes in fair value currently in its results of operations. Accordingly, the fund does not follow hedge accounting, even for derivatives employed as economic hedges. The fund does not offset the fair value of derivative instruments against the right to reclaim or obligation to return collateral. As of February 28, 2013, the fund held no derivative instruments.

Additionally, during the year ended February 28, 2013, the fund recognized $40,000 of gain on interest rate derivatives, included in realized gain (loss) on Futures on the accompanying Statement of Operations.

Futures Contracts The fund is subject to interest rate risk in the normal course of pursuing its investment objectives and uses futures contracts to help manage such risk. The fund may enter into futures contracts to manage exposure to interest rate and yield curve movements, security prices, foreign currencies, credit quality, and mortgage prepayments; as an efficient means of adjusting exposure to all or part of a target market; to enhance income; as a cash management tool; and/or to adjust portfolio duration and credit exposure. A futures contract provides for the future sale by one party and purchase by another of a specified amount of a particular underlying financial instrument at an agreed-upon price, date, time, and place. The fund currently invests only in exchange-traded futures, which generally are standardized as to maturity date, underlying financial instrument, and other contract terms. Upon entering into a futures contract, the fund is required to deposit collateral with the broker in the form of cash or securities in an amount equal to a certain percentage of the contract value (margin requirement); the margin requirement must then be maintained at the established level over the life of the contract. Subsequent payments are made or received by the fund each day to settle daily fluctuations in the value of the contract (variation margin), which reflect changes in the value of the underlying financial instrument. Variation margin is recorded as unrealized gain or loss until the contract is closed. The value of a futures contract included in net assets is the amount of unsettled variation margin; net variation margin receivable is reflected as an asset, and net variation margin payable is reflected as a liability on the accompanying Statement of Assets and Liabilities. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates, and potential losses in excess of the fund’s initial investment. During the year ended February 28, 2013, the fund’s exposure to futures, based on underlying notional amounts, was generally less than 1% of net assets.

NOTE 4 - OTHER INVESTMENT TRANSACTIONS

Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to 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.

Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs.

Counterparty Risk and Collateral Counterparty risk related to exchange-traded futures and options contracts is minimal because the exchange’s clearinghouse provides protection against counterparty defaults. Generally, for exchange-traded derivatives such as futures and options, each broker, in its sole discretion, may change margin requirements applicable to the fund. Cash posted by the fund to meet margin requirements is reflected as restricted cash in the accompanying financial statements and securities posted by the fund are so noted in the accompanying Portfolio of Investments; both remain in the fund’s assets. As of February 28, 2013, no margin had been posted by the fund to the broker for exchange-traded derivatives.

Other Purchases and sales of portfolio securities other than short-term securities aggregated $408,154,000 and $237,345,000, respectively, for the year ended February 28, 2013.

NOTE 5 - 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. Distributions determined in accordance with federal income tax regulations may differ 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 but are not adjusted for temporary differences.

The fund files U.S. federal, state, and local tax returns as required. The fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

Reclassifications to paid-in capital relate primarily to an overdistribution of taxable income not deemed a return of capital for tax purposes. Reclassifications between income and gain relate primarily to the character of market discount at time of sale. For the year ended February 28, 2013, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):

Distributions during the years ended February 28, 2013 and February 29, 2012, were characterized for tax purposes as follows:

At February 28, 2013, the tax-basis cost of investments and components of net assets were as follows:

The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the recognition of market discount amortization for tax purposes. The fund intends to retain realized gains to the extent of available capital loss carryforwards. As a result of the Regulated Investment Company Modernization Act of 2010, net capital losses realized on or after March 1, 2011 (effective date) may be carried forward indefinitely to offset future realized capital gains; however, post-effective losses must be used before pre-effective capital loss carryforwards with expiration dates. Accordingly, it is possible that all or a portion of the fund’s pre-effective capital loss carryforwards could expire unused. During the year ended February 28, 2013, the fund utilized $3,723,000 of capital loss carryforwards. The fund’s available capital loss carryforwards as of February 28, 2013, expire as follows: $8,553,000 in fiscal 2017 and $2,637,000 in fiscal 2019.

NOTE 6 - RELATED P ARTY TRANSACTIONS

The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates 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 a group fee. The group fee rate 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 0.28% for assets in excess of $300 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At February 28, 2013, the effective annual group fee rate was 0.30%.

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 provides certain other administrative services to 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, 2013, expenses incurred pursuant to these service agreements were $128,000 for Price Associates and $343,000 for T. Rowe Price Services, Inc. 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 t h e Board of Trustees of T. Ro w e P rice State Ta x- Free Income Trust and
S h are h olders of Mar y land Ta x- 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 Maryland 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, 2013, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, 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 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
April 12, 2013

Tax Information (Unaudited) for the Tax Year Ended 2/28/13

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:

• $954,000 from short-term capital gains
   
• $76,450,000 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. You may request this document by calling 1-800-225-5132 or by accessing the SEC’s website, sec.gov.

The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words “Social Responsibility” at the top of our corporate homepage. Next, click on the words “Conducting Business Responsibly” on the left side of the page that appears. Finally, click on the words “Proxy Voting Policies” on the left side of the page that appears.

Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through our website, follow the directions above to reach the “Conducting Business Responsibly” page. Click on the words “Proxy Voting Records” on the left side of that page, and then click on the “View Proxy Voting Records” link at the bottom of the page that appears.

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 website (sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.