UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-04521
| T. Rowe Price State Tax-Free Income Trust |
|
| (Exact name of registrant as specified in charter) |
| |
| 100 East Pratt Street, Baltimore, MD 21202 |
|
| (Address of principal executive offices) |
| |
| David Oestreicher |
| 100 East Pratt Street, Baltimore, MD 21202 |
|
| (Name and address of agent for service) |
Registrant’s telephone number, including area code: (410) 345-2000
Date of fiscal year end: February 28
Date of reporting period: February 28, 2014
Item 1. Report to Shareholders
| Maryland Tax-Free Money Fund | February 28, 2014 |
The views and opinions in this report were current as of February 28, 2014. 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
Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log in to your account at troweprice.com for more information.
Manager’s Letter
Fellow Shareholders
Maryland municipal bonds generated mixed returns in the one-year period ended February 28, 2014, as strong gains in the last six months mostly offset losses in the first half of our fiscal year. Intermediate- and long-term Treasury interest rates increased amid moderate economic growth and expectations that the Federal Reserve would start to reduce the size of its monthly asset purchases, which it did at the beginning of 2014. Longer-term municipal interest rates also increased over the past year, while shorter-term yields were little changed. The Maryland Tax-Free Money Fund and the Maryland Tax-Free Short-Term Bond Fund performed mostly in line with their benchmarks, while the longer-term Maryland Tax-Free Bond Fund significantly exceeded its benchmarks over the 6- and 12-month periods.
ECONOMY AND INTEREST RATES
Despite higher federal tax rates and spending cuts at the beginning of 2013, the U.S. economy grew at a moderate pace over the last 12 months. Gross domestic product expanded at a 4.1% annualized rate in the third quarter of 2013, the highest rate in about two years, and at a milder 2.4% rate in the fourth quarter, in part because of weaker-than-expected consumer spending. Still, steady job growth helped reduce the national unemployment rate to 6.7% in February. We anticipate that the U.S. economic recovery will strengthen in 2014 as last year’s fiscal policy headwinds subside and wage growth improves.
To support the recovery, the Federal Reserve purchased $45 billion in Treasuries and $40 billion in agency mortgage-backed securities every month in 2013 to suppress longer-term rates. In both January and February 2014, however, the Fed reduced the size of its monthly purchases by $10 billion. We expect the Fed to announce similar reductions after future monetary policy meetings, with asset purchases likely to end in late 2014. While Fed tapering may result in higher long-term interest rates, short-term rate increases seem unlikely to occur until sometime in late 2015 or 2016.
The Treasury and municipal yield curves steepened over the past year: Long-term yields increased as the taper approached, while short-term rates remained anchored by the Fed’s commitment to keep them low even after the unemployment rate drops below 6.5%—assuming inflation remains contained. However, high-quality 30-year municipal yields rose more than comparable-maturity Treasuries, which is unusual, and were slightly higher than the 30-year Treasury yield at the end of our reporting period. On a relative basis, this demonstrates the attractiveness of long-term tax-free bonds as an alternative for fixed income investors.
As of February 28, 2014, the 3.72% yield offered by a 30-year tax-free bond rated AAA was about 104% of the 3.58% 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 5.17% 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
Full-year municipal issuance in 2013 totaled about $330 billion versus about $380 billion in 2012, according to The Bond Buyer, while issuance in the first two months of 2014 has been lower than expected, at around $34 billion. Issuance since mid-2013 has been somewhat limited, as rising long-term interest rates discouraged municipalities from refinancing older debt. Outflows from the municipal market persisted throughout the second half of 2013, and rising rates and credit concerns in certain parts of the muni market restrained demand from individual investors during that period. These trends abated somewhat in the first two months of 2014, but a resumption of rising rates or cash flows out of municipal bond portfolios could weigh on the market.
Austerity-minded state and local government leaders remain conservative about adding to debt, which we consider supportive. Indeed, most states have acted responsibly in the last few years by cutting spending and raising taxes and fees to close budget deficits. While state tax revenues are growing again, the pattern has been slower and more uneven than historically, and expense pressures continue. 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.
Detroit’s Chapter 9 bankruptcy case, while not an indicator of a systemic breakdown in municipal credit fundamentals, remains a concern for municipal investors. The judge in the case has ruled that the city is eligible for bankruptcy and that pension benefits—even though they are protected by the Michigan constitution—could be reduced through the federal bankruptcy process.
The deteriorating fiscal situation in the Commonwealth of Puerto Rico, as highlighted in the media and as indicated by recent credit rating agency downgrades to below investment grade, is also a risk to the broader muni market. This U.S. territory’s liabilities are large relative to the size of its economy, with close to $50 billion of municipal debt outstanding and over $70 billion of general indebtedness for the commonwealth and its various governmental agencies. We continue to have very low exposure to Puerto Rico and would not be surprised if there are additional downgrades or if the commonwealth seeks a debt restructuring in the next year or two. Puerto Rico’s $3.5 billion bond issuance in early March will provide some stability in the short run, but over the long term, the commonwealth’s government will need to continue to make difficult decisions in order to improve its fiscal and economic profile.
In terms of sector performance, state and local general obligations (GOs) were flat but held up better than revenue bonds over the last 12 months. We favor bonds backed by a dedicated revenue stream over GOs, with a bias toward transportation and utility bonds issued by these essential service providers. Among revenue bonds, special tax and power bonds were two of the worst-performing sectors for the year due to weakness in Puerto Rican issues. Most remaining revenue segments were flat, but housing bonds outperformed, helped by the residential real estate recovery.
MARYLAND MARKET NEWS
Maryland’s economic profile remains strong compared with other states. Marylanders are relatively prosperous—per capita personal income represented 122% of the national average in 2012 (the latest available data), ranking it fifth in the nation. The state’s unemployment rate was 6.1% as of December 31, 2013, better than the 6.7% national unemployment rate at that time. However, Maryland’s employment base grew at a pace that was below the national average.
Maryland’s finances are stabilizing. General fund revenues dropped almost 9% during the last recession but have started to recover. In the latest audited fiscal year ended June 30, 2013, Maryland’s general fund receipts were 4% ahead of where they were in the prior year. However, expense pressures led to a breakeven fiscal year 2013. For the first six months of fiscal 2014, general fund receipts grew 3% from the previous year but were lower than expected. The state has always maintained a good cushion in its rainy day fund—on June 30, 2013, Maryland’s reserve fund held $700 million, representing a solid 4.7% of general fund revenues. The state has balanced its budget for fiscal 2014, and work on the 2015 budget is underway.
Maryland’s debt load is above the national average. According to Moody’s 2012 State Debt Medians, the state’s debt burden, at $10.6 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 remained manageable at 5.7% in fiscal year 2013. However, as of June 30, 2013, Maryland’s State Employees Retirement and Pension System was only funded at 60% on an actuarial basis, while the teachers’ plan was 67% funded.
Maryland’s practice of not fully funding its actuarial retirement contributions has led to a rise in its unfunded pension liability. As a result, Maryland faces fairly heavy unfunded liabilities for its pension plans totaling approximately $20 billion. Various 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. Liabilities for retiree health programs were also high, at $8.1 billion as of June 30, 2013.
Maryland has a long history of responsible stewardship and prudent financial management. The state’s GO bonds are rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch. All three rating agencies maintain stable outlooks.
PERFORMANCE AND PORTFOLIO STRATEGY REVIEW
Maryland Tax-Free Money Fund
Your fund generated a 0.01% return for the 6- and 12-month periods ended February 28, 2014. Our results matched the returns of 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.
The Fed’s extraordinary regimen of easy monetary policy is more than five years old. The central bank’s zero interest rate policy continues to impact money fund investors most dramatically. While the Fed has begun to taper its monthly asset purchase program, money market rates remain immune from such changes in policy.
Yields across the municipal money market asset class moved lower over the past six months. Rates range from two basis points (0.02%) for overnight maturities to 16 basis points (0.16%) for notes maturing in one year. The yield curve, which illustrates the relationship between yields and maturities of a similar security, shifted modestly lower over the period.
Low municipal rates have been perpetuated by a supply/demand imbalance—the low-rate environment of the past few years has encouraged municipal issuers to borrow for longer periods to lock in favorable financing costs. In many cases, we have seen issuers refinance variable rate demand notes (VRDNs) with much longer 10-year, 20-year, and even 30-year issues. This trend has resulted in a reduction of overall available supply for short-maturity securities. For example, in 2013 VRDN issuance fell 32%, and the total amount of VRDNs outstanding dropped about 39% since 2008. New issuance has not been sufficient to offset the supply taken out of the market. Because money market assets have remained somewhat stable over the last year, we now see too much demand chasing too little supply.
As always, credit quality plays a major role in the management of the fund. We favor highly rated GOs and housing finance bonds in addition to hospitals and higher education bonds. Some of the most prominent positions in the portfolio include the State of Maryland General Obligations and revenue bonds issued by Maryland CDA Residential, Trinity Health, and Johns Hopkins University. We continue to favor prerefunded bonds (which are escrowed in U.S. Treasury debt) and prefer high-quality issuers that can provide self-liquidity. Where self-liquidity is not possible, we look to liquidity providers such as J.P. Morgan, Wells Fargo, and the Federal National Mortgage Association. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
While the Fed has started the long process of removing monetary accommodation, yields in the money market are not expected to change significantly for quite some time. Our view is that the Fed will not begin to actively increase short-term interest rates until sometime in late 2015, at the earliest. Given this outlook, we remain comfortable managing the fund near the longer end of our permissible weighted average maturity range; our current target is 50 to 55 days. We remain committed to managing a high-quality, diversified portfolio. As always, our focus is on liquidity and stability of principal.
Maryland Short-Term Tax-Free Bond Fund
The Maryland Short-Term Tax-Free Bond Fund returned 0.69% for the 12-month period ended February 28, 2014, modestly outperforming the Lipper Short Municipal Debt Funds Average of similarly managed funds. The fund’s net asset value ended the 12-month period unchanged at $5.24. Dividend income of $0.04 per share was evenly split between the two six-month periods. Effective July 1, 2013, the fund changed its primary benchmark from the Barclays 3 Year State GO Bond Index to the Barclays 1–3 Year Municipal Bond Index because the manager believes it is more representative of the fund’s investment program.
Our investment strategy changed little in the past six months. We managed the portfolio’s average maturity and duration (a measure of its interest rate sensitivity) a bit longer than the benchmark, and we remain focused on high-quality Maryland bonds. Because we manage your portfolio to generate tax-free income for Marylanders, and given the limited issuance of short-term Maryland bonds, we hold a more significant allocation in general obligation debt than many broadly diversified short-term municipal funds. Despite the nature of the market, we were able to maintain a significant absolute weight, and relative overweight, to revenue-backed debt. We funded this allocation with a meaningful underweight to prerefunded bonds. Over the past few months, as bonds matured, we added exposure to several different Maryland counties and increased our exposure to hospitals.
Throughout the annual reporting period, we benefited from our early 2013 decision to eliminate the last of our already low exposure to bonds issued by the Commonwealth of Puerto Rico. Away from Puerto Rico, we have limited opportunities to buy lower-rated, high-yielding Maryland debt given the state’s high-quality rating, and investment-grade issues represented 99% of the portfolio at the end of the period. To add incremental yield to the portfolio, we moved out the curve with a modest position in intermediate-term (five-year) bonds. We intend to add to holdings in lower-rated categories if and when the opportunity presents itself. At this time, there is minimal availability in lower-rated Maryland credits. However, we are always mindful of interest rate risk and have been careful not to increase the fund’s weighted average maturity and duration characteristics materially.
We added to our holdings in higher-quality local general obligations in the past six months. We funded the shift by reducing our stake in state-issued municipals. We are always looking for ways to diversify away from the state, and we purchased GO bonds of Baltimore County, Montgomery County, and Prince George’s County. (Please refer to the fund’s portfolio of investments for a complete listing of holdings and the amount each represents in the portfolio.)
Diminishing returns for short-term bond funds is an ongoing issue and is not unique to this fund or this state. In an effort to keep a steady level of tax-free income for our shareholders, we will continue to invest in higher-income opportunities as they present themselves. For the time being, we intend to keep a moderately longer maturity and duration position relative to the benchmark. Short-term interest rates could start to move higher in the second half of the year as the markets start to anticipate Fed tightening in 2015. However, this will depend on economic data or inflation being higher than the Fed currently anticipates. Unfortunately, the returns on short-term Maryland bonds are likely to remain muted as most of the state’s new issuance offer very low yields. We believe that the Maryland Short-Term Tax-Free Bond Fund is 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 Tax-Free Bond Fund returned -0.44% in its fiscal year ended February 28, 2014, with a gain of 6.11% in the last six months nearly compensating for the losses in the first half of our fiscal year. Our strong performance relative to the benchmark benefited from our yield curve positioning, an emphasis on revenue bonds, limited exposure to Puerto Rico, and the fund’s low fees. Overall, our conservative interest rate positioning, including a higher-than-average allocation to cash and short-term investments, detracted from otherwise strong relative returns.
The fund’s net asset value was $10.66 at the end of the reporting period, down $0.46 over the past 12 months. However, dividends per share contributed $0.40 to the fund’s annual total return. Dividends were slightly lower over the past 12 months than in the prior year. The fund’s returns rebounded sharply over the past six months. Despite broader credit concerns focused on problems with Detroit and Puerto Rico, gains for the fund and market were driven by a sharp decline in long- and intermediate-term municipal bond yields. Even with the decline in yields, however, the fund’s dividends remained constant ($0.20 per share) over the past six months.
Although we kept the portfolio’s emphasis on longer-term securities, we slightly trimmed our exposure to such issues. Holding fewer longer-term issues reduced the interest rate sensitivity of the portfolio, which was reflected in a significant decline in the portfolio’s duration. As shown in the Portfolio Characteristics table, duration declined from 6.9 years at the end of last August to 4.7 years at the end of February. We also reduced the portfolio’s weighted average maturity by more than half a year (to 16.1 from 16.8). This moderately more conservative positioning detracted a bit from the fund’s relative performance and its yield over the past six months as interest rates fell. Nevertheless, we intend to maintain a tilt toward this slightly more conservative profile because we expect upward pressure on longer-term rates will resume over the next year or two.
In terms of sector positioning, we continued to emphasize revenue sectors. We are attracted to the relative security of specific claims on revenues versus generic pledges of taxing power associated with general obligations, and revenue sectors typically also provide more yield. Health care remains our largest sector weight, and many positions in this area were our best performers over the past six months and throughout 2013. We expect health care to remain a core sector over time, as the income from many of these holdings is at a premium to the broader municipal market.
Our most significant new portfolio additions were in the Other Assets and Reserves category. After thorough review, we added debt issued by Annapolis Area Christian School in a limited public offering at yields as high as 6.75% for 30-year debt. While this nonrated debt may be risky in the conventional sense, our familiarity with the area and the local school market and our comfort with management were positive factors that contributed to our investment. Similarly, we took a smaller position in Baltimore’s City Neighbors Charter Schools, which is supported by a Baltimore City School Board guarantee and yields 6.90%. These investments exemplify our thorough investment process and our philosophy of seeking sensible opportunities to enhance the portfolio’s yield. We are confident that these investments will contribute positively to long-term returns. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
The fund’s negligible exposure to Puerto Rico as our fiscal year began was a boon to relative performance. Bonds from the commonwealth are widely held because their income is tax-exempt in all states. However, these issues performed miserably over the past year as the precarious state of Puerto Rico’s finances became generally recognized. At the end of the reporting period, your fund had no exposure to Puerto Rico, a credit to our strong research team, which guided us well once again. As always, the fund’s primary focus is on delivering a steady, above-average stream of tax-free income for Maryland residents without taking undue risk.
OUTLOOK
The decline in municipal bond prices that we witnessed during 2013 has rattled some investors, but it does not represent a fundamental change in the nature, quality, or risk characteristics of the municipal market. We continue to believe that it is a high-quality asset class with good investment opportunities for those with a long-term focus—particularly for those in the highest tax brackets—in what is still a very low interest rate environment. The underperformance of long-term munis has made their nominal and taxable-equivalent yields attractive, but price declines are likely if market outflows resume or interest rates rise sharply.
We have been concerned about the potential for rising rates for some time. Our interest rate strategy and economics teams regularly make forward-looking projections of rates and yield curves, and we incorporate these assessments in our investment strategies. Given the potential for rates to rise further, we will remain careful with any investment shift that might materially increase our portfolios’ interest rate sensitivity. However, we believe further rate increases will be more modest than what we have seen since the spring of 2013.
Irrespective of interest rate movements, the credit and economic environment for municipalities is starting to get better but could remain challenging. Modest economic growth and improving income and sales tax revenues are providing some support for state and local governments. Also, improvements in the health of the real estate market should translate into stabilizing property tax revenues for local governments.
State and local government liabilities, such as pension benefits and health care costs, are a growing long-term concern. While most municipal governments are maintaining balanced budgets, fewer municipalities 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. As for Detroit, we continue to monitor the bankruptcy proceedings closely because there is the potential for adverse legal precedents to arise out of the case. As for Puerto Rico, our dedication to thorough, fundamental credit research has helped us minimize our exposure to this increasingly risky yet significant issuer of municipal bonds. Puerto Rico is working hard to turn its fiscal situation around, but significant challenges remain, and a debt restructuring seems likely without a strong economic rebound.
We believe T. Rowe Price’s strong credit research capabilities have been and will remain an asset for our investors. Even as interest rates return to more normal levels, bonds will remain an important asset class, and we expect to continue finding good investment opportunities for long-term-oriented, income-seeking investors. We continue to 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 long-term 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 14, 2014
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 1–3 Year Municipal Bond Index: A broadly diversified index of state-issued general obligation tax-exempt bonds with maturities of one to three years.
Barclays 3 Year State GO 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 Inc.
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 have a 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 Money Fund (the fund) is a diversified, open-end management investment company established by the trust. The fund commenced operations on March 30, 2001. The fund seeks to provide preservation of capital, liquidity, and, consistent with these objectives, the highest level of income exempt from federal and Maryland state and local income taxes.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including but not limited to ASC 946. GAAP requires 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.
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.
NOTE 2 - VALUATION
The fund’s financial instruments are valued and its net asset value (NAV) per share is computed at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open for business. The fund’s financial instruments are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The T. Rowe Price Valuation Committee (the Valuation Committee) has been established by the fund’s Board of Trustees (the Board) to ensure that financial instruments are appropriately priced at fair value in accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the Valuation Committee develops and oversees pricing-related policies and procedures and approves all fair value determinations.
Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value:
Level 1 – quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date
Level 2 – inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads)
Level 3 – unobservable inputs
Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values. For example, securities held by a money market fund are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value are not quoted prices in an active market.
In accordance with Rule 2a-7 under the 1940 Act, the fund values its securities at amortized cost, which approximates fair value. Securities for which amortized cost is deemed not to reflect fair value are stated at fair value as determined in good faith by the Valuation Committee. On February 28, 2014, all of the fund’s financial instruments were classified as Level 2 in the fair value hierarchy.
NOTE 3 - 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.
NOTE 4 - 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.
Distributions during the years ended February 28, 2014 and February 28, 2013, totaled $13,000 and $12,000, respectively, and were characterized as tax-exempt income for tax purposes. At February 28, 2014, the tax-basis cost of investments and components of net assets were as follows:
The fund intends to retain realized gains to the extent of available capital loss carryforwards. Because the fund is required to use capital loss carryforwards that do not expire before those with expiration dates, all or a portion of its capital loss carryforwards subject to expiration could ultimately go unused. During the year ended February 28, 2014, the fund utilized less than $1,000 of capital loss carryforwards. The fund’s available capital loss carryforwards as of February 28, 2014, expire as follows: less than $1,000 in fiscal 2019; less than $1,000 have no expiration.
NOTE 5 - RELATED PARTY 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 0.275% for assets in excess of $400 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, 2014, the effective annual group fee rate was 0.29%.
Price Associates may voluntarily waive all or a portion of its management fee and reimburse operating expenses to the extent necessary for the fund to maintain a zero or positive net yield (voluntary waiver). Any amounts waived or reimbursed under this voluntary agreement are not subject to repayment by the fund. Price Associates may amend or terminate this voluntary arrangement at any time without prior notice. For the year ended February 28, 2014, management fees waived and operating expenses reimbursed totaled $572,000.
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, 2014, expenses incurred pursuant to these service agreements were $91,000 for Price Associates and $47,000 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 the Board of Trustees of T. Rowe Price State Tax-Free Income Trust and
Shareholders of Maryland Tax-Free Money 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 Money Fund (one of the portfolios comprising T. Rowe Price State Tax-Free Income Trust, hereafter referred to as the “Fund”) at February 28, 2014, 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, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 16, 2014
| Tax Information (Unaudited) for the Tax Year Ended 2/28/14 |
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 $13,000 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 above directions 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.
| About the Fund’s Trustees and Officers |
Your fund is overseen by a Board of Trustees (Board) that meets regularly to review a wide variety of matters affecting or potentially affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and business and regulatory affairs. The Board elects the fund’s officers, who are listed in the final table. At least 75% of the Board’s members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; “inside” or “interested” trustees are employees or officers of T. Rowe Price. The business address of each trustee and officer is 100 East Pratt Street, Baltimore, Maryland 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 1-800-638-5660.
| Independent Trustees | | |
| |
| Name | | |
| (Year of Birth) | | |
| Year Elected* | | |
| [Number of T. Rowe Price | | Principal Occupation(s) and Directorships of Public Companies and |
| Portfolios Overseen] | | Other Investment Companies During the Past Five Years |
| | | |
| William R. Brody | | President and Trustee, Salk Institute for Biological Studies (2009 |
| (1944) | | to present); Director, Novartis, Inc. (2009 to present); Director, IBM |
| 2009 | | (2007 to present); Director, BioMed Realty Trust (2013 to present) |
| [157] | | |
| | | |
| Anthony W. Deering | | Chairman, Exeter Capital, LLC, a private investment firm (2004 to |
| (1945) | | present); Director, Brixmor Real Estate Investment Trust (2012 to |
| 1986 | | present); Director and Member of the Advisory Board, Deutsche |
| [157] | | Bank North America (2004 to present); Director, Under Armour |
| | (2008 to present); Director, Vornado Real Estate Investment Trust |
| | (2004 to 2012) |
| | | |
| Donald W. Dick, Jr. | | Principal, EuroCapital Partners, LLC, an acquisition and management |
| (1943) | | advisory firm (1995 to present) |
| 2001 | | |
| [157] | | |
| | | |
| Bruce W. Duncan | | President, Chief Executive Officer, and Director, First Industrial Realty |
| (1951) | | Trust, owner and operator of industrial properties (2009 to present); |
| 2013 | | Chairman of the Board (2005 to present), Interim Chief Executive |
| [157] | | Officer (2007), and Director (1999 to present), Starwood Hotels & |
| | Resorts, a hotel and leisure company |
| | | |
| Robert J. Gerrard, Jr. | | Advisory Board Member, Pipeline Crisis/Winning Strategies (1997 |
| (1952) | | to present); Chairman of Compensation Committee and Director, |
| 2013 | | Syniverse Holdings, Inc. (2008 to 2011) |
| [157] | | |
| | | |
| Karen N. Horn | | Limited Partner and Senior Managing Director, Brock Capital |
| (1943) | | Group, an advisory and investment banking firm (2004 to present); |
| 2003 | | Director, Eli Lilly and Company (1987 to present); Director, Simon |
| [157] | | Property Group (2004 to present); Director, Norfolk Southern (2008 |
| | to present) |
| | | |
| Paul F. McBride | | Former Company Officer and Senior Vice President, Human Resources |
| (1956) | | and Corporate Initiatives (2004 to 2010) |
| 2013 | | |
| [157] | | |
| | | |
| Cecilia E. Rouse, Ph.D. | | Dean, Woodrow Wilson School (2012 to present); Professor and |
| (1963) | | Researcher, Princeton University (1992 to present); Director, MDRC, |
| 2013 | | a nonprofit education and social policy research organization |
| [157] | | (2011 to present); Member, National Academy of Education (2010 |
| | to present); Research Associate, National Bureau of Economic |
| | Research’s Labor Studies Program (2011 to present); Member, |
| | President’s Council of Economic Advisors (2009 to 2011); Chair |
| | of Committee on the Status of Minority Groups in the Economic |
| | Profession, American Economic Association (2012 to present) |
| | | |
| John G. Schreiber | | Owner/President, Centaur Capital Partners, Inc., a real estate |
| (1946) | | investment company (1991 to present); Cofounder and Partner, |
| 1992 | | Blackstone Real Estate Advisors, L.P. (1992 to present); Director, |
| [157] | | General Growth Properties, Inc. (2010 to present); Director, BXMT |
| | (formerly Capital Trust, Inc.), a real estate investment company |
| | (2012 to present); Director and Chairman of the Board, Brixmor |
| | Property Group, Inc. (2013 to present); Director, Hilton Worldwide |
| | (2013 to present) |
| | | |
| Mark R. Tercek | | President and Chief Executive Officer, The Nature Conservancy |
| (1957) | | (2008 to present); Managing Director, The Goldman Sachs Group, |
| 2009 | | Inc. (1984 to 2008) |
| [157] | | |
| |
| *Each independent trustee serves until retirement, resignation, or election of a successor. |
| |
| Inside Trustees | | |
| |
| Name | | |
| (Year of Birth) | | |
| Year Elected* | | |
| [Number of T. Rowe Price | | Principal Occupation(s) and Directorships of Public Companies and |
| Portfolios Overseen] | | Other Investment Companies During the Past Five Years |
| | | |
| Edward C. Bernard | | Director and Vice President, T. Rowe Price; Vice Chairman of the |
| (1956) | | Board, Director, and Vice President, T. Rowe Price Group, Inc.; |
| 2006 | | Chairman of the Board, Director, and President, T. Rowe Price |
| [157] | | Investment Services, Inc.; Chairman of the Board and Director, |
| | T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price |
| | Services, Inc.; Chairman of the Board, Chief Executive Officer, |
| | and Director, T. Rowe Price International; Chairman of the Board, |
| | Chief Executive Officer, Director, and President, T. Rowe Price Trust |
| | Company; Chairman of the Board, all funds |
| | | |
| Michael C. Gitlin | | Vice President, Price Hong Kong, Price Singapore, T. Rowe Price, |
| (1970) | | T. Rowe Price Group, Inc., and T. Rowe Price International |
| 2010 | | |
| [52] | | |
| |
| *Each inside trustee serves until retirement, resignation, or election of a successor. |
| Officers | | |
| |
| Name (Year of Birth) | | |
| Position Held With State Tax-Free Income Trust | | Principal Occupation(s) |
| | | |
| Austin Applegate (1974) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc.; formerly Senior Municipal Credit |
| | Research Analyst, Barclays (to 2011) |
| | | |
| R. Lee Arnold, Jr., CFA, CPA (1970) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| M. Helena Condez (1962) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Patricia S. Deford (1957) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| G. Richard Dent (1960) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Charles E. Emrich (1961) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Roger L. Fiery III, CPA (1959) | | Vice President, Price Hong Kong, Price |
| Vice President | | Singapore, T. Rowe Price, T. Rowe Price Group, |
| | Inc., T. Rowe Price International, and T. Rowe |
| | Price Trust Company |
| | | |
| John R. Gilner (1961) | | Chief Compliance Officer and Vice President, |
| Chief Compliance Officer | | T. Rowe Price; Vice President, T. Rowe Price |
| | Group, Inc., and T. Rowe Price Investment |
| | Services, Inc. |
| | | |
| Gregory S. Golczewski (1966) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Trust Company |
| | | |
| Charles B. Hill, CFA (1961) | | Vice President, T. Rowe Price and T. Rowe Price |
| Executive Vice President | | Group, Inc. |
| | | |
| Gregory K. Hinkle, CPA (1958) | | Vice President, T. Rowe Price, T. Rowe Price |
| Treasurer | | Group, Inc., and T. Rowe Price Trust Company |
| | | |
| Dylan Jones, CFA (1971) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Marcy M. Lash (1963) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Alan D. Levenson, Ph.D. (1958) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Patricia B. Lippert (1953) | | Assistant Vice President, T. Rowe Price and |
| Secretary | | T. Rowe Price Investment Services, Inc. |
| | | |
| Joseph K. Lynagh, CFA (1958) | | Vice President, T. Rowe Price, T. Rowe Price |
| Executive Vice President | | Group, Inc., and T. Rowe Price Trust Company |
| | | |
| Konstantine B. Mallas (1963) | | Vice President, T. Rowe Price and T. Rowe Price |
| Executive Vice President | | Group, Inc. |
| | | |
| Hugh D. McGuirk, CFA (1960) | | Vice President, T. Rowe Price and T. Rowe Price |
| President | | Group, Inc. |
| | | |
| James M. Murphy, CFA (1967) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Linda A. Murphy (1959) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Alexander S. Obaza (1981) | | Vice President, T. Rowe Price, T. Rowe Price |
| Vice President | | Group, Inc., and T. Rowe Price Trust Company |
| | | |
| David Oestreicher (1967) | | Director, Vice President, and Secretary, T. Rowe |
| Vice President | | Price Investment Services, Inc., T. Rowe |
| | Price Retirement Plan Services, Inc., T. Rowe |
| | Price Services, Inc., and T. Rowe Price Trust |
| | Company; Chief Legal Officer, Vice President, |
| | and Secretary, T. Rowe Price Group, Inc.; Vice |
| | President and Secretary, T. Rowe Price and |
| | T. Rowe Price International; Vice President, |
| | Price Hong Kong and Price Singapore |
| | | |
| Deborah D. Seidel (1962) | | Vice President, T. Rowe Price, T. Rowe Price |
| Vice President | | Group, Inc., T. Rowe Price Investment Services, |
| | Inc., and T. Rowe Price Services, Inc. |
| | | |
| Michael K. Sewell (1982) | | Vice President, T. Rowe Price |
| Assistant Vice President | | |
| | | |
| Chen Shao (1980) | | Assistant Vice President, T. Rowe Price |
| Assistant Vice President | | |
| | | |
| Douglas D. Spratley, CFA (1969) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Timothy G. Taylor, CFA (1975) | | Vice President, T. Rowe Price and T. Rowe Price |
| Vice President | | Group, Inc. |
| | | |
| Julie L. Waples (1970) | | Vice President, T. Rowe Price |
| Vice President | | |
| | | |
| Edward A. Wiese, CFA (1959) | | Director and Vice President, T. Rowe Price Trust |
| Vice President | | Company; Vice President, T. Rowe Price and |
| | T. Rowe Price Group, Inc. |
| |
| Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 5 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. Anthony W. Deering qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Deering is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant by the registrant’s principal accountant were as follows:
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 and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All 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 $1,862,000 and $1,651,000, respectively.
(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. Investments.
(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
(b) Not applicable.
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/ Edward C. Bernard |
| | Edward C. Bernard |
| | Principal Executive Officer |
| | |
| Date April 16, 2014 | | |
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/ Edward C. Bernard |
| | Edward C. Bernard |
| | Principal Executive Officer |
| | |
| Date April 16, 2014 | | |
| | |
| | |
| By | /s/ Gregory K. Hinkle |
| | Gregory K. Hinkle |
| | Principal Financial Officer |
| | |
| Date April 16, 2014 | | |
