PRICE T ROWE STATE TAX FREE INCOME TRUST, 485BPOS, 1997-06-20

PRICE T ROWE STATE TAX FREE INCOME TRUST
485BPOS, 1997-06-20

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PAGE 1
Registration Nos. 33-06533/811-4521

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /

Post-Effective Amendment No. 32 / X /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /

Amendment No. 27 / X /

Fiscal Year Ended February 28, 1997
______________________________________

T. ROWE PRICE STATE TAX-FREE INCOME TRUST
___________________________________________________
(Exact name of Registrant as Specified in Charter)

100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code 410-345-2000
____________

Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
________________________________________
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering July 1, 1997
_____________

It is proposed that this filing will become effective (check
appropriate box):

/ / immediately upon filing pursuant to paragraph (b)

/X/ on July 1, 1997 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(i)

/ / on (date) pursuant to paragraph (a)(i)

PAGE 2

/ / 75 days after filing pursuant to paragraph (a)(ii)

/ / on (date) pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:

/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________
Pursuant to Section 24f-2 of the Investment Company Act of 1940,
the Registrant has registered an indefinite number of securities
under the Securities Act of 1933 and intends to file a 24f-2
Notice by April 30, 1998.

+Not applicable, as no securities are being registered by this
Post-Effective Amendment No. 32 to the Registration Statement.

SUBJECT TO COMPLETION
Information contained herein is subject to completion or
amendment. A Registration Statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.

PAGE 3
The Registration Statement of T. Rowe Price State Tax-Free
Income Trust, on Form N-1A (File No. 33-06533) is hereby amended
under the Securities Act of 1933 to update the Registrant's
financial statements, make other changes in the Registrant's
Prospectus and Statement of Additional Information, and to
satisfy the annual amendment requirements of Rule 8b-16 under the
Investment Company Act of 1940.

The Amendment consists of the following:

Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Opinion of Counsel
Accountant's Consent

PAGE 4
NEW YORK TAX-FREE FUNDS
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
and Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Funds;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 5
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a New York
Portfolio; Other Risk
Considerations;
Investment Program;
Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds Yield Information
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
_________________________________
+ Not applicable or negative answer
[/R]

PAGE 6
MARYLAND SHORT-TERM TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of
Registrant About the Funds;
Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 7
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Maryland
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 8
MARYLAND TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Funds;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 9
Item 13. Investment Objectives and
Policies Investment Objective
and Policies; Risk
Factors Associated
with a Maryland
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 10
VIRGINIA TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PAGE 11
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Virginia
Portfolio; Investment
Program; Investment
Restrictions; Other
Risk Considerations;
Yield Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities;
Net Asset Value Per
Share; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 12
NEW JERSEY TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Fund;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 13
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a New Jersey
Portfolio; Investment
Program; Investment
Restrictions; Risk
Factors Associated
with a New Jersey
Portfolio; Other Risk
Considerations; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities;
Net Asset Value Per
Share; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 14
GEORGIA TAX-FREE BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of About the Fund;
Registrant Fund, Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 15
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Georgia
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 16
FLORIDA INSURED INTERMEDIATE TAX-FREE FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
____________ ________

PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of
Registrant About the Fund; Fund,
Market, and Risk
Characteristics: What
to Expect;
Understanding
Performance
Information;
Investment Policies
and Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Organization
and Management
Item 6. Capital Stock and Other Useful Information on
Securities Distributions and
Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and
Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements;
Shareholder Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +

PAGE 17
Item 13. Investment Objectives and Investment Objective
Policies and Policies; Risk
Factors Associated
with a Florida
Portfolio; Risk
Factors; Investment
Program; Investment
Restrictions; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent
Accountants; Legal
Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends;
Securities Organization of the
Trust
Item 19. Purchase, Redemption and Pricing Pricing of Securities;
of Securities Being Offered Net Asset Value Per
Share; Redemptions in
Kind; Federal
Registration of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report

PAGE 18

<PAGE>

PROSPECTUS

July 1, 1997
FloridaInsured IntermediateTax-Free Fund

A bond fund for investors seeking income exempt from federal income taxes and
principal exempt from the Florida intangibles tax.

T. Rowe Price Ram Logo
<PAGE>

FACTS AT A GLANCE

Florida Insured Intermediate Tax-Free Fund

Investment Goal
The highest level of income exempt from federal income taxes. An investment in
this fund is also expected to be exempt from Florida's intangibles property
tax.

As with all mutual funds, the fund may not meet its goal.

Strategy

Invests primarily in high-quality, insured Florida municipal bonds whose
interest and principal payments are guaranteed by private insurance companies.
The fund's average maturity is expected to be between five and 10 years.

Risk/Reward
Higher income than a short-term municipal bond fund and less potential share
price fluctuation than a long-term fund. Insurance does not guarantee the
market value of portfolio holdings, which will fluctuate in response to market
conditions. (See discussion on insurance in the section entitled Investment
Policies and Practices.)

Investor Profile

Florida taxpayers who, because of their tax bracket, can benefit from income
that is exempt from federal income taxes and from investments whose principal
is exempt from the state's intangibles property tax. Not appropriate for
tax-deferred retirement plans, such as IRAs.

Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange.

Investment Manager

Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc. ("T. Rowe Price") and its affiliates managed approximately $103 billion,
including over $6.1 billion in municipal bond assets, for more than five
million individual and institutional investor accounts as of March 31, 1997.

<PAGE>

T. Rowe Price State Tax-Free Income Trust

Prospectus

July 1, 1997
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>

T. ROWE PRICE 2
CONTENTS

ABOUT THE FUND

Transaction and Fund Expenses 2

Financial Highlights 3

Fund, Market, and Risk Characteristics 4

ABOUT YOUR ACCOUNT

Pricing Shares and Receiving Sale Proceeds 12

Distributions and Taxes 13

Transaction Procedures and Special Requirements 16

MORE ABOUT THE FUND

Organization and Management 19

Understanding Performance Information 21

Investment Policies and Practices 22

INVESTING WITH T. ROWE PRICE

Account Requirements
<PAGE>

INVESTING WITH T. ROWE PRICE 3
and Transaction Information 31

Opening a New Account 31

Purchasing Additional Shares 32

Exchanging and Redeeming 33

Shareholder Services 34

Discount Brokerage 36

Investment Information 37

<PAGE>

T. ROWE PRICE 4

This prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
fund, dated July 1, 1997, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.
<PAGE>

INVESTING WITH T. ROWE PRICE 5
ABOUT THE FUND
1

TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
. Like all T. Rowe Price funds, this fund is 100% no load.

These tables should help you understand the kinds of expenses you will bear
directly or indirectly as a fund shareholder.

Shareholder Transaction Expenses in Table 1 shows that you pay no sales
charges. All the money you invest in the fund goes to work for you, subject
to the fees explained below. Annual Fund Expenses provides an estimate of how
much it will cost to operate the fund for a year, based on 1997 fiscal year
expenses (and any applicable expense limitations). These are costs you pay
indirectly, because they are deducted from the fund's total assets before the
daily share price is calculated and before dividends and other distributions
are made. In other words, you will not see these expenses on your account
statement.

<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C> <C>
Shareholder Transaction Annual Fund Expenses Percentage of Fiscal 1997
Expenses (after reduction) Average Net Assets
Sales charge "load" on purchases None Management fee 0.30%/a/

Sales charge "load" on
reinvested distributions None Marketing fees (12b-1) None

Redemption fees Total other (shareholder
None servicing, custodial, auditing, etc.) 0.30%/a/

Exchange fees None Total fund expenses 0.60%/a/
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

/a/The fund's management fee and total expense ratio would have been 0.38% and
0.68%, respectively, had T. Rowe Price not agreed to reduce management fees
and assume other expenses in accordance with the expense limitation described
below. To limit the fund's expenses during its initial period of operations,
T. Rowe Price agreed to waive fees and bear any expenses through February 28,
1995, to the extent such fees or expenses would cause the fund's ratio of
expenses to average net assets to exceed 0.60%. Effective March 1, 1995, T.
Rowe Price agreed to extend the existing expense limitation of 0.60% for a
period of two years through February 28, 1997. Effective March 1, 1997, T.
Rowe Price agreed to extend the existing expense limitation of 0.60% for a
period of two years from March 1, 1997, through February 28, 1999. Fees waived
or expenses paid or assumed under these agreements are subject to
reimbursement to T. Rowe Price by the fund whenever the fund's expense ratio
is below 0.60%; however, no reimbursement will be made after February 28, 1997
(for the first agreement), February 28, 1999 (for the second agreement), or
February 28, 2001 (for the third agreement), or if it would result in the
expense ratio exceeding 0.60%. Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund. Organizational expenses will be
charged to the fund over a period not to exceed 60 months.

Note:
A $5 fee is charged for wire redemptions under $5,000, subject to change without
notice, and a $10 fee is charged for small accounts when applicable (see Small
Account Fee under Transaction Procedures and Special Requirements).
<PAGE>

T. ROWE PRICE 6

The main types of expenses, which all mutual funds may charge against fund
assets, are:

. A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.33% as of February 28, 1997,
and an individual fund fee of 0.05%.

. "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.

. Marketing or distribution fees An annual charge ("12b-1") to existing
shareholders to defray the cost of selling shares to new shareholders. T.
Rowe Price funds do not levy 12b-1 fees.

For further details on fund expenses, please see Organization and Management.

. Hypothetical example Assume you invest $1,000, the fund returns 5% annually,
expense ratios remain as listed previously, and you close your account at the
end of the time periods shown. Your expenses would be:

<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical Fund Expenses
1 year 3 years 5 years 10 years
6
$6 $19 $33 $75
- ----------------------------------------------------------
</TABLE>

. Table 2 is just an example; actual expenses can be higher or lower than
those shown.

FINANCIAL HIGHLIGHTS
----------------------------------------------------------

Table 3, which provides information about the fund's financial history, is
based on a single share outstanding throughout each fiscal year. The table is
part of the fund's financial statements which are included in its annual
report and are incorporated by reference into the Statement of Additional
Information (available upon request). The financial statements in the annual
report were audited by Coopers & Lybrand L.L.P., the fund's independent
accountants.
<PAGE>

ABOUT THE FUND 7

<TABLE>
Table 3 Financial Highlights
<CAPTION>
<S> <S> <C> <C>
Income From Investment Activities

Period Net AssetValue,Beginningof Period NetInvestmentIncome
Ended

1994/a/ $ 10.00 $ 0.37/b/

1995 10.30 0.43/b/

1996/d/ 10.14 0.47/b/

1997 10.61 0.46/b/
- ---------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>

Net Realized& Unrealized Gain (Loss) onInvestments Total FromInvestmentActivities

$ 0.31 $ 0.68

(0.14) 0.29

0.47 0.94

(0.07) 0.39
- --------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Less Distributions
Net Asset Value
NetInvestmentIncome (Loss) Net Realized Gain (Loss) TotalDistributions Net AssetValue,End of Period
$ (0.37) $ (0.01) $ (0.38) $ 10.30

(0.43) (0.02) (0.45) 10.14

(0.47) -- (0.47) 10.61

(0.46) (0.02) (0.48) 10.52
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
Table 3 Financial Highlights (continued)
<CAPTION>
Returns, Ratios, and Supplemental Data

Period Total Return Ratio of Ratio of Net
Ended (Includes Net Assets Expenses to Investment Portfolio
Reinvested ($ Thousands) Average Net Income to Turnover
Distributions) Assets Average Net Rate
Assets
- --------------
<S> <S> <C> <C> <C> <C> <C>
1994/a/ 6.84%/b/ $37,868 0.60%/bc/ 3.57%/bc/ 70.6%/c/

1995 3.01/b/ 51,922 0.60/b/ 4.38/b/ 140.5

1996/d/ 9.41/b/ 67,260 0.60/b/ 4.47/b/ 98.7

1997 3.81/b/ 78,783 0.60/b/ 4.39/b/ 75.8
- -----------------------------------------------------------------------------------
</TABLE>

/a//
/For the period March 31, 1993 (commencement of operations) to February 28,
1994.

/b
/Excludes expenses in excess of a 0.60% voluntary expense limitation in effect
through February 28, 1997.

/c /Annualized.

/d /Period ended February 29.

FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide whether this fund is appropriate for you, this section
takes a closer look at its investment objective and approach.

What is the fund's objective and investment program?

The fund's investment objective is to provide a high level of income exempt
from federal income taxes while minimizing credit risk by investing primarily
in insured Florida municipal bonds. The fund invests primarily in
high-quality, AAA-rated bonds that are insured as to timely interest and
principal payment. The fund's dollar-weighted average maturity is expected to
vary between five and 10 years. An investment in the fund is expected to be
exempt from the Florida intangibles personal property tax. (For a detailed
discussion of this tax and the fund's eligibility for exemption, please see
Useful Information on Distributions and Taxes.)
<PAGE>

T. ROWE PRICE 8
Due to seasonal variations or shortages in the supply of suitable Florida
securities, and when deemed by T. Rowe Price to be in the fund's best
interest, the fund may invest up to 35% of its net assets in a fiscal year in
municipal securities that are not exempt from the Florida intangibles
property tax. Every effort will be made to minimize such investments.

. It is expected that the fund's income will be exempt from federal income
taxes, and its principal exempt from the state's intangibles property tax.

What are the fund's credit-quality guidelines?

At least 65% of total assets will consist of insured Florida municipal bonds
carrying the highest credit rating (AAA) from a national rating organization
(Standard & Poor's Corporation, Moody's Investors Service, Inc., or a similar
service). The fund may invest up to 35% of its assets in high-quality
municipal securities rated AA (Aa) or higher, or, if unrated, believed to be
of a comparable quality. Up to 5% of the fund's assets may be invested in
upper-medium-quality A-rated bonds. The fund will not invest in any bond
rated below A at the time of purchase.

The insured bonds purchased by the fund will, at the time of purchase, carry
the highest credit rating available from a national rating agency. Insurance,
which is provided by private (nongovernmental) insurers, guarantees the
timely payment of principal and interest on the insured bond, not their
market value or the value of the fund's shares.

. At its discretion, the fund may retain a security whose credit quality is
downgraded after purchase.

What are the main risks of investing in municipal bond funds?

The fund's intermediate-term maturity structure should help reduce interest
rate risk because shorter-term bonds are less sensitive to rising interest
rates than long-term bonds. There is, however, no limitation on the maturity
of individual securities in the fund's portfolio. Credit risk should be
reduced by the extra protection provided by municipal bond insurance. (For
more discussion of municipal bond insurance, please see Investment Policies
and Practices.)

The potential for realizing a loss of principal in a bond fund could derive
from:

. Interest rate or market risk The decline in the price of bonds and bond
funds that may accompany a rise in the overall level of interest rates
(please see Table 4).

. Credit risk The chance that any of a fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled interest or
principal payments), potentially reducing the fund's income level and share
price.
<PAGE>

ABOUT THE FUND 9
. Political risk The chance that a significant restructuring of federal income
tax rates, or even serious discussion on the topic in Congress, could cause
municipal bond prices to fall. The demand for municipal bonds is strongly
influenced by the value of tax-exempt income to investors. Broadly lower tax
rates could reduce the advantage of owning municipal bonds.

. Geographical risk The chance of price declines resulting from developments
in a single state.

. A more detailed discussion of these and other risk considerations is
contained in the fund's Statement of Additional Information.

What are the particular risks associated with single-state funds versus those
that invest nationally?

A fund investing within a single state is, by definition, less diversified
geographically than one investing across many states. The risk arises from
the fund's greater exposure to that state's economy and politics, factors
that loom large in establishing the credit quality of bonds issued by the
state and its political subdivisions. For example, general obligation bonds
of a state or locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit rating than
those of a state without those attributes.

Of course, many municipal bonds are not general obligations backed by the
state's "full faith and credit" (its full taxing and revenue raising
resources) and may not rely on any government for money to service their
debt. Bonds issued by governmental authorities may depend wholly on revenues
generated by the project they financed or on other dedicated revenue streams.
The credit quality of these "revenue" bonds may vary significantly from that
of the state's general obligations.

. Significant political and economic developments within a state may have
direct and indirect repercussions on virtually all municipal bonds issued in
the state.

How does the portfolio manager try to reduce risk?

Consistent with the fund's objective, the portfolio manager actively seeks to
reduce risk and increase total return. Risk management tools include:

. Diversification of assets to reduce the impact of a single holding on the
fund's net asset value.

. Thorough credit research by our own analysts.

. Adjustment of fund duration to try to reduce the negative impact of rising
interest rates or take advantage of the benefits of falling rates. (Duration
is a more accurate measure than maturity of a fund's sensitivity to interest
rate changes.)
<PAGE>

T. ROWE PRICE 10
What is the credit quality of Florida general obligations?

As of June 1, 1997, the state was rated Aa2 by Moody's, AA+ by Standard &
Poor's, and AA by Fitch. In April of 1997, citing the state's healthy
financial position and strong economic expansion, Standard & Poor's upgraded
Florida's general obligation rating from AA. The Florida constitution and
statutes mandate that the state budget be kept in balance. The state's
revenue structure is narrowly based, relying heavily on the sales and use
tax. Florida's financial performance has improved over the last several
years, supported by above-average economic growth. However, the demand for
governmental services will continue to grow because of population growth and
state demographics and during a future economic slowdown, could strain state
finances.

. Credit ratings and the financial and economic conditions of the state, local
governments, public authorities, and others in which the fund may invest are
subject to change at any time.

What about the quality of the fund's other holdings?

In addition to the state's general obligations, the fund will invest a
substantial portion of its assets in bonds that are rated according to the
issuer's individual creditworthiness, such as bonds of local governments and
public authorities. While local governments in Florida depend principally on
their own revenue sources, they could experience budget shortfalls due to
cutbacks in state aid.

The fund may invest in certain sectors with special risks-for example, health
care, which could be affected by federal or state legislation, electric
utilities with exposure to nuclear power plants, and private activity bonds
without governmental backing.

The fund sometimes invests in obligations of the Commonwealth of Puerto Rico
and its public corporations (as well as the U.S. territories of Guam and the
Virgin Islands) that are exempt from federal income taxes. These investments
require careful assessment of certain risk factors, including reliance on
substantial federal assistance and favorable tax programs which have recently
become subject to phaseout by Congress. As of June 1, 1997, Puerto Rico's
general obligations were rated Baa1 by Moody's and A by Standard & Poor's.

. The share price and yield of the fund will fluctuate with changing market
conditions and interest rate levels. When you sell your shares, you may lose
money.

What are derivatives and can the fund invest in them?

ABOUT THE FUND 11
more exotic investments, such as stripped mortgage securities and structured
notes. While the term "derivative" only recently became widely known among
the investing public, derivatives have in fact been employed by investment
managers for many years.

The fund will invest in derivatives only if the expected risks and rewards
are consistent with its objective, policies, and overall risk profile as
described in this prospectus. The fund limits its use of derivatives to
situations in which they may enable the fund to accomplish the following:
increase yield; hedge against a decline in principal value; invest in
eligible asset classes with greater efficiency and lower cost than is
possible through direct investment; or adjust fund duration.

The fund will not invest in any high-risk, highly leveraged derivative
instrument that is expected to cause the price volatility of the portfolio to
be meaningfully different from that of a long-term investment-grade bond.

The following are some characteristics of municipal securities.

Who issues municipal securities?

State and local governments and governmental authorities sell notes and bonds
(usually called "municipals") to pay for public projects and services.

Who buys municipal securities?

Individuals are the primary investors, and a principal way they invest is
through mutual funds. Prices of municipals may be affected by major changes
in cash flows of money into or out of municipal funds. For example,
substantial and sustained redemptions from municipal bond funds could result
in lower prices for these securities.

Is interest income from municipal issues always exempt from federal taxes?

No. Since 1986 income from so-called "private activity" municipals has been
subject to the federal alternative minimum tax (AMT). For instance, some
bonds financing airports, stadiums, and student loan programs fall into this
category. Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few taxpayers are
required to pay the tax. Normally, the fund will not purchase any security
if, as a result, more than 20% of the fund's income would be subject to the
AMT. The fund will report annually to shareholders the portion of income, if
any, subject to the AMT. (Please see Distributions and Taxes-Taxes on Fund
Distributions.)

. Municipal securities are also called "tax-exempts" because the interest
income they provide is usually exempt from federal income taxes.
<PAGE>

Why are yields on municipals usually below those on otherwise comparable
taxable securities?
Why are yields on municipals usually below those on otherwise comparable
taxable securities?
Why are yields on municipals usually below those on otherwise comparable
taxable securities?

Since the income provided by most municipals is exempt from federal taxation,
investors are willing to accept lower yields on a municipal bond than on an
otherwise similar taxable bond. In addition, Florida investors may accept a
lower yield on Florida securities because their principal is exempt from the
Florida intangibles personal property tax.

Why are yields on Florida bonds often below those of comparable issues from
other states?

Strong demand for Florida securities tends to push their prices up and yields
down.

It will vary. The yield is calculated every day by dividing the fund's net
income per share, expressed at annual rates, by the share price. Since both

Credit quality refers to a bond issuer's expected ability to make all
required interest and principal payments in a timely manner. Because highly
rated issuers represent less risk, they can borrow at lower interest rates
than less creditworthy issuers. Therefore, a fund investing in high-quality
securities should have a lower yield than an otherwise comparable fund

ABOUT THE FUND 13
are falling because the issuer can refinance at a lower rate, just as a home
owner refinances a mortgage. In such an environment, a bond's "effective
maturity" is calculated using its nearest call date.

A bond mutual fund has no maturity in the strict sense of the word, but it
does have an average maturity and an average effective maturity. This number
is an average of the stated or effective maturities of the underlying bonds,
with each bond's maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the effective
(rather than stated) maturities of the underlying instruments when computing
the average. Targeting effective maturity provides additional flexibility in
portfolio management but, all else being equal, could result in higher
volatility than a fund targeting a stated maturity or maturity range.

What is meant by a bond fund's "duration"?

Duration is a calculation that seeks to measure the price sensitivity of a
bond or a bond fund to changes in interest rates. It measures bond price
sensitivity to interest rate changes more accurately than maturity because it
takes into account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to reflect their
present value and then are multiplied by the number of years they will be
received to produce a value that is expressed in years, i.e., the duration.
Effective duration takes into account call features and sinking fund payments
that may shorten a bond's life.

Since duration can also be computed for bond funds, you can estimate the
effect of interest rates on a fund's share price. Simply multiply the fund's
duration (available for T. Rowe Price bond funds in our shareholder reports)
by an expected change in interest rates. For example, the price of a bond
fund with a duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.

How is a municipal's price affected by changes in interest rates?

When interest rates rise, a bond's price usually falls, and vice versa. In
general, the longer a bond's maturity, the greater the price increase or
decrease in response to a given change in interest rates, as shown in Table
4.

<TABLE>
Table 4
<CAPTION>
How Interest Rates Affect Bond Prices
Price per $1,000 of a Municipal Bond if Interest Rates:
Increase Decrease
Bond Maturity Coupon 1 Point 2 Points 1 Point 2 Points

<S> <S> <C> <C> <C> <C> <C>
1 year 3.75% $990 $981 $1,010 $1,020

5 years 4.55% 957 916 1,045 1,093

10 years 4.90% 925 857 1,082 1,173

20 years 5.45% 889 794 1,132 1,287

30 years 5.50% 869 763 1,164 1,370
- ----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE 14

Coupons reflect yields on AAA-rated municipals as of May 31, 1997. This is an
illustration and does not represent expected yields or share price changes of
any T. Rowe Price fund.

How can I decide if the fund is appropriate for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. If you can accept the possibility of share price
decline in an effort to achieve income exempt from federal income taxes and
principal exempt from the Florida intangibles personal property tax, the fund
could be an appropriate part of your overall investment strategy. If you are
investing for principal stability and liquidity, you should consider a money
market fund.

. The fund should not represent your complete investment program nor be used
for short-term trading purposes.

Is there other information I need to review before making a decision?

Be sure to read Investment Policies and Practices in Section 3, which
discusses the principal types of portfolio securities that the fund may
purchase as well as the types of management practices that the fund may use.

<PAGE>

ABOUT THE FUND 15
ABOUT YOUR ACCOUNT
2

PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
tax-free fund.

How and when shares are priced

Bond funds
The share price (also called "net asset value" or NAV per share) for the fund
is calculated at 4 p.m. ET each day the New York Stock Exchange is open for
business. To calculate the NAV, the fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding.

. The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

T. ROWE PRICE 16
financial institution account. ACH is a payment system supported by over
20,000 banks, savings banks, and credit unions, which electronically
exchanges the transactions primarily through the Federal Reserve Banks.
Proceeds sent by bank wire should be credited to your account the next
business day.

. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five business days
after receiving your sale or exchange request. If you were exchanging into a
bond or money fund, your new investment would not begin to earn dividends
until the sixth business day.

. If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. The advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain distributions on a
rising number of shares.

Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office cannot deliver your check, or if your
check remains uncashed for six months, the fund reserves the right to
reinvest your distribution check in your account at the NAV on the business
day of the reinvestment and to reinvest all subsequent distributions in
shares of the fund.

Income dividends
. Bond funds declare income dividends daily at 4 p.m. ET to shareholders of
record at that time provided payment has been received on the previous
business day.

. Bond funds pay dividends on the first business day of each month.

. Bond fund shares will earn dividends through the date of redemption; also,
shares redeemed on a Friday or prior to a holiday will continue to earn
dividends until the next business day. Generally, if you redeem all of your
shares at any time during the month, you will also receive all dividends
earned through the date of redemption in the same check. When you redeem only
a portion of
<PAGE>

ABOUT YOUR ACCOUNT 17
your shares, all dividends accrued on those shares will be reinvested, or
paid in cash, on the next dividend payment date.
<PAGE>

T. ROWE PRICE 18
Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.

. If the fund has net capital gains for the year (after subtracting any
capital losses), they are usually declared and paid in December to
shareholders of record on a specified date that month. If a second
distribution is necessary, it is usually declared and paid during the first
quarter of the following year.

Tax Information

. You will be sent timely information for your tax filing needs.

Although the regular monthly income dividends you receive from the fund are
expected to be exempt from federal and state and local (if any) income taxes,
you need to be aware of the possible tax consequences when:

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

Due to 1993 tax legislation, a portion of the capital gains realized on the
sale of market discount bonds with maturities beyond one year may be treated
as ordinary income and cannot be offset by other capital losses. Therefore,
to the extent the fund invests in these securities, the likelihood of a
taxable gain distribution will be increased.

Note: You must report your total tax-exempt income on IRS Form 1040. The IRS
uses this information to help determine the tax status of any Social Security
payments you may have received during the year.

Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes. If you realize a
loss on the sale or exchange of fund shares held six months or less, your
capital loss is reduced by the tax-exempt dividends received on those shares.

In January, you will be sent Form 1099-B, indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For accounts opened new or by exchange in 1983
or later, we will provide you with the gain or loss of the shares you sold
during the year, based on the "average cost" method. This information is not
reported to the IRS, and you do not have to use it. You may calculate the
cost basis using other methods acceptable to the IRS, such as "specific
identification."
<PAGE>

To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.

Taxes on fund distributions
In January, the fund will send you Form 1099-DIV indicating the tax status of
any capital gain distribution made to you. This information will also be
reported to the IRS. All capital gain distributions are taxable to you for
the year in which they were paid. The only exception is that distributions
declared during the last three months of the year and paid in January are
taxed as though they were paid by December 31. Dividends are expected to be
tax-exempt.

Short-term capital gain distributions are taxable as ordinary income, and
long-term gain distributions are taxable at the applicable long-term gain
rate. The gain is long- or short-term depending on how long the fund held the
securities, not how long you held shares in the fund. If you realize a loss
on the sale or exchange of fund shares held six months or less, your
short-term loss recognized is reclassified to long-term to the extent of any
capital gain distribution received.

If the fund invests in certain "private activity" bonds, shareholders who are
subject to the alternative minimum tax (AMT) must include income generated by
these bonds in their AMT computation. The portion of your fund's income which
should be included in your AMT calculation, if any, will be reported to you
in January.

. Distributions are taxable whether reinvested in additional shares or
received in cash.

Tax effect of buying shares before a capital gain distribution
If you buy shares shortly before or on the "record date"- the date that
establishes you as the person to receive the upcoming distribution-you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation. When these
amounts are eventually distributed, they are taxable.

Note: For shareholders who receive Social Security benefits, the receipt of
tax-exempt interest may increase the portion of benefits that are subject to
tax.

Intangibles tax
Although Florida does not have a state income tax, it does impose an
intangibles property tax that applies to shares of mutual funds. However, a
fund that is invested solely in Florida municipal obligations, U.S.
government obligations,
<PAGE>

T. ROWE PRICE 20
and certain other designated securities on January 1 is exempt from the
intangibles tax. If a fund's portfolio is not 100% invested in these exempt
securities on January 1, the exemption applies only to the portion of assets
(if any) invested in U.S. government obligations.

The fund will make every effort to have its portfolio invested exclusively in
exempt securities on January 1 and, therefore, expects that the value of all
fund shares will be exempt from the intangibles tax. Nevertheless, exemption
is not guaranteed, since the fund has the right under certain conditions to
invest in nonexempt securities.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

Nonpayment
If your payment is not received or you pay with a check or ACH transfer that
does not clear, your purchase will be canceled. You will be responsible for
any losses or expenses incurred by the fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to nonpayment.

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.

Sale (Redemption) Conditions

10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption, but will generally delay
sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. If your redemption request was sent by mail or mailgram,
proceeds will be mailed no later than the seventh calendar day following
receipt unless the check or ACH transfer has not cleared. If, during the
clearing period, we receive a check drawn against your bond or money market
account, it will be returned marked "uncollected." (The 10-day hold does not
apply to the following: purchases paid for by bank wire; cashier's,
certified, or treasurer's checks; or automatic purchases through your
paycheck.)
<PAGE>

ABOUT YOUR ACCOUNT 21

Telephone, Tele*Access/(R)/, and personal computer transactions
Exchange and redemption services through Telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Personal computer
transactions must be authorized separately. The fund uses reasonable
procedures (including shareholder identity verification) to confirm that
instructions given by telephone are genuine and is not liable for acting on
these instructions. If these procedures are not followed, it is the opinion
of certain regulatory agencies that the fund may be liable for any losses
that may result from acting on the instructions given. A confirmation is sent
promptly after the telephone transaction. All conversations are recorded.

Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of the fund's net assets,
the fund has the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference between the
redemption amount and the lesser of the two previously mentioned figures with
securities from the fund.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. We define "excessive trading" as
exceeding one purchase and sale involving the same fund within any 120-day
period.

For example, you are in fund A. You can move substantial assets from fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.

If you exceed the number of trades described above, you may be barred
indefinitely from further purchases of T. Rowe Price funds.

Three types of transactions are exempt from excessive trading guidelines: 1)
trades solely between money market funds; 2) redemptions that are not part of
exchanges; and 3) systematic purchases or redemptions (see Shareholder
Services).
<PAGE>

T. ROWE PRICE 22
Keeping Your Account Open

Due to the relatively high cost to the fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.

Small Account Fee

Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the fund's transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances below $2,000,
except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be
waived for any investor whose aggregate T. Rowe Price mutual fund investments
total $25,000 or more. Accounts employing automatic investing (e.g., payroll
deduction, automatic purchase from a bank account, etc.) are also exempt from
the charge. The fee will not apply to IRAs and other retirement plan
accounts. (A separate custodial fee may apply to IRAs and other retirement
plan accounts.)

Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on
record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
<PAGE>

ABOUT YOUR ACCOUNT 23
MORE ABOUT THE FUND
3

ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How is the fund organized?

The T. Rowe Price State Tax-Free Income Trust (the "Trust") was organized in
1986 as a Massachusetts business trust and is a "nondiversified, open-end
investment company," or mutual fund. This fund was organized in 1993. Mutual
funds pool money received from shareholders and invest it to try to achieve
specified objectives.

. Shareholders benefit from T. Rowe Price's 60 years of investment management
experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain
distributions.

. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.

Do T. Rowe Price funds have annual shareholder meetings?

The funds are not required to hold annual meetings and, in order to avoid
unnecessary costs to fund shareholders, do not intend to do so except when
certain matters, such as a change in a fund's fundamental policies, are to be
decided. In addition, shareholders representing at least 10% of all eligible
votes may call a special meeting, if they wish, for the purpose of voting on
the removal of any fund director or trustee. If a meeting is held and you
cannot attend, you can vote by proxy. Before the meeting, the fund will send
you proxy materials that explain the issues to be decided and include a
voting card for you to mail back.
<PAGE>

T. ROWE PRICE 24
Who runs the fund?

General Oversight

The Trust is governed by a Board of Trustees that elects the Trust's officers
and meets regularly to review the fund's investments, performance, expenses,
and other business affairs. The policy of the Trust is that a majority of
Board members will be independent of T. Rowe Price.

. All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price-specifically by the fund's portfolio managers.

Portfolio Management

The fund has an Investment Advisory Committee composed of the following
members: Charles B. Hill, Chairman, Jeremy N. Baker, A. Gene Caponi, Patricia
S. Deford, Konstantine B. Mallas, Laura L. McAree, Mary J. Miller, William F.
Snider, and Arthur S. Varnado. The committee chairman has day-to-day
responsibility for managing the portfolio and works with the committee in
developing and executing the fund's investment program. Mr. Hill was
appointed chairman of the fund's committee in 1996. He joined T. Rowe Price
in 1991 and has been managing investments since 1986.

Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of this and all other T. Rowe Price funds.

Shareholder Services
T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the
funds' transfer and dividend disbursing agent and provides shareholder and
administrative services. The address for T. Rowe Price Investment Services,
Inc., and T. Rowe Price Services, Inc., is 100 East Pratt St., Baltimore, MD
21202.

How are fund expenses determined?

The management agreement spells out the expenses to be paid by the fund. In
addition to the management fee, the fund pays for the following: shareholder
service expenses; custodial, accounting, legal, and audit fees; costs of
preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any);
and director/trustee fees and expenses.

. For the fiscal year ended February 28, 1997, the fund paid $49,000 to T.
Rowe Price Services, Inc., for transfer and dividend disbursing functions and
shareholder services, and $65,000 to T. Rowe Price for accounting services.

ABOUT YOUR ACCOUNT 25
of the shared resources of the T. Rowe Price investment management complex,
is calculated daily based on the combined net assets of all T. Rowe Price
funds (except Equity Index and the Spectrum Funds and any institutional or
private label mutual funds). The group fee schedule (shown below) is
graduated, declining as the asset total rises, so shareholders benefit from
the overall growth in mutual fund assets.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
--------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
----------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter
----------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>

The fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of approximately
$63 billion at March 31, 1997, the group fee was 0.33%.

UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us, in our newsletter, The Price Report, in Insights articles, in T.
Rowe Price advertisements, and in the media.

Total Return

This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Including reinvested
distributions means that total return numbers include the effect of
compounding, i.e., you receive income and capital gain distributions on a
rising number of shares.

Advertisements for a fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

. Total return is the most widely used performance measure. Detailed
performance information is included in the fund's annual and semiannual
shareholder reports and in the quarterly Performance Update, which are all
available without charge.
<PAGE>

T. ROWE PRICE 26
Cumulative Total Return

This is the actual rate of return on an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated between the beginning and end of the period specified.

Average Annual Total Return

This is always hypothetical. Working backward from the actual cumulative
return, it tells you what constant year-by-year return would have produced
the actual cumulative return. By smoothing out all the variations in annual
performance, it gives you an idea of the investment's annual contribution to
your portfolio, provided you held it for the entire period in question.

Yield

The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the net asset
value. For example, a fund providing $5 of annual income per share and a
price of $50 has a current yield of 10%. Yields can be calculated for any
time period.

The advertised or "SEC" yield is found by determining the net income per
share (as defined by the SEC) earned by the fund during a 30-day base period
and dividing this amount by the per share price on the last day of the base
period. The SEC yield may differ from the dividend yield.

. You will see frequent references to the fund's yield in our reports, in
advertisements, in media stories, and so on.

INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the
Statement of Additional Information.

MORE ABOUT THE FUND 27
ment restrictions and policies at the time it makes an investment. A later
change in circumstances does not cause a violation of the restriction and
will not require the sale of an investment if it was proper at the time it
was made.

The fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in the prospectus. For
instance, this fund is not permitted to invest more than 10% of total assets
in residual interest bonds. While these restrictions provide a useful level
of detail about the fund's investment program, investors should not view them
as an accurate gauge of the potential risk of such investments. For example,
in a given period, a 5% investment in residual interest bonds could have
significantly more of an impact on the fund's share price than its weighting
in the portfolio. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance
of all the fund's other investments.

Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

. Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

In seeking to meet its investment objective, the fund may invest in any type
of municipal security or instrument (including certain potentially high-risk
derivatives described in this section) whose investment characteristics are
consistent with the fund's investment program. The following pages describe
the principal types of portfolio securities and investment management
practices of the fund.

Fundamental policy The fund is registered as a nondiversified mutual fund.
This means that the fund may invest a greater portion of its assets in a
single issuer than a diversified fund, which may subject the fund to greater
risk with respect to its portfolio securities. However, because the fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code, it must invest so that, at the end of each quarter, with
respect to 50% of its total assets, not more than 5% of its assets are
invested in the securities of a single issuer, and with respect to the
remaining 50%, no more than 25% of fund assets are invested in a single
issuer.

Municipal Securities
The fund's assets are invested primarily in various tax-free municipal debt
securities. The issuers have a contractual obligation to pay interest at a
stated rate on specific dates and to repay principal (the bond's face value)
on a specified date or dates. An issuer may have the right to redeem or
"call" a bond before maturity, and the investor may have to reinvest the
proceeds at lower rates.
<PAGE>

T. ROWE PRICE 28
There are two broad categories of municipal bonds. General obligation bonds
are backed by the issuer's "full faith and credit," that is, its full taxing
and revenue raising power. Revenue bonds usually rely exclusively on a
specific revenue source, such as charges for water and sewer service, to
generate money for debt service.

. In purchasing municipals, the fund relies on the opinion of the issuer's
bond counsel regarding the tax-exempt status of the investment.

Private Activity Bonds
While income from most municipals is exempt from federal income taxes, the
income from certain types of so-called private activity bonds (a type of
revenue bond) may be subject to the alternative minimum tax (AMT). However,
only persons subject to the AMT pay this tax. Private activity bonds may be
issued for purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor necessarily
pays this tax. For further information, please see Distributions and Taxes.)

Fundamental policy Under normal market conditions, the fund will not purchase
any security if, as a result, less than 80% of the fund's income would be
exempt from federal income taxes. The income included under the 80% test does
not include income from securities subject to the alternative minimum tax.

Operating policy During periods of abnormal market conditions, for temporary
defensive purposes, the fund may invest without limit in high-quality,
short-term securities whose income is subject to federal income taxes.

In addition to general obligation and revenue bonds, the fund's investments
may include, but are not limited to, the following types of securities:

Municipal Lease Obligations

A lease is not a full faith and credit obligation of the issuer and is
usually backed only by the borrowing government's unsecured pledge to make
annual appropriations for lease payments. There have been challenges to the
legality of lease financing in numerous states and, from time to time,
certain municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the fund would
assess the financial condition of the borrower, the merits of the project,
the level of public support for the project, and the legislative history of
lease financing in the state. These securities may be less readily marketable
than other municipals. The fund may also purchase unrated lease obligations.

MORE ABOUT THE FUND 29
lock in forward supply in an environment where the current issuance of bonds
is sharply reduced. Like options, warrants may expire worthless and they may
have reduced liquidity.

Operating policy The fund will not invest more than 2% of its total assets in
municipal warrants.

Securities With "Puts" or Other Demand Features

Some longer-term municipals give the investor the right to "put" or sell the
security at par (face value) within a specified number of days following the
investor's request-usually one to seven days. This demand feature enhances a
security's liquidity by dramatically shortening its effective maturity and
enables it to trade at a price equal to or very close to par. If a demand
feature terminates prior to being exercised, the fund would hold the
longer-term security, which could experience substantially more volatility.

Securities With Credit Enhancements
. Letters of credit Letters of credit are issued by a third party, usually a
bank, to enhance liquidity and ensure repayment of principal and any accrued
interest if the underlying municipal security should default.

. T. Rowe Price periodically reviews the credit quality of the insurer.

. Municipal Bond Insurance This insurance, which is usually purchased by the
bond issuer from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's principal and
interest will be paid when due. Insurance does not guarantee the price of the
bond or the share price of any fund. The credit rating of an insured bond
reflects the credit rating of the insurer, based on its claims-paying
ability.

The obligation of a municipal bond insurance company to pay a claim extends
over the life of each insured bond. Although defaults on insured municipal
bonds have been low to date and municipal bond insurers have met their
claims, there is no assurance this will continue. A higher-than-expected
default rate could strain the insurer's loss reserves and adversely affect
its ability to pay claims to bondholders, such as the fund. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating.

. Standby Purchase Agreements A Standby Bond Purchase Agreement (SBPA) is a
liquidity facility provided to pay the purchase price of bonds that cannot be
remarketed. The obligation of the liquidity provider (usually a bank) is only
to advance funds to purchase tendered bonds that cannot be remarketed and
does not cover principal or interest under any other circumstances. The
liquidity provider's obligations under the SBPA are usually subject to
numerous conditions, including the continued creditworthiness of the
underlying borrower.
<PAGE>

T. ROWE PRICE 30
Synthetic or Derivative Securities
These securities are created from existing municipal bonds:

Operating policy The fund will not invest more than 10% of its total assets
in residual interest bonds.

. Participation Interests This term covers various types of securities created
by converting fixed rate bonds into short-term, variable rate certificates.
These securities have been developed in the secondary market to meet the
demand for short-term, tax-exempt securities. The fund will invest only in
securities deemed tax-exempt by a nationally recognized bond counsel, but
there is no guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.

. Embedded Interest Rate Swaps and Caps In a fixed rate, long-term municipal
bond with an interest rate swap attached to it, the bondholder usually
receives the bond's fixed coupon payment as well as a variable rate payment
that represents the difference between a fixed rate for the term of the swap
(which is typically shorter than the bond it is attached to) and a variable
rate, short-term municipal index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate swap rate. If
short-term rates rise above the fixed income swap rate, the bondholder's
income is reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.

An embedded interest rate cap allows the bondholder to receive payments
whenever short-term rates rise above a level established at the time of
purchase. They normally are used to hedge against rising short-term interest
rates.

Both instruments may be volatile and of limited liquidity, and their use may
adversely affect the fund's total return.

Operating policy The fund will not invest more than 10% of its total assets
in embedded interest rate swaps and caps.

Private Placements
The fund may seek to enhance its yield through the purchase of private
placements. These securities are sold through private negotiations, usually
to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.
<PAGE>

Operating policy The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Operating policy The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.
Operating policy The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.

Types of Management Practices

Cash Position

The fund will hold a portion of its assets in short-term, tax-exempt money
market securities maturing in one year or less. The reserve position
accomplishes the following: provides flexibility in meeting redemptions,
expenses, and the timing of new investments; can help in structuring the
fund's weighted average maturity; and serves as a short-term defense during
periods of unusual market volatility. The fund's cash reserve position will
be composed of short-term, investment-grade securities including tax-exempt
commercial paper, municipal notes, and short-term maturity bonds. Some of
New issues of municipals are often sold on a "when-issued" basis, that is,
delivery and payment take place 15-45 days after the buyer has agreed to the
purchase. Some bonds, called "forwards," have longer-than-standard settlement
dates, typically six to 24 months. When buying these securities, the fund
will maintain cash or high-grade marketable securities held by its custodian
equal in value to its commitment for these securities. The fund does not earn
interest on when-issued and forward securities until settlement, and the
value of the securities may fluctuate between purchase and settlement.
Municipal "forwards" typically carry a substantial yield premium to
Futures (a type of potentially high-risk derivative) are often used to manage
risk because they enable the investor to buy or sell an asset in the future
at an agreed-upon price. Specifically, the fund may use futures (and options
on futures) for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust its exposure
to the municipal bond market; to protect portfolio value; in an effort to
enhance income; and to adjust portfolio duration. The use of futures for
hedging and non-hedging purposes may not always be successful. Their prices
can be highly volatile, using them could lower the fund's total return, and
the potential loss from their use could exceed the fund's initial exposure to
Operating policy Initial margin deposits on futures and premiums on options
used for non-hedging purposes will not equal more than 5% of the fund's net
asset value.
<PAGE>

T. ROWE PRICE 32
Borrowing Money and Transferring Assets
The fund can borrow money from banks as a temporary measure for emergency
purposes, to facilitate redemption requests, or for other purposes consistent
with the fund's investment objective and program. Such borrowings may be
collateralized with fund assets, subject to restrictions.

Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.

Operating policies The fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33/1//\\/3/\\% of the
fund's total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.

Portfolio Turnover

The fund generally purchases securities with the intention of holding them
for investment; however, when market conditions or other circumstances
warrant, securities may be purchased and sold without regard to the length of
time held. Due to the nature of the fund's investment program, the fund's
portfolio turnover rate may exceed 100%. Although the fund does not expect to
generate any taxable income, a high turnover rate may increase transaction
costs and may affect taxes paid by shareholders to the extent short-term
gains are distributed. The fund's portfolio turnover rates for the fiscal
years ending February 28, 1997, February 29, 1996, and February 28, 1995,
were 75.8%, 98.7%, and 140.5%, respectively.

Sector Concentration
It is possible that the fund could have a considerable amount of assets (25%
or more) in securities that would tend to respond similarly to particular
economic or political developments. An example would be securities of issuers
related to a single industry, such as health care or nuclear energy.

Operating policy The fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry (such as solid
waste, nuclear utility, or airlines). Bonds which are refunded with escrowed
U.S. government securities are not subject to the 25% limitation.

Credit-Quality Considerations
The credit quality of most bond issues is evaluated by rating agencies such
as Moody's and Standard & Poor's. Credit quality refers to the issuer's
ability to meet all required interest and principal payments. The highest
ratings are assigned to issuers perceived to be the best credit risks. T.
Rowe Price research analysts also evaluate all portfolio holdings of the
fund, including those rated by outside agencies. The lower the rating on a
bond, the higher the yield, other things being equal.
<PAGE>

MORE ABOUT THE FUND 33
Table 5 shows the rating scale used by the major rating agencies, and Table 6
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings, but emphasizes its own credit analysis when selecting
investments.

<TABLE>
Table 5
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratings of Municipal Debt Securities
Moody's Standard & Fitch
Investors Poor's Investors
Service, Inc. Corporation Service, Inc. Definition
Long Term Aaa AAA AAA Highest quality

Aa AA AA High quality

A A A Upper medium grade

Baa BBB BBB Medium grade

Moody's S&P Fitch
SP1+ Very strong quality F-1+ Exceptionally strong quality
Short Term MIG1/VMIG1 Best quality SP1 Strong grade F-1 Very strong quality
C
MIG2/VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
C
A-1+ Extremely strong F-1+ Exceptionally strong quality
Commercial Superior A-1 quality F-1 Very strong quality
Paper P-1 quality Strong quality
C
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE 34

<TABLE>
Table 6
<CAPTION>
<S> <C> <C> <C>
Explanation of Quality Ratings
Bond
Rating Explanation

Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.

High quality; together with Aaa bonds, they
Aa compose the high-grade bond group.

Upper-medium-grade obligations; many
A favorable investment attributes.

Medium-grade obligations; neither highly
protected nor poorly secured. Interest and
principal appear adequate for the present,
but certain protective elements may be
lacking or may be unreliable over any great
Baa length of time.

More uncertain with speculative elements.
Protection of interest and principal payments
Ba not well safeguarded in good and bad times.

Lack characteristics of desirable investment;
potentially low assurance of timely interest
and principal payments or maintenance of
B other contract terms over time.

Poor standing, may be in default; elements of
danger with respect to principal or interest
Caa payments.

Speculative in high degree; could be in
default or have other marked
Ca shortcomings.

Lowest rated. Extremely poor prospects of
C ever attaining investment standing.

Standard & Poor's AAA Highest rating; extremely strong capacity to
Corporation pay principal and interest.

High quality; very strong capacity to pay
AA principal and interest.

Strong capacity to pay principal and
interest; somewhat more susceptible to the
adverse effects of changing circumstances and
A economic conditions.

Adequate capacity to pay principal and
interest; normally exhibit adequate
protection parameters, but adverse economic
conditions or changing circumstances more
likely to lead to weakened capacity to pay
principal and interest than for higher-rated
BBB bonds.

Predominantly speculative with respect to the
issuer's capacity to meet required interest
and principal payments. BB-lowest degree of
speculation;
CC-the highest degree of speculation. Quality
and protective characteristics outweighed by
BB, B, large uncertainties or major risk exposure to
CCC, CC adverse conditions.

D In default.

Fitch Investors Highest quality; obligor has exceptionally
Service, Inc. strong ability to pay interest and repay
principal, which is unlikely to be affected
AAA by reasonably foreseeable events.

Very high quality; obligor's ability to pay
interest and repay principal is very strong.
Because bonds rated in the AAA and AA
categories are not significantly vulnerable
to foreseeable future developments,
short-term debt of these issuers is generally
AA rated F-1+.

High quality; obligor's ability to pay
interest and repay principal is considered to
be strong, but may be more vulnerable to
adverse changes in economic conditions and
A circumstances than higher-rated bonds.

Satisfactory credit quality; obligor's
ability to pay interest and repay principal
is considered adequate. Unfavorable changes
in economic conditions and circumstances are
more likely to adversely affect these bonds
and impair timely payment. The likelihood
that the ratings of these bonds will fall
below investment grade is higher than for
BBB higher-rated bonds.

Not investment grade; predominantly
speculative with respect to the issuer's
capacity to repay interest and repay
BB, principal in accordance with the terms of the
CCC, obligation for bond issues not in default. BB
CC, C is the least speculative. C is the most
speculative.
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

MORE ABOUT THE FUND 35
<PAGE>

T. ROWE PRICE 36
INVESTING WITH T. ROWE PRICE
4

ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.

Institutional Accounts
Transaction procedures in the following sections may not apply to institutional
accounts. For procedures regarding institutional accounts, please call your
designated account manager or service representative.

OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for gifts or transfers to minors
(UGMA/UTMA) accounts

Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)

By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check together with the New Account Form to the address
below. We do not accept third party checks to open new accounts.
<PAGE>

MORE ABOUT THE FUND 37
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117

By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 account name and account number

Complete a New Account Form and mail it to one of the appropriate addresses
listed on the previous page.

Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received.

By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Shareholder Services). The new account will have the
same registration as the account from which you are exchanging. Services for the
new account may be carried over by telephone request if preauthorized on the
existing account. For limitations on exchanging, see explanation of Excessive
Trading under Transaction Procedures and Special Requirements.

In Person

Drop off your New Account Form at any location listed on the cover and obtain a
receipt.

PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for Automatic Asset Builder, and gifts or
transfers to minors (UGMA/ UTMA) accounts
<PAGE>

By ACH Transfer
Use Tele*Access, your personal computer, or call Investor Services if you have
established electronic transfers using the ACH network.

By Wire
Call Shareholder Services or use the wire address in Opening a New Account.
By Mail

1 . M a k e y o u r c h e c k p a y a b l e t o T. Rowe Price F u n d s ( o t h
e r w i s e i t m a

y be returned).
1 . M a k e y o u r c h e c k p a y a b l e t o T. Rowe Price F u n d s ( o t h
e r w i s e i t m a
<PAGE>

INVESTING WITH T. ROWE PRICE 39
y be returned).

2. Mail the check to us at the address shown on the next page with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.

3. Remember to provide your account number and the fund name on the memo line
of your check.

Regular Mail
T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500

/(For mailgrams, express, registered, or certified mail, see previous /
/section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.

EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
By Phone
Call Shareholder Services

If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer, Tele*Access (if you have
previously authorized telephone services), mailgram, or express mail. For
exchange policies, please see Transaction Procedures and Special Requirements
- -Excessive Trading.

By Mail

T. ROWE PRICE 40
of all owners exactly as registered, and possibly a signature guarantee (see
Transaction Procedures and Special Requirements-Signature Guarantees).

Regular Mail
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117

Rights Reserved by the Fund

The fund and its agents reserve the right to waive or lower investment minimums;
to accept initial purchases by telephone or mailgram; to refuse any purchase
order; to cancel or rescind any purchase or exchange (for example, if an account
has been restricted due to excessive trading or fraud) upon notice to the
shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; to
freeze any account and suspend account services when notice has been received of
a dispute between the registered or beneficial account owners or there is reason
to believe a fraudulent transaction may occur; to otherwise modify the
conditions of purchase and any services at any time; or to act on instructions
believed to be genuine.

SHAREHOLDER SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize on the New Account Form. By
signing up for services on the New Account Form rather than later on, you avoid
having to complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered. Our Services
Guide contains detailed descriptions of these and other services.
<PAGE>

INVESTING WITH T. ROWE PRICE 41
If you are a new T. Rowe Price investor, you will receive a Services Guide with
our Welcome Kit.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.

Retirement Plans

We offer a wide range of plans for individuals, institutions, and large and
small businesses: IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money
purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, including our no-load
variable annuity, please call our Trust Company at 1-800-492-7670.

Exchange Service

You can move money from one account to an existing identically registered
account, or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the funds are registered.) Some of
the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held
for less than six months or one year, as specified in the prospectus. The fee is
paid to the fund.

Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access

24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers below).

T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.

After obtaining proper authorization, account transactions may also be conducted
on the Internet.
<PAGE>

T. ROWE PRICE 42

Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access, but is designed specifically to
meet the needs of retirement plan investors.

Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the cover.

Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via Tele*Access or your personal computer,
or call Shareholder Services.

By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.

Checkwriting

(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.

Automatic Investing

($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
<PAGE>

INVESTING WITH T. ROWE PRICE 43
DISCOUNT BROKERAGE
----------------------------------------------------------

This additional service gives you the opportunity to easily consolidate all of
your investments with one company. Through our discount brokerage, you can buy
and sell individual securities-stocks, bonds, options, and others - at
commission savings over full-service brokers. We also provide a wide range of
services, including:

To open an account 1-800-638-5660 For existing discount brokerage investors
1-800-225-7720
Automated telephone and on-line services
You can enter trades, access quotes, and review account information 24 hours a
day, seven days a week. Any trades executed through these programs save you an
additional 10% on commissions.

Note: Discount applies to our current commission schedule, subject to our $35
minimum commission.

Investor information

A variety of informative reports, such as our Brokerage Insights series, S&P
Market Month Newsletter, and select stock reports can help you better evaluate
economic trends and investment opportunities.

Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this
service-free of charge.

/Discount Brokerage is a division of //T. Rowe Price// Investment / /Services,
Inc., Member NASD/SIPC./

INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements.

Shareholder Reports
Fund managers' reviews of their strategies and results. If several members of a
household own the same fund, only one fund report is mailed to that address. To
receive additional copies, please call Shareholder Services or write to us at
100 East Pratt Street, Baltimore, Maryland 21202.
<PAGE>

T. ROWE PRICE 44

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
Quarterly review of all T. Rowe Price fund results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides
Asset Mix Worksheet, College Planning Kit, Personal Strategy Planner, Retirees
Financial Guide, Retirement Planning Kit, Tax Considerations for Investors, and
Diversifying Overseas: A T. Rowe Price Guide to International Investing.
<PAGE>

INVESTING WITH T. ROWE PRICE 45
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
timely, informative reports.

To Open a Mutual Fund Account
Investor Services
1-800-638-5660
1-410-547-2308

For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500

For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/

1-800-638-2587 24 hours, 7 days

To Open a Discount Brokerage Account
1-800-638-5660

Internet Address
www.troweprice.com

<PAGE>

T. ROWE PRICE 46

Investor Centers
101 East Lombard St.
Baltimore, MD 21202

T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117

Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006

ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071

4200 West Cypress St.
10th Floor
Tampa, FL 33607

<PAGE>

INVESTING WITH T. ROWE PRICE 47

F91-040 7/1/97
Logo
<PAGE>

T. ROWE PRICE 48

<PAGE>

PROSPECTUS

July 1, 1997
Georgia Tax-Free Bond Fund

A long-term bond fund for investors seeking income that is exempt from federal
and Georgia state income taxes.

T. Rowe Price Ram logo
<PAGE>

FACTS AT A GLANCE

Georgia Tax-Free Bond Fund

Investment Goal
The highest level of income exempt from federal and Georgia state income taxes.

As with all mutual funds, this fund may not meet its goal.

Strategy

Invests primarily in investment-grade Georgia municipal bonds. The fund's
average maturity is expected to exceed 15 years.

Risk/Reward
Higher income but also greater potential price fluctuation than shorter-term
municipal bond funds.

Investor Profile
Georgia taxpayers who, because of their tax bracket, can benefit from income
that is exempt from federal and Georgia state income taxes. Not appropriate for
tax-deferred retirement plans, such as IRAs.

Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange.

Investment Manager

<PAGE>

T. Rowe Price State Tax-Free Income Trust
Prospectus
July 1, 1997
Contents

About the Fund

Transaction and Fund Expenses 2
Financial Highlights 3
Fund, Market, and Risk Characteristics 4

About Your Account

Pricing Shares and Receiving Sale Proceeds 11
Distributions and Taxes 12
Transaction Procedures and Special Requirements 15

More About the Fund

Organization and Management 18
Understanding Performance Information 20
Investment Policies and Practices 21

Investing With T. Rowe Price

Account Requirements and Transaction Information 30
Opening a New Account 30
Purchasing Additional Shares 32
Exchanging and Redeeming 32
Shareholder Services 34
Discount Brokerage 36
Investment Information 37

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

ABOUT THE FUND
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
o Like all T. Rowe Price funds, this fund is 100% no load.

These tables should help you understand the kinds of expenses you will bear
directly or indirectly as a fund shareholder.

<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C> <C>
Shareholder Transaction Annual Fund Expenses Percentage of Fiscal
Expenses (after reduction) 1997 Average Net Assets
Sales charge "load" on purchases None Management fee 0.12%/a/

Sales charge "load" on None
reinvested distributions Marketing fees (12b-1) None

Total other (shareholder servic
Redemption fees None ing, custodial, auditing, etc.) 0.53%

Exchange fees None Total fund expenses 0.65%/a/
- ------------------------------------------------------------------------------------------------------
</TABLE>

/a/The fund's management fee and total expense ratio would have been 0.43% and
0.96%, respectively, had T. Rowe Price not agreed to reduce management fees
and assume other expenses in accordance with the expense limitation described
below. From March 1, 1995, through February 28, 1997, T. Rowe Price agreed to
waive its fees and bear any expenses to the extent that such fees and expenses
would cause the fund's ratio of expenses to average net assets to exceed
0.65%. Effective March 1, 1997, T. Rowe Price agreed to extend the 0.65%
expense limitation for an additional two-year period through February 28,
1999. Fees waived or expenses paid or assumed under these agreements are
subject to reimbursement to T. Rowe Price by the fund whenever the fund's
expense ratio is below 0.65%; however, no reimbursement will be made after
February 28, 1999 (for the first agreement), or February 28, 2001 (for the
second agreement), or if it would result in the expense ratio exceeding 0.65%.
Any amounts reimbursed will have the effect of increasing fees otherwise paid

Note:
A $5 fee is charged for wire redemptions under $5,000, subject to change without
notice, and a $10 fee is charged for small accounts when applicable (see Small

The main types of expenses, which all mutual funds may charge against fund

o A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.33% as of February 28, 1997,
and an individual fund fee of 0.10%.
<PAGE>

ABOUT THE FUND 3
o "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.

o Marketing or distribution fees An annual charge ("12b-1") to existing
shareholders to defray the cost of selling shares to new shareholders. T.
Rowe Price funds do not levy 12b-1 fees.

For further details on fund expenses, please see Organization and Management.

o Hypothetical example Assume you invest $1,000, the fund returns 5% annually,
expense ratios remain as listed previously, and you close your account at the
end of the time periods shown. Your expenses would be:

<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical Fund Expenses
1 year 3 years 5 years 10 years
7
$7 $21 $36 $81
- ----------------------------------------------------------
</TABLE>

o Table 2 is just an example; actual expenses can be higher or lower than
those shown.

FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 3, which provides information about the fund's financial history, is
based on a single share outstanding throughout each fiscal year. The table is
part of the fund's financial statements, which are included in its annual
report and are incorporated by reference into the Statement of Additional
Information (available upon request). The financial statements in the annual
report were audited by Coopers & Lybrand L.L.P., the fund's independent
accountants.

<TABLE>
Table 3 Financial Highlights
<CAPTION>
Income From Investment Activities Less Distributions Net Asset Value
Period Net Asset Net Net Realized Total From Net Net Asset
Ended Value, Investment & Unrealized Investment Investment Net Realized Total Value,
Beginning Income (Loss) Gain (Loss) on Activities Income (Loss) Gain (Loss) Distributions End of Period
of Period Investments

Footnotes appear on page 4. (Table 3 continues on page 4.)
<PAGE>

T. ROWE PRICE 4

/a/For the period March 31, 1993 (commencement of operations) to February 28,
1994.

/b/
Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
through February 28, 1999.

/c/ Annualized.

/d/ Year ended February 29.

What is the fund's objective and investment program?

The fund's investment objective is, consistent with prudent portfolio
management, the highest level of income exempt from federal and Georgia state
income taxes by investing primarily in investment-grade Georgia municipal
bonds.

The fund will invest at least 65% of its total assets in Georgia municipal
bonds. The fund's dollar-weighted average maturity is expected to exceed 15
years. Due to seasonal variations or shortages in the supply of suitable
short-term Georgia securities, the fund may invest periodically in municipals
whose interest is exempt from federal but not state income taxes. Every
effort will be made to minimize such investments, but they could compose up
to 10% of the fund's annual income.

o Income from Georgia municipal securities is exempt from federal and Georgia
state income taxes.

What are the fund's credit-quality guidelines?

The fund will generally purchase investment-grade securities, which means
their ratings are within the four highest credit categories (AAA, AA, A, BBB)
as determined by a national rating organization or, if unrated, by T. Rowe
Price. The fund may occasionally purchase below investment-grade securities
(including those with the lowest or no rating), but no such purchase will be
made if it would cause the fund's noninvestment-grade bonds to exceed 5% of
its net assets. Unrated bonds may be less liquid than rated bonds.
<PAGE>

ABOUT THE FUND 5
Investment-grade securities include a range from the highest rated to medium
quality. Securities in the BBB category may be more susceptible to adverse
economic conditions or changing circumstances, and the securities at the
lower end of the BBB category have certain speculative characteristics.

o At its discretion, the fund may retain a security whose credit quality is
downgraded after purchase.

What are the main risks of investing in municipal bond funds?

The potential for realizing a loss of principal in a bond fund could derive
from:

o Interest rate or market risk The decline in the price of bonds and bond
funds that may accompany a rise in the overall level of interest rates
(please see Table 4).

o Credit risk The chance that any of a fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled interest or
principal payments), potentially reducing the fund's income level and share
price.

o Political risk The chance that a significant restructuring of federal income
tax rates, or even serious discussion on the topic in Congress, could cause
municipal bond prices to fall. The demand for municipal bonds is strongly
influenced by the value of tax-exempt income to investors. Broadly lower tax
rates could reduce the advantage of owning municipal bonds.

o Geographical risk The chance of price declines resulting from developments
in a single state.

o A more detailed discussion of these and other risk considerations is
contained in the fund's Statement of Additional Information.

What are the particular risks associated with single-state funds versus those
that invest nationally?

T. ROWE PRICE 6

o Significant political and economic developments within a state may have
direct and indirect repercussions on virtually all municipal bonds issued in
the state.

How does the portfolio manager try to reduce risk?

Consistent with the fund's objective, the portfolio manager actively seeks to
reduce risk and increase total return. Risk management tools include:

o Diversification of assets to reduce the impact of a single holding on the
fund's net asset value.

o Thorough credit research by our own analysts.

o Adjustment of fund duration to try to reduce the negative impact of rising
interest rates or take advantage of the benefits of falling rates. (Duration
is a more accurate measure than maturity of a fund's sensitivity to interest
rate changes.)

What is the credit quality of Georgia general obligations?

As of June 1, 1997, the state was rated Aaa by Moody's, AA+ (with a positive
outlook) by Standard & Poor's, and AAA by Fitch. Since 1973, the state of
Georgia has financed its capital needs through the issuance of general
obligation bonds. The state constitution and current law limit maximum annual
debt service on general obligation debt to 10% of total revenue receipts of
the state treasury. The state has never defaulted on the payment of principal
and interest on its general obligation bonds and has not issued short-term
tax anticipation notes for its seasonal cash flow requirements.

o Credit ratings and the financial and economic conditions of the state, local
governments, public authorities, and others in which the fund may invest are
subject to change at any time.

What about the quality of the fund's other holdings?

In addition to the state's general obligations, the fund will invest a
substantial portion of assets in bonds that are rated according to the
issuer's individual creditworthiness, such as bonds of local governments and
public authorities. While governments in Georgia depend principally on their
own revenue sources, they could experience budget shortfalls due to cutbacks
in state aid.

The fund may invest in certain sectors with special risks-for example, health
care, which could be affected by federal or state legislation; electric
utilities with exposure to nuclear power plants; and private activity bonds
without governmental backing.

ABOUT THE FUND 7
on substantial federal assistance and favorable tax programs, which have
recently become subject to phaseout by Congress. As of June 1, 1997, Puerto
Rico's general obligations were rated Baa1 by Moody's and A by Standard &
Poor's.

o The share price and yield of the fund will fluctuate with changing market
conditions and interest rate levels. When you sell your shares, you may lose
money.

What are derivatives and can the fund invest in them?

The term derivative is used to describe financial instruments whose value is
derived from an underlying security (e.g., a stock or bond) or a market
benchmark (e.g., an interest rate index). Many types of investments
representing a wide range of potential risks and rewards fall under the
"derivatives" umbrella-from conventional instruments, such as callable bonds,
futures, and options to more exotic investments, such as stripped mortgage
securities and structured notes. While the term "derivative" only recently
became widely known among the investing public, derivatives have in fact been
employed by investment managers for many years.

The following are some characteristics of municipal securities.

Who issues municipal securities?

State and local governments and governmental authorities sell notes and bonds
(usually called "municipals") to pay for public projects and services.

Who buys municipal securities?

T. ROWE PRICE 8
Is interest income from municipal issues always exempt from federal taxes?

o Municipal securities are also called "tax-exempts" because the interest
income they provide is usually exempt from federal income taxes.

Why are yields on municipals usually below those on otherwise comparable
taxable securities?

Since the income provided by most municipals is exempt from federal taxation,
investors are willing to accept lower yields on a municipal bond than on an
otherwise similar (in quality and maturity) taxable bond.

Why are yields on Georgia bonds often below those of comparable issues from
other states?

Strong demand for Georgia securities due to a relatively high state income
tax rate and an often limited supply tends to push their prices up and yields
down.

Is there an easy way to compare after-tax yields on a Georgia fund with a
similar tax-exempt fund that invests nationally?

Subtract your state tax rate from 1 and multiply this number times the yield
on the national fund. The result is the yield to you on the national fund
after paying Georgia income tax. Compare this with the Georgia fund's yield.

You may want to review some fundamentals that apply to all fixed income
investments.

Is a fund's yield fixed or will it vary?

It will vary. The yield is calculated every day by dividing the fund's net
income per share, expressed at annual rates, by the share price. Since both
income and share price will fluctuate, the fund's yield will also vary.
<PAGE>

ABOUT THE FUND 9
Is a fund's "yield" the same thing as the "total return"?

Not for bond funds. The total return reported for a fund is the result of
reinvested distributions (income and capital gains) and the change in share
price for a given time period. Income is always a positive contributor to
total return and can enhance a rise in share price or serve as an offset to a
drop in share price.

What is "credit quality" and how does it affect a fund's yield?

What is meant by a bond fund's "maturity"?

Every bond has a stated maturity date when the issuer must repay the
security's entire principal value to the investor. However, many bonds are
"callable," meaning their principal can be repaid before their stated
maturity dates on (or after) specified call dates. Bonds are most likely to
be called when interest rates are falling because the issuer can refinance at
a lower rate, just as a homeowner refinances a mortgage. In such an
environment, a bond's "effective maturity" is calculated using its nearest
call date.

What is meant by a bond fund's "duration"?

T. ROWE PRICE 10
Since duration can also be computed for bond funds, you can estimate the
effect of interest rates on a fund's share price. Simply multiply the fund's
duration (available for T. Rowe Price bond funds in our shareholder reports)
by an expected change in interest rates. For example, the price of a bond
fund with a duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.

How is a municipal's price affected by changes in interest rates?

<TABLE>
Table 4
<CAPTION>
How Interest Rates Affect Bond Prices
Price per $1,000 of a Municipal Bond if Interest Rates:
Increase Decrease
Bond Maturity Coupon 1 Point 2 Points 1 Point 2 Points

<S> <S> <C> <C> <C> <C> <C>
1 year 3.75% $990 $981 $1,010 $1,020
5 years 4.55% 957 916 1,045 1,093
10 years 4.90% 925 857 1,082 1,173
20 years 5.45% 889 794 1,132 1,287
30 years 5.50% 869 763 1,164 1,370
- ----------------------------------------------------------------------------------------
</TABLE>

Coupons reflect yields on AAA-rated municipals as of May 31, 1997. This is an
illustration and does not represent expected yields or share price changes of
any T. Rowe Price fund.

How can I decide if the fund is appropriate for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. If you can accept the possibility of share price
decline in an effort to achieve income exempt from federal and Georgia state
income taxes, the fund could be an appropriate part of your overall
investment strategy. If you are investing for principal stability and
liquidity, you should consider a money market fund.

o The fund should not represent your complete investment program nor be used
for short-term trading purposes.

Is there other information I need to review before making a decision?

ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
tax-free fund.

How and when shares are priced

o The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

How you can receive the proceeds from a sale

o When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

If your request is received by 4 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail or
to your bank account by Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale. ACH is an automated method of initiating payments from and receiving
payments in your financial institution account. ACH is a payment system
supported by over 20,000 banks, savings banks, and credit unions, which
electronically exchanges the transactions primarily through the Federal
Reserve Banks. Proceeds sent by bank wire should be credited to your account
the next business day.
<PAGE>

T. ROWE PRICE 12
o Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five business days
after receiving your sale or exchange request. If you were exchanging into a
bond or money fund, your new investment would not begin to earn dividends
until the sixth business day.

o If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
o All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Income dividends
o Bond funds declare income dividends daily at 4 p.m. ET to shareholders of
record at that time provided payment has been received on the previous
business day.

o Bond funds pay dividends on the first business day of each month.

o Bond fund shares will earn dividends through the date of redemption; also,
shares redeemed on a Friday or prior to a holiday will continue to earn
dividends until the next business day. Generally, if you redeem all of your
shares at any time during the month, you will also receive all dividends
earned through the date of redemption in the same check. When you redeem only
a portion of your shares, all dividends accrued on those shares will be
reinvested, or paid in cash, on the next dividend payment date.
<PAGE>

ABOUT YOUR ACCOUNT 13
Capital gains
o A capital gain or loss is the difference between the purchase and sale price
of a security.

o If the fund has net capital gains for the year (after subtracting any
capital losses), they are usually declared and paid in December to
shareholders of record on a specified date that month. If a second
distribution is necessary, it is usually declared and paid during the first
quarter of the following year.

Tax Information

o You will be sent timely information for your tax filing needs.

o You sell fund shares, including an exchange from one fund to another.

o The fund makes a distribution to your account.

T. ROWE PRICE 14
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.

o Distributions are taxable whether reinvested in additional shares or
received in cash.

Note: For shareholders who receive Social Security benefits, the receipt of
tax-exempt interest may increase the portion of benefits that are subject to
tax.
<PAGE>

ABOUT YOUR ACCOUNT 15
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
o Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.

Sale (Redemption) Conditions

T. ROWE PRICE 16
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of the fund's net assets,
the fund has the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference between the
redemption amount and the lesser of the two previously mentioned figures with
securities from the fund.

Excessive Trading

o T. Rowe Price may bar excessive traders from purchasing shares.

For example, you are in fund A. You can move substantial assets from fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.

If you exceed the number of trades described above, you may be barred
indefinitely from further purchases of T. Rowe Price funds.

Keeping Your Account Open

ABOUT YOUR ACCOUNT 17
Small Account Fee

Signature Guarantees

o A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

o Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

o Remitting redemption proceeds to any person, address, or bank account not on
record.

o Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

o Establishing certain services after the account is opened.

MORE ABOUT THE FUND
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How is the fund organized?

As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
o Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in

ABOUT YOUR ACCOUNT 19
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price-specifically by the fund's portfolio managers.

Portfolio Management

The fund has an Investment Advisory Committee composed of the following
members: Hugh D. McGuirk, Chairman, A. Gene Caponi, Patricia S. Deford, Mary
J. Miller, and Arthur S. Varnado. The committee chairman has day-to-day
responsibility for managing the portfolio and works with the committee in
developing and executing the fund's investment program. Mr. McGuirk was
appointed as chairman of the fund's committee in 1997and has been a member of
the fund's committee since 1994. He joined T. Rowe Price in 1993 and has been
managing investments for the past three years. Previously, Mr. McGuirk was a
municipal underwriter for a brokerage firm.

Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of this and all other T. Rowe Price funds.

Shareholder Services
T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the
fund's transfer and dividend disbursing agent and provides shareholder and
administrative services. The address for T. Rowe Price Investment Services,
Inc., and T. Rowe Price Services, Inc., is 100 East Pratt St., Baltimore, MD
21202.

How are fund expenses determined?

o For the fiscal year ended February 28, 1997, the fund paid $41,000 to T.
Rowe Price Services, Inc., for transfer and dividend disbursing functions and
shareholder services, and $65,000 to T. Rowe Price for accounting services.

T. ROWE PRICE 20
label mutual funds). The group fee schedule (shown below) is graduated,
declining as the asset total rises, so shareholders benefit from the overall
growth in mutual fund assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
----------------------------------------------------------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
----------------------------------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter
----------------------------------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>

Total Return

Advertisements for a fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

o Total return is the most widely used performance measure. Detailed
performance information is included in the fund's annual and semiannual
shareholder reports and in the quarterly Performance Update, which are all
available without charge.

Cumulative Total Return

MORE ABOUT THE FUND 21
Average Annual Total Return

Yield

o You will see frequent references to the fund's yield in our reports, in
advertisements, in media stories, and so on.

Shareholder approval is required to substantively change the fund's objective
and certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating policies"
that can be changed without shareholder approval. However, significant
changes are discussed with shareholders in fund reports. The fund adheres to
applicable investment restrictions and policies at the time it makes an
investment. A later change in circumstances does not cause a violation of the
restriction and will not require the sale of an investment if it was proper
at the time it was made.

T. ROWE PRICE 22
interest bonds. While these restrictions provide a useful level of detail
about the fund's investment program, investors should not view them as an
accurate gauge of the potential risk of such investments. For example, in a
given period, a 5% investment in residual interest bonds could have
significantly more of an impact on the fund's share price than its weighting
in the portfolio. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance
of all the fund's other investments.

Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

o Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

There are two broad categories of municipal bonds. General obligation bonds
are backed by the issuer's "full faith and credit," that is, its full taxing
and revenue raising power. Revenue bonds usually rely exclusively on a
specific revenue source, such as charges for water and sewer service, to
generate money for debt service.

o In purchasing municipals, the fund relies on the opinion of the issuer's
bond counsel regarding the tax-exempt status of the investment.
<PAGE>

MORE ABOUT THE FUND 23
Private Activity Bonds
While income from most municipals is exempt from federal income taxes, the
income from certain types of so-called private activity bonds (a type of
revenue bond) may be subject to the alternative minimum tax (AMT). However,
only persons subject to the AMT pay this tax. Private activity bonds may be
issued for purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor necessarily
pays this tax. For further information, please see Distributions and Taxes.)

Fundamental policy Under normal market conditions, the fund will not purchase
any security if, as a result, less than 80% of the fund's income would be
exempt from federal and Georgia state income taxes. The income included under
the 80% test does not include income from securities subject to the
alternative minimum tax.

In addition to general obligation and revenue bonds, the fund's investments
may include, but are not limited to, the following types of securities:

Municipal Lease Obligations

Municipal Warrants
Municipal warrants are essentially call options on municipal bonds. In
exchange for a premium, they give the purchaser the right, but not the
obligation, to purchase a municipal bond in the future. The fund might
purchase a warrant to lock in forward supply in an environment where the
current issuance of bonds is sharply reduced. Like options, warrants may
expire worthless and they may have reduced liquidity.

Operating policy The fund will not invest more than 2% of its total assets in
municipal warrants.
<PAGE>

T. ROWE PRICE 24
Securities With "Puts" or Other Demand Features

Securities With Credit Enhancements
o Letters of credit Letters of credit are issued by a third party, usually a
bank, to enhance liquidity and ensure repayment of principal and any accrued
interest if the underlying municipal security should default.

o T. Rowe Price periodically reviews the credit quality of the insurer.

o Municipal Bond Insurance This insurance, which is usually purchased by the
bond issuer from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's principal and
interest will be paid when due. Insurance does not guarantee the price of the
bond or the share price of any fund. The credit rating of an insured bond
reflects the credit rating of the insurer, based on its claims-paying
ability.

o Standby Purchase Agreements A Standby Bond Purchase Agreement (SBPA) is a
liquidity facility provided to pay the purchase price of bonds that cannot be
remarketed. The obligation of the liquidity provider (usually a bank) is only
to advance funds to purchase tendered bonds that cannot be remarketed and
does not cover principal or interest under any other circumstances. The
liquidity provider's obligations under the SBPA are usually subject to
numerous conditions, including the continued creditworthiness of the
underlying borrower.
<PAGE>

MORE ABOUT THE FUND 25
Synthetic or Derivative Securities
These securities are created from existing municipal bonds:

o Residual Interest Bonds (These are a type of potentially high-risk
derivative.) The income stream provided by an underlying bond is divided to
create two securities, one short term and one long term. The interest rate on
the short-term component is reset by an index or auction process normally
every seven to 35 days. After income is paid on the short-term securities at
current rates, the residual income goes to the long-term securities.
Therefore, rising short-term interest rates result in lower income for the
longer-term portion, and vice versa. The longer-term bonds can be very
volatile and may be less liquid than other municipals of comparable maturity.

Operating policy The fund will not invest more than 10% of its total assets
in residual interest bonds.

o Participation Interests This term covers various types of securities created
by converting fixed rate bonds into short-term, variable rate certificates.
These securities have been developed in the secondary market to meet the
demand for short-term, tax-exempt securities. The fund will invest only in
securities deemed tax-exempt by a nationally recognized bond counsel, but
there is no guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.

o Embedded Interest Rate Swaps and Caps In a fixed rate, long-term municipal
bond with an interest rate swap attached to it, the bondholder usually
receives the bond's fixed coupon payment as well as a variable rate payment
that represents the difference between a fixed rate for the term of the swap
(which is typically shorter than the bond it is attached to) and a variable
rate, short-term municipal index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate swap rate. If
short-term rates rise above the fixed income swap rate, the bondholder's
income is reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.

Both instruments may be volatile and of limited liquidity, and their use may
adversely affect the fund's total return.

Operating policy The fund will not invest more than 10% of its total assets
in embedded interest rate swaps and caps.
<PAGE>

T. ROWE PRICE 26
Private Placements
The fund may seek to enhance its yield through the purchase of private
placements. These securities are sold through private negotiations, usually
to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.

Operating policy The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.

Types of Management Practices

Cash Position

When-Issued Securities and Forwards

New issues of municipals are often sold on a "when-issued" basis, that is,
delivery and payment take place 15-45 days after the buyer has agreed to the
purchase. Some bonds, called "forwards," have longer-than-standard settlement
dates, typically six to 24 months. When buying these securities, the fund
will maintain cash or high-grade marketable securities held by its custodian
equal in value to its commitment for these securities. The fund does not earn
interest on when-issued and forward securities until settlement, and the
value of the securities may fluctuate between purchase and settlement.
Municipal "forwards" typically carry a substantial yield premium to
compensate the buyer for their greater interest rate, credit, and liquidity
risks.

Interest Rate Futures
Futures (a type of potentially high-risk derivative) are often used to manage
risk because they enable the investor to buy or sell an asset in the future
at an agreed-upon price. Specifically, the fund may use futures (and options
on futures) for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust its exposure
to the municipal bond market; to protect portfolio value; in an effort to
enhance income; and to adjust portfolio duration. The use of futures for
hedging and non-hedging purposes may not
<PAGE>

MORE ABOUT THE FUND 27
always be successful. Their prices can be highly volatile, using them could
lower the fund's total return, and the potential loss from their use could
exceed the fund's initial exposure to such contracts.

Operating policy Initial margin deposits on futures and premiums on options
used for non-hedging purposes will not equal more than 5% of the fund's net
asset value.

Borrowing Money and Transferring Assets
The fund can borrow money from banks as a temporary measure for emergency
purposes, to facilitate redemption requests, or for other purposes consistent
with the fund's investment objective and program. Such borrowings may be
collateralized with fund assets, subject to restrictions.

Fundamental policy Borrowings may not exceed 33 1/3% of total fund
assets.

Operating policies The fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of the
fund's total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.

Portfolio Turnover

T. ROWE PRICE 28
Credit-Quality Considerations
The credit quality of most bond issues is evaluated by rating agencies such
as Moody's and Standard & Poor's. Credit quality refers to the issuer's
ability to meet all required interest and principal payments. The highest
ratings are assigned to issuers perceived to be the best credit risks. T.
Rowe Price research analysts also evaluate all portfolio holdings of the
fund, including those rated by outside agencies. The lower the rating on a
bond, the higher the yield, other things being equal.

Table 5 shows the rating scale used by the major rating agencies, and Table 6
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings, but emphasizes its own credit analysis when selecting
investments.

<TABLE>
Table 5
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Ratings of Municipal Debt Securities
Moody's Standard & Fitch
Investors Poor's Investors
Service, Inc. Corporation Service, Inc. Definition
Long Term Aaa AAA AAA Highest quality

Aa AA AA High quality

A A A Upper medium grade

Baa BBB BBB Medium grade

Moody's S&P Fitch
Short Term MIG1/VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
C
MIG2/VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
C
Commercial P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong quality
Paper quality A-1 quality F-1 Very strong quality
Strong quality
C
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

MORE ABOUT THE FUND 29
<TABLE>
Table 6
<CAPTION>
Explanation of Quality Ratings
Bond
Rating Explanation

<S> <C> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.

Aa High quality; together with Aaa bonds, they
compose the high-grade bond group.

A Upper-medium-grade obligations; many
favorable investment attributes.

Baa Medium-grade obligations; neither highly
protected nor poorly secured. Interest and
principal appear adequate for the present,
but certain protective elements may be
lacking or may be unreliable over any great
length of time.

Ba More uncertain with speculative elements.
Protection of interest and principal payments
not well safeguarded in good and bad times.

B Lack characteristics of desirable investment;
potentially low assurance of timely interest
and principal payments or maintenance of
other contract terms over time.

Caa Poor standing, may be in default; elements of
danger with respect to principal or interest
payments.

Ca Speculative in high degree; could be in
default or have other marked
shortcomings.

C Lowest rated, extremely poor prospects of
ever attaining investment standing.

Standard & Poor's AAA Highest rating; extremely strong capacity to
Corporation pay principal and interest.

AA High quality; very strong capacity to pay
principal and interest.

A Strong capacity to pay principal and
interest; somewhat more susceptible to the
adverse effects of changing circumstances and
economic conditions.

BBB Adequate capacity to pay principal and
interest; normally exhibit adequate
protection parameters, but adverse economic
conditions or changing circumstances more
likely to lead to weakened capacity to pay
principal and interest than for higher-rated
bonds.

BB, B, Predominantly speculative with respect to the
CCC, CC issuer's capacity to meet required interest
and principal payments. BB-lowest degree of
speculation;
CC-the highest degree of speculation. Quality
and protective characteristics outweighed by
large uncertainties or major risk exposure to
adverse conditions.

D In default.

Fitch Investors AAA Highest quality; obligor has exceptionally
Service, Inc. strong ability to pay interest and repay
principal, which is unlikely to be affected
by reasonably foreseeable events.

AA Very high quality; obligor's ability to pay
interest and repay principal is very strong.
Because bonds rated in the AAA and AA
categories are not significantly vulnerable
to foreseeable future developments,
short-term debt of these issuers is generally
rated F-1+.

A High quality; obligor's ability to pay
interest and repay principal is considered to
be strong, but may be more vulnerable to
adverse changes in economic conditions and
circumstances than higher-rated bonds.

BBB Satisfactory credit quality; obligor's
ability to pay interest and repay principal
is considered adequate. Unfavorable changes
in economic conditions and circumstances are
more likely to adversely affect these bonds
and impair timely payment. The likelihood
that the ratings of these bonds will fall
below investment grade is higher than for
higher-rated bonds.

BB, Not investment grade; predominantly
CCC, speculative with respect to the issuer's
CC, C capacity to repay interest and repay
principal in accordance with the terms of the
obligation for bond issues not in default. BB
is the least speculative. C is the most
speculative.
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.

OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for gifts or transfers to minors
(UGMA/UTMA) accounts

By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check together with the New Account Form to the address
on the next page. We do not accept third party checks to open new accounts.
<PAGE>

MORE ABOUT THE FUND 31
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117

By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 account name and account number

Complete a New Account Form and mail it to one of the appropriate addresses
listed above.

Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received.

In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
<PAGE>

T. ROWE PRICE 32
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for Automatic Asset Builder, and gifts or
transfers to minors (UGMA/ UTMA) accounts

By ACH Transfer
Use Tele*Access, your personal computer, or call Investor Services if you have
established electronic transfers using the ACH network.

By Wire
Call Shareholder Services or use the wire address in Opening a New Account.

By Mail

1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).

2. Mail the check to us at the address shown below with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.

3. Remember to provide your account number and the fund name on the memo line
of your check.

Regular Mail
T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500

/(For mailgrams, express, registered, or certified mail, see previous /
/section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.

EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
By Phone
Call Shareholder Services

INVESTING WITH T. ROWE PRICE 33
Redemption proceeds can be mailed to your account address, sent by ACH transfer,
or wired to your bank (provided your bank information is already on file). For
charges, see Electronic Transfers -By Wire under Shareholder Services.

By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to indicate any fund you
are exchanging out of and the fund or funds you are exchanging into. Please mail
to the appropriate address below. T. Rowe Price requires the signatures of all
owners exactly as registered, and possibly a signature guarantee (see
Transaction Procedures and Special Requirements-Signature Guarantees).

Regular Mail
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117

Rights Reserved by the Fund

T. ROWE PRICE 34
SHAREHOLDER SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize on the New Account Form. By
signing up for services on the New Account Form rather than later on, you avoid
having to complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered. Our Services
Guide contains detailed descriptions of these and other services.

If you are a new T. Rowe Price investor, you will receive a Services Guide with
our Welcome Kit.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.

Retirement Plans

Exchange Service

Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access

INVESTING WITH T. ROWE PRICE 35

T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.

After obtaining proper authorization, account transactions may also be conducted
on the Internet.

Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access, but is designed specifically to
meet the needs of retirement plan investors.

Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the cover.

Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.

Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
<PAGE>

T. ROWE PRICE 36
DISCOUNT BROKERAGE
----------------------------------------------------------

Note: Discount applies to our current commission schedule, subject to our $35
minimum commission.

Investor information

Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this
service-free of charge.

/Discount Brokerage is a division of //T. Rowe Price// Investment / /Services,
Inc., Member NASD/SIPC./
<PAGE>

INVESTING WITH T. ROWE PRICE 37

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
Quarterly review of all T. Rowe Price fund results.

Insights
Educational reports on investment strategies and financial markets.

To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
timely, informative reports.

To Open a Mutual Fund Account
Investor Services
1-800-638-5660
1-410-547-2308

For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500

For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days

To Open a Discount Brokerage Account
1-800-638-5660

Internet Address
www.troweprice.com
Investor Centers
101 East Lombard St.
Baltimore, MD 21202

T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117

Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006

ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071

4200 West Cypress St.
10th Floor
Tampa, FL 33607

T. Rowe Price
Invest With Confidence
Ram logo
F92-040 7/1/97

<PAGE>

PROSPECTUS

July 1, 1997
Maryland Tax-Free Funds

Short- and long-term bond funds for investors seeking income that is exempt
from federal and Maryland state and local income taxes.

T. Rowe Price Ram logo
<PAGE>

FACTS AT A GLANCE

Maryland Tax-Free Funds

Investment Goal
The highest level of income exempt from federal and Maryland state and local
income taxes consistent with each fund's prescribed investment program.

As with all mutual funds, these funds may not meet their goals.

Strategy and Risk/Reward

Maryland Short-Term Tax-Free Bond Fund Invests primarily in short-term,
investment-grade Maryland municipal bonds. The fund's average maturity will not
exceed three years. There is no maturity limit on individual securities.

Risk/Reward Higher income than a municipal money market fund and less potential
share price fluctuation than the Maryland Tax-Free Bond Fund.

Maryland Tax-Free Bond Fund Invests primarily in investment-grade Maryland
municipal bonds. The fund's average maturity is expected to exceed 15 years.

Risk/Reward Higher income than the Maryland Short-Term Tax-Free Bond Fund but
also greater potential price fluctuation.

Investor Profile
Maryland taxpayers who, because of their tax bracket, can benefit from income
that is exempt from federal and Maryland state and local income taxes. Not
appropriate for tax-deferred retirement plans, such as IRAs.

Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange.

Investment Manager

<PAGE>

T. Rowe Price State Tax-Free Income Trust
Prospectus
July 1, 1997

Contents
1
About the Funds

Transaction and Fund Expenses 2
Financial Highlights 3
Fund, Market, and Risk Characteristics 5

2
About Your Account

Pricing Shares and Receiving Sale Proceeds 13
Distributions and Taxes 14
Transaction Procedures and Special Requirements 17
3
More About the funds

Organization and Management 20
Understanding Performance Information 22
Investment Policies and Practices 24

4
Investing With T. Rowe Price

Account Requirements and Transaction Information 33
Opening a New Account 33
Purchasing Additional Shares 35
Exchanging and Redeeming 35
Shareholder Services 37
Discount Brokerage 39
Investment Information 40

This prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
funds, dated July 1, 1997, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this prospectus. To obtain a free
copy, call 1-800-638-5660.

<PAGE>

ABOUT THE FUNDS
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
o Like all T. Rowe Price funds, these funds are 100% no load.

These tables should help you understand the kinds of expenses you will bear
directly or indirectly as a fund shareholder.

Shareholder Transaction Expenses in Table 1 shows that you pay no sales
charges. All the money you invest in a fund goes to work for you, subject to
the fees explained below. Annual Fund Expenses shows how much it will cost to
operate each fund for a year, based on 1997 fiscal year expenses (and any
applicable expense limitations). These are costs you pay indirectly, because
they are deducted from each fund's total assets before the daily share price
is calculated and before dividends and other distributions are made. In other
words, you will not see these expenses on your account statement.

<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C>
Shareholder Transaction
Expenses
Short-Term Tax-Free
Bond Fund Tax-Free Bond Fund

Sales charge "load" on
purchases None None

Sales charge "load" on
reinvested distributions None None

Redemption fees None None

Exchange fees None None

Percentage of Fiscal 1997 Average Net Assets
Annual Fund Expenses
Short-Term Tax-Free
Bond Fund
(after reduction) Tax-Free Bond Fund

Management fee 0.41%/a/ 0.43%

Marketing fees (12b-1) None None

Total other (shareholder
servicing, custodial,
auditing, etc.) 0.24% 0.11%

Total fund expenses 0.65%/a/ 0.54%
- -------------------------------------------------------------------------------
</TABLE>

/a//
/The Short-Term Tax-Free Bond Fund's management fee and total expense ratio
would have been 0.43% and 0.67%, respectively, had T. Rowe Price not agreed to
reduce management fees and assume other expenses in accordance with the
expense limitation described below. From March 1, 1995, through February 28,
1997, T. Rowe Price agreed to waive its fees and bear any expenses to the
extent that such fees and expenses would cause the fund's ratio of expenses to
average net assets to exceed 0.65%. Effective March 1, 1997, T. Rowe Price
agreed to extend the existing expense limitation of 0.65% for a period of two
years from March 1, 1997, through February 28, 1999. Fees waived or expenses
paid or assumed under these agreements are subject to reimbursement to T. Rowe
Price by the fund whenever the fund's expense ratio is below 0.65%; however,
no reimbursement will be made after February 28, 1999 (for the first
agreement), or February 28, 2001 (for the second agreement), or if it would
result in the expense ratio exceeding 0.65%. Any amounts reimbursed will have

ABOUT THE FUNDS 3
The main types of expenses, which all mutual funds may charge against fund
assets, are:

o A management fee The percent of fund assets paid to the fund's investment
manager. Each fund's fee comprises a group fee, 0.33% as of February 28,
1997, and an individual fund fee of 0.10%.

o "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.

o Marketing or distribution fees An annual charge ("12b-1") to existing
shareholders to defray the cost of selling shares to new shareholders. T.
Rowe Price funds do not levy 12b-1 fees.

For further details on fund expenses, please see Organization and Management.

<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical Fund Expenses
Fund 1 year 3 years 5 years 10 years

Short-Term Tax-Free Bond $7 $21 $36 $81
Tax-Free Bond $6 $17 $30 $68
- -----------------------------------------------------------------------
</TABLE>

o Table 2 is just an example; actual expenses can be higher or lower than
those shown.

FINANCIAL HIGHLIGHTS
----------------------------------------------------------

Table 3, which provides information about each fund's financial history, is
based on a single share outstanding throughout each fiscal year. Each fund's
section of the table is part of the financial statements, which are included
in its annual report and are incorporated by reference into the Statement of

<PAGE>

T. ROWE PRICE 4
Additional Information (available upon request). The financial statements in
each fund's annual report were audited by Coopers & Lybrand L.L.P., the
funds' independent accountants.

<TABLE>
Table 3 Financial Highlights
<CAPTION>

- ----------
<CAPTION>
Income From Investment Activities Less Distributions Net Asset Value
Period Net Asset Net Net Realized Total From Net Net Asset
Ended Value, Investment & Unrealized Investment Investment Net Realized Total Value,
Beginning Income Gain (Loss) on Activities Income (Loss) Gain (Loss) Distributions End of Period
of Period Investments
Short-Term Tax-Free Bond Fund
--------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1993/a/ $ 5.00 $0.01/b/ $ 0.07 $ 0.08 $(0.01) -- $ (0.01) $ 5.07
1994 5.07 0.15/b/ 0.02 0.17 (0.15 ) -- (0.15) 5.09
1995 5.09 0.18/b/ (0.05) 0.13 (0.18 ) -- (0.18) 5.04
1996/f/ 5.04 0.21/b/ 0.11 0.32 (0.21 ) -- (0.21) 5.15
1997 5.15 0.20/b/ (0.04) 0.16 (0.20 ) -- (0.20) 5.11

Tax-Free Bond Fund
1988/df/ $10.00 $0.51 $(0.60) $(0.09) $(0.51 ) -- $ (0.51) $ 9.40
1989 9.40 0.57 (0.10) 0.47 (0.57 ) -- -(0.57) 9.30
1990 9.30 0.60 0.18 0.78 (0.60 ) $(0.03) (0.63) 9.45
1991 9.45 0.60 0.16 0.76 (0.60 ) -- (0.60) 9.61
1992/f/ 9.61 0.59 0.26 0.85 (0.59 ) (0.05) (0.64) 9.82
1993 9.82 0.57 0.73 1.30 (0.57 ) (0.05) (0.62) 10.50
1994 10.50 0.56 0.05 0.61 (0.56 ) (0.10) (0.66) 10.45
1995 10.45 0.56 (0.44) 0.12 (0.56 ) (0.02) (0.58) 9.99
1996/f/ 9.99 0.57 0.41 0.98 (0.57 ) -- (0.57) 10.40
1997 10.40 0.56 (0.05) 0.51 (0.56 ) -- (0.56) 10.35
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Footnotes appear on page 5. (Table 3 continues on page 5.)

<PAGE>

ABOUT THE FUNDS 5

<TABLE>
Table 3 Financial Highlights (continued)
<CAPTION>
Returns, Ratios, and Supplemental Data
Period Total Return Ratio of Ratio of Net
Ended (Includes Net Assets Expenses to Investment Portfolio
Reinvested ($ Thousands) Average Net Income to Turnover
Distributions) Assets Average Net Rate
Assets
Short-Term Tax-Free Bond Fund
-------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C>
1993/a/ 1.67% $ 10,094 0.65%/bc/ 2.96%/c/ 96.9%/c/
1994 3.49 76,049 0.65/b/ 3.09 20.5
1995 2.64 74,808 0.65/b/ 3.59 105.3
1996/f/ 6.49 85,784 0.65/b/ 4.14 39.3
1997 3.26 102,252 0.65/b/ 3.98 21.4

Tax-Free Bond Fund
1988/df/ (0.60)% $ 63,240 0.85%/ce/ 6.15%/c/ 177.8%/c/
1989 5.24 113,528 0.92 6.23 63.8
1990 8.54 193,771 0.85 6.29 57.5
1991 8.37 300,974 0.68 6.38 52.2
1992/f/ 9.13 475,188 0.64 6.04 21.9
1993 13.75 724,469 0.61 5.72 22.3
1994 5.93 821,402 0.57 5.31 24.3
1995 1.43 724,823 0.57 5.73 28.9
1996/f/ 10.00 798,589 0.54 5.53 23.9
1997 5.12 819,981 0.54 5.47 26.2
- ------------------------------------------------------------------------------------
</TABLE>

/a/
For the period January 29, 1993 (commencement of operations) to February 28,
1993.

/b/
Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
through February 28, 1997.

/c/ Annualized.

/d/ For the period March 31, 1987 (commencement of operations) to February 29,
1988.

/e/
Excludes expenses in excess of a 0.85% voluntary expense limitation in effect
through February 29, 1988.

/f/ Year ended February 29.

FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide which of the T. Rowe Price Maryland bond funds may be
appropriate for you, this section takes a closer look at their investment
objectives and approaches.

<TABLE>
Table 4
<CAPTION>
<S> <C> <C> <C> <C> <C>
Differences Between Funds
Credit-Quality Expected Share Expected Average
Fund Categories Income Price Fluctuation Maturity

Short-Term Generally one to
Tax-Free Bond Primarily four highest Low to moderate Low to moderate three years
Tax-Free Bond Primarily four highest High High 15+ years
- ---------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE 6
What are the funds' objectives and investment programs?

o The Maryland Short-Term Tax-Free Bond Fund's objective is to provide the
highest level of income exempt from federal and Maryland state and local
income taxes consistent with modest fluctuation in principal value. The fund
will invest primarily (at least 65% of its total assets) in investment-grade
Maryland municipal bonds. While the portfolio's dollar-weighted average
maturity will not exceed three years, there is no maturity limit on
individual securities. The fund is expected to provide a higher level of
after-tax income than a money market fund and less share price volatility
than the Maryland Tax-Free Bond Fund. Unlike a money market fund, the fund's
share price will fluctuate.

o The Maryland Tax-Free Bond Fund's investment objective is 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. The fund will invest
at least 65% of its total assets in investment-grade Maryland municipal
bonds. The fund's dollar-weighted average maturity is expected to exceed 15
years. The fund is expected to provide higher income and also experience
greater share price fluctuation than the Maryland Short-Term Tax-Free Bond
Fund.

o Due to seasonal variations or shortages in the supply of suitable short-term
Maryland securities, each fund may invest periodically in municipals whose
interest is exempt from federal but not Maryland state and local income
taxes. Every effort will be made to minimize such investments, but they could
compose up to 10% of each fund's annual income.

o Income from Maryland municipal securities is exempt from federal and
Maryland state and local income taxes.

What are the funds' credit-quality guidelines?

The funds will generally purchase investment-grade securities-which means
their ratings are within the four highest credit categories (AAA, AA, A, BBB)
as determined by a national rating organization or, if unrated, by T. Rowe
Price. The funds may occasionally purchase below investment-grade securities
(including those with the lowest or no rating), but no such purchase will be
made if it would cause a fund's noninvestment-grade bonds to exceed 5% of its
net assets. Unrated bonds may be less liquid than rated bonds.

Investment-grade securities include a range from the highest rated to medium
quality. Securities in the BBB category may be more susceptible to adverse
economic conditions or changing circumstances, and the securities at the
lower end of the BBB category have certain speculative characteristics.

o At their discretion, the funds may retain a security whose credit quality is
downgraded after purchase.
<PAGE>

ABOUT THE FUNDS 7
What are the main risks of investing in municipal bond funds?

The potential for realizing a loss of principal in a bond fund could derive
from:

o Interest rate or market risk The decline in the price of bonds and bond
funds that may accompany a rise in the overall level of interest rates
(please see Table 5).

o Geographical risk The chance of price declines resulting from developments
in a single state.

o A more detailed discussion of these and other risk considerations is
contained in the funds' Statement of Additional Information.

What are the particular risks associated with single-state funds versus those
that invest nationally?

o Significant political and economic developments within a state may have
direct and indirect repercussions on virtually all municipal bonds issued in
the state.

How does the portfolio manager try to reduce risk?

Consistent with each fund's objective, the portfolio manager actively seeks
to reduce risk and increase total return. Risk management tools include:
<PAGE>

T. ROWE PRICE 8
o Diversification of assets to reduce the impact of a single holding on the
funds' net asset value.

o Thorough credit research by our own analysts.

What is the credit quality of Maryland general obligations?

The major rating agencies (Moody's, Standard & Poor's, and Fitch) have
assigned a triple-A rating to Maryland general obligations as of June 1,
1997. For more than a century, the state has not issued short-term tax
anticipation notes or other similar short-term debt for its own needs. There
is no general debt limit on general obligation bonds imposed under the state
constitution or public general laws. The constitution imposes a maturity
limit of 15 years on state general obligation bonds. The state's Capital Debt
Affordability Committee annually recommends to the State General Assembly a
yearly limit on the issuance of new general obligation bonds.

o Credit ratings and the financial and economic conditions of the state, local
governments, public authorities, and others in which the funds may invest are
subject to change at any time.

What about the quality of the funds' other holdings?

In addition to the state's general obligations, the funds will invest a
substantial portion of their assets in bonds that are rated according to the
issuer's individual creditworthiness, such as bonds of local governments and
public authorities. While local governments in Maryland depend principally on
their own revenue sources, they could experience budget shortfalls due to
cutbacks in state aid.

The funds may invest in certain sectors with special risks-for example,
health care, which could be affected by federal or state legislation;
electric utilities with exposure to nuclear power plants; and private
activity bonds without governmental backing.

The funds sometimes invest in obligations of the Commonwealth of Puerto Rico
and its public corporations (as well as the U.S. territories of Guam and the
Virgin Islands) that are exempt from federal and Maryland state and local
income taxes. These investments require careful assessment of certain risk
factors, including reliance on substantial federal assistance and favorable
tax programs which have recently become subject to phaseout by Congress. As
of June 1, 1997, Puerto Rico's general obligations were rated Baa1 by Moody's
and A by Standard & Poor's.
<PAGE>

ABOUT THE FUNDS 9
o The share price and yield of the funds will fluctuate with changing market
conditions and interest rate levels. When you sell your shares, you may lose
money.

What are derivatives and can the funds invest in them?

The term derivative is used to describe financial instruments whose value is
derived from an underlying security (e.g., a stock or bond) or a market
benchmark (e.g., an interest rate index). Many types of investments
representing a wide range of potential risks and rewards fall under the
"derivatives" umbrella-from conventional instruments, such as callable bonds,
futures, and options to more exotic investments, such as stripped mortgage
securities and structured notes. While the term "derivative" has only
recently become widely known among the investing public, derivatives have in
fact been employed by investment managers for many years.

Each fund will invest in derivatives only if the expected risks and rewards
are consistent with its objective, policies, and overall risk profile as
described in this prospectus. The funds limit their use of derivatives to
situations in which they may enable the fund to accomplish the following:
increase yield; hedge against a decline in principal value; invest in
eligible asset classes with greater efficiency and lower cost than is
possible through direct investment; or, adjust the fund's duration.

These funds will not invest in any high-risk, highly leveraged derivative
instrument that is expected to cause the price volatility of the portfolio to
be meaningfully different from that of 1) a three-year investment-grade bond
for the Short-Term Tax-Free Bond Fund; or 2) a long-term investment-grade
bond for the Tax-Free Bond Fund.

The following are some characteristics of municipal securities.

Who issues municipal securities?

State and local governments and governmental authorities sell notes and bonds
(usually called "municipals") to pay for public projects and services.

Who buys municipal securities?

Is interest income from municipal issues always exempt from federal taxes?

T. ROWE PRICE 10
Shareholders subject to the AMT must include income derived from private
activity bonds in their AMT calculation. Relatively few taxpayers are
required to pay the tax. Normally, the funds will not purchase any security
if, as a result, more than 20% of the fund's income would be subject to the
AMT. The funds will report annually to shareholders the portion of income, if
any, subject to the AMT. (Please see Distributions and Taxes -Taxes on Fund
Distributions.)

o Municipal securities are also called "tax-exempts" because the interest
income they provide is usually exempt from federal income taxes.

Why are yields on municipals usually below those on otherwise comparable
taxable securities?

Why are yields on Maryland bonds often below those of comparable issues from
other states?

Strong demand for Maryland securities due to a relatively high state income
tax rate and an often limited supply tends to push their prices up and yields
down.

Is there an easy way to compare after-tax yields on a Maryland fund with a
similar tax-exempt fund that invests nationally?

Subtract your state tax rate from 1 and multiply this number times the yield
on the national fund. The result is the yield to you on the national fund
after paying Maryland income tax. Compare this with the Maryland fund's
yield.

You may want to review some fundamentals that apply to all fixed income
investments.

Is a fund's yield fixed or will it vary?

Is a fund's "yield" the same thing as the "total return"?

ABOUT THE FUNDS 11
What is "credit quality" and how does it affect a fund's yield?

What is meant by a bond fund's "maturity"?

What is meant by a bond fund's "duration"?

T. ROWE PRICE 12
How is a municipal's price affected by changes in interest rates?

<TABLE>
Table 5
<CAPTION>
How Interest Rates Affect Bond Prices
Price per $1,000 of a Municipal Bond if Interest Rates:
Increase Decrease
Bond Maturity Coupon 1 Point 2 Points 1 Point 2 Points

Coupons reflect yields on AAA-rated municipals as of May 31, 1997. This is an
illustration and does not represent expected yields or share price changes of
any T. Rowe Price fund.

How can I decide which Maryland fund is most appropriate for me?

Review your own financial objectives, time horizon, and risk tolerance. Use
Table 4, which summarizes each fund's main characteristics, to help choose a
fund (or funds) suitable for your particular needs. If you will need your
principal in a relatively short time, and/or want to minimize share price
volatility, the Short-Term Tax-Free Bond Fund may be a good choice. However,
if you are investing for higher tax-free income and can tolerate some price
volatility, you should consider the longer-term bond fund.

o Neither fund should be relied upon as a complete investment program nor be
used for short-term trading purposes.

Is there other information I need to review before making a decision?

How and when shares are priced

Bond funds
The share price (also called "net asset value" or NAV per share) for each
fund is calculated at 4 p.m. ET each day the New York Stock Exchange is open
for business. To calculate the NAV, a fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding.

o The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

How you can receive the proceeds from a sale

o When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

ABOUT YOUR ACCOUNT 14
o Exception: Under certain circumstances and when deemed to be in the funds'
best interests, your proceeds may not be sent for up to five business days
after receiving your sale or exchange request. If you were exchanging into a
bond or money fund, your new investment would not begin to earn dividends
until the sixth business day.

o If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
o All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Income dividends
o Bond funds declare income dividends daily at 4 p.m. ET to shareholders of
record at that time provided payment has been received on the previous
business day.

o Bond funds pay dividends on the first business day of each month.

ABOUT YOUR ACCOUNT 15
Capital gains
o A capital gain or loss is the difference between the purchase and sale price
of a security.

o If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. If a second distribution is necessary,
it is usually declared and paid during the first quarter of the following
year.

Tax Information

o You will be sent timely information for your tax filing needs.

Although the regular monthly income dividends you receive from the funds is
expected to be exempt from federal and state and local (if any) income taxes,
you need to be aware of the possible tax consequences when:

o You sell fund shares, including an exchange from one fund to another.

o The fund makes a distribution to your account.

Due to 1993 tax legislation, a portion of the capital gains realized on the
sale of market discount bonds with maturities beyond one year may be treated
as ordinary income and cannot be offset by other capital losses. Therefore,
to the extent the funds invest in these securities, the likelihood of a
taxable gain distribution will be increased.

T. ROWE PRICE 16
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.

Taxes on fund distributions
In January, the funds will send you Form 1099-DIV indicating the tax status
of any capital gain distribution made to you. This information will also be
reported to the IRS. All capital gain distributions are taxable to you for
the year in which they are paid. The only exception is that dividends
declared during the last three months of the year and paid in January are
taxed as though they were paid by December 31. Dividends are expected to be
tax-exempt.

Short-term capital gains are taxable as ordinary income, and long-term gains
are taxable at the applicable long-term gain rate. The gain is long- or
short-term depending on how long the fund held the securities, not how long
you held shares in the fund. If you realize a loss on the sale or exchange of
fund shares held six months or less, your short-term loss recognized is
reclassified to long-term to the extent of any long-term capital gain
distribution received.

If the funds invest in certain "private activity" bonds, shareholders who are
subject to the alternative minimum tax (AMT) must include income generated by
these bonds in their AMT computation. The portion of your fund's income which
should be included in your AMT calculation, if any, will be reported to you
in January.

o Distributions are taxable whether reinvested in additional shares or
received in cash.

Note: For shareholders who receive Social Security benefits, the receipt of
tax-exempt interest may increase the portion of benefits that are subject to
tax.
<PAGE>

ABOUT YOUR ACCOUNT 17
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
o Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

Nonpayment
If your payment is not received or you pay with a check or ACH transfer that
does not clear, your purchase will be canceled. You will be responsible for
any losses or expenses incurred by the fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. Each fund and its agents have the right to
reject or cancel any purchase, exchange, or redemption due to nonpayment.

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.

Sale (Redemption) Conditions

Telephone, Tele*Access/(R)/, and personal computer transactions

Exchange and redemption services through Telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Personal computer
transactions must be authorized separately. Each fund uses reasonable
procedures (including shareholder identity verification) to confirm that
instructions given by telephone are genuine and is not liable for acting on
these instructions. If these procedures are not followed, it is the opinion
of certain regulatory agencies that a fund may be liable for any losses that
may result from acting on the instructions given. A confirmation is sent
promptly after the telephone transaction. All conversations are recorded.
<PAGE>

T. ROWE PRICE 18
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference between the
redemption amount and the lesser of the two previously mentioned figures with
securities from the fund.

Excessive Trading

o T. Rowe Price may bar excessive traders from purchasing shares.

For example, you are in fund A. You can move substantial assets from fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.

If you exceed the number of trades described above, you may be barred
indefinitely from further purchases of T. Rowe Price funds.

Keeping Your Account Open

Due to the relatively high cost to a fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
<PAGE>

ABOUT YOUR ACCOUNT 19
Small Account Fee

Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the funds' transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances below $2,000,
except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be
waived for any investor whose aggregate T. Rowe Price mutual fund investments
total $25,000 or more. Accounts employing automatic investing (e.g., payroll
deduction, automatic purchase from a bank account, etc.) are also exempt from
the charge. The fee will not apply to IRAs and other retirement plan
accounts. (A separate custodial fee may apply to IRAs and other retirement
plan accounts.)

Signature Guarantees

o A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

o Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

o Remitting redemption proceeds to any person, address, or bank account not on
record.

o Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

o Establishing certain services after the account is opened.

<PAGE>

MORE ABOUT THE FUNDS
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How are the funds organized?

The T. Rowe Price State Tax-Free Income Trust (the "Trust") was organized in
1986 as a Massachusetts business trust and is a "nondiversified, open-end
investment company," or mutual fund. The Short-Term Tax-Free Bond Fund was
organized in 1993, and the Tax-Free Bond Fund was organized in 1987. Mutual
funds pool money received from shareholders and invest it to try to achieve

The Trust is governed by a Board of Trustees that elects the Trust's officers
and meets regularly to review the funds' investments, performance, expenses,
and other business affairs. The policy of the Trust is that a majority of
Board members will be independent of T. Rowe Price.
<PAGE>

T. ROWE PRICE 21
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price-specifically by each fund's portfolio managers.

Portfolio Management

Each fund has an Investment Advisory Committee whose chairman has day-to-day
responsibility for managing the portfolio and works with the committee in
developing and executing each fund's investment program. The Investment
Advisory Committees are composed of the following members:

o Short-Term Tax-Free Bond Fund Charles B. Hill, Chairman, Paul W. Boltz,
Patricia S. Deford, Joseph K. Lynagh, Laura L. McAree, Hugh D. McGuirk, Mary
J. Miller, Alan P. Richman, and Arthur S. Varnado. Mr. Hill was appointed
chairman of the fund's committee in 1996. He joined T. Rowe Price in 1991 and
has been managing investments since 1986.

o Tax-Free Bond Fund Mary J. Miller, Chairman, Paul W. Boltz, Patricia S.
Deford, Konstantine B. Mallas, Laura L. McAree, Hugh D. McGuirk, Alan P.
Richman, and Arthur S. Varnado. Mrs. Miller has been chairman of the fund's
committee since its inception in 1993. She joined T. Rowe Price in 1983 and
has been managing investments since 1987.

Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of these and all other T. Rowe Price funds.

How are fund expenses determined?

The management agreement spells out the expenses to be paid by each fund. In
addition to the management fee, each fund pays for the following: shareholder
service expenses; custodial, accounting, legal, and audit fees; costs of
preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any);
and director/trustee fees and expenses.
<PAGE>

T. ROWE PRICE 22

The funds paid the expenses shown in Table 6 for the fiscal year ended
February 28, 1997.

<TABLE>
Table 6 Services Fees Paid
<CAPTION>
Fund Transfer Agent and Shareholder Services Accounting Services

Short-Term Tax-Free $ 69,000 $65,000

Tax-Free Bond 427,000 81,000
- ----------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
----------------------------------------------------------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
----------------------------------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter
----------------------------------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>

Each fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of approximately
$63 billion at March 31, 1997, the group fee was 0.33%.

Total Return

MORE ABOUT THE FUNDS 23
reinvested in additional shares. Including reinvested distributions means
that total return numbers include the effect of compounding, i.e., you
receive income and capital gain distributions on a rising number of shares.

Advertisements for a fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

o Total return is the most widely used performance measure. Detailed
performance information is included in each fund's annual and semiannual
shareholder reports and in the quarterly Performance Update, which are all
available without charge.

Cumulative Total Return

Average Annual Total Return

Yield

o You will see frequent references to a fund's yield in our reports, in
advertisements, in media stories, and so on.
<PAGE>

T. ROWE PRICE 24
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
funds may hold in their portfolios and the various kinds of investment
practices that may be used in day-to-day portfolio management. Each fund's
investment program is subject to further restrictions and risks described in
the Statement of Additional Information.

Shareholder approval is required to substantively change a fund's objective
and certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating policies"
that can be changed without shareholder approval. However, significant
changes are discussed with shareholders in fund reports. Each fund adheres to
applicable investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the sale of an
investment if it was proper at the time it was made.

The funds' holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in the prospectus. For
instance, these funds are not permitted to invest more than 10% of total
assets in residual interest bonds. While these restrictions provide a useful
level of detail about the funds' investment programs, investors should not
view them as an accurate gauge of the potential risk of such investments. For
example, in a given period, a 5% investment in residual interest bonds could
have significantly more of an impact on a fund's share price than its
weighting in the portfolio. The net effect of a particular investment depends
on its volatility and the size of its overall return in relation to the
performance of all the funds' other investments.

Changes in the funds' holdings, the funds' performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

o Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the funds achieve their
objectives.

Types of Portfolio Securities

In seeking to meet their investment objectives, the funds may invest in any
type of municipal security or instrument (including certain potentially
high-risk derivatives described in this section) whose investment
characteristics are consistent with the funds' investment programs. The
following pages describe the principal types of portfolio securities and
investment management practices of the funds.

Fundamental policy Each fund is registered as a nondiversified mutual fund.
This means that each fund may invest a greater portion of its assets in a
single issuer than a diversified fund, which may subject the funds to greater
risk with
<PAGE>

MORE ABOUT THE FUNDS 25
respect to their portfolio securities. However, because each fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code,
it must invest so that, at the end of each quarter, with respect to 50% of
its total assets, not more than 5% of its assets are invested in the
securities of a single issuer, and with respect to the remaining 50%, no more
than 25% of fund assets are invested in a single issuer.

Municipal Securities
Each fund's assets are invested primarily in various tax-free municipal debt
securities. The issuers have a contractual obligation to pay interest at a
stated rate on specific dates and to repay principal (the bond's face value)
on a specified date or dates. An issuer may have the right to redeem or
"call" a bond before maturity, and the fund may have to reinvest the proceeds
at lower rates.

o In purchasing municipals, the funds rely on the opinion of the issuer's bond
counsel regarding the tax-exempt status of the investment.

Fundamental policy Under normal market conditions, the funds will not
purchase any security if, as a result, less than 80% of the funds' income
would be exempt from federal and Maryland state and local income taxes. The
income included under the 80% test does not include income from securities
subject to the alternative minimum tax.

Operating policy During periods of abnormal market conditions, for temporary
defensive purposes, the funds may invest without limit in high-quality,
short-term securities whose income is subject to federal and Maryland state
and local income taxes.

In addition to general obligation and revenue bonds, the funds' investments
may include, but are not limited to, the following types of securities:
<PAGE>

T. ROWE PRICE 26
Municipal Lease Obligations
A lease is not a full faith and credit obligation of the issuer and is
usually backed only by the borrowing government's unsecured pledge to make
annual appropriations for lease payments. There have been challenges to the
legality of lease financing in numerous states and, from time to time,
certain municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the funds would
assess the financial condition of the borrower, the merits of the project,
the level of public support for the project, and the legislative history of
lease financing in the state. These securities may be less readily marketable
than other municipals. The funds may also purchase unrated lease obligations.

Municipal Warrants
Municipal warrants are essentially call options on municipal bonds. In
exchange for a premium, they give the purchaser the right, but not the
obligation, to purchase a municipal bond in the future. The funds might
purchase a warrant to lock in forward supply in an environment where the
current issuance of bonds is sharply reduced. Like options, warrants may
expire worthless and they may have reduced liquidity.

Operating policy Neither fund may invest more than 2% of its total assets in
municipal warrants.

Securities With "Puts" or Other Demand Features
Some longer-term municipals give the investor the right to "put" or sell the
security at par (face value) within a specified number of days following the
investor's request-usually one to seven days. This demand feature enhances a
security's liquidity by shortening its effective maturity and enables it to
trade at a price equal to or very close to par. If a demand feature
terminates prior to being exercised, the funds would hold the longer-term
security, which could experience substantially more volatility.

o T. Rowe Price periodically reviews the credit quality of the insurer.

MORE ABOUT THE FUNDS 27
The obligation of a municipal bond insurance company to pay a claim extends
over the life of each insured bond. Although defaults on insured municipal
bonds have been low to date and municipal bond insurers have met their
claims, there is no assurance this will continue. A higher-than-expected
default rate could strain the insurer's loss reserves and adversely affect
its ability to pay claims to bondholders, such as the fund. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating.

Synthetic or Derivative Securities
These securities are created from existing municipal bonds:

Operating policy Neither fund may invest more than 10% of its total assets in
residual interest bonds.

o Participation Interests This term covers various types of securities created
by converting fixed rate bonds into short-term, variable rate certificates.
These securities have been developed in the secondary market to meet the
demand for short-term, tax-exempt securities. The funds will invest only in
securities deemed tax-exempt by a nationally recognized bond counsel, but
there is no guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.

T. ROWE PRICE 28
remain below the fixed interest rate swap rate. If short-term rates rise
above the fixed income swap rate, the bondholder's income is reduced. At the
end of the interest rate swap term, the bond reverts to a single fixed coupon
payment.

Both instruments may be volatile and of limited liquidity, and their use may
adversely affect the fund's total return.

Operating policy Neither fund may invest more than 10% of its total assets in
embedded interest rate swaps and caps.

Private Placements
The funds may seek to enhance their yield through the purchase of private
placements. These securities are sold through private negotiations, usually
to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.

Operating policy Neither fund may invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.

Types of Management Practices

Cash Position
Each fund will hold a certain portion of its assets in short-term, tax-exempt
money market securities maturing in one year or less. The reserve position
accomplishes the following: provides flexibility in meeting redemptions,
expenses, and the timing of new investments; can help in structuring each
fund's weighted average maturity; and serves as a short-term defense during
periods of unusual market volatility. Each fund's cash reserve position will
be composed of short-term, investment-grade securities, including tax-exempt
commercial paper, municipal notes, and short-term maturity bonds. Some of
these securities may have adjustable, variable, or floating rates.

When-Issued Securities and Forwards
New issues of municipals are often sold on a "when-issued" basis, that is,
delivery and payment take place 15-45 days after the buyer has agreed to the
purchase. Some bonds, called "forwards," have longer-than-standard settlement
dates, typically six to 24 months. When buying these securities, each fund
will maintain cash or high-grade marketable securities held by its custodian
equal in value to its commitment for these securities. The funds do not earn
interest on when-issued and forward securities until settlement, and the
value of the securities may
<PAGE>

MORE ABOUT THE FUNDS 29
fluctuate between purchase and settlement. Municipal "forwards" typically
carry a substantial yield premium to compensate the buyer for their greater
interest rate, credit, and liquidity risks.

Interest Rate Futures
Futures (a type of potentially high-risk derivative) are often used to manage
risk because they enable the investor to buy or sell an asset in the future
at an agreed-upon price. Specifically, the funds may use futures (and options
on futures) for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust their exposure
to the municipal bond market; to protect portfolio value; in an effort to
enhance income; and to adjust portfolio duration. The use of futures for
hedging and non-hedging purposes may not always be successful. Their prices
can be highly volatile, using them could lower a fund's total return, and the
potential loss from their use could exceed a fund's initial exposure to such
contracts.

Operating policy Initial margin deposits on futures and premiums on options
used for non-hedging purposes will not equal more than 5% of a fund's net
asset value.

Borrowing Money and Transferring Assets
Each fund can borrow money from banks as a temporary measure for emergency
purposes, to facilitate redemption requests, or for other purposes consistent
with each fund's investment objective and program. Such borrowings may be
collateralized with fund assets, subject to restrictions.

Fundamental policy Borrowings may not exceed 33 1/3% of total fund
assets.

Operating policy Each fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of a
fund's total assets. A fund may not purchase additional securities when
borrowings exceed 5% of total assets.

Portfolio Turnover
Each fund generally purchases securities with the intention of holding them
for investment; however, when market conditions or other circumstances
warrant, securities may be purchased and sold without regard to the length of
time held. Due to the nature of each fund's investment program, a fund's
portfolio turnover rate may exceed 100%. Although the funds do not expect to
generate any taxable income, a high turnover rate may increase transaction
costs and may
<PAGE>

T. ROWE PRICE 30
affect taxes paid by shareholders to the extent short-term gains are
distributed. The funds' portfolio turnover rates for the previous three
fiscal years are shown in Table 7.

<TABLE>
Table 7
<CAPTION>
Portfolio Turnover Rates
Fund 1995 1996 1997
<S> <S> <C> <C> <C>

Short-Term Tax-Free 105.3% 39.3% 21.4%
Tax-Free Bond 28.9 23.9 26.2
- -----------------------------------------------------------
</TABLE>

Sector Concentration
It is possible that each fund could have a considerable amount of assets (25%
or more) in securities that would tend to respond similarly to particular
economic or political developments. An example would be securities of issuers
related to a single industry, such as health care or nuclear energy.

Operating policy Each fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry (such as solid
waste, nuclear utility, or airlines). Bonds which are refunded with escrowed
U.S. government securities are not subject to the 25% limitation.

MORE ABOUT THE FUNDS 31
Table 8 shows the rating scale used by the major rating agencies, and Table 9
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings, but emphasizes its own credit analysis when selecting
investments.

<TABLE>
Table 8
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratings of Municipal Debt Securities
Moody's Standard & Fitch
Investors Poor's Investors
Service, Inc. Corporation Service, Inc. Definition
Long Term Aaa AAA AAA Highest quality

Aa AA AA High quality

A A A Upper medium grade

Baa BBB BBB Medium grade

Moody's S&P Fitch
Short Term MIG1/VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
Commercial P-1 Superior A-1+ Extremely strong F-1+ Exceptionally strong quality
Paper quality A-1 quality F-1 Very strong quality
Strong quality
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
Table 9
<CAPTION>
Explanation of Quality Ratings
Bond
Rating Explanation

<S> <C> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.

Aa High quality; together with Aaa bonds, they
compose the high-grade bond group.

A Upper-medium-grade obligations; many
favorable investment attributes.

Ba More uncertain with speculative elements.
Protection of interest and principal payments
not well safeguarded in good and bad times.

B Lack characteristics of desirable investment;
potentially low assurance of timely interest
and principal payments or maintenance of
other contract terms over time.

Caa Poor standing, may be in default; elements of
danger with respect to principal or interest
payments.

Ca Speculative in high degree; could be in
default or have other marked
shortcomings.

C Lowest rated, extremely poor prospects of
ever attaining investment standing.
- -------------------------------------------------------------------------------
(Table 9 continues on page 32.)

Standard & Poor's AAA Highest rating; extremely strong capacity to
Corporation pay principal and interest.

AA High quality; very strong capacity to pay
principal and interest.

A Strong capacity to pay principal and
interest; somewhat more susceptible to the
adverse effects of changing circumstances and
economic conditions.

BB, B, Predominantly speculative with respect to the
CCC, CC issuer's capacity to meet required interest
and principal payments. BB-lowest degree of
speculation; CC-the highest degree of
speculation. Quality and protective
characteristics outweighed by large
uncertainties or major risk exposure to
adverse conditions.

D In default.

Fitch Investors AAA Highest quality; obligor has exceptionally
Service, Inc. strong ability to pay interest and repay
principal, which is unlikely to be affected
by reasonably foreseeable events.

<PAGE>

T. ROWE PRICE 32
<PAGE>

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.

OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for gifts or transfers to minors
(UGMA/UTMA) accounts

T. ROWE PRICE 34
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117

By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 account name and account number

Complete a New Account Form and mail it to one of the appropriate addresses
listed above.

Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received.

In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
<PAGE>

INVESTING WITH T. ROWE PRICE 35
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for Automatic Asset Builder, and gifts or
transfers to minors (UGMA/ UTMA) accounts

By ACH Transfer
Use Tele*Access, your personal computer, or call Investor Services if you have
established electronic transfers using the ACH network.

By Wire
Call Shareholder Services or use the wire address in Opening a New Account.

By Mail

1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).

2. Mail the check to us at the address shown below with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.

3. Remember to provide your account number and the fund name on the memo line
of your check.

Regular Mail
T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500

/(For mailgrams, express, registered, or certified mail, see previous /
/section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.

EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
By Phone
Call Shareholder Services

T. ROWE PRICE 36
Redemption proceeds can be mailed to your account address, sent by ACH transfer,
or wired to your bank (provided your bank information is already on file). For
charges, see Electronic Transfers -By Wire under Shareholder Services.

Regular Mail
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117

Rights Reserved by the Fund

INVESTING WITH T. ROWE PRICE 37
SHAREHOLDER SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize on the New Account Form. By
signing up for services on the New Account Form rather than later on, you avoid
having to complete a separate form and obtain a signature guarantee. This
section reviews some of the principal services currently offered. Our Services
Guide contains detailed descriptions of these and other services.

If you are a new T. Rowe Price investor, you will receive a Services Guide with
our Welcome Kit.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.

Retirement Plans

Exchange Service

Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access

T. ROWE PRICE 38

T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.

After obtaining proper authorization, account transactions may also be conducted
on the Internet.

Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access, but is designed specifically to
meet the needs of retirement plan investors.

Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the cover.

Checkwriting

Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
<PAGE>

INVESTING WITH T. ROWE PRICE 39
DISCOUNT BROKERAGE
----------------------------------------------------------

Note: Discount applies to our current commission schedule, subject to our $35
minimum commission.

Investor information

Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this
service-free of charge.

/Discount Brokerage is a division of //T. Rowe Price// Investment / /Services,
Inc., Member NASD/SIPC./
<PAGE>

T. ROWE PRICE 40

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
Quarterly review of all T. Rowe Price fund results.

Insights
Educational reports on investment strategies and financial markets.

To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
timely, informative reports.

To Open a Mutual Fund Account
Investor Services
1-800-638-5660
1-410-547-2308

For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500

For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days

To Open a Discount Brokerage Account
1-800-638-5660

Internet Address
www.troweprice.com
Investor Centers
101 East Lombard St.
Baltimore, MD 21202

T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117

Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006

ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071

4200 West Cypress St.
10th Floor
Tampa, FL 33607

Invest With Confidence
T. Rowe Price
Ram logo

C12-040 7/1/97

<PAGE>

PROSPECTUS

July 1, 1997
New Jersey Tax-Free Bond Fund

A long-term bond fund for investors seeking income that is exempt from federal
and New Jersey income taxes.

T. Rowe Price Ram Logo
<PAGE>

FACTS AT A GLANCE

New Jersey Tax-Free Bond Fund

Investment Goal
The highest level of income exempt from federal and New Jersey income taxes
consistent with the fund's prescribed investment program.

As with all mutual funds, this fund may not meet its goal.

Strategy

Invests primarily in investment-grade New Jersey municipal bonds whose income
is exempt from federal and New Jersey income taxes. The fund's average maturity
is expected to exceed 15 years.

Risk/Reward
Higher income but also greater potential price fluctuation than shorter-term
municipal bond funds.

Investor Profile
New Jersey taxpayers who, because of their tax bracket, can benefit from income
that is exempt from federal and New Jersey income taxes. Not appropriate for
tax-deferred retirement plans, such as IRAs.

Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange.

Investment Manager

<PAGE>

T. Rowe Price State Tax-Free Income Trust

Prospectus

T. ROWE PRICE 2
CONTENTS

ABOUT THE FUND

Transaction and Fund Expenses 2

Financial Highlights 3

Fund, Market, and Risk Characteristics 4

ABOUT YOUR ACCOUNT

Pricing Shares and Receiving Sale Proceeds 12

Distributions and Taxes 13

Transaction Procedures and Special Requirements 16

MORE ABOUT THE FUND

Organization and Management 19

Understanding Performance Information 21

Investment Policies and Practices 22

INVESTING WITH T. ROWE PRICE

Account Requirements
<PAGE>

ABOUT THE FUND 3
and Transaction Information 31

Opening a New Account 31

Purchasing Additional Shares 32

Exchanging and Redeeming 33

Shareholder Services 34

Discount Brokerage 36

Investment Information 37

<PAGE>

T. ROWE PRICE 4

ABOUT THE FUND 5
ABOUT THE FUND
1

TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
. Like all T. Rowe Price funds, this fund is 100% no load.

These tables should help you understand the kinds of expenses you will bear
directly or indirectly as a fund shareholder.

Sales charge "load" on
reinvested distributions None Marketing fees (12b-1) None

Total other (shareholder
Redemption fees None servicing, custodial, auditing, etc.) /a/

Exchange fees None Total fund expenses /a/
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

/a/ The fund's management fee and total expense ratio would have been 0.43%
and 0.75%, respectively, had T. Rowe Price not agreed to reduce management
fees in accordance with the expense limitation described below. To limit the
fund's expenses, T. Rowe Price agreed to waive its fees and bear any expenses
through February 28, 1995, which would cause the fund's ratio of expenses to
average net assets to exceed 0.65%. Effective March 1, 1995, T. Rowe Price
agreed to extend the fund's 0.65% expense limitation for a period of two years
through February 28, 1997. Effective March 1, 1997, T. Rowe Price agreed to
extend the existing expense limitation of 0.65% for a period of two years from
March 31, 1997, through February 28, 1999. Fees waived or expenses paid or
assumed under these agreements are subject to reimbursement to T. Rowe Price
by the fund whenever the fund's expense ratio is below 0.65%; however, no
reimbursement will be made after February 28, 1997 (for the first agreement),
February 28, 1999 (for the second agreement), or February 28, 2001 (for the
third agreement), or if it would result in the expense ratio exceeding 0.65%.
Any amounts reimbursed will have the effect of increasing fees otherwise paid
by the fund. Organizational expenses will be charged to the fund over a period
not to exceed 60 months.

Note: A $5 fee is charged for wire redemptions under $5,000, subject to change
without notice, and a $10 fee is charged for small accounts when applicable (see
Small Account Fee under Transaction Procedures and Special Requirements).
<PAGE>

T. ROWE PRICE 6

<PAGE>

ABOUT THE FUND 7
The main types of expenses, which all mutual funds may charge against fund
assets, are:

. A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.33% as of February 28, 1997,
and an individual fund fee of 0.10%.

. "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.

. Marketing or distribution fees An annual charge ("12b-1") to existing
shareholders to defray the cost of selling shares to new shareholders. T.
Rowe Price funds do not levy 12b-1 fees.

For further details on fund expenses, please see Organization and Management.

<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical Fund Expenses
1 year 3 years 5 years 10 years
7
$7 $21 $36 $81
- ----------------------------------------------------------
</TABLE>

. Table 2 is just an example; actual expenses can be higher or lower than
those shown.

FINANCIAL HIGHLIGHTS
----------------------------------------------------------

T. ROWE PRICE 8

<TABLE>
Table 3 Financial Highlights
<CAPTION>
<S> <S> <C>

Period Net AssetValue,Beginningof Period
Ended

1992/ad/ $ 10.00

1993 10.30

1994 11.23

1995 11.19

1996/d/ 10.63

1997 11.16
- ------------------------------------------------------
<CAPTION>
<S> <C> <C>
Income From Investment Activities

NetInvestmentIncome (Loss) Net Realized& UnrealizedGain (Loss) onInvestments

$ 0.50/b/$ 0.34

0.58/b/ 1.00

0.56/b/ 0.10

0.57/b/ (0.55)

0.58/b/ 0.53

0.57/b/ (0.08)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Less Distributions

Total FromInvestmentActivities NetInvestmentIncome (Loss) Net RealizedGain (Loss) TotalDistributions
$ 0.84 $ (0.50) $ (0.04) $ (0.54)

1.58 (0.58) (0.07) (0.65)
00
0.66 (0.56) (0.14) (0.70)

0.02 (0.57) (0.01) (0.58)

1.11 (0.58) -- (0.58)
--
0.49 (0.57) -- (0.57)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Net Asset Value
Net AssetValue,End of Period
$ 10.30

11.23

11.19

10.63

11.16

11.08
- ---------------------------------------
</TABLE>

1993 15.90/b/ 38,347 0.65/b/ 5.47/b/ 103.3

1994 5.97/b/ 63,160 0.65/b/ 4.90/b/ 68.8

1995 0.37/b/ 58,074 0.65/b/ 5.41/b/ 139.1

1996/d/ 10.67/b/ 70,304 0.65/b/ 5.28/b/ 98.4

1997 4.57/b/ 80,289 0.65/b/ 5.18/b/ 78.9
- ------------------------------------------------------------------------------------
</TABLE>

/a/For the period April 30, 1991 (commencement of operations), to February 29,
1992.

/b
/Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
through February 28, 1997.

/c /Annualized.

/d /Period ended February 29.

What is the fund's objective and investment program?

The fund's investment objective is to provide, consistent with prudent
portfolio management, the highest level of income exempt from federal and New
Jersey income taxes by investing primarily in investment-grade New Jersey
municipal bonds.
<PAGE>

ABOUT THE FUND 9
The fund will invest at least 65% of its total assets in New Jersey municipal
bonds. The fund's dollar-weighted average maturity is expected to exceed 15
years. Due to seasonal variations or shortages in the supply of suitable
short-term New Jersey securities, the fund may invest periodically in
municipals whose interest is exempt from federal but not New Jersey income
taxes. Every effort will be made to minimize such investments, but they could
compose up to 10% of the fund's annual income.

. Income from New Jersey municipal securities is exempt from federal and New
Jersey income taxes.

What are the fund's credit-quality guidelines?

. At its discretion, the fund may retain a security whose credit quality is
downgraded after purchase.

What are the main risks of investing in municipal bond funds?

The potential for realizing a loss of principal in a bond fund could derive
from:

. Interest rate or market risk The decline in the price of bonds and bond
funds that may accompany a rise in the overall level of interest rates
(please see Table 4).

. Political risk The chance that a significant restructuring of federal income
tax rates, or even serious discussion on the topic in Congress, could cause
municipal bond prices to fall. The demand for municipal bonds is strongly
influenced by the value of tax-exempt income to investors. Broadly lower tax
rates could reduce the advantage of owning municipal bonds.
<PAGE>

T. ROWE PRICE 10
. Geographical risk The chance of price declines resulting from developments
in a single state.

. A more detailed discussion of these and other risk considerations is
contained in the fund's Statement of Additional Information.

What are the particular risks associated with single-state funds versus those
that invest nationally?

. Significant political and economic developments within a state may have
direct and indirect repercussions on virtually all municipal bonds issued in
the state.

How does the portfolio manager try to reduce risk?

Consistent with the fund's objective, the portfolio manager actively seeks to
reduce risk and increase total return. Risk management tools include:

. Diversification of assets to reduce the impact of a single holding on the
fund's net asset value.

. Thorough credit research by our own analysts.

What is the credit quality of New Jersey general obligations?

The state's general obligations were rated Aa1 by Moody's, and AA+ by
Standard & Poor's and by Fitch as of June 1, 1997. For more than a century,
the state has paid the principal and interest on its general obligation bonds
when
<PAGE>

ABOUT THE FUND 11
due. The New Jersey state constitution imposes a legal debt limit equal to 1%
of total appropriations for the fiscal year unless the debt has been approved
by a majority of voters at a general election.

. Credit ratings and the financial and economic conditions of the state, local
governments, public authorities, and others in which the fund may invest are
subject to change at any time.

What about the quality of the fund's other holdings?

In addition to the state's general obligations, the fund will invest a
significant portion of its assets in bonds that are rated according to the
issuer's individual creditworthiness, such as bonds of local governments and
public authorities. While local governments in New Jersey depend principally
on their own revenue sources, they could experience budget shortfalls due to
cutbacks in state aid.

The fund may invest in certain sectors with special risks, such as health
care, which could be affected by federal or state legislation; electric
utilities with exposure to nuclear power plants; and private activity bonds
without governmental backing.

The fund sometimes invests in obligations of the Commonwealth of Puerto Rico
and its public corporations (as well as the U.S. territories of Guam and the
Virgin Islands) that are exempt from federal and New Jersey income taxes.
These investments require careful assessment of certain risk factors,
including reliance on substantial federal assistance and favorable tax
programs that have recently become subject to phaseout by Congress. As of
June 1, 1997, Puerto Rico's general obligations were rated Baa1 by Moody's
and A by Standard & Poor's.

. The share price and yield of the fund will fluctuate with changing market
conditions and interest rate levels. When you sell your shares, you may lose
money.

What are derivatives and can the fund invest in them?

may enable the fund to accomplish the following: increase yield; hedge
against a decline in principal value; invest in eligible asset classes with
greater efficiency and lower cost than is possible through direct investment;
or adjust fund duration.
The fund will invest in derivatives only if the expected risks and rewards
are consistent with its objective, policies, and overall risk profile as
described in this prospectus. The fund limits its use of derivatives to
situations in which they
may enable the fund to accomplish the following: increase yield; hedge
against a decline in principal value; invest in eligible asset classes with
greater efficiency and lower cost than is possible through direct investment;
or adjust fund duration.

The fund will not invest in any high-risk, highly leveraged derivative
instrument that is expected to cause the price volatility of the portfolio to

State and local governments and governmental authorities sell notes and bonds

No. Since 1986 income from so-called "private activity" municipals has been
subject to the federal alternative minimum tax (AMT). For instance, some
bonds financing airports, stadiums, and student loan programs fall into this
category. Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few taxpayers are
required to pay the tax. Normally, the fund will not purchase any security
if, as a result, more than 20% of the fund's income would be subject to the
AMT. The fund will report annually to shareholders the portion of income, if
. Municipal securities are also called "tax-exempts" because the interest

Why are yields on municipals usually below those on otherwise comparable
Since the income provided by most municipals is exempt from federal taxation,
investors are willing to accept lower yields on a municipal bond than on an
otherwise similar (in quality and maturity) taxable bond.
<PAGE>

ABOUT THE FUND 13
Why are yields on New Jersey bonds often below those of comparable issues from
other states?

Strong demand for New Jersey securities due to a relatively high state income
tax rate and an often limited supply tends to push their prices up and yields
down.

Is there an easy way to compare after-tax yields on a New Jersey fund with a
similar tax-exempt fund that invests nationally?

Subtract your state tax rate from 1 and multiply this number times the yield
on the national fund. The result is the yield to you on the national fund
after paying New Jersey income tax. Compare this with the New Jersey fund's
yield.

You may want to review some fundamentals that apply to all fixed income
investments.

Is a fund's yield fixed or will it vary?

Is a fund's "yield" the same thing as the "total return"?

What is "credit quality" and how does it affect a fund's yield?

What is meant by a bond fund's "maturity"?

Every bond has a stated maturity date when the issuer must repay the
security's entire principal value to the investor. However, many bonds are
"callable," meaning their principal can be repaid before their stated
maturity dates on (or after) specified call dates. Bonds are most likely to
be called when interest rates are falling because the issuer can refinance at
a lower rate, just as a home owner refinances a mortgage. In such an
environment, a bond's "effective maturity" is calculated using its nearest
call date.
<PAGE>

T. ROWE PRICE 14
A bond mutual fund has no maturity in the strict sense of the word, but it
does have an average maturity and an average effective maturity. This number
is an average of the stated or effective maturities of the underlying bonds,
with each bond's maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the effective
(rather than stated) maturities of the underlying instruments when computing
the average. Targeting effective maturity provides additional flexibility in
portfolio management but, all else being equal, could result in higher
volatility than a fund targeting a stated maturity or maturity range.

What is meant by a bond fund's "duration"?

How is a municipal's price affected by changes in interest rates?

<TABLE>
Table 4
<CAPTION>
How Interest Rates Affect Bond Prices
Price per $1,000 of a Municipal Bond if Interest Rates:
Increase Decrease
Bond Maturity Coupon 1 Point 2 Points 1 Point 2 Points

<S> <S> <C> <C> <C> <C> <C>
1 year 3.75% $990 $981 $1,010 $1,020

5 years 4.55% 957 916 1,045 1,093

10 years 4.90% 925 857 1,082 1,173

20 years 5.45% 889 794 1,132 1,287

30 years 5.50% 869 763 1,164 1,370
- ----------------------------------------------------------------------------------------
</TABLE>

Coupons reflect yields on AAA-rated municipals as of May 31, 1997. This is an
illustration and does not represent
<PAGE>

ABOUT THE FUND 15
expected yields or share price changes of any T. Rowe Price fund.

. The fund should not represent your complete investment program nor be used
for short-term trading purposes.

How can I decide if the fund is appropriate for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. If you can accept the possibility of share price
decline in an effort to achieve income exempt from federal and New Jersey
income taxes, the fund could be an appropriate part of your overall
investment strategy. If you are investing for principal stability and
liquidity, you should consider a money market fund.

Is there other information I need to review before making a decision?

<PAGE>

T. ROWE PRICE 16
ABOUT YOUR ACCOUNT
2

PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
tax-free fund.

How and when shares are priced

. The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

ABOUT YOUR ACCOUNT 17
financial institution account. ACH is a payment system supported by over
20,000 banks, savings banks, and credit unions, which electronically
exchanges the transactions primarily through the Federal Reserve Banks.
Proceeds sent by bank wire should be credited to your account the next
business day.

. If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Income dividends
. Bond funds declare income dividends daily at 4 p.m. ET to shareholders of
record at that time provided payment has been received on the previous
business day.

. Bond funds pay dividends on the first business day of each month.

T. ROWE PRICE 18
your shares, all dividends accrued on those shares will be reinvested, or
paid in cash, on the next dividend payment date.
<PAGE>

Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. A capital gain or loss is the difference between the purchase and sale price
of a security.

Tax Information

. You will be sent timely information for your tax filing needs.

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

T. ROWE PRICE 20
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.

. Distributions are taxable whether reinvested in additional shares or
received in cash.

Note: For shareholders who receive Social Security benefits, the receipt of
tax-exempt interest may increase the portion of benefits that are subject to
tax.
<PAGE>

ABOUT YOUR ACCOUNT 21
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.

Sale (Redemption) Conditions

T. ROWE PRICE 22
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of the fund's net assets,
the fund has the right to delay sending your proceeds for up to five business
days after receiving your request, or to pay the difference between the
redemption amount and the lesser of the two previously mentioned figures with
securities from the fund.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

For example, you are in fund A. You can move substantial assets from fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.

If you exceed the number of trades described above, you may be barred
indefinitely from further purchases of T. Rowe Price funds.

Keeping Your Account Open

Small Account Fee

ABOUT YOUR ACCOUNT 23
investor whose aggregate T. Rowe Price mutual fund investments total $25,000
or more. Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt from the
charge. The fee will not apply to IRAs and other retirement plan accounts. (A
separate custodial fee may apply to IRAs and other retirement plan accounts.)

Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on
record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

T. ROWE PRICE 24
MORE ABOUT THE FUND
3

ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How is the fund organized?

The T. Rowe Price State Tax-Free Income Trust (the "Trust") was organized in
1986 as a Massachusetts business trust and is a "nondiversified, open-end
investment company," or mutual fund. This fund was organized in 1991. Mutual
funds pool money received from shareholders and invest it to try to achieve
specified objectives.

. Shareholders benefit from T. Rowe Price's 60 years of investment management
experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain
distributions.

. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.

Do T. Rowe Price funds have annual shareholder meetings?

ABOUT YOUR ACCOUNT 25
Who runs the fund?

General Oversight

. All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price-specifically by each fund's portfolio managers.

Portfolio Management

The fund has an Investment Advisory Committee, composed of the following
members: William F. Snider, Chairman, Paul W. Boltz, Patricia S. Deford,
Konstantine B. Mallas, Mary J. Miller, William T. Reynolds, Alan P. Richman,
and Arthur S. Varnado. The committee chairman has day-to-day responsibility
for managing the portfolio and works with the committee in developing and
executing the fund's investment program. Mr. Snider was appointed as the
fund's chairman in March 1997 and has been a member of the fund's committee
since 1994. Mr. Snider joined T. Rowe Price in 1991 and has been managing
investments for the past four years.

Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of this and all other T. Rowe Price funds.

How are fund expenses determined?

. For the fiscal year ended February 28, 1997, the fund paid $69,000 to T.
Rowe Price Services, Inc., for transfer and dividend disbursing functions and
shareholder services, and $65,000 to T. Rowe Price for accounting services.

<PAGE>

T. ROWE PRICE 26
The Management Fee
This fee has two parts- an "individual fund fee" (discussed under Transaction
and Fund Expenses), which reflects a fund's particular investment management
costs, and a "group fee." The group fee, which is designed to reflect the
benefits of the shared resources of the T. Rowe Price investment management
complex, is calculated daily based on the combined net assets of all T. Rowe
Price funds (except Equity Index and the Spectrum Funds and any institutional
or private label mutual funds). The group fee schedule (shown below) is
graduated, declining as the asset total rises, so shareholders benefit from
the overall growth in mutual fund assets.

Total Return

Advertisements for a fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

. Total return is the most widely used performance measure. Detailed
performance information is included in the fund's annual and semiannual
shareholder
<PAGE>

MORE ABOUT THE FUND 27
reports and in the quarterly Performance Update, which are all available
without charge.

Cumulative Total Return

Average Annual Total Return

Yield

. You will see frequent references to a fund's yield in our reports, in
advertisements, in media stories, and so on.

T. ROWE PRICE 28
cussed with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an investment. A
later change in circumstances does not cause a violation of the restriction
and will not require the sale of an investment if it was proper at the time
it was made.

Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

. Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

MORE ABOUT THE FUND 29
There are two broad categories of municipal bonds. General obligation bonds
are backed by the issuer's "full faith and credit," that is, its full taxing
and revenue raising power. Revenue bonds usually rely exclusively on a
specific revenue source, such as charges for water and sewer service, to
generate money for debt service.

. In purchasing municipals, the fund relies on the opinion of the issuer's
bond counsel regarding the tax-exempt status of the investment.

Fundamental policy Under normal market conditions, the fund will not purchase
any security if, as a result, less than 80% of the fund's income would be
exempt from federal and New Jersey income taxes. The income included under
the 80% test does not include income from securities subject to the
alternative minimum tax.

In addition to general obligation and revenue bonds, the fund's investments
may include, but are not limited to, the following types of securities:

Municipal Lease Obligations

<PAGE>

T. ROWE PRICE 30
Municipal Warrants
Municipal warrants are essentially call options on municipal bonds. In
exchange for a premium, they give the purchaser the right, but not the
obligation, to purchase a municipal bond in the future. The fund might
purchase a warrant to lock in forward supply in an environment where the
current issuance of bonds is sharply reduced. Like options, warrants may
expire worthless and they may have reduced liquidity.

Operating policy The fund will not invest more than 2% of its total assets in
municipal warrants.

Securities With "Puts" or Other Demand Features

. T. Rowe Price periodically reviews the credit quality of the insurer.

Synthetic or Derivative Securities
These securities are created from existing municipal bonds:
These securities are created from existing municipal bonds:

. Residual Interest Bonds (These are a type of potentially high-risk
derivative.) The income stream provided by an underlying bond is divided to
create two securities, one short term and one long term. The interest rate on
the short-term component is reset by an index or auction process normally
every seven to 35 days. After income is paid on the short-term securities at
current rates, the residual income goes to the long-term securities.
Therefore, rising short-term interest rates result in lower income for the
longer-term portion, and vice versa. The longer-term bonds can be very
Operating policy The fund will not invest more than 10% of its total assets
. Participation Interests This term covers various types of securities created
by converting fixed rate bonds into short-term, variable rate certificates.
These securities have been developed in the secondary market to meet the
demand for short-term, tax-exempt securities. The fund will invest only in
securities deemed tax-exempt by a nationally recognized bond counsel, but
there is no guarantee the interest will be exempt because the IRS has not
. Embedded Interest Rate Swaps and Caps In a fixed rate, long-term municipal
bond with an interest rate swap attached to it, the bondholder usually
receives the bond's fixed coupon payment as well as a variable rate payment
that represents the difference between a fixed rate for the term of the swap
(which is typically shorter than the bond it is attached to) and a variable
rate, short-term municipal index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate swap rate. If
short-term rates rise above the fixed income swap rate, the bondholder's
income is reduced. At the end of the interest rate swap term, the bond
An embedded interest rate cap allows the bondholder to receive payments
whenever short-term rates rise above a level established at the time of
Both instruments may be volatile and of limited liquidity, and their use may
Operating policy The fund will not invest more than 10% of its total assets
in embedded interest rate swaps and caps.
<PAGE>

T. ROWE PRICE 32
Private Placements
The fund may seek to enhance its yield through the purchase of private
placements. These securities are sold through private negotiations, usually
to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.

Operating policy The fund may not invest more than 15% of its net assets in
illiquid securities, including unmarketable private placements.

Types of Management Practices

Cash Position

When-Issued Securities and Forwards

MORE ABOUT THE FUND 33
Operating policy Initial margin deposits on futures and premiums on options
used for non-hedging purposes will not equal more than 5% of the fund's net
asset value.

Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.

Portfolio Turnover

T. ROWE PRICE 34
analysts also evaluate all portfolio holdings of the fund, including those
rated by outside agencies. The lower the rating on a bond, the higher the
yield, other things being equal.