INVESTMENT MANAGER
REPORT TO SHAREHOLDERS
Legg Mason Fund Adviser, Inc. FOR THE SIX MONTHS ENDED
Baltimore, MD SEPTEMBER 30, 1995
BOARD OF TRUSTEES
John F. Curley, Jr., Chairman THE
Edmund J. Cashman, Jr. LEGG MASON
Richard G. Gilmore MARYLAND
Charles F. Haugh TAX-FREE
Arnold L. Lehman INCOME TRUST
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
TRANSFER AND SHAREHOLDERS' SERVICING AGENT
Boston Financial Data Services
Boston, MA
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart
Washington, DC
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Baltimore, MD
Putting Your Future First
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS (Legg Mason Logo)
PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
(Recycled Logo) PRINTED ON RECYCLED PAPER
LMF-030
<PAGE>
TO OUR SHAREHOLDERS,
On September 30, 1995, the Legg Mason Maryland Tax-Free Income Trust had a
30-day annualized SEC yield of 4.86%, an average weighted maturity of 15.4
years and net assets per share of $16.19.
The Trust seeks a high level of current income exempt from federal and
Maryland state and local income taxes, consistent with prudent investment risk
and preservation of capital. It purchases only securities which have received
investment grade ratings from Moody's Investors Service or Standard & Poor's
Corporation or which are judged by the Trust's investment advisor to be of
comparable quality. Moody's ratings of securities we currently own are:
<TABLE>
<S> <C>
Aaa 42.8%
Aa 34.7%
A 14.0%
Baa 4.6%
Short-term securities 3.9%
</TABLE>
During the six months ended September 30, the value of the Trust's
portfolio holdings rose as interest rates on tax-exempt securities declined
modestly. This increase in portfolio value, plus dividends paid from interest
earnings, produced a total return for shareholders of 4.8% (not annualized) in
the six-month period. Total return measures investment performance in terms of
appreciation or depreciation in net asset value per share plus dividends and
any capital gain distributions. It assumes that dividends and distributions
were reinvested at the time they were paid, and does not reflect the effect of
the Trust's 2.75% maximum initial sales charge.
Normally, the average weighted maturity of the Trust will be kept within a
range of 12-24 years. Because of the portfolio's relatively long average
weighted maturity, the Trust offers higher yields than short-term and
intermediate-term tax free bond funds. However, shareholders should keep in
mind that for the same reason, the Trust's net asset value per share typically
will show greater fluctuations -- both up and down -- in response to changes in
interest rates than tax free bond funds with shorter average weighted
maturities.
Some shareholders regularly add to their Trust holdings by authorizing
automatic, monthly transfers from their bank checking accounts or Legg Mason
money market funds. Your Investment Executive will be happy to help you make
these arrangements if you would like to purchase shares in this convenient way.
Sincerely,
(Signature of John F Curley)
John F. Curley, Jr.
Chairman
November 10, 1995
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
SEPTEMBER 30, 1995
(Amounts in Thousands) (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- 94.8%
Maryland -- 94.1%
Annapolis (City of), Public
Improvement, GO
$ 350 6.50% 8/1/10 $ 372
Anne Arundel County, Consolidated
Water and Sewer, GO
1,350 6.90% 1/15/09 1,477
Anne Arundel County, PCR Refunding
4,000 6.00% 4/1/24 4,494
Baltimore City Municipal Capital
Projects (MBIA insured)
7.375% 4/1/01
2,000 (Pre-refunded 4/1/98A) 2,148
Baltimore City Waste Water (MBIA
insured)
6.50% 7/1/20
1,500 (Pre-refunded 7/1/00A) 1,628
Baltimore City Water Utility (MBIA
insured)
6.50% 7/1/20
1,250 (Pre-refunded 7/1/00A) 1,357
Baltimore County, Consolidated
Public Improvement, GO
2,000 6.125% 7/1/09 2,121
Baltimore County, Nursing Home
Stella Maris Series A
890 7.25% 3/1/11 929
Baltimore County, Pension Funding,
GO
1,000 6.70% 7/1/09 1,083
2,900 6.70% 7/1/11 3,136
2,000 6.70% 7/1/16 2,161
Carroll County, Consolidated Public
Improvement, GO
6.25% 11/1/10
500 (Pre-refunded 11/1/01A) 552
Charles County, GO
6.60% 6/1/06
1,000 (Pre-refunded 6/1/01A) 1,117
Frederick County, GO
Series 1990
6.625% 8/1/20
250 (Pre-refunded 8/1/03A) 285
Series 1991 B
6.30% 7/1/11
2,000 (Pre-refunded 7/1/02A) 2,222
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Frederick County, GO Public Facility
1991
6.50% 5/1/06
$ 500 (Pre-refunded 5/1/01A) $ 555
6.50% 5/1/07
650 (Pre-refunded 5/1/01A) 722
Frederick County, GO Public
Facilities Refunding 1993
1,000 5.55% 7/1/07 1,028
Harford County, GO
6.40% 12/1/10
500 (Pre-refunded 12/1/00A) 552
Howard County, Consolidated Public
Improvement, GO Series A
1,000 4.80% 8/15/01 1,014
6.50% 2/15/11
700 (Pre-refunded 2/15/00A) 754
Howard County, Metropolitan District
Refunding Series B
1,000 0%B 8/15/07 542
1,500 6.00% 8/15/19 1,512
Laurel (City of), GO Public
Improvement and Refunding (MBIA
insured)
250 7.00% 7/1/09 280
1,000 7.00% 7/1/11 1,116
Maryland Community Development
Administration
Single Family AMT
Second Series
1,000 6.65% 4/1/04 1,046
Fourth Series
1,000 7.45% 4/1/32 1,054
Fifth Series
1,970 7.625% 4/1/29 2,064
Sixth Series
570 7.125% 4/1/14 588
Single Family Third Series
Non AMT
700 7.25% 4/1/27 737
Multi-Family Insured Mortgage
Series G
150 7.10% 5/15/23 158
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- Continued
Maryland -- Continued
Maryland Department of
Transportation Consolidated
Transportation Series 1989-1991
$ 1,500 6.60% 11/1/00 $1,628
2,000 6.25% 9/1/03 2,152
6.90% 11/1/04
750 (Pre-refunded 11/15/98A) 822
6.70% 8/15/05
1,000 (Pre-refunded 8/15/99A) 1,100
Maryland Health and Higher
Educational Facilities Authority
Easton Memorial Hospital (MBIA
insured)
1,000 6.50% 7/1/15 1,036
Francis Scott Key Medical Center
(FGIC insured)
2,000 5.00% 7/1/18 1,771
2,000 5.00% 7/1/23 1,738
6.75% 7/1/23
1,500 (Pre-refunded 7/1/00A) 1,669
1,000 5.625% 7/1/25 926
Greater Baltimore Medical Center
7.10% 7/1/17
50 (Pre-refunded 7/1/96A) 52
6.75% 7/1/19
3,000 (Pre-refunded 7/1/01A) 2,251
Howard County General Hospital
8.25% 7/1/18
1,100 (Pre-refunded 7/1/98A) 1,234
2,500 5.50% 7/1/21 2,154
The Johns Hopkins Hospital
Series 1990
4,000 0%B 7/1/19 936
Series 1993
3,250 5.00% 7/1/23 2,821
The Johns Hopkins University
Series 1988
3,000 7.50% 7/1/20 3,299
Kaiser Permanente Medical Program
825 9.125% 7/1/15 845
Kennedy Institute Series 1991
630 7.40% 7/1/11 659
1,000 6.75% 7/1/22 999
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Suburban Hospital Series 1992
6.50% 7/1/17
$ 1,000 (Pre-refunded 7/1/02A) $1,122
Union Memorial Hospital
Series A and B (MBIA insured)
600 6.75% 7/1/11 649
1,900 6.75% 7/1/21 2,030
University of Maryland Medical
System
Series 1993
5.375% 7/1/13
2,000 (FGIC insured) 1,898
Maryland Industrial Development
Financing Authority Revenue
(American Center for Physics
Headquarters Facility) Series 1992
2,500 6.375% 1/1/12 2,539
Maryland National Capital Park and
Planning Commission (Prince
George's County) Series L2
500 6.00% 7/1/05 539
Maryland Stadium Authority Sports
Facilities Lease Revenue AMT
Series D
250 6.60% 12/15/95 251
5,000 7.50% 12/15/10 5,492
2,010 7.60% 12/15/19 2,215
Maryland Transportation Authority
Series 1985
5,250 5.75% 7/1/15 5,158
Maryland Water Quality Financing
Administration, Revolving Loan
Fund Revenue Series 1993A
1,500 5.40% 9/1/11 1,483
1,500 5.40% 9/1/12 1,466
Mayor and City Council of Baltimore
(FGIC insured)
Baltimore City Consolidated Public
Improvement
2,000 0%B 10/15/11 777
</TABLE>
3
<PAGE>
STATEMENT OF NET ASSETS -- CONTINUED
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- Continued
Baltimore City Parking Revenue
$ 500 6.25% 7/1/21 $ 512
Baltimore City Water Projects
960 5.00% 7/1/24 843
Port Facilities Revenue (Consolidated
Coal Sales Co. Project) Series A and B
6,000 6.50% 10/1/11 6,506
Montgomery County, Consolidated
Public Improvement, GO
Series A
2,750 5.80% 7/1/07 2,936
3,000 0%B 7/1/10 1,315
Series B
6.80% 11/1/09
850 (Pre-refunded 11/1/99A) 942
Montgomery County, HOC Single Family
965 6.80% 7/1/17 999
Montgomery County, Parking Revenue
Refunding (Silver Spring Parking
Lot
District) 1992 Series A (FGIC
insured)
2,000 6.25% 6/1/07 2,151
Montgomery County, PCR Refunding
(Potomac Electric Project) 1994
Series
1,000 5.375% 2/15/24 918
Morgan State University Academic and
Auxiliary Fees Revenue (MBIA
insured)
7.00% 7/1/20
1,000 (Pre-refunded 7/1/00A) 1,123
Northeast Maryland Waste Disposal
Authority Solid Waste Revenue
(Montgomery County Resource
Recovery Project) AMT Series 1993A
3,000 6.30% 7/1/16 3,021
Prince George's County, Consolidated
Public Improvement, GO
585 6.70% 7/1/04 648
7.20% 2/1/08
500 (Pre-refunded 2/1/99A) 548
585 6.75% 7/1/11 626
Prince George's County, PCR
Refunding (Potomac Electric
Project) 1993 Series
2,250 6.375% 1/15/23 2,402
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
Prince George's County, Solid Waste
Management System Revenue
Series 1990
6.75% 6/30/02
$ 250 (Pre-refunded 6/30/00A) $ 278
6.90% 6/30/06
750 (Pre-refunded 6/30/00A) 839
Series 1993
1,000 5.25% 6/15/13 894
State of Maryland, GO
500 6.70% 7/15/02 548
6.70% 3/1/04
1,500 (Pre-refunded 3/1/00A) 1,651
2,000 5.40% 6/1/07 2,055
Talbot County, Bank Qualified, GO
500 6.70% 5/1/10 534
415 6.70% 5/1/11 442
University of Maryland Systems
(Auxiliary Facilities and Tuition
Revenue)
Series A
1,000 6.30% 2/1/10 1,059
6.50% 4/1/11
2,000 (Pre-refunded 4/1/00A) 2,196
1,000 5.60% 4/1/15 973
Series B
7.00% 10/1/07
1,000 (Pre-refunded 10/1/99A) 1,113
1,000 6.375% 4/1/09 1,072
Washington County Public Facilities
Revenue, GO
6.60% 12/1/02
750 (Pre-refunded 12/1/98A) 816
Washington Suburban Sanitary
District
1,000 6.10% 6/1/07 1,077
1,000 5.25% 6/1/11 964
1,000 5.50% 6/1/13 978
6.90% 6/1/13
400 (Pre-refunded 6/1/01A) 452
6.90% 6/1/14
1,300 (Pre-refunded 6/1/01A) 1,471
1,000 5.25% 6/1/15 934
Worcester County Sanitary District, GO
115 6.75% 5/1/15 122
138,473
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MUNICIPAL BONDS -- Continued
Puerto Rico -- 0.7%
Puerto Rico Housing Finance
Corporation Single Family Mortgage
Revenue Series D
$ 1,000 6.85% 10/15/24 $ 1,003
Total Municipal Bonds (Identified
Cost -- $131,320) 139,476
<CAPTION>
</TABLE>
SHORT-TERM INVESTMENTS -- 3.7%
<TABLE>
<S> <C> <C>
Variable Rate Demand Obligations --
Baltimore County, Sheppard & Enoch
Pratt
900 4.40%C 10/4/95 900
Maryland Health and Higher
Educational Facilities Authority
Series 1985A
4.35%C 10/4/95
3,800 (Non-callable) 3,800
Lincoln County, Wy Pollution Control
800 4.40%C 10/4/95 800
Total Short-term Investments
(Identified Cost -- $5,500) 5,500
<CAPTION>
</TABLE>
<TABLE>
<S> <C>
Total Investments -- 98.5%
(Identified Cost -- $136,820) $144,976
Other Assets Less Liabilities -- 1.5% 2,145
NET ASSETS -- 100.0% $147,121
Net Assets Consisting of:
Accumulated paid-in capital applicable
to 9,090 shares outstanding $138,456
Undistributed net realized gain
on investments 509
Unrealized appreciation of investments 8,156
NET ASSETS -- 100.0% $147,121
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE $16.19
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus sales charge
of 2.75% of offering price) $16.65
</TABLE>
A PRE-REFUNDED BOND -- BONDS ARE REFERRED TO AS PRE-REFUNDED WHEN THE ISSUE
HAS BEEN ADVANCE REFUNDED BY A SUBSEQUENT ISSUE. THE ORIGINAL ISSUE IS
USUALLY ESCROWED WITH U.S. TREASURY SECURITIES IN AN AMOUNT SUFFICIENT TO
PAY THE INTEREST, PRINCIPAL AND CALL PREMIUM, IF ANY, TO THE EARLIEST
CALL DATE. ON THAT CALL DATE, THE BOND WILL "MATURE." THE PRE-REFUNDED
DATE IS USED IN DETERMINING WEIGHTED AVERAGE MATURITY.
B ZERO-COUPON BOND -- A BOND WITH NO PERIODIC INTEREST PAYMENTS WHICH IS
SOLD AT SUCH A DISCOUNT AS TO PRODUCE A CURRENT YIELD TO MATURITY.
C THE RATE SHOWN IS THE RATE AS OF SEPTEMBER 30, 1995, AND THE MATURITY
SHOWN IS THE LONGER OF THE NEXT INTEREST READJUSTMENT DATE OR THE DATE
THE PRINCIPAL AMOUNT OWED CAN BE RECOVERED THROUGH DEMAND.
A GUIDE TO ABBREVIATIONS APPEARS ON THE NEXT PAGE.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
<TABLE>
<CAPTION>
% of Market
Net Assets Value
<S> <C> <C>
SECTOR DIVERSIFICATION (000)
Pre-refunded Bonds 21.5% $ 31,571
General Obligation -- Local 15.1 22,268
Hospital Revenue 13.2 19,392
Lease Revenue 7.1 10,498
Water and Sewer Revenue 6.3 9,255
Ground Transportation Revenue 6.1 8,938
Corporate Utilities 5.3 7,813
Housing Revenue 5.2 7,649
Port Facilities Revenue 4.4 6,506
Education Revenue 4.3 6,404
Solid Waste Revenue 2.7 3,915
Parking Revenue 1.8 2,663
General Obligation -- State 1.8 2,604
Short-term Investments 3.7 5,500
Other Assets Less Liabilities 1.5 2,145
100.0% $147,121
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Company
GO General Obligation
HOC Housing Opportunities Commission
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
</TABLE>
6
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Interest $4,257
EXPENSES:
Investment advisory fee $ 401
Distribution and service fees 182
Custodian fee 40
Transfer agent and shareholder servicing expense 29
Legal and audit fees 14
Organization expense 5
Reports to shareholders 3
Trustees' fees 2
Other expenses 7
683
Less fees waived (270)
Total expenses, net of waivers 413
NET INVESTMENT INCOME 3,844
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments 604
Increase in unrealized appreciation of investments 2,195
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,799
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,643
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
(Amounts in Thousands) September 30, 1995 March 31, 1995
(Unaudited)
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 3,844 $ 7,534
Net realized gain on investments 604 124
Increase in unrealized appreciation of investments 2,195 1,212
Increase in net assets resulting from operations 6,643 8,870
Distributions to shareholders:
Net investment income (3,844) (7,534)
Change in net assets from Fund share transactions 2,008 (4,600)
Change in net assets 4,807 (3,264)
NET ASSETS:
Beginning of period 142,314 145,578
End of period $147,121 $142,314
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
Contained below is per share operating performance data for a share of
beneficial interest outstanding, total investment return, ratios to average
net assets and other supplemental data. This information has been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the
Six
Months
Ended
September For the Years Ended March 31,
30, 1995 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $15.87 $15.69 $15.97 $15.03
Net investment incomeA 0.425 0.828 0.839 0.877
Net realized and unrealized gain (loss)
on investments 0.32 0.18 (0.275) 0.947
Total from investment operations 0.745 1.008 0.564 1.824
Distributions to shareholders:
Net investment income (0.425) (0.828) (0.839) (0.877)
Net realized gain on investments -- -- -- (0.007)
In excess of net realized gain on
investments -- -- (0.005) --
Total distributions (0.425) (0.828) (0.844) (0.884)
Net asset value, end of period $16.19 $15.87 $15.69 $15.97
Total returnD 4.75%C 6.60% 3.51% 12.47%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
ExpensesA 0.57%B 0.54% 0.46% 0.40%
Net investment incomeA 5.28%B 5.32% 5.10% 5.61%
Portfolio turnover rate 14.1%B 9.5% 6.6% --
Net assets, end of period (in
thousands) $147,121 $142,314 $145,578 $128,566
</TABLE>
<TABLE>
<CAPTION>
May 1,
1991*
to
March 31,
1992
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $14.70
Net investment incomeA 0.823
Net realized and unrealized gain (loss)
on investments 0.333
Total from investment operations 1.156
Distributions to shareholders:
Net investment income (0.823)
Net realized gain on investments (0.003)
In excess of net realized gain on
investments --
Total distributions (0.826)
Net asset value, end of period $15.03
Total returnD 8.04%C
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
ExpensesA 0.18%B
Net investment incomeA 5.91%B
Portfolio turnover rate 5.4%B
Net assets, end of period (in
thousands) $83,052
</TABLE>
* COMMENCEMENT OF OPERATIONS.
A NET OF FEES WAIVED AND REIMBURSEMENTS MADE BY THE ADVISER IN EXCESS OF
VOLUNTARY EXPENSE LIMITATIONS AS FOLLOWS: ALL EXPENSES UNTIL OCTOBER 20,
1991; 0.25% OF AVERAGE DAILY NET ASSETS UNTIL DECEMBER 31, 1991; 0.35%
UNTIL JUNE 30, 1992; 0.40% UNTIL DECEMBER 31, 1992; 0.45% UNTIL DECEMBER
31, 1993; 0.50% UNTIL JUNE 30, 1994; 0.55% UNTIL JULY 31, 1995 AND 0.60%
THROUGH JANUARY 31, 1996.
B ANNUALIZED.
C NOT ANNUALIZED.
D EXCLUDING SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
(Amounts in Thousands) (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Tax-Free Income Fund ("Trust"), consisting of the
Maryland Tax-Free Income Trust ("Fund"), the Pennsylvania Tax-Free Income
Trust ("Pennsylvania Fund") and the Tax-Free Intermediate-Term Income
Trust ("Intermediate Fund"), is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. All
series of the Trust are non-diversified. The financial statements of the
Pennsylvania Fund and the Intermediate Fund are included in separate
reports to shareholders.
Security Valuation
Portfolio securities are valued based upon market quotations. When
market quotations are not readily available, securities are valued based
on prices received from recognized broker-dealers in the same or similar
securities. The amortized cost method of valuation, is used for debt
obligations with 60 days or less remaining to maturity.
Dividends and Distributions to Shareholders
Dividends are declared daily and paid monthly. Net capital gain
distributions are declared and paid after the end of the tax year in which
the gain is realized. Dividends payable are recorded on the dividend
record date. At September 30, 1995, dividends payable of $319 were
accrued. Net income for dividend purposes consists of interest accrued
less accrued expenses. Bond premium is amortized for financial reporting
and tax purposes. Bond discount, other than original issue, is not
amortized.
Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Interest income and expenses are recorded on the accrual basis.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in
the possession of the Fund's custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
2. INVESTMENT TRANSACTIONS:
Investment transactions for the six months ended September 30, 1995
(excluding short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $10,372
Proceeds from sales 9,810
</TABLE>
At September 30, 1995, the cost of securities for federal income tax
purposes was $136,820. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $8,212
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $56.
3. FUND SHARE TRANSACTIONS:
At September 30, 1995, there were unlimited shares authorized at $.001
par value for the Trust and the Fund. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the
Six Months Ended For the
September 30, Year Ended
1995 March 31, 1995
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 508 $8,171 1,169 $18,259
Reinvestment of
distributions 175 2,823 358 5,565
Repurchased (558) (8,986) (1,838) (28,424)
Net change 125 $2,008 (311) $(4,600)
</TABLE>
10
<PAGE>
(Amounts in Thousands)
4. TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management agreement with Legg
Mason Fund Adviser, Inc. ("Adviser"), a corporate affiliate of Legg Mason
Wood Walker, Incorporated ("Legg Mason"), a member of the New York Stock
Exchange and the distributor for the Fund. Under this agreement, the
Adviser provides the Fund with investment advisory, management and
administrative services for which the Fund pays a fee at an annual rate of
0.55% of average daily net assets of the Fund, calculated daily and
payable monthly. The agreement with the Adviser provides that expense
reimbursements be made to the Fund for expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) which in any month are in
excess of annual rates, based on average daily net assets, according to
the following schedule: all expenses until October 20, 1991, 0.25% until
December 31, 1991, 0.35% until June 30, 1992, 0.40% until December 31,
1992, 0.45% until December 31, 1993, 0.50% until June 30, 1994; 0.55%
until July 31, 1995 and 0.60% through January 31, 1996 or when the Fund's
net assets reach $200 million, whichever occurs first. For the six months
ended September 30, 1995, advisory fees of $270 were waived and $27 was
payable to the Adviser at September 30, 1995.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.125% and an annual service fee of 0.125% of the
Fund's average daily net assets, calculated daily and payable monthly.
Distribution and services fees of $30 were payable to the distributor at
September 30, 1995. Legg Mason also has an agreement with the Fund's
transfer agent to assist with certain of its duties. For this assistance,
Legg Mason was paid $9 by the transfer agent for the six months ended
September 30, 1995.
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