<PAGE>
INVESTMENT MANAGER
Legg Mason Fund Adviser, Inc.
Baltimore, MD
BOARD OF TRUSTEES
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr.
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
TRANSFER AND SHAREHOLDER 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
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS 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
(recycle logo appears here) PRINTED ON RECYCLED PAPER
LMF-030
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
MARCH 31, 1995
THE
LEGG MASON
MARYLAND
TAX-FREE
INCOME TRUST
PUTTING YOUR FUTURE FIRST
--Legg Mason logo appears here--<PAGE>
<PAGE>
TO OUR SHAREHOLDERS,
We are pleased to report to you on the progress of the Legg Mason
Maryland Tax-Free Income Trust. Coopers & Lybrand L.L.P., the Trust's
independent accountants, recently completed their annual examination of the
Trust, and audited financial statements for the fiscal year ended March 31,
1995 are included in this report.
On March 31, 1995, the Legg Mason Maryland Tax-Free Income Trust had a
30-day annualized yield of 5.26%, an average weighted maturity of 15.1
years and net assets per share of $15.87.
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 41.0%
Aa 38.8%
A 12.0%
Baa 5.5%
Short-term securities 2.7%
</TABLE>
During the six months ended March 31, the value of the Trust's
portfolio holdings rose as interest rates declined for the first time since
early 1994. This increase in portfolio value, plus dividends paid from
interest earnings, produced a total return for shareholders of 4.96% (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, Jr. appears here)
John F. Curley, Jr.
Chairman
May 9, 1995
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
For the fiscal year ended March 31, 1995, the fund performed well
relative to other Maryland municipal bond funds. For the 12-month period
ending March 31, 1995, the Maryland Tax-Free Income Trust ranked 8th of 23
Maryland funds according to Lipper Analytical Services, with a total
return of 6.60% (excluding the maximum 2.75% sales charge) versus 6.16%
for the average Maryland fund. Our favorable relative performance was
attributable primarily to the short average maturity maintained in the
fund during last year's market decline. Performance comparisons with some
other funds also benefited from the limitations on the fund's fees and
expenses described in the Notes to Financial Statements at the end of this
report.
During the first eight months of the fiscal year, we allowed the
average maturity of your fund to remain at approximately 13.4 years and
then extended the average maturity of the fund to 15.1 years by the end of
March. The average life of a fund is a somewhat more accurate measure of
potential volatility of the net asset value of a fund than average
maturity because average life reflects the time to call or maturity,
whichever is appropriate. From March until November, we kept the average
life of the fund at just under 10 years. Starting in November, we extended
the average life of the fund slightly, ending the fiscal year at a 13.2
year average life. This strategy was adopted to allow the fund to benefit
from any decline in longer-term interest rates which would make the net
asset value of the fund increase. We continue to focus investments in high
quality municipal bond issues and have not invested in any derivative
securities.
Interest rates rose on tax-exempt bonds through most of 1994 in
response to the Federal Reserve Board's raising of the federal funds rate.
Rates peaked in November and then the bond market rallied significantly
through the end of March 1995, as it became more apparent that the economy
is beginning to slow. The expectation that the Fed will not continue
tightening monetary policy to control inflation has also contributed to
the strength in the bond market.
Our conservative strategy of maintaining a relatively short average
maturity and average life in your fund had a major positive impact on the
performance of the fund through most of last year. As the market rallied,
that strategy did not help the fund perform as well as those funds which
had significantly longer average maturities. Our actions to extend the
average maturity and average life of the fund slowly as we perceive a more
stable market environment are in keeping with our philosophy of making
conservative moves in the portfolio rather than trading actively in an
attempt to time the market.
2
<PAGE>
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON TAX-FREE INCOME FUND
LEGG MASON MARYLAND TAX-FREE INCOME TRUST
Performance Comparison of a $10,000 Investment as of March 31, 1995(dagger)
(graph appears here--plot points are listed below)
<TABLE>
<CAPTION>
5/1/91 9/91 3/92 9/92 3/93 9/93 3/94 9/94 3/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maryland Tax-Free Income Trust 9,722 10,157 10,503 11,143 11,813 12,655 12,227 12,418 13,034
Lehman Brothers Municipal Bond Index(1) 10,000 10,471 10,854 11,565 12,213 13,039 12,496 12,721 13,425
</TABLE>
Average Annual Total Return
1 Year Life of Fund
3.70% 7.00%
* Fund Inception--May 1, 1991
(dagger) Includes maximum sales charge of 2.75%.
(1) The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment-grade tax-exempt bond market.
The results shown above are based on historical results and are not intended
to indicate future performance. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Average annual
returns tend to smooth out variations in the fund's return, so they differ from
actual year-to-year results. No adjustment has been made for any income taxes
payable by shareholders.
3
<PAGE>
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
MARCH 31, 1995
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
MUNICIPAL BONDS -- 95.7%
<TABLE>
<C> <S> <C>
Maryland -- 95.0%
Annapolis (City of), Public
Improvement, GO
$ 350 6.50% 8/1/10 $ 368
Anne Arundel County, Consolidated
Water and Sewer, GO
1,350 6.90% 1/15/09 1,451
Anne Arundel County, PCR Refunding
4,000 6.00% 4/1/24 3,924
Baltimore County, Consolidated
Public Improvement, GO
2,000 6.125% 7/1/09 2,085
Baltimore County, Pension Funding,
GO
1,000 6.70% 7/1/09 1,060
2,900 6.70% 7/1/11 3,068
2,000 6.70% 7/1/16 2,113
Baltimore County, Nursing Home
Stella Maris Series A
890 7.25% 3/1/11 920
Baltimore City Municipal Capital
Projects (MBIA insured)
7.375% 4/1/01
2,000 (Pre-refunded 4/1/98(|)) 2,143
Baltimore City Waste Water (MBIA
insured)
6.50% 7/1/20
3,500 (Pre-refunded 7/1/00(|)) 3,739
Baltimore City Water Utility (MBIA
insured)
6.50% 7/1/20
1,250 (Pre-refunded 7/1/00(|)) 1,335
Carroll County, Consolidated Public
Improvement, GO
6.25% 11/1/10
500 (Pre-refunded 11/1/01(|)) 540
Charles County, GO
6.60% 6/1/06
1,000 (Pre-refunded 6/1/01(|)) 1,095
Frederick County, GO
Series 1991 B
6.30% 7/1/11
2,000 (Pre-refunded 7/1/02(|)) 2,170
Series 1990
6.625% 8/1/20
250 (Pre-refunded 8/1/03(|)) 278
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
Frederick County, GO Public Facility
1991
500 6.50% 5/1/06
$ (Pre-refunded 5/1/01(|)) $ 545
6.50% 5/1/07
650 (Pre-refunded 5/1/01(|)) 708
Frederick County, GO Public
Facilities Refunding 1993
1,000 5.55% 7/1/07 1,001
Harford County, GO
6.40% 12/1/10
500 (Pre-refunded 12/1/00(|)) 542
Howard County, Consolidated Public
Improvement, GO Series A
1,000 4.80% 8/15/01 985
6.50% 2/15/11
700 (Pre-refunded 2/15/00(|)) 745
Howard County, Metropolitan District
Refunding Series B
1,000 0%* 8/15/07 512
500 6.00% 8/15/19 500
Laurel (City of), GO Public
Improvement and Refunding (MBIA
insured)
250 7.00% 7/1/09 274
1,000 7.00% 7/1/11 1,089
Maryland Community Development
Administration
Single Family AMT
Second Series
1,000 6.65% 4/1/04 1,022
Fourth Series
1,000 7.45% 4/1/32 1,051
Fifth Series
1,975 7.625% 4/1/29 2,058
Sixth Series
570 7.125% 4/1/14 600
Single Family Third Series
Non AMT
700 7.25% 4/1/27 733
Multi-Family Insured Mortgage
Series G
150 7.10% 5/15/23 156
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
MUNICIPAL BONDS -- Continued
<TABLE>
<C> <S> <C>
Maryland -- Continued
Maryland Department of
Transportation Consolidated
Transportation Series 1989-1991
$ 1,500 6.60% 11/1/00 $1,608
2,000 6.25% 9/1/03 2,119
6.90% 11/15/04
750 (Pre-refunded 11/15/98(|)) 813
6.70% 8/15/05
1,000 (Pre-refunded 8/15/99(|)) 1,086
Maryland Health and Higher
Educational Facilities Authority
Easton Memorial Hospital (MBIA
insured)
1,000 6.50% 7/1/15 1,021
Francis Scott Key Medical Center
(FGIC insured)
2,000 5.00% 7/1/18 1,733
2,000 5.00% 7/1/23 1,699
6.75% 7/1/23
1,500 (Pre-refunded 7/1/00(|)) 1,645
1,000 5.625% 7/1/25 893
Greater Baltimore Medical Center
7.10% 7/1/17
50 (Pre-refunded 7/1/96(|)) 53
6.75% 7/1/19
3,000 (Pre-refunded 7/1/01(|)) 3,323
Howard County General Hospital
8.25% 7/1/18
1,100 (Pre-refunded 7/1/98(|)) 1,229
2,500 5.50% 7/1/21 2,032
The Johns Hopkins Hospital
Series 1990
4,000 0%* 7/1/19 887
Series 1993
3,250 5.00% 7/1/23 2,736
The Johns Hopkins University
Series 1985A
9.25% 7/1/15
2,380 (Pre-refunded 7/1/95(|)) 2,456
Series 1988
3,000 7.50% 7/1/20 3,242
Kaiser Permanente Medical Program
825 9.125% 7/1/15 849
Kennedy Institute Series 1991
630 7.40% 7/1/11 652
1,000 6.75% 7/1/22 972
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
Suburban Hospital Series 1992
1,000 6.50% 7/1/17
$ (Pre-refunded 7/1/02(|)) $1,097
Union Memorial Hospital
Series A and B (MBIA insured)
600 6.75% 7/1/11 640
1,900 6.75% 7/1/21 1,991
University of Maryland Medical
System (FGIC insured)
Series A
6.50% 7/1/21
2,000 (Pre-refunded 7/1/01(|)) 2,158
Series 1993
1,000 5.375% 7/1/13 927
Maryland Industrial Development
Financing Authority Revenue
(American Center for Physics
Headquarters Facility) Series 1992
2,500 6.375% 1/1/12 2,473
Maryland National Capital Park and
Planning Commission (Prince
Georges County) Series L2
500 6.00% 7/1/05 526
Maryland Stadium Authority Sports
Facilities Lease Revenue AMT
Series D
250 6.60% 12/15/95 253
5,000 7.50% 12/15/10 5,415
2,010 7.60% 12/15/19 2,179
Maryland Transportation Authority
Series 1992
9.00% 7/1/15
1,300 (Pre-refunded 7/1/95(|)) 1,341
Series 1985
2,750 5.75% 7/1/15 2,648
Maryland Water Quality Financing
Administration, Revolving Loan
Fund Revenue Series 1993A
1,500 5.40% 9/1/11 1,442
1,500 5.40% 9/1/12 1,423
Mayor and City Council of Baltimore
(FGIC insured)
Baltimore City Consolidated Public
Improvement
2,000 0%* 10/15/11 737
</TABLE>
5
<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
<C> <S> <C>
</TABLE>
MUNICIPAL BONDS -- Continued
<TABLE>
<C> <S> <C>
Baltimore City Parking Revenue
$ 500 6.25% 7/1/21 $ 504
Baltimore City Water Projects
960 5.00% 7/1/24 828
Port Facilities Revenue
(Consolidated Coal Sales Co.
Project) Series A and B
6,000 6.50% 10/1/11 6,210
Montgomery County, Consolidated
Public Improvement, GO
Series A
2,750 5.80% 7/1/07 2,850
3,000 0%* 7/1/10 1,260
Series B
6.80% 11/1/09
850 (Pre-refunded 11/1/99(|)) 929
Montgomery County, HOC Single Family
975 6.80% 7/1/17 1,000
Montgomery County, Parking Revenue
Refunding (Silver Spring Parking
Lot District) 1992 Series A (FGIC
insured)
2,000 6.25% 6/1/07 2,098
Montgomery County, PCR Refunding
(Potomac Electric Project) 1994
Series
1,000 5.375% 2/15/24 898
Morgan State University Academic and
Auxiliary Fees Revenue (MBIA
insured)
7.00% 7/1/20
1,000 (Pre-refunded 7/1/00(|)) 1,106
Northeast Maryland Waste Disposal
Authority Solid Waste Revenue
(Montgomery County Resource
Recovery Project) AMT Series 1993
3,000 6.30% 7/1/16 2,941
Prince George's County, Consolidated
Public Improvement, GO
585 6.70% 7/1/04 637
7.20% 2/1/08
500 (Pre-refunded 2/1/99(|)) 544
585 6.75% 7/1/11 621
Prince George's County, PCR
Refunding (Potomac Electric
Project) 1993 Series
1,750 6.375% 1/15/23 1,776
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
Prince George's County, Solid Waste
Management System Revenue
Series 1990
6.75% 6/30/02
$ 250 (Pre-refunded 6/30/00(|)) $ 274
6.90% 6/30/06
750 (Pre-refunded 6/30/00(|)) 827
Series 1993
1,000 5.25% 6/15/13 853
State of Maryland, GO
600 9.20% 7/1/95 607
500 6.70% 7/15/02 541
6.70% 3/1/04
1,500 (Pre-refunded 3/1/00(|)) 1,627
Talbot County, Bank Qualified, GO
500 6.70% 5/1/10 528
415 6.70% 5/1/11 437
University of Maryland (Auxiliary
Facilities and Tuition Revenue)
Series A
1,000 6.30% 2/1/10 1,035
6.50% 4/1/11
2,000 (Pre-refunded 4/1/00(|)) 2,163
Series B
7.00% 10/1/07
1,000 (Pre-refunded 10/1/99(|)) 1,099
1,000 6.375% 4/1/09 1,058
Washington County Public Facilities
Revenue, GO
6.60% 12/1/02
750 (Pre-refunded 12/1/98(|)) 806
Washington Suburban Sanitary
District
1,000 6.10% 6/1/07 1,049
6.90% 6/1/13
400 (Pre-refunded 6/1/01(|)) 444
6.90% 6/1/14
1,300 (Pre-refunded 6/1/01(|)) 1,444
1,000 5.25% 6/1/15 910
Worcester County Sanitary District,
GO
115 6.75% 5/1/15 121
135,133
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
</TABLE>
MUNICIPAL BONDS -- Continued
<TABLE>
<C> <S> <C>
Puerto Rico -- 0.7%
Puerto Rico Housing Finance
Corporation Single Family Mortgage
Revenue Series D
$ 1,000 6.85% 10/15/24 $ 1,036
Total Municipal Bonds (Identified
Cost -- $130,208) 136,169
<CAPTION>
</TABLE>
SHORT-TERM INVESTMENTS -- 3.2%
<TABLE>
<C> <S> <C>
Repurchase Agreement -- 0.1%
State Street Bank & Trust Company
4.25% dated 3/31/95 to be
repurchased at $195 on 4/3/95
(Collateral: $195 U.S. Treasury
Bonds, 8.125% due 5/15/21,
195 value $212) 195
Variable Rate Demand
Obligations -- 3.1%
Baltimore City, IDA
500 4.10%** 4/5/95 500
Baltimore County, Sheppard & Enoch
Pratt
600 3.95%** 4/5/95 600
Maryland Health and Higher
Educational Facilities Authority
Series 1985A and B
900 4.15%** 4/5/95 900
Loyola College Series 1985
200 4.05%** 4/3/95 200
Washington Suburban Sanitary
District 1993 Series
2,200 3.90%** 4/5/95 2,200
4,400
Total Short-term Investments
(Identified Cost -- $4,595) 4,595
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Total Investments -- 98.9%
(Identified Cost -- $134,803) $140,764
Other Assets Less Liabilities -- 1.1% 1,550
</TABLE>
<TABLE>
<S> <C> <C>
Net Assets Consisting of:
Accumulated paid-in capital applicable
to 8,965 shares outstanding $136,448
Accumulated net realized loss
on investments (95)
Unrealized appreciation of investments 5,961
NET ASSETS -- 100.0% $142,314
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE $15.87
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus sales charge
of 2.75% of offering price) $16.32
</TABLE>
* 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.
** THE RATE SHOWN IS THE RATE AS OF MARCH 31, 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.
(|) 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.
A GUIDE TO ABBREVIATIONS APPEARS ON THE NEXT PAGE.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
<PAGE>
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
<TABLE>
<CAPTION>
% of Market
Net Assets Value
<S> <C> <C>
<CAPTION>
(000)
</TABLE>
SECTOR DIVERSIFICATION
<TABLE>
<S> <C> <C>
Pre-refunded Bonds 28.3% $ 40,304
General Obligation -- Local 15.3 21,724
Hospital Revenue 12.6 17,952
Lease Revenue 7.3 10,320
Housing Revenue 5.4 7,655
Corporate Utilities 4.6 6,599
Ground Transportation Revenue 4.5 6,375
Port Facilities Revenue 4.4 6,209
Water and Sewer Revenue 4.3 6,152
Education Revenue 3.7 5,335
Solid Waste Revenue 2.7 3,794
Parking Revenue 1.8 2,602
General Obligation -- State 0.8 1,148
Short-term Investments 3.2 4,595
Other Assets Less Liabilities 1.1 1,550
100.0% $142,314
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Company
GO General Obligation
HOC Housing Opportunities Commission
IDA Industrial Development Authority
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
</TABLE>
8
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Interest $8,294
EXPENSES:
Investment advisory fee $ 779
Distribution and service fees 354
Custodian fee 80
Transfer agent and shareholder servicing expense 52
Legal and audit fees 27
Reports to shareholders 13
Organization expense 11
Trustees' fees 3
Other expenses 11
1,330
Less fees waived (570)
Total expenses, net of waivers 760
NET INVESTMENT INCOME 7,534
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments 124
Increase in unrealized appreciation of investments 1,212
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,336
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,870
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
<TABLE>
<CAPTION>
For the Years Ended
March 31,
(Amounts in Thousands) 1995 1994
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 7,534 $ 7,483
Net realized gain (loss) on investments 124 (177)
Change in unrealized appreciation of investments 1,212 (2,808)
Increase in net assets resulting from operations 8,870 4,498
Distributions to shareholders:
Net investment income (7,534) (7,483)
In excess of net realized gain on investments -- (47)
Change in net assets from Fund share transactions (4,600) 20,044
Change in net assets (3,264) 17,012
NET ASSETS:
Beginning of year 145,578 128,566
End of year $142,314 $145,578
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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 Years Ended March 31,
1995 1994 1993
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $15.69 $15.97 $15.03
Net investment income(1) 0.828 0.839 0.877
Net realized and unrealized gain (loss) on investments 0.180 (0.275) 0.947
Total from investment operations 1.008 0.564 1.824
Distributions to shareholders:
Net investment income (0.828) (0.839) (0.877)
Net realized gain on investments -- -- (0.007)
In excess of net realized gain on investments -- (0.005) --
Net asset value, end of period $15.87 $15.69 $15.97
Total return(4) 6.60% 3.51% 12.47%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(1) 0.54% 0.46% 0.40%
Net investment income(1) 5.32% 5.10% 5.61%
Portfolio turnover rate 9.5% 6.6% --
Net assets, end of period (in thousands) $142,314 $145,578 $128,566
<CAPTION>
May 1, 1991*
March 31, 1992
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $14.70
Net investment income(1) 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 --
Net asset value, end of period $15.03
Total return(4) 8.04%(3)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(1) 0.18%(2)
Net investment income(1) 5.91%(2)
Portfolio turnover rate 5.4%(2)
Net assets, end of period (in thousands) $83,052
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) 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 AND 0.55% THROUGH JULY 31,
1995.
(2) ANNUALIZED.
(3) NOT ANNUALIZED.
(4) EXCLUDING SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON TAX-FREE INCOME FUND
MARYLAND TAX-FREE INCOME TRUST
(Amounts in Thousands)
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, which approximates
market, 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 March 31, 1995, dividends payable of $322 were accrued.
Net income for dividend purposes consists of interest accrued and accrued
expenses. Bond premium is amortized for financial reporting and tax
purposes. Bond discount, other than original issue, is not amortized.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
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. The Fund has
unused capital loss carryforwards for federal income tax purposes of $95
which expire in 2003.
2. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended March 31, 1995 (excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $ 15,920
Proceeds from sales 12,518
</TABLE>
At March 31, 1995, the cost of securities for federal income tax
purposes was $134,803. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $6,308
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $347.
3. FUND SHARE TRANSACTIONS:
At March 31, 1995, there were unlimited shares authorized at $.001 par
value for the Trust and the Fund. Transactions in Fund shares were as
follows:
<TABLE>
<S> <C> <C> <C> <C>
For the Years Ended March 31,
1995 1994
Shares Amount Shares Amount
Sold 1,169 $ 18,259 2,429 $ 39,716
Reinvestment of
distributions 358 5,565 341 5,539
Repurchased (1,838) (28,424) (1,544) (25,211)
Net change (311) $ (4,600) 1,226 $ 20,044
</TABLE>
12
<PAGE>
<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 and 0.55%
through July 31, 1995 or until the Fund's net assets reach $200 million,
whichever occurs first. For the year ended March 31, 1995 advisory fees of
$570 were waived and $18 was payable to the Adviser at March 31, 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
March 31, 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 $19 by the transfer agent for the year ended March 31,
1995.
13
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF LEGG MASON TAX-FREE INCOME FUND AND
SHAREHOLDERS OF THE LEGG MASON MARYLAND TAX-FREE INCOME TRUST:
We have audited the accompanying statement of net assets of the Legg
Mason Maryland Tax-Free Income Trust (one of the series comprising the
Legg Mason Tax-Free Income Fund) as of March 31, 1995, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended, and
financial highlights for each of the three years in the period then ended
and for the period May 1, 1991 (commencement of operations) to March 31,
1992. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
Our procedures included confirmation of securities owned at March 31,
1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Legg Mason Maryland Tax-Free Income Trust as of March 31,
1995, and the results of its operations, changes in its net assets, and
financial highlights for each of the respective periods stated in the
first paragraph, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
April 28, 1995
14
