Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
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 LLP
Washington, D.C.
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
[Recycled logo] Printed on Recycled Paper
LMF-030
11/96
Report to Shareholders
For the Six Months Ended
September 30, 1996
The
Legg Mason
Maryland
Tax-Free
Income Trust
Putting Your Future First
[Legg Mason Funds Logo]
<PAGE>
To Our Shareholders,
On September 30, 1996, the Legg Mason Maryland Tax-Free Income Trust had a
30-day annualized SEC yield of 4.85%, and an average weighted maturity of 15.6
years.
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:
Aaa 39.5%
Aa 40.4%
A 13.9%
Baa 2.9%
Short-term securities 3.3%
At September 30, the Trust's net asset value per share was $16.05, compared
to $16.07 six months earlier, reflecting in part the payment of a $.06 per share
capital gain distribution in May of this year. Total return in the six month
period (not annualized) was 2.90%, assuming reinvestment of the capital gain
distribution. (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 Financial Advisor will be happy to help you make these
arrangements if you would like to purchase shares in this convenient way.
Sincerely,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman
November 8, 1996
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust
September 30, 1996
(Amounts in Thousands) (Unaudited)
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- 95.6%
Maryland -- 95.6%
Annapolis (City of), Public
Improvement, GO
$ 350 6.50% 8/1/10 $ 374
Anne Arundel County, Consolidated
Water and Sewer, GO
6.90% 1/15/09
1,350 (Pre-refunded 1/15/99(A)) 1,451
1,000 5.30% 4/15/17 969
Anne Arundel County, PCR Refunding
(Baltimore Gas & Electric Project)
4,500 6.00% 4/1/24 4,558
Baltimore City Municipal Capital
Projects (MBIA Insured)
7.375% 4/1/01
2,000 (Pre-refunded 4/1/98(A)) 2,096
Baltimore City Waste Water
(MBIA insured)
6.50% 7/1/20
1,500 (Pre-refunded 7/1/00(A)) 1,603
Baltimore City Water Utility
(MBIA insured)
6.50% 7/1/20
1,250 (Pre-refunded 7/1/00(A)) 1,336
Baltimore County, Consolidated Public
Improvement, GO
2,000 6.125% 7/1/09 2,106
Baltimore County, Nursing Home
(Stella Maris) Series A
890 7.25% 3/1/11 933
Baltimore County, Pension Funding, GO
1,000 6.70% 7/1/09 1,052
2,900 6.70% 7/1/11 3,052
2,000 6.70% 7/1/16 2,105
Baltimore, Maryland Revenue Refunding
(FGIC insured) Wastewater Project
Series A
1,000 5.50% 7/1/26 974
Calvert County Consolidated
Sanitary District
1,000 5.00% 7/15/19 926
Carroll County, Consolidated Public
Improvement, GO
1,395 5.375% 11/1/20 1,345
1,855 5.375% 11/1/25 1,780
Charles County, GO
6.60% 6/1/06
1,000 (Pre-refunded 6/1/01(A)) 1,099
Principal
Amount Value
- --------------------------------------------------------------------------------
Frederick County, GO
Series 1990
6.625% 8/1/20
$ 250 (Pre-refunded 8/1/03(A)) $ 281
Frederick County, GO Public Facility 1991
6.50% 5/1/06
500 (Pre-refunded 5/1/01(A)) 547
6.50% 5/1/07
650 (Pre-refunded 5/1/01(A)) 711
Frederick County, GO Public Facilities
Refunding 1993
1,000 5.55% 7/1/07 1,022
Harford County, GO
6.40% 12/1/10
500 (Pre-refunded 12/1/00(A)) 544
1,500 5.00% 3/1/12 1,423
Howard County, Consolidated Public
Improvement, GO Series A
6.50% 2/15/11
700 (Pre-refunded 2/15/00(A)) 745
1,000 5.50% 2/15/09 1,010
Howard County, Metropolitan District
Refunding Series B
1,000 0%B 8/15/07 573
1,500 6.00% 8/15/19 1,531
Laurel (City of), GO Public Improvement
and Refunding (MBIA insured)
250 7.00% 7/1/09 277
1,000 7.00% 7/1/11 1,106
Maryland Community Development
Administration
Single Family AMT
Second Series
1,000 6.65% 4/1/04 1,038
Fourth Series
960 7.45% 4/1/32 1,005
Fifth Series
1,850 7.625% 4/1/29 1,923
Sixth Series
475 7.125% 4/1/14 489
Single Family Non-AMT
Third Series
670 7.25% 4/1/27 701
Multi-Family Insured Mortgage Series B
1,500 5.80% 5/15/26 1,475
Multi-Family Insured Mortgage Series G
150 7.10% 5/15/23 157
2
<PAGE>
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- Continued
Maryland -- Continued
Maryland Department of Transportation
Consolidated Transportation
Series 1989-1991
$1,500 6.60% 11/1/00 $1,596
2,000 6.25% 9/1/03 2,125
6.90% 11/15/04
750 (Pre-refunded 11/15/98(A)) 806
Maryland Health and Higher
Educational Facilities Authority
Easton Memorial Hospital (MBIA insured)
1,000 6.50% 7/1/15 1,039
Francis Scott Key Medical Center
2,000 5.00% 7/1/18 (FGIC insured) 1,815
2,000 5.00% 7/1/23 (FGIC insured) 1,796
6.75% 7/1/23 (FGIC insured)
1,500 (Pre-refunded 7/1/00(A)) 1,641
1,000 5.625% 7/1/25 965
Greater Baltimore Medical Center
2,000 5.00% 7/1/19 (FGIC insured) 1,811
6.75% 7/1/19
2,000 (Pre-refunded 7/1/01(A)) 2,213
Howard County General Hospital
8.25% 7/1/18
1,100 (Pre-refunded 7/1/98(A)) 1,197
2,500 5.50% 7/1/21 2,266
Johns Hopkins Hospital
Series 1990
4,000 0%(B) 7/1/19 1,057
Series 1993
3,250 5.00% 7/1/23 2,895
Johns Hopkins University Series 1988
3,000 7.50% 7/1/20 3,209
Kennedy Institute Series 1991
630 7.40% 7/1/11 662
1,000 6.75% 7/1/22 1,011
Union Memorial Hospital Series A and B
(MBIA insured)
600 6.75% 7/1/11 653
1,900 6.75% 7/1/21 2,051
University of Maryland Medical System
Series 1993 (FGIC insured)
2,000 5.375% 7/1/13 1,947
Maryland National Capital Park
and Planning Commission
(Prince George's County) Series L2
500 6.00% 7/1/05 540
Maryland Stadium Authority Sports
Facilities Lease Revenue AMT Series D
5,000 7.50% 12/15/10 5,474
2,125 7.60% 12/15/19 2,333
Principal
Amount Value
- --------------------------------------------------------------------------------
Maryland Transportation Authority
Series 1985
$5,250 5.75% 7/1/15 $5,255
Maryland Water Quality Financing
Administration, Revolving Loan
Fund Revenue Series 1993A
1,500 5.40% 9/1/11 1,491
1,500 5.40% 9/1/12 1,483
Mayor and City Council
of Baltimore (FGIC insured)
Baltimore City Consolidated
Public Improvement
2,000 0%(B) 10/15/11 849
Baltimore City Parking Revenue
500 6.25% 7/1/21 521
Baltimore City Water Projects
2,000 5.00% 7/1/24 1,829
Montgomery County, Consolidated
Public Improvement, GO
Series A
2,750 5.80% 7/1/07 2,903
3,000 0%(B) 7/1/10 1,424
Series B
6.80% 11/1/09
850 (Pre-refunded 11/1/99(A)) 924
Montgomery County, HOC Single Family
965 6.80% 7/1/17 1,001
Montgomery County, Parking Revenue
Refunding (Silver Spring Parking Lot)
1992 Series A (FGIC Insured)
2,000 6.25% 6/1/07 2,154
Montgomery County, PCR Refunding
(Potomac Electric Project) 1994 Series
1,000 5.375% 2/15/24 936
Morgan State University Academic
and Auxiliary Fees Revenue
(MBIA insured)
7.00% 7/1/20
1,000 (Pre-refunded 7/1/00(A)) 1,103
Northeast Maryland Waste Disposal
Authority Solid Waste Revenue
(Montgomery County Resource
Recovery Project) AMT Series 1993A
3,000 6.30% 7/1/16 3,030
Port Facilities Revenue (Consolidated
Coal Sales Co. Project) Series A and B
6,000 6.50% 10/1/11 6,525
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust
(Amounts in Thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- Continued
Maryland -- Continued
Prince George's County Consolidated
Public Improvement, GO
$ 585 6.70% 7/1/04 $ 641
7.20% 2/1/08
500 (Pre-refunded 2/1/99(A)) 537
585 6.75% 7/1/11 636
Prince George's County, PCR Refunding
(Potomac Electric Project) 1993 Series
2,250 6.375% 1/15/23 2,362
Prince George's County, Solid Waste
Management Systems Revenue
Series 1990
6.75% 6/30/02
250 (Pre-refunded 6/30/00(A)) 274
6.90% 6/30/06
750 (Pre-refunded 6/30/00(A)) 824
Series 1993
1,000 5.25% 6/15/13 927
State of Maryland, GO
500 6.70% 7/15/02 538
6.70% 3/1/04
1,500 (Pre-refunded 3/1/00(A)) 1,625
2,000 5.40% 6/1/07 2,041
Talbot County, Bank Qualified, GO
500 6.70% 5/1/10 537
415 6.70% 5/1/11 445
University of Maryland Systems
(Auxiliary Facilities and Tuition
Revenue)
Series A
1,000 6.30% 2/1/10 1,065
6.50% 4/1/11
2,000 (Pre-refunded 4/1/00(A)) 2,167
1,000 5.60% 4/1/15 1,003
Series B
7.00% 10/1/07
1,000 (Pre-refunded 10/1/99(A)) 1,091
1,000 6.375% 4/1/09 1,090
Washington County Public Facilities
Revenue, GO
6.60% 12/1/02
750 (Pre-refunded 12/1/98(A)) 802
Principal
Amount Value
- --------------------------------------------------------------------------------
Washington Suburban Sanitary District
$1,000 6.10% 6/1/07 $ 1,075
1,000 5.25% 6/1/11 977
2,000 5.25% 6/1/12 1,962
1,000 5.50% 6/1/13 995
6.90% 6/1/13
400 (Pre-refunded 6/1/01(A)) 445
6.90% 6/1/14
1,300 (Pre-refunded 6/1/01(A)) 1,445
1,000 5.25% 6/1/15 962
Worcester County Sanitary District, GO
6.75% 5/1/15
115 (Pre-refunded 5/1/01(A)) 127
- --------------------------------------------------------------------------------
Total Municipal Bonds
(Identified Cost -- $136,131) 143,440
- --------------------------------------------------------------------------------
Short-Term Investments-- 3.1%
Repurchase Agreement -- 0.1%
State Street Bank & Trust Company
4.00% dated 9/30/96 to be
repurchased at $207 on 10/1/96
(Collateral: $220 U.S. Treasury
207 Notes, 4.75% due 9/30/98, value $215) 207
- --------------------------------------------------------------------------------
Variable Rate Demand Obligations(C) -- 3.0%
Allegheny County, PA Hospital
Development Authority
(Presbyterian Hospital) Series B
1,100 3.85% 10/3/96 1,100
East Baton Rouge Parish Louisiana PCR
Refunding Bonds Exxon Corporation
Series 1989
800 4.00% 10/3/96 800
Harris County, TX Health Facilities
(St. Luke's Episcopal Hospital) Series C
700 4.00% 10/1/96 700
(Methodist Hospital) Series 1994
1,900 4.00% 10/1/96 1,900
- --------------------------------------------------------------------------------
4,500
Total Short-term Investments
(Identified Cost -- $4,707) 4,707
- --------------------------------------------------------------------------------
Total Investments -- 98.7%
(Identified Cost-- $140,838) 148,147
Other Assets Less Liabilities-- 1.3% 1,986
- --------------------------------------------------------------------------------
Net assets-- 100.0% $150,133
4
<PAGE>
- --------------------------------------------------------------------------------
Net Assets Consisting of:
Accumulated paid-in capital
applicable to 9,355 shares
outstanding $142,705
Undistributed net realized gain
on investments 119
Unrealized appreciation of
investments 7,309
- --------------------------------------------------------------------------------
Net assets-- 100.0% $150,133
- --------------------------------------------------------------------------------
Net asset value and redemption price
per share $16.05
Maximum offering price per share
(net asset value plus sales charge of
2.75% of offering price) $16.50
- --------------------------------------------------------------------------------
% of Market
Net Assets Value
- --------------------------------------------------------------------------------
(000)
Sector Diversification
Pre-refunded Bonds 18.4% $ 27,634
General Obligation-- Local 18.1 27,092
Hospital Revenue 13.9 20,901
Water and Sewer Revenue 8.9 13,281
Lease Revenue 5.2 7,807
Ground Transportation Revenue 6.0 8,976
Housing Revenue 5.2 7,789
Corporate Utilities 5.2 7,856
Port Facilities Revenue 4.4 6,526
Education Revenue 4.2 6,367
Solid Waste Revenue 2.6 3,957
Parking Revenue 1.8 2,675
General Obligation-- State 1.7 2,579
Short-Term Investments 3.1 4,707
Other Assets Less Liabilities 1.3 1,986
100.0% $150,133
Investment Abbreviations
AMBAC AMBAC Indemnity Corporation
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
(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 portfolio 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, 1996, 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.
See notes to financial statements.
5
<PAGE>
Statement of Operations
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust
For the Six Months Ended September 30, 1996 (Unaudited)
(Amounts in Thousands)
- -----------------------------------------------------------------------------
Investment Income:
Interest $4,338
Expenses:
Investment advisory fee $ 407
Distribution and service fees 185
Custodian fee 46
Transfer agent and shareholder servicing expense 27
Legal and audit fees 21
Reports to shareholders 16
Registration fees 3
Organization expense 2
Trustees' fees 2
Other expenses 7
- -----------------------------------------------------------------------------
716
Less: fees waived (235)
compensating balance credits (1)
- -----------------------------------------------------------------------------
Total expenses, net of waivers and compensating
balance credits 480
Net Investment Income 3,858
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 126
Increase in unrealized appreciation of investments 276
- -----------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 402
- -----------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $4,260
- -----------------------------------------------------------------------------
See notes to financial statements.
6
<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, 1996 March 31, 1996
- -------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 3,858 $ 7,788
Net realized gain on investments 126 1,136
Increase in unrealized appreciation of investments 276 1,072
Increase in net assets resulting from operations 4,260 9,996
Distributions to shareholders:
Net investment income (3,858) (7,788)
Net realized gain on investments (551) (497)
Increase in net assets from Fund share transactions 3,637 2,620
Increase in net assets 3,488 4,331
Net Assets:
Beginning of period 146,645 142,314
- -------------------------------------------------------------------------------------------------------
End of period $150,133 $146,645
</TABLE>
See notes to financial statements.
7
<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 For the Years Ended March 31,
September 30, 1996 1996 1995 1994 1993 1992*
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $16.07 $15.87 $15.69 $15.97 $15.03 $14.70
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income(A) 0.416 0.859 0.828 0.839 0.877 0.823
Net realized and unrealized gain
(loss) on investments 0.040 0.251 0.180 (0.275) 0.947 0.333
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.456 1.11 1.008 0.564 1.824 1.156
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income (0.416) (0.859) (0.828) (0.839) (0.877) (0.823)
Net realized gain on investments (0.060) (0.055) -- -- (0.007) (0.003)
In excess of net realized gain
on investments -- -- -- (0.005) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.476) (0.914) (0.828) (0.844) (0.884) (0.826)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.05 $16.07 $15.87 $15.69 $15.97 $15.03
- ---------------------------------------------------------------------------------------------------------------------------
Total return(D) 2.90%(C) 7.11% 6.60% 3.51% 12.47% 8.04%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A,E) 0.65%(B) 0.59% -- -- -- --
Net expenses(A,F) 0.65%(B) 0.58% 0.54% 0.46% 0.40% 0.18%(B)
Net investment income(A) 5.21%(B) 5.29% 5.32% 5.10% 5.61% 5.91%(B)
Portfolio turnover rate 3.75%(B) 14.1% 9.5% 6.6% -- 5.4%(B)
Net assets, end of period
(in thousands) $150,133 $146,645 $142,314 $145,578 $128,566 $83,052
</TABLE>
* For the period May 1, 1991 (commencement of operations) to March
31, 1992.
(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; 0.60% until March 31, 1996, and 0.65% through
December 31, 1996.
(B) Annualized
(C) Not annualized
(D) Excluding sales charge
(E) Pursuant to new Securities and Exchange Commission regulations
effective December 31, 1995, this ratio reflects total expenses
before compensating balance credits. Previously, the credits were
included in the ratio.
(F) This ratio reflects total expenses reduced by the impact of
compensating balance credits.
See notes to financial statements.
8
<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, 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 September 30, 1996, dividends payable of $301 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.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Investment Transactions:
Investment transactions for the six months ended September 30, 1996
(excluding short-term securities) were as follows:
Purchases $2,943
Proceeds from sales 2,675
At September 30, 1996, the cost of securities for federal income tax
purposes was $140,838. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $7,473
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $164.
9
<PAGE>
Notes to Financial Statements--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust
(Amounts in Thousands)
- --------------------------------------------------------------------------------
3. Fund Share Transactions:
At September 30, 1996, there were unlimited shares authorized at
$.001 par value for the Trust and the Fund. Transactions in Fund shares
were as follows:
For the For the
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
- --------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sold 497 $ 7,924 966 $ 15,669
Reinvestment of
distributions 211 3,355 379 6,159
Repurchased (480) (7,642) (1,183) (19,208)
- --------------------------------------------------------------------------------
Net increase 228 $ 3,637 162 $ 2,620
================================================================================
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, 0.60% until March 31, 1996, and 0.65%
through December 31, 1996, or until the Fund's net assets reach $200
million, whichever occurs first. For the six months ended September 30,
1996 advisory fees of $235 were waived and $29 was payable to the Adviser
at September 30, 1996.
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 $31 were payable to the distributor at
September 30, 1996. 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, 1996.
In November 1995, the Fund, along with certain other Legg Mason
Funds, entered into a $75 million line of credit ("Credit Agreement") to
be utilized as an emergency source of cash in the event of unanticipated,
large redemption requests by shareholders. Pursuant to the Credit
Agreement, each participating Fund is liable only for principal and
interest payments related to borrowings made by that Fund. Borrowings
under the line of credit bear interest at prevailing short-term interest
rates. For the six months ended September 30, 1996, the Fund had no
borrowings under the line of credit.
10
