Investment Manager Report to Shareholders
Legg Mason Fund Adviser, Inc. For the Six Months Ended
Baltimore, MD September 30, 1996
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman The
Dr. Jill E. McGovern Legg Mason
T. A. Rodgers Pennsylvania
Edward A. Taber, III Tax-Free
Income Trust
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Putting Your Future First
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants [Legg Mason Logo]
Coopers & Lybrand L.L.P. FUNDS
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] Printed on Recycled Paper
LMF-034
11/96
<PAGE>
To Our Shareholders,
On September 30, 1996, the Legg Mason Pennsylvania Tax-Free Income Trust
had a 30-day annualized SEC yield of 4.79%, and an average weighted maturity of
17.3 years.
The Trust seeks a high level of current income exempt from federal and
Pennsylvania personal 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 66.0%
Aa 14.4%
A 13.0%
Short-term securities 6.6%
At September 30, the Trust's net asset value per share was $15.98, compared
to $16.10 six months earlier, reflecting in part the payment of a $.19 per share
capital gain distribution in May of this year. Total return in the six month
period (not annualized) was 3.13%, 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
decline more when interest rates rise and gain more when interest rates fall
than the net asset value per share of tax free bond funds with short-term and
intermediate-term 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
Pennsylvania Tax-Free Income Trust
September 30, 1996
(Amounts in Thousands) (Unaudited)
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- 92.6%
Pennsylvania -- 92.6%
Allegheny County, Airport Revenue
1992-B AMT (FSA insured)
$1,000 6.625% 1/1/22 $1,052
1992-D AMT (FGIC insured)
1,500 7.75% 1/1/19 1,559
Allegheny County, Baldwin-Whitehall
School District, GO Series
1992-A (FGIC insured)
6.60% 8/15/10
1,000 (Pre-refunded 8/15/02(A)) 1,097
Allegheny County Hospital
Development Authority,
Children's Hospital (MBIA insured)
1,000 6.875% 7/1/14 1,066
Presbyterian University Health
System, Inc. Project Series
1992-B (MBIA insured)
1,250 6.00% 11/1/23 1,262
Allegheny County, North Allegheny
School District Refunding Revenue
Series A (AMBAC insured)
1,095 6.35% 11/1/12 1,144
Allegheny County, West Jefferson
Hills School District, GO
(FGIC insured)
7.10% 2/1/11
1,000 (Pre-refunded 2/1/01(A)) 1,096
Beaver County, IDA PCR Ohio Edison
Company (FGIC insured)
1,000 7.00% 6/1/21 1,098
Bethlehem Authority Water Revenue
Refunding (MBIA insured)
2,000 5.30% 11/15/17 1,909
Bucks County, Council Rock School
District, GO (FGIC insured)
250 6.75% 3/1/11 269
Bucks County, Council Water and
Sewer Collection Sewer System
(FGIC insured)
1,000 5.375% 12/1/13 973
Butler County, Seneca Valley School
District, GO Series 1991-B
(MBIA insured)
500 6.50% 1/1/03 521
Principal
Amount Value
- --------------------------------------------------------------------------------
Chester County, GO
7.00% 12/15/11
$ 600 (Pre-refunded 8/1/01(A)) $ 660
Commonwealth of Pennsylvania, GO
First Series
1,000 6.125% 9/15/03 1,072
Second Series
1,000 6.50% 11/1/09 1,072
Dauphin County Hospital Authority,
Polyclinic Medical Center
(MBIA insured)
6.90% 8/15/11
500 (Pre-refunded 8/15/99(A)) 534
Deer Lakes School District
Pennsylvania (MBIA insured)
1,750 6.45% 1/15/19 1,840
Delaware County Authority,
University Revenue, Villanova
University (MBIA insured)
500 6.85% 8/1/11 541
2,000 5.50% 8/1/23 1,919
Delaware County, GO
1,000 6.00% 11/15/22 1,006
Delaware River Port Authority
(FGIC insured)
1,000 5.50% 1/1/26 974
Montgomery County, GO
Refunding Series 1991
1,000 6.10% 7/15/00 1,041
Montgomery County Higher
Education and Health Authority,
Saint Joesph's University Revenue
Series 1992 (Connie Lee insured)
500 6.25% 12/15/04 535
Montgomery County, IDA PCR
Philadelphia Electric Company
Series 1991-B (MBIA insured)
1,500 6.70% 12/1/21 1,626
Montgomery County,
Upper Gwynedd-Towamencin
Guaranteed Sewer Revenue
(MBIA insured)
250 6.75% 10/15/06 271
2
<PAGE>
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- Continued
Pennsylvania -- Continued
Montgomery Township Municipal
Sewer Authority Guaranteed Sewer
Revenue Series 1991-A (MBIA insured)
$ 250 6.70% 5/15/21 $ 266
Pennsylvania Higher Education
Assistance Agency, Student Loan
Revenue Series 1991-C AMT
(AMBAC insured)
1,000 7.15% 9/1/21 1,062
Pennsylvania Higher Educational
Facilities Authority
Allegheny General Hospital
Series 1991-A
500 7.25% 9/1/17 536
Series H (AMBAC insured)
1,000 5.375% 6/15/18 955
Temple University Revenue
(MBIA insured)
250 6.50% 4/1/21 267
University Revenue, University
of Pennsylvania
Series 1987-A
6.625% 1/1/17
1,000 (Pre-refunded 1/1/97) 1,007
Health Services Revenue, University
of Pennsylvania Series A
1,000 5.75% 1/1/22 989
Pennsylvania Housing Finance Agency,
Rental Housing Refunding Revenue
Series 1992-C
750 6.50% 7/1/23 775
Series 1993-C
1,000 5.80% 7/1/22 996
Pennsylvania Housing Finance
Agency, Single Family Mortgage
Non-AMT
Series 1991-32
500 7.15% 4/1/15 531
Series 1992-33
500 6.90% 4/1/17 526
Pennsylvania IDA Economic
Development Revenue
Series 1991-A
7.00% 1/1/11
1,000 (Pre-refunded 7/1/01(A)) 1,112
Series 1994-A (AMBAC insured)
2,250 5.50% 1/1/14 2,218
Principal
Amount Value
- --------------------------------------------------------------------------------
Pennsylvania Infrastructure
Investment Authority Revenue
Series 1990-A
$ 500 7.15% 9/1/10 $ 536
Pennsylvania Intergovernmental
Co-op Authority (MBIA insured)
1,000 5.60% 6/15/15 977
2,000 5.60% 6/15/16 1,940
Pennsylvania State University
6.75% 7/1/14
2,000 (Pre-refunded 7/1/99(A)) 2,156
1,000 5.50% 8/15/16 994
1,500 5.10% 3/1/18 1,411
Pennsylvania Turnpike Commission
Revenue
Series L (AMBAC insured)
750 6.25% 6/1/11 786
Series N
1,000 5.50% 12/1/17 977
Series N (FGIC insured)
1,000 5.50% 12/l/l9 959
Philadelphia Gas Works Series B
(MBIA insured)
500 7.00% 5/15/20 578
Philadelphia Hospitals and Higher
Education Facilities Authority,
Hospital Revenue Refunding
Children's Hospital Series 1993-A
1,000 5.00% 2/15/21 893
Philadelphia Municipal Authority,
Justice Lease Revenue
Series 1991-B (FGIC insured)
7.00% 11/15/04
500 (Pre-refunded 11/15/01(A)) 561
7.10% 11/15/05
500 (Pre-refunded 11/15/01(A)) 564
Philadelphia Municipal Authority,
Lease Revenue Series 1993-A
(FGIC insured)
1,000 5.625% 11/15/14 990
Philadelphia Water and Wastewater
Revenue (MBIA insured)
2,000 5.60% 8/1/18 1,960
Sayre, PA Healthcare Revenue
Volunteer Hospital Authority,
Guthrie Heathcare System
(AMBAC insured)
500 7.20% 12/1/20 559
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust
(Amounts in Thousands)
Principal
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds -- Continued
Pennsylvania -- Continued
Schuylkill County Redevelopment
Authority, Commonwealth Lease
Revenue (FGIC insured)
$ 750 7.125% 6/1/13 $ 832
Somerset County General Authority,
Commonwealth Lease Revenue
(FGIC insured)
7.00% 10/15/13
500 (Pre-refunded 10/15/01(A)) 553
Swarthmore Borough Authority,
Swarthmore College Revenue
Series 1992
1,000 6.00% 9/15/12 1,020
2,000 6.00% 9/15/20 2,018
University of Pittsburgh Series 1992-A
(MBIA insured)
1,000 6.125% 6/1/21 1,017
Washington County Hospital Authority,
Hospital Refunding Revenue,
Shadyside Hospital Project
Series 1992 (AMBAC insured)
1,000 5.875% 12/15/13 1,016
1,000 6.00% 12/15/18 1,011
Westmoreland County
(AMBAC insured)
2,000 0%(B) 8/1/13 764
1,000 0%(B) 8/1/14 357
------
Total Municipal Bonds
(Identified Cost--$60,361) 62,806
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Variable-Rate Demand Obligations(C)--6.1%
Allegheny County, Hospital Development
Authority (Presbyterian Hospital)
Series A,B,C
$2,800 3.85% 10/3/96 $ 2,800
Berkeley County, SC PCR Bonds
(Amoco Project) Series 1994
200 3.90% 10/1/96 200
Harris County, TX PCR Bonds
(Exxon Project) Series 1984-A
1,100 4.00% 10/1/96 1,100
-------
Total Variable Rate Demand Obligations
(Identified Cost -- $4,100) 4,100
- --------------------------------------------------------------------------------
Total Investments -- 98.7%
(Identified Cost--$64,461) 66,906
Other Assets Less Liabilities-- 1.3% 895
- --------------------------------------------------------------------------------
Net Assets Consisting of:
Accumulated paid-in capital applicable
to 4,242 shares outstanding $65,544
Accumulated net realized loss
on investments (188)
Unrealized appreciation of investments 2,445
-------
Net assets--100.0% $67,801
=======
Net asset value and redemption price
per share $15.98
======
Maximum offering price per share
(net asset value plus sales charge of
2.75% of offering price) $16.43
======
(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 the call date the bond will "mature." The pre-refunded date
is used in determining weighted average portfolio maturity.
(B) A 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.
4
<PAGE>
% of Market
Net Assets Value
- --------------------------------------------------------------------------------
(000)
Sector Diversification
Pre-refunded Bonds 16.3% $11,037
Education Revenue 15.7 10,676
Hospital Revenue 10.8 7,333
Transportation Revenue 9.3 6,308
Water and Sewer Revenue 8.7 5,916
General Obligation-- School 5.6 3,773
Other Special Taxes 4.3 2,917
Housing Revenue 4.2 2,828
Utility 4.0 2,724
Small Business Administration
Revenue 3.3 2,218
General Obligation-- State 3.1 2,144
General Obligation-- Local 3.0 2,047
Lease Revenue 2.7 1,823
Student Loan Revenue 1.6 1,062
Short-Term Investments 6.1 4,100
Other Assets Less Liabilities 1.3 895
----- -------
100.0% $67,801
===== =======
Investment Abbreviations
AMBAC AMBAC Indemnity Corporation
AMT Alternative Minimum Tax
CONNIE LEE Connie Lee Insurance Company
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GO General Obligation
IDA Industrial Development Authority
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
5
<PAGE>
Statement of Operations
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust
For the Six Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $1,963
Expenses:
Investment advisory fee $ 182
Distribution and service fees 83
Custodian fee 37
Transfer agent and shareholder servicing expense 14
Legal and audit fees 11
Reports to shareholders 9
Organization expense 5
Registration fees 2
Trustees' fees 2
Other expenses 4
-----
349
Less: fees waived (133)
compensating balance credits (1)
-----
Total expenses, net of waivers and compensating balance credits 215
-----
Net Investment Income 1,748
Net Realized and Unrealized Gain (Loss) on Investments:
Realized loss on investments (178)
Increase in unrealized appreciation of investments 497
-----
Net Realized and Unrealized Gain on Investments 319
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $2,067
======
</TABLE>
See notes to financial statements.
6
<PAGE>
Statement of Changes in Net Assets
Legg Mason Tax-Free Income Fund
Pennsylvania 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 $ 1,748 $ 3,585
Net realized gain (loss) on investments (178) 1,082
Change in unrealized appreciation of investments 497 (519)
------- -------
Increase in net assets resulting from operations 2,067 4,148
Distributions to shareholders:
Net investment income (1,748) (3,585)
Net realized gain on investments (778) (267)
Increase in net assets from Fund share transactions 2,985 1,050
------- -------
Increase in net assets 2,526 1,346
Net Assets:
Beginning of period 65,275 63,929
- ---------------------------------------------------------------------------------------------------------------------------
End of period $67,801 $65,275
======= =======
</TABLE>
See notes to financial statements.
7
<PAGE>
Financial Highlights
Legg Mason Tax-Free Income Fund
Pennsylvania 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 $16.10 $16.02 $15.80 $16.03 $14.99 $14.70
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income(A) 0.42 0.89 0.85 0.86 0.91 0.63
Net realized and unrealized gain
(loss) on investments 0.07 0.15 0.22 (0.23) 1.04 0.29
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.49 1.04 1.07 0.63 1.95 0.92
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (0.42) (0.89) (0.85) (0.86) (0.91) (0.63)
Net realized gain on investments (0.19) (0.07) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.61) (0.96) (0.85) (0.86) (0.91) (0.63)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.98 $16.10 $16.02 $15.80 $16.03 $14.99
Total return(D) 3.13%(C) 6.52% 7.03% 3.81% 13.31% 6.36%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A,E) 0.65%(B) 0.54% -- -- -- --
Net expenses(A,F) 0.65%(B) 0.53% 0.49% 0.40% 0.32% 0.12%(B)
Net investment income(A) 5.29%(B) 5.42% 5.42% 5.16% 5.74% 6.11%(B)
Portfolio turnover rate 14.84%(B) 17.21% 2.08% -- -- --
Net assets, end of period
(in thousands) $67,801 $65,275 $63,929 $62,904 $49,959 $28,873
</TABLE>
* For the period August 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 November 30,
1991; 0.20% of average daily net assets until March 31, 1992; 0.25% until
June 30, 1992; 0.30% until September 30, 1992; 0.35% until July 31, 1993;
0.40% until December 31, 1993; 0.45% until June 30, 1994; 0.50% until July
31, 1995; 0.55% 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
Pennsylvania Tax-Free Income Trust
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Tax-Free Income Fund ("Trust"), consisting of the
Pennsylvania Tax-Free Income Trust ("Fund"), the Maryland Tax-Free Income
Trust ("Maryland Fund") and the Tax-Free Intermediate-Term Income Trust
("Intermediate Term 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
Maryland Fund and the Intermediate-Term 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 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 of $135 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
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 $4,656
Proceeds from sales 6,379
At September 30, 1996, the cost of securities for federal income tax
purposes was $64,461. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,726
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $281.
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 278 $ 4,402 458 $ 7,487
Reinvestment of
distributions 117 1,855 163 2,654
Repurchased (207) (3,272) (556) (9,091)
- --------------------------------------------------------------------------------
Net increase 188 $ 2,985 65 $ 1,050
================================================================================
9
<PAGE>
Notes to Financial Statements--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
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 November 30, 1991, 0.20% until
March 31, 1992, 0.25% until June 30, 1992, 0.30% until September 30, 1992,
0.35% until July 31, 1993, 0.40% until December 31, 1993, 0.45% until June
30, 1994, 0.50% until July 31, 1995, 0.55% through March 31, 1996 and
0.65% through December 31, 1996, or until the Fund's net assets reach $125
million, whichever occurs first. For the six months ended September 30,
1996, advisory fees of $133 were waived and $9 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 $14 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 $4 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
