Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Trustees
John F. Curley, Jr., Chairman SEMI-ANNUAL REPORT
Edmund J. Cashman, Jr., President SEPTEMBER 30, 1997
Richard G. Gilmore
Charles F. Haugh LEGG MASON
Arnold L. Lehman TAX-FREE
Dr. Jill E. McGovern INCOME FUND
T. A. Rodgers
Edward A. Taber, III
MARYLAND TAX-FREE
Transfer and Shareholder Servicing Agent PENNSYLVANIA TAX-FREE
Boston Financial Data Services TAX-FREE
Boston, MA INTERMEDIATE-TERM
Custodian
State Street Corporation
Boston, MA
The Art of Investing
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants [LEGG MASON FUNDS 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 o 539 o 0000
LMF-030
11/97
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Tax-Free Income Fund's report
for the six months ended September 30, 1997, combining reports for the Legg
Mason Maryland Tax-Free Income Trust, Pennsylvania Tax-Free Income Trust and the
Tax-Free Intermediate-Term Income Trust.
The following table summarizes key statistics for each Trust, as of September
30, 1997:
Average Net Asset Value
SEC Yield* Weighted Maturity Per Share
---------- ----------------- ---------
Maryland Tax-Free 4.69% 17.3 years $16.32
Pennsylvania Tax-Free 4.79% 18.2 years 16.34
Tax-Free Intermediate 4.10% 7.7 years 15.54
Each of the Trusts seeks a high level of current income exempt from federal
income tax. Maryland Tax-Free also seeks income which is exempt from Maryland
state and local income taxes. Pennsylvania Tax-Free also seeks income which is
exempt from Pennsylvania personal income tax. The Trusts purchase only
securities which have received investment grade ratings from Moody's Investors
Service or Standard & Poor's Corporation or which are judged by each Trust's
investment adviser to be of comparable quality. Moody's ratings of securities
owned on September 30, 1997 are:
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
-------- -------- -----------------
Aaa 41.4% 73.3% 59.3%
Aa 39.7 13.5 25.6
A 15.2 12.5 9.9
Baa 2.9 -- --
Short-term securities .8 .7 5.2
Net asset values per share for each of the Trusts rose moderately from their
March 31, 1997 levels in response to declines in interest rates. For the six
month period, total returns for Maryland Tax-Free, Pennsylvania Tax-Free and
Tax-Free Intermediate-Term (not annualized) were 5.45%, 6.06% and 4.37%,
respectively. (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
maximum initial sales charge of 2.75% for Maryland Tax-Free and Pennsylvania
Tax-Free, which had been in effect through the end of October, 1997. Beginning
November 3, 1997, these charges have been waived for a twelve month period. The
maximum initial sales charge of 2.00% for Tax-Free Intermediate-Term is being
waived through July 31, 1998 and no sales charge is reflected in that Trust's
total return calculation.)
Normally, the average weighted maturity for Maryland Tax-Free and
Pennsylvania Tax-Free will be kept within a range of 12-24 years. Because of
their relatively long weighted average maturities, these Trusts offer higher
yields than short-term and intermediate-term tax free bond funds. However, their
net asset values per share typically will decline more when interest rates rise
and gain more when interest rates fall than net asset values per share of tax
free bond funds with short-term and intermediate-term average weighted
maturities. Tax-Free Intermediate-Term's weighted average maturity is normally
kept within an intermediate-term maturity range of 2-10 years. We expect that,
in most market periods, the Trust will offer greater price stability than
municipal bond funds with longer maturities while earning somewhat lower yields.
Some shareholders regularly add to their Trust holdings by authorizing
monthly transfers from their bank checking or Legg Mason accounts. 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 13, 1997
- ----------
*SEC yields reported are annualized, based on the 30 days ended September 30,
1997.
1
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
September 30, 1997 (Unaudited)
(Amounts in Thousands)
Maryland Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Municipal Bonds -- 98.2%
Annapolis (City of), Public Improvement, GO 6.50% 8/1/10 $ 350 $ 379
Anne Arundel County, Consolidated
Water and Sewer, GO 5% 9/1/16 1,000 981
Anne Arundel County, Consolidated
Water and Sewer, GO 5.30% 4/15/17 1,000 1,002
Anne Arundel County, PCR Refunding
(Baltimore Gas & Electric Project) 6% 4/1/24 4,500 4,647
Baltimore City Water Utility (MBIA insured)
(Pre-refunded 7/1/00) 6.50% 7/1/20 1,250 1,327(A)
Baltimore County, Consolidated Public
Improvement, GO 6.125% 7/1/09 2,000 2,158
Baltimore County, Nursing Home (Stella Maris)
Series A (Pre-refunded 3/1/01) 7.25% 3/1/11 890 991(A)
Baltimore County, Pension Funding, GO 6.70% 7/1/09 1,000 1,040
Baltimore County, Pension Funding, GO 6.70% 7/1/11 2,900 3,017
Baltimore County, Pension Funding, GO 6.70% 7/1/16 2,000 2,080
Baltimore, Maryland Revenue Refunding Waste
Water Project Series A (FGIC insured) 5% 7/1/22 1,550 1,499
Baltimore, Maryland Revenue Refunding Waste
Water Project Series A (FGIC insured) 5.50% 7/1/26 1,000 1,007
Calvert County Consolidated Sanitary District 5% 7/15/19 1,000 977
Calvert County, Maryland PCR
(Baltimore Gas & Electric Project) 5.55% 7/15/14 750 763
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/20 1,395 1,398
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/25 1,855 1,856
Charles County, GO (Pre-refunded 6/1/01) 6.60% 6/1/06 1,000 1,098(A)
Frederick County, GO Series 1990
(Pre-refunded 8/1/03) 6.625% 8/1/20 250 283(A)
Frederick County, GO Public Facility 1991
(Pre-refunded 5/1/01) 6.50% 5/1/07 650 711(A)
Harford County, GO (Pre-refunded 12/1/00) 6.40% 12/1/10 500 543(A)
Harford County, GO 5% 3/1/12 1,000 1,000
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Howard County, Consolidated Public Improvement
GO Series A (Pre-refunded 2/15/00) 6.50% 2/15/11 $ 700 $ 738(A)
Howard County, GO Metropolitan District
Series A 5.50% 2/15/27 1,000 1,008
Howard County, Metropolitan District Refunding
Series B 0% 8/15/07 1,000 629(B)
Howard County, Metropolitan District Refunding
Series B 6% 8/15/19 1,500 1,552
Laurel (City of), GO Public Improvement and
Refunding (MBIA insured)
(Pre-refunded 7/1/01) 7% 7/1/09 250 278(A)
Laurel (City of), GO Public Improvement and
Refunding (MBIA insured) (Pre-refunded 7/1/01) 7% 7/1/11 1,000 1,114(A)
Maryland Community Development Administration
Single Family AMT
Second Series 6.65% 4/1/04 1,000 1,044
Sixth Series 7.125% 4/1/14 465 485
Fifth Series 7.625% 4/1/29 1,810 1,880
Fourth Series 7.45% 4/1/32 925 977
Single Family Non-AMT Third Series 7.25% 4/1/27 670 706
Multi-Family Insured Mortgage Series G 7.10% 5/15/23 150 158
Multi-Family Insured Mortgage Series B 5.80% 5/15/26 1,500 1,519
Maryland Department of Transportation
Consolidated Transportation
Series 1990 6.60% 11/1/00 1,500 1,585
Series 1991 6.25% 9/1/03 1,000 1,063
Maryland Health and Higher Educational
Facilities Authority
Easton Memorial Hospital (MBIA insured) 6.50% 7/1/15 1,000 1,036
Francis Scott Key Medical Center (FGIC insured) 5% 7/1/18 2,000 1,920
Francis Scott Key Medical Center (FGIC insured) 5% 7/1/23 2,000 1,905
Francis Scott Key Medical Center (FGIC insured)
(Pre-refunded 7/1/00) 6.75% 7/1/23 1,500 1,629(A)
Francis Scott Key Medical Center 5.625% 7/1/25 1,000 1,011
Greater Baltimore Medical Center (FGIC insured) 5% 7/1/19 2,000 1,918
Greater Baltimore Medical Center
(Pre-refunded 7/1/01) 6.75% 7/1/19 1,000 1,105(A)
Howard County General Hospital
(Pre-refunded 7/1/98) 8.25% 7/1/18 1,100 1,158(A)
Howard County General Hospital 5.50% 7/1/21 2,500 2,421
</TABLE>
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maryland Health and Higher Educational
Facilities Authority--(Continued)
Johns Hopkins University Series 1997 5.625% 7/1/17 $ 1,000 $ 1,030
Johns Hopkins Hospital Series 1990 0% 7/1/19 4,000 1,229(B)
Johns Hopkins University Series 1988 7.50% 7/1/20 3,000 3,135
Johns Hopkins Hospital Series 1993 5% 7/1/23 3,250 3,118
Kennedy Institute Series 1991 7.40% 7/1/11 630 676
Kennedy Institute Series 1991 6.75% 7/1/22 1,000 1,052
Loyola College Series A (MBIA insured) 5.375% 10/1/26 3,750 3,761
Union Memorial Hospital Series A
(MBIA insured) 6.75% 7/1/11 100 109
Union Memorial Hospital Series B
(MBIA insured) 6.75% 7/1/11 500 547
Union Memorial Hospital Series A
(MBIA insured) 6.75% 7/1/21 600 653
Union Memorial Hospital Series B
(MBIA insured) 6.75% 7/1/21 1,300 1,415
University of Maryland Medical System
Series 1993 (FGIC insured) 5.375% 7/1/13 2,000 2,022
Maryland National Capital Park and Planning
Commission (Prince George's County) Series L2
(Pre-refunded 7/1/02) 6% 7/1/05 500 544(A)
Maryland Stadium Authority Sports Facilities
Lease Revenue AMT Series D 7.50% 12/15/10 4,000 4,346
Maryland Stadium Authority Sports Facilities
Lease Revenue AMT Series D 7.60% 12/15/19 2,255 2,455
Maryland Stadium Authority Sports Facilities
Lease Revenue (AMBACinsured) 5.75% 3/1/18 1,000 1,037
Maryland Transportation Authority Series 1985 5.75% 7/1/15 5,250 5,383
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue Series 1993A 5.40% 9/1/12 1,500 1,524
Mayor and City Council of Baltimore (FGIC insured)
Baltimore City Consolidated Public Improvement 0% 10/15/11 2,000 925(B)
Baltimore City Parking Revenue 6.25% 7/1/21 500 538
Baltimore City Water Projects 5% 7/1/24 5,500 5,311
Montgomery County, Consolidated Public
Improvement, GO Series A 5.80% 7/1/07 2,750 3,027
Montgomery County, Consolidated Public
Improvement, GO Series A 0% 7/1/10 3,000 1,586(B)
Montgomery County, HOC Single Family 6.80% 7/1/17 945 991
Montgomery County, Parking Revenue Refunding
(Silver Spring Parking Lot) 1992 Series A
(FGIC insured) 6.25% 6/1/07 2,000 2,173
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Montgomery County, PCR Refunding
(Potomac Electric Project) 1994 Series 5.375% 2/15/24 1,000 1,001
Morgan State University Academic and Auxiliary
Fees Revenue (MBIA insured)
(Pre-refunded 7/1/00) 7% 7/1/20 1,000 1,093(A)
Northeast Maryland Waste Disposal Authority
Solid Waste Revenue (Montgomery County
Resource Recovery Project) AMT Series 1993A 6% 7/1/07 1,000 1,076
Northeast Maryland Waste Disposal Authority
Solid Waste Revenue (Montgomery County
Resource Recovery Project) AMT Series 1993A 6.30% 7/1/16 3,000 3,171
Port Facilities Revenue (Consolidated Coal Sales
Co. Project) Series A 6.50% 10/1/11 5,000 5,450
Port Facilities Revenue (Consolidated Coal Sales
Co. Project) Series B 6.50% 10/1/11 1,000 1,090
Prince George's County, Consolidated Public
Improvement, GO 6.70% 7/1/04 585 641
Prince George's County, Consolidated Public
Improvement, GO (Pre-refunded 2/1/99) 7.20% 2/1/08 500 526(A)
Prince George's County, Consolidated Public
Improvement, GO 6.75% 7/1/11 585 641
Prince George's County, PCR Refunding
(Potomac Electric Project) 1993 Series 6.375% 1/15/23 2,250 2,400
Prince George's County, Solid Waste
Management System Revenue
Series 1990 (Pre-refunded 6/30/00) 6.75% 6/30/02 250 271(A)
Series 1990 (Pre-refunded 6/30/00) 6.90% 6/30/06 750 817(A)
Series 1993 5.25% 6/15/13 1,000 973
State of Maryland, GO 6.70% 7/15/02 500 534
State of Maryland, GO (Pre-refunded 3/1/00) 6.70% 3/1/04 1,500 1,611(A)
State of Maryland, GO 5.40% 6/1/07 2,000 2,116
State of Maryland, GO 5% 8/1/11 3,000 3,022
Talbot County, Bank Qualified, GO 6.70% 5/1/10 500 544
Talbot County, Bank Qualified, GO 6.70% 5/1/11 415 451
University of Maryland
(Auxiliary Facilities and Tuition Revenue)
Series B 6.375% 4/1/09 1,000 1,112
Series A 5.60% 4/1/15 1,000 1,038
Series A 5.125% 4/1/17 2,000 1,999
Washington Suburban Sanitary District 6.10% 6/1/07 1,000 1,093
</TABLE>
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Maryland Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Washington Suburban Sanitary District 5% 6/1/10 $ 1,000 $ 1,015
Washington Suburban Sanitary District 5.25% 6/1/11 1,000 1,008
Washington Suburban Sanitary District 5.25% 6/1/12 1,000 1,008
Washington Suburban Sanitary District 5.50% 6/1/13 1,000 1,026
Washington Suburban Sanitary District
(Pre-refunded 6/1/01) 6.90% 6/1/13 400 443(A)
Washington Suburban Sanitary District 5.25% 6/1/15 1,000 989
Washington Suburban Sanitary District 5.25% 6/1/16 1,000 1,012
Washington Suburban Sanitary District 5.75% 6/1/17 2,000 2,147
Worcester County Sanitary District, GO
(Pre-refunded 5/1/01) 6.75% 5/1/15 115 127(A)
--------
Total Municipal Bonds (Identified Cost-- $138,351) 147,628
- ---------------------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations(C) -- 0.5%
Harris County, TX Health Facilities
(Methodist Hospital) Series 1994 3.90% 10/1/97 600 600
Lincoln County, WY Pollution Control 3.80% 10/1/97 200 200
--------
Total Variable Rate Demand Obligations (Identified Cost-- $800) 800
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.7% (Identified Cost-- $139,151) 148,428
Other Assets Less Liabilities-- 1.3% 1,913
--------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to 9,215 shares outstanding $140,445
Undistributed net realized gain on investments 619
Unrealized appreciation of investments 9,277
--------
NET ASSETS-- 100.0% $150,341
========
Net asset value and redemption price per share $16.32
========
MAXIMUM OFFERING PRICE PER SHARE $16.78
========
(net asset value plus sales charge of 2.75% of offering price)
- ---------------------------------------------------------------------------------------------------------------------------
</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 "matures". 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, 1997, 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 follows Sector Diversification.
See notes to financial statements.
6
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
September 30, 1997 (Unaudited)
(Amounts in Thousands)
Pennsylvania Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Municipal Bonds -- 98.1%
Allegheny County, Airport Revenue
1992-D AMT (FGIC insured) 7.75% 1/1/19 $ 1,500 $ 1,515
1992-B AMT (FSA insured) 6.625% 1/1/22 1,000 1,080
Allegheny County, Baldwin-Whitehall School
District, GO Series 1992-A (FGIC insured)
(Pre-refunded 8/15/02) 6.60% 8/15/10 1,000 1,107(A)
Allegheny County Hospital Development Authority,
Children's Hospital (MBIA insured) 6.875% 7/1/14 1,000 1,063
Allegheny County Hospital Development Authority,
Presbyterian University Health System, Inc.
Project Series 1992-B (MBIA insured) 6% 11/1/23 1,250 1,296
Allegheny County, West Jefferson Hills School
District, GO (FGIC insured) (Pre-refunded 2/1/01) 7.10% 2/1/11 1,000 1,090(A)
Beaver County, IDA PCR Ohio Edison Company
(FGIC insured) 7% 6/1/21 1,000 1,096
Berks County, PA (FGIC insured) 5.85% 11/15/18 1,000 1,037
Bethlehem Authority Water Revenue Refunding
(MBIA insured) 5.30% 11/15/17 2,000 1,973
Bucks County, Council Rock School District, GO
(FGIC insured) (Pre-refunded 3/1/01) 6.75% 3/1/11 250 270(A)
Bucks County, Council Water and Sewer Collection
Sewer System (FGIC insured) 5.375% 12/1/13 1,000 1,005
Commonwealth of Pennsylvania, GO
First Series 6.125% 9/15/03 1,000 1,081
Second Series (Pre-refunded 11/1/01) 6.50% 11/1/09 1,000 1,097(A)
Dauphin County Hospital Authority, Polyclinic
Medical Center (MBIA insured)
(Pre-refunded 8/15/99) 6.90% 8/15/11 500 526(A)
Deer Lakes School District Pennsylvania
(MBIA insured) 6.45% 1/15/19 1,750 1,894
Delaware River Port Authority (FGIC insured) 5.50% 1/1/26 1,000 1,005
Delaware County Authority, University Revenue,
Villanova University (MBIA insured) 6.85% 8/1/11 500 542
Delaware County Authority, University Revenue,
Villanova University (MBIA insured) 5.50% 8/1/23 2,000 2,004
Delaware County, GO (Pre-refunded 11/15/02) 6% 11/12/22 780 840(A)
Delaware County, GO 6% 11/15/22 220 229
Erie County, Pennsylvania Sewer Authority,
Sewer Revenue Bonds Series 1997
(AMBAC insured) 5.625% 6/1/17 2,000 2,045
</TABLE>
7
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lehigh County IDA PCR Refunding Bonds
Pennsylvania Power & Light Company Project
1994 Series A (MBIA insured) 5.50% 2/15/27 $ 1,000 $ 1,002
Montgomery County, Pennsylvania
General Obligation Bonds, Series 1997 5.35% 9/15/17 1,000 1,004
Montgomery County Higher Education and Health
Authority, Saint Joseph's University Revenue
Series 1992 (Connie Lee insured) 6.25% 12/15/04 500 544
Montgomery County, IDA PCR Philadelphia Electric
Company Series 1991-B (MBIA insured) 6.70% 12/1/21 1,500 1,651
Montgomery County, Upper Gwynedd-Towamencin
Guaranteed Sewer Revenue Series 1991-A
(MBIA insured) 6.75% 10/15/06 250 272
Montgomery Township Municipal Sewer Authority
Guaranteed Sewer Revenue Series 1991-A
(MBIA insured) 6.70% 5/15/21 250 265
Pennsylvania Higher Educational Facilities Authority,
Allegheny General Hospital Series 1991-A 7.25% 9/1/17 500 551
Pennsylvania Higher Educational Facilities Authority,
Bryn Mawr College Revenue Bonds (MBIA insured) 5.625% 12/1/27 500 508
Pennsylvania Higher Educational Facilities Authority,
University Revenue, University of Pennsylvania
Series 1996-A 5.75% 1/1/22 1,000 1,022
Pennsylvania Higher Educational Facilities Authority,
Temple University Revenue (MBIA insured) 6.50% 4/1/21 250 271
Pennsylvania Higher Educational Facilities Authority,
University Revenue Series H (AMBAC insured) 5.375% 6/15/18 1,000 991
Pennsylvania Higher Education Assistance Agency,
Student Loan Revenue Series 1991-C AMT
(AMBAC insured) 7.15% 9/1/21 1,000 1,061
Pennsylvania Higher Education,
University of Pittsburgh (FGIC insured) 5.125% 6/1/22 1,000 963
Pennsylvania Housing Finance Agency,
Rental Housing Refunding Revenue
Series 1992-C 6.50% 7/1/23 750 785
Series 1993-C 5.80% 7/1/22 1,000 1,012
Pennsylvania Housing Finance Agency,
Single Family Mortgage Non-AMT
Series 1991-32 7.15% 4/1/15 435 462
Series 1992-33 6.90% 4/1/17 410 435
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Pennsylvania IDA Economic Development Revenue
Series 1991-A (Pre-refunded 7/1/01) 7% 1/1/11 $ 1,000 $ 1,110(A)
Series 1994-A (AMBAC insured) 5.50% 1/1/14 2,250 2,283
Pennsylvania Infrastructure Investment Authority
Revenue Series 1990-A 7.15% 9/1/10 500 531
Pennsylvania Intergovernmental Co-op Authority
(MBIA insured) 5.60% 6/15/15 1,000 1,016
Pennsylvania Intergovernmental Co-op Authority
(MBIA insured) 5.60% 6/15/16 2,000 2,023
Pennsylvania State University (Pre-refunded 7/1/99) 6.75% 7/1/14 2,000 2,129(A)
Pennsylvania State University 5.50% 8/15/16 1,000 1,003
Pennsylvania State University 5.10% 3/1/18 1,500 1,461
Pennsylvania Turnpike Commission Revenue
Series N 5.50% 12/1/17 1,000 1,003
Series N (FGIC insured) 5.50% 12/1/19 1,000 1,001
Philadelphia Gas Works Series B (MBIA insured) 7% 5/15/20 500 595
Philadelphia Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding
Children's Hospital Series 1993-A 5% 2/15/21 1,000 935
Philadelphia Municipal Authority, Justice Lease
Revenue Series 1991-B (FGIC insured)
(Pre-refunded 11/15/01) 7% 11/15/04 500 561(A)
Philadelphia Municipal Authority, Justice Lease
Revenue Series 1991-B (FGIC insured)
(Pre-refunded 11/15/01) 7.10% 11/15/05 500 563(A)
Philadelphia Water and Wastewater Revenue
(MBIA insured) 5.60% 8/1/18 2,000 2,027
Sayre, PA Healthcare Revenue Volunteer Hospital
Authority, Guthrie Healthcare System
(AMBAC insured) 7.20% 12/1/20 500 556
Somerset County General Authority, Commonwealth
Lease Revenue (FGIC insured)
(Pre-refunded 10/15/01) 7% 10/15/13 500 552(A)
Swarthmore Borough Authority, Swarthmore College
Revenue Series 1992 6% 9/15/12 1,000 1,062
Swarthmore Borough Authority, Swarthmore College
Revenue Series 1992 6% 9/15/20 2,000 2,101
</TABLE>
9
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
University of Pittsburgh Refunding Series 1997B
(MBIA insured) 5% 6/1/21 $ 1,000 $ 948
University of Pittsburgh Series 1992-A
(MBIA insured) (Pre-refunded 6/1/02) 6.125% 6/1/21 650 711(A)
University of Pittsburgh Series 1992-A
(MBIA insured) 6.125% 6/1/21 350 371
Valley View PA School District
(Lackawanna County, Pennsylvania) 5% 11/15/21 1,300 1,232
Washington County Hospital Authority, Hospital
Refunding Revenue, Shadyside Hospital Project
Series 1992 (AMBAC insured) 6% 12/15/18 1,000 1,039
Westmoreland County (AMBAC insured) 0% 8/1/13 2,000 872(B)
Westmoreland County (AMBAC insured) 0% 8/1/14 1,000 410(B)
-------
Total Municipal Bonds (Identified Cost-- $61,038) 64,689
- ---------------------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations(C) -- 0.6%
Allegheny County Hospital Development Authority
(Presbyterian Hospital) Series C 4% 10/2/97 300 300
Allegheny County Hospital Development Authority
(Presbyterian Hospital) Series B 4% 10/2/97 100 100
-------
Total Variable Rate Demand Obligations (Identified Cost-- $400) 400
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.7% (Identified Cost-- $61,438) 65,089
Other Assets Less Liabilities-- 1.3% 832
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to 4,034 shares outstanding $62,180
Undistributed net realized gain on investments 90
Unrealized appreciation of investments 3,651
-------
NET ASSETS-- 100.0% $65,921
=======
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $16.34
=======
MAXIMUM OFFERING PRICE PER SHARE $16.80
=======
(net asset value plus sales charge of 2.75% of offering price)
- ---------------------------------------------------------------------------------------------------------------------------
</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 the call date, the bond "matures." The
pre-refunded date is used in determining weighted average portfolio
maturity date.
(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, 1997, 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 follows Sector Diversification.
See notes to financial statements.
10
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
September 30, 1997 (Unaudited)
(Amounts in Thousands)
Tax-Free Intermediate-Term Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Municipal Bonds -- 93.6%
Arizona -- 4.4%
Arizona Transportation Board Subordinated
Highway Revenue Series 1992 A 6% 7/1/00 $ 500 $ 525
Salt River Project Agricultural Improvement
and Power District, Electric System
Refunding Revenue 1993 Series A 5.30% 1/1/03 1,000 1,046
Scottsdale Street and Highway User
Revenue Refunding Series 1993 5% 7/1/02 1,000 1,031
------
2,602
------
Connecticut -- 1.9%
State of Connecticut Special Tax Obligation,
Transportation Infrastructure 1990 Series A
(Pre-refunded 6/1/01) 7.10% 6/1/04 1,000 1,106(A)
------
Florida -- 6.3%
Northwest Florida Water Management District
Land Acquisition Revenue Refunding
Series 1992 (FGIC insured) 5.50% 4/1/02 1,000 1,051
State Board of Education Capital Outlay
Series 1996 A 5.60% 1/1/08 1,000 1,065
Jacksonville Florida Electric Authority Revenue
Refunding (St. John's River Issue) 5.10% 10/1/10 500 505
Seminole County, FL Water & Sewer Revenue 6% 10/1/12 1,000 1,113
------
3,734
------
Georgia -- 3.0%
State of Georgia GO Bonds
Series 1997 C 6.25% 8/1/10 1,000 1,140
State of Georgia GO Bonds
Series 1997 C 2.25% 8/1/17 1,000 638
------
1,778
------
Illinois -- 3.9%
Illinois Regional Transportation (MBIA insured) 5.40% 6/1/15 1,000 1,001
State of Illinois Sales Tax Revenue Series O 5.90% 6/15/01 1,220 1,288
------
2,289
------
Kentucky -- 1.8%
Turnpike Authority of Kentucky, Economic
Development Road Revenue and Revenue
Refunding (Revitalization Projects)
Series 1993 (AMBAC insured) 5.30% 7/1/04 1,000 1,048
------
</TABLE>
11
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Tax-Free Intermediate-Term Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Louisiana -- 1.8%
City of New Orleans Audubon Park Commission
Aquarium Series 1993 (FGIC insured) 6% 10/1/08 $ 1,000 $ 1,079
------
Maine -- 1.8%
Maine Municipal Bond Bank Refunding 1993
Series A 5.20% 11/1/05 1,000 1,040
------
Maryland -- 17.2%
Baltimore County, GO Pension Refunding 1991 6.70% 7/1/16 1,000 1,040
Cecil County, GO Consolidated Public Improvement
and Refunding 1993 (FGIC insured) 6.50% 12/1/99 850 895
Maryland Department of Transportation Consolidated
Transportation Refunding Series 1991 6% 9/1/00 1,000 1,052
Maryland Health and Higher Educational Facilities
Authority Refunding Revenue Johns Hopkins
University Issue Series 1988 7.50% 7/1/20 1,300 1,359
Maryland Transportation Authority, Transportation
Facilities Projects Revenue Series 1992 5.70% 7/1/05 1,000 1,078
Mayor and City Council of Baltimore
GO Consolidated Public Improvement
Refunding 1995 Series A (FGIC insured) 0% 10/15/06 750 489(B)
Project and Refunding Revenue (Water Projects)
Series 1990-A (MBIA insured)
(Pre-refunded 7/1/00) 6.50% 7/1/20 1,000 1,062(A)
Montgomery County, GO Consolidated Public
Improvement
Series B 6.80% 11/1/99 1,000 1,057
Series B (Pre-refunded 11/1/99) 6.80% 11/1/07 1,000 1,074(A)
Northeast Maryland Waste Disposal Authority Solid
Waste Revenue (Montgomery County Resource
Recovery Project) Series 1993 A AMT 5.60% 7/1/02 1,000 1,039
------
10,145
------
Michigan -- 1.9%
Williamston Michigan Community School
GO (MBIA insured) 6.25% 5/1/09 1,000 1,128
------
Nebraska -- 1.8%
Nebraska Public Power District Revenue 5.70% 1/1/04 1,000 1,061
------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Nevada -- 2.9%
Clark County, Nevada 5.50% 6/1/11 $ 1,155 $ 1,196
State of Nevada, GO LT (Nevada Municipal Bond
Bank Refunding Project No. 4) Series 1989 B 6.70% 2/1/01 500 532
------
1,728
------
New Hampshire -- 1.8%
New Hampshire Municipal Bond Bank GO
Refunding 1991 Series H 5.70% 2/15/01 1,000 1,045
------
New Jersey -- 3.6%
New Jersey Turnpike Authority, Turnpike
Revenue Series 1991 C (AMBAC insured) 6.40% 1/1/07 2,000 2,145
------
Ohio -- 4.4%
Franklin County, Ohio GO LT Refunding 5.50% 12/1/11 2,000 2,076
State of Ohio Higher Education Facilities
Revenue Series 1988 A 7% 11/1/01 500 511
------
2,587
------
Pennsylvania -- 1.8%
Pennsylvania Intergovernmental Cooperation
Authority Special Tax Revenue
(City of Philadelphia Refunding
Program) Series 1992 (FGIC insured) 5.75% 6/15/99 1,000 1,030
------
South Carolina -- 3.7%
Berkeley County Water and Sewer Revenue
Refunding and Improvement (MBIA insured) 6.50% 6/1/06 1,000 1,089
South Carolina Public Service Authority Revenue,
1991 Refunding and Improvement Series B 6.70% 7/1/02 1,000 1,097
------
2,186
------
Tennessee -- 3.5%
State of Tennessee GO, 1994 Series A 5.25% 3/1/02 1,000 1,042
Metropolitan Government Nashville and
Davidson County Tennessee Water & Sewer
Refunding (MBIA insured) 5.50% 1/1/13 1,000 1,033
------
2,075
------
</TABLE>
13
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Tax-Free Intermediate-Term Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Texas -- 8.8%
City of Austin Combined Utility Systems Revenue
Refunding Series 1992 A (MBIA insured) 6% 11/15/04 $ 1,000 $ 1,085
City of Houston Water and Sewer System
Junior Lien Revenue Refunding Series 1992 C
(MBIA insured) 5.40% 12/1/01 1,000 1,045
City of Houston GO
Revenue Refunding Series C 5.625% 4/1/10 1,000 1,041
Texas Public Finance Authority, GO Refunding
(Ssuperconducting Ssuper Collider Project)
Series 1992 C (FGIC Insured) 0% 4/1/02 1,000 817(B)
United Independent School District (Webb County,
Texas) Unlimited Tax School Building Bonds,
Series 1995 (PSFG insured) 7.10% 8/15/06 1,000 1,182
------
5,170
------
Vermont -- 2.6%
State of Vermont, GO 1990 Series A
(Pre-refunded 2/1/00) 6.75% 2/1/03 1,400 1,509(A)
------
Virginia -- 12.7%
Commonwealth of Virginia Transportation Board,
Transportation Contract Revenue Refunding
Series 1992 (Route 28 Project) 5.75% 4/1/00 1,000 1,039
Series 1992 (Route 28 Project) 6% 4/1/06 1,000 1,074
Fairfax County Public Improvement Refunding
Series 1992 C 5.50% 10/1/03 2,000 2,065
Series 1994 A 7.25% 6/1/01 1,000 1,105
Henrico County GO Public Improvement Refunding
Series 1993 5.25% 1/15/09 1,100 1,135
Virginia Public Building Authority State Building
Revenue Refunding Series 1992 B 5.625% 8/1/02 1,000 1,057
------
7,475
------
Washington -- 2.0%
Washington State Motor Vehicle Fuel Tax Revenue
Series D 6.50% 1/1/07 1,045 1,190
------
Total Municipal Bonds (Identified Cost-- $53,397) 55,150
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Variable Rate Demand Obligations(C)-- 4.7%
Gulf Coast Texas Waste Disposal Authority
Exxon Project 3.80% 10/1/97 $ 600 $ 600
Harris County Texas Health Facilities
Development Corp. (Methodist Hospital) 3.90% 10/1/97 1,000 1,000
Lincoln County Wyoming Pollution
Control Revenue 3.80% 10/1/97 900 900
Rockport Indiana Pollution Control Revenue 3.85% 10/1/97 300 300
------
Total Variable Rate Demand Obligations (Identified Cost-- $2,800) 2,800
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.3% (Identified Cost-- $56,197) 57,950
Other Assets Less Liabilities--1.7% 995
------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital
applicable to 3,794 shares outstanding $57,262
Accumulated net realized loss on investments (70)
Unrealized appreciation of investments 1,753
-------
NET ASSETS-- 100.0% $58,945
=======
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $15.54
=======
MAXIMUM OFFERING PRICE PER SHARED $15.54
=======
</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 the 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, 1997, 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.
(D) Sales charges are being waived for the period August 1, 1995 to July
31, 1998.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
15
<PAGE>
Sector Diversification
Legg Mason Tax-Free Income Fund
September 30, 1997
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
------------------ ------------------ -------------------
% of Market % of Market % of Market
Net Assets Value Net Assets Value Net Assets Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
EDUCATION REVENUE 8.0 $ 12,075 22.4 $14,712 5.2 $ 3,052
Escrowed -- -- 2.8 1,877 -- --
General Obligation--Local 16.2 24,332 5.0 3,311 26.9 15,882
General Obligation--School -- -- 2.9 1,894 -- --
General Obligation--State 3.8 5,673 1.6 1,081 10.6 6,249
Health Care & Hospital Revenue 14.0 21,033 9.8 6,462 -- --
Housing Revenue 5.2 7,759 4.1 2,694 -- --
Lease Revenue 5.2 7,838 -- -- 1.8 1,057
Other -- -- -- -- 3.9 2,318
Other Special Taxes -- -- 4.6 3,039 -- --
Parking Revenue 1.8 2,711 -- -- -- --
Port Facilities Revenue 4.3 6,540 -- -- -- --
Pre-refunded Bonds 10.9 16,408 14.9 9,845 10.1 5,941
Small Business Administration
Revenue -- -- 3.5 2,283 -- --
Solid Waste Revenue 3.5 5,220 -- -- 1.8 1,039
Student Loan Revenue -- -- 1.6 1,061 -- --
Transportation Revenue 5.3 8,031 8.5 5,604 17.0 9,993
Utility 5.9 8,810 7.2 4,753 7.3 4,289
Water and Sewer Revenue 14.1 21,198 9.2 6,073 9.0 5,330
Short-Term Investments .5 800 .6 400 4.7 2,800
Other Assets Less Liabilities 1.3 1,913 1.3 832 1.7 995
----- -------- ----- ------- ----- -------
100.0 $150,341 100.0 $65,921 100.0 $58,945
===== ======== ===== ======= ===== =======
</TABLE>
-------------------------------------------------------
Guide to Investment Abbreviations
Legg Mason Tax-Free Income Fund
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
HOC Housing Opportunities Commission
IDA Industrial Development Authority
LT Limited Tax
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
PSFG Permanent School Fund Guaranty
16
<PAGE>
Statements of Operations
Legg Mason Tax-Free Income Fund
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 9/30/97
---------------------------------------------------
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $4,281 $1,902 $1,454
------ ------ ------
Expenses:
Investment advisory fee 410 181 157
Distribution and service fees 186 82 71
Custodian fees 43 32 30
Transfer agent and shareholder servicing expense 24 10 8
Audit and legal fees 13 11 15
Reports to shareholders 6 7 3
Registration fees 1 1 11
Trustees' fees 3 3 3
Organization expense 0 0 7
Other expenses 5 2 2
------ ------ ------
691 329 307
Less: fees waived (166) (97) (105)
compensating balance credits (3) (1) (2)
------ ------ ------
Total expenses, net of waivers and compensating
balance credits 522 231 200
------ ------ ------
NET INVESTMENT INCOME 3,759 1,671 1,254
------ ------ ------
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 624 111 140
Change in unrealized appreciation of investments 3,497 2,125 1,018
------ ------ ------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 4,121 2,236 1,158
---------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $7,880 $3,907 $2,412
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
17
<PAGE>
Statements of Changes in Net Assets
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
-------------------- -------------------- --------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
9/30/97 3/31/97 9/30/97 3/31/97 9/30/97 3/31/97
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 3,759 $ 7,702 $ 1,671 $ 3,457 $ 1,254 $ 2,530
Net realized gain (loss) on investments 624 482 111 (20) 140 18
Change in unrealized appreciation
(depreciation) of investments 3,497 (1,254) 2,125 (422) 1,018 (462)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 7,880 6,930 3,907 3,015 2,412 2,086
Distributions to shareholders:
From net investment income (3,759) (7,702) (1,671) (3,457) (1,254) (2,530)
From net realized gain on investments (359) (671) 0 (778) -- --
Change in net assets from Fund share transactions 605 772 (1,190) 820 3,051 (4,862)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets 4,367 (671) 1,046 (400) 4,209 (5,306)
Net Assets:
Beginning of period 145,974 146,645 64,875 65,275 54,736 60,042
- ---------------------------------------------------------------------------------------------------------------------------
End of period $150,341 $145,974 $65,921 $64,875 $58,945 $54,736
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
18
<PAGE>
Financial Highlights
Legg Mason Tax-Free Income Fund
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>
Investment Options Distributions From:
---------------------------------------- ----------------------------------------
In Excess
Net Asset Net Net Realized Total Net of Net
Value, Investment and Unrealized From Net Realized Realized
Beginning Income Gain(Loss)on Investment Investment Gain on Gain on
of Period (Loss) Investments Operations Income Investments Investments
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maryland Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* $15.91 $.40(D) $ .45 $ .85 $(.40) $(.04) $--
Years Ended Mar. 31,
1997 16.07 .83(D) (.09) .74 (.83) (.07) --
1996 15.87 .86(D) .25 1.11 (.86) (.05) --
1995 15.69 .83(D) .18 1.01 (.83) -- --
1994 15.97 .84(D) (.27) .57 (.84) -- (.01)
1993 15.03 .88(D) .95 1.83 (.88) (.01) --
Pennsylvania Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* $15.80 $.41(E) $ .54 $ .95 $(.41) $ -- $ --
Years Ended Mar. 31,
1997 16.10 .83(E) (.11) .72 (.83) (.19) --
1996 16.02 .89(E) .15 1.04 (.89) (.07) --
1995 15.80 .85(E) .22 1.07 (.85) -- --
1994 16.03 .86(E) (.23) .63 (.86) -- --
1993 14.99 .91(E) 1.04 1.95 (.91) -- --
Tax-Free Intermediate-Term Income Trust
Six Months Ended,
Sept. 30, 1997* $15.22 $.34(F) $ .32 $ .66 $(.34) $ -- $ --
Years Ended Mar. 31,
1997 15.34 .68(F) (.12) .56 (.68) -- --
1996 15.06 .68(F) .28 .96 (.68) -- --
1995 14.96 .72(F) .10 .82 (.72) -- --
1994 15.06 .70(F) (.09) .61 (.70) (.01) --
1993(G) 14.70 .28(F) .36 .64 (.28) -- --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------------------------
Net
Net Asset Total Net Investment
Value, Expenses Expenses Income
Total End of Total to Average to Average to Average
Distributions Period Return(A) Net Assets(B) Net Assets(C) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maryland Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* $(.44) $16.32 5.45%(H) .70%(D,I) .70%(D,I) 5.05%(D,I)
Years Ended Mar. 31,
1997 (.90) 15.91 4.73% .67%(D) .66%(D) 5.18%(D)
1996 (.91) 16.07 7.11% .59%(D) .58%(D) 5.29%(D)
1995 (.83) 15.87 6.60% -- .54%(D) 5.32%(D)
1994 (.85) 15.69 3.51% -- .46%(D) 5.10%(D)
1993 (.89) 15.97 12.47% -- .40%(D) 5.61%(D)
Pennsylvania Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* $ (.41) $16.34 6.06%(H) .70%(E,I) .70%(E,I) 5.07%(E,I)
Years Ended Mar. 31,
1997 (1.02) 15.80 4.61% .67%(E) .66%(E) 5.20%(E)
1996 (.96) 16.10 6.52% .54%(E) .53%(E) 5.42%(E)
1995 (.85) 16.02 7.03% -- .49%(E) 5.42%(E)
1994 (.86) 15.80 3.81% -- .40%(E) 5.16%(E)
1993 (.91) 16.03 13.31% -- .32%(E) 5.74%(E)
Tax-Free Intermediate-Term Income Trust
Six Months Ended,
Sept. 30, 1997* $(.34) $15.54 4.37%(H) .71%(F,I) .70%(F,I) 4.39%(F,I)
Years Ended Mar. 31,
1997 (.68) 15.22 3.71% .67%(F) .66%(F) 4.43%(F)
1996 (.68) 15.34 6.47% .57%(F) .56%(F) 4.41%(F)
1995 (.72) 15.06 5.65% -- .34%(F) 4.83%(F)
1994 (.71) 14.96 3.99% -- .30%(F) 4.44%(F)
1993(G) (.28) 15.06 4.35%(H) -- .20%(F,I) 4.71%(F,I)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------
Net Assets
Portfolio End of
Turnover Period
Rate (in thousands)
- ------------------------------------------------------------------------
<S> <C>
Maryland Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* 21.7%(I) $150,341
Years Ended Mar. 31,
1997 6.0% 145,974
1996 14.1% 146,645
1995 9.5% 142,314
1994 6.6% 145,578
1993 -- 128,566
Pennsylvania Tax-Free Income Trust
Six Months Ended,
Sept. 30, 1997* 20.5%(I) $65,921
Years Ended Mar. 31,
1997 13.6% 64,875
1996 17.2% 65,275
1995 2.1% 63,929
1994 -- 62,904
1993 -- 49,959
Tax-Free Intermediate-Term Income Trust
Six Months Ended,
Sept. 30, 1997* 19.5%(I) $58,945
Years Ended Mar. 31,
1997 8.9% 54,736
1996 -- 60,042
1995 24.8% 48,837
1994 6.6% 54,032
1993(G) -- (I) 37,138
- ------------------------------------------------------------------------
</TABLE>
(A) Excluding sales charge.
(B) Pursuant to new Securities and Exchange Commission regulations
effective December 31, 1995, this ratio reflects total
expenses before compensating balance credits. Previously,
credits were included in the ratio.
(C) This ratio reflects total expenses reduced by the impact of
compensating balance credits.
(D) Net of fees waived and reimbursements made by the Adviser in
excess of voluntary expense limitations as follows: 0.45%
until December 31, 1993; 0.50% until June 30, 1994; 0.55%
until July 31, 1995; 0.60% until March 31, 1996; 0.65% until
December 31, 1996 and 0.70% through July 31, 1998.
(E) Net of fees waived and reimbursements made by the Adviser in
excess of voluntary expense limitations as follows: 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; 0.65% until December 31, 1996 and 0.70%
through July 31, 1998.
(F) Net of fees waived and reimbursements made by the Adviser in
excess of voluntary expense limitations as follows: 0.20% of
average daily net assets until March 31, 1993; 0.30% until
June 30, 1994; 0.35% until July 31, 1995; 0.65% until December
31, 1996 and 0.70% through July 31, 1998.
(G) For the period November 9, 1992 (commencement of operations)
to March 31, 1993.
(H) Not annualized
(I) Annualized
* Unaudited
See notes to financial statements.
19
<PAGE>
Notes to Financial Statements
Legg Mason Tax-Free Income Fund
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Tax-Free Income Fund ("Trust"), consisting of the
Maryland Tax-Free Income Trust ("Maryland Tax-Free"), the Pennsylvania
Tax-Free Income Trust ("Pennsylvania Tax-Free") and the Tax-Free
Intermediate-Term Income Trust ("Tax-Free Intermediate"), (each separately
referred to as a "Fund" and collectively as the "Funds"), is registered
under the Investment Company Act of 1940, as amended, each as an open-end
management investment company. All series of the Trust are
non-diversified.
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. Fixed income securities with 60 days or less remaining to
maturity are valued using the amortized cost method, which approximates
current market value.
Maryland Tax-Free and Pennsylvania Tax-Free each follow an investment
policy of investing primarily in municipal obligations of one state.
Economic changes affecting either of those states and certain of its
public bodies and municipalities may affect the ability of issuers within
that state to pay interest, or repay principal of, municipal obligations
held by either of those Funds.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized. 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. Distributions payable are recorded on
the ex-dividend date. At September 30, 1997 dividends payable of $311 were
accrued for Maryland Tax-Free, $139 for Pennsylvania Tax-Free and $106 for
Tax-Free Intermediate.
Investment Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes.
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 Funds' 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. The Funds' investment advisers,
acting under the supervision of their Board of Trustees, review the value
of the collateral and the creditworthiness of those banks and dealers with
which the Funds enter into repurchase agreements to evaluate potential
risks.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Funds intend to continue to qualify as regulated investment companies and
distribute all of their taxable income to their shareholders. Unused
capital loss carryforwards for federal income tax purposes at September
30, 1997 were as follows: Pennsylvania Tax-Free, $21 which expire in 2005;
and Tax-Free Intermediate, $143 which expire in 2003 and $67 which expire
in 2004.
20
<PAGE>
- --------------------------------------------------------------------------------
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:
For the six months ended September 30, 1997 investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds from Sales
- --------------------------------------------------------------------------------
Maryland Tax-Free $17,743 $15,822
Pennsylvania Tax-Free 6,581 6,552
Tax-Free Intermediate-Term 5,996 4,515
At September 30, 1997, cost, aggregate gross unrealized appreciation
and gross unrealized depreciation based on the cost of securities for
federal income tax purposes for each Fund were as follows:
Cost Appreciation Depreciation
- --------------------------------------------------------------------------------
Maryland Tax-Free $139,151 $9,367 $(90)
Pennsylvania Tax-Free 61,438 3,669 (18)
Tax-Free Intermediate-Term 56,197 1,800 (47)
3. Transactions with Affiliates:
Each 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 Funds. Pursuant to their
respective agreements, the Adviser provides the Funds with investment
advisory, management and administrative services for which each Fund pays
a fee, computed daily and payable monthly at an annual rate of 0.55% of
each Fund's average daily net assets.
The Adviser has agreed to waive its fees and to reimburse each Fund
for its 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 schedules:
for Maryland Tax-Free, 0.55% until July 31, 1995; 0.60% until March 31,
1996; 0.65% until December 31, 1996 and 0.70% through July 31, 1998, or
until the Fund's net assets reach $200 million, whichever occurs first.
For Pennsylvania Tax-Free, 0.50% until July 31, 1995; 0.55% through March
31, 1996; 0.65% until December 31, 1996 and 0.70% through July 31, 1998,
or until the Fund's net assets reach $125 million, whichever occurs first.
For Tax-Free Intermediate, 0.35% until July 31, 1995; 0.65% until December
31, 1996 and 0.70% through July 31, 1998, or until the Fund's net assets
reach $100 million, whichever occurs first. For the six months ended
September 30, 1997 advisory fees of $166, $97, and $105, respectively,
were waived and $72, $27, and $22 were due to the Adviser by Maryland
Tax-Free, Pennsylvania Tax-Free and Tax-Free Intermediate-Term,
respectively.
Legg Mason, as distributor of the Funds, receives an annual
distribution fee and an annual service fee, computed daily and payable
monthly, from each of the Funds at an annual rate of 0.125% for each, of
average daily net assets. At September 30, 1997, distribution and service
fees due to the distributor were as follows: Maryland Tax-Free, $31;
Pennsylvania Tax-Free, $14; and Tax-Free Intermediate, $12.
21
<PAGE>
Notes to Financial Statements--Continued
- --------------------------------------------------------------------------------
Legg Mason also has an agreement with the Funds' transfer agent to
assist it with some of its duties. For this assistance, Legg Mason was
paid the following amounts by the transfer agent for the six months ended
September 30, 1997: Maryland Tax-Free, $8; Pennsylvania Tax-Free, $4; and
Tax-Free Intermediate, $3.
4. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
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, 1997, the Funds had no borrowings under the
line of credit.
5. Fund Share Transactions:
At September 30, 1997, there were unlimited shares authorized at
$.001 par value for all Funds of the Trust. Share transactions were as
follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
----------------- ---------------- ------------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maryland Tax-Free
Six months ended September 30, 1997 439 $ 7,089 189 $3,048 (590) $ (9,532) 38 $ 605
Year Ended March 31, 1997 881 14,121 394 6,311 (1,225) (19,660) 50 772
Pennsylvania Tax-Free
Six Months Ended September 30, 1997 176 2,837 72 1,157 (321) (5,184) (73) (1,190)
Year Ended March 31, 1997 418 6,655 192 3,059 (557) (8,894) 53 820
Tax-Free Intermediate
Six Months Ended September 30, 1997 518 7,985 62 958 (382) (5,892) 198 3,051
Year Ended March 31, 1997 858 13,139 128 1,969 (1,304) (19,970) (318) (4,862)
</TABLE>
22
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