<PAGE>
Annual Report
March 31, 2000
Legg Mason
Tax-Free
Income Fund
Maryland Tax-Free
Pennsylvania Tax-Free
Tax-Free
Intermediate-Term
Primary Class
[LEGG MASON FUNDS LOGO]
The Art of InvestingSM
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Tax-Free Income Fund's annual
report for its fiscal year ended March 31, 2000. This report includes financial
information for the three series of the Fund: Maryland Tax-Free, Pennsylvania
Tax-Free and Tax-Free Intermediate.
The following table summarizes key statistics for each Fund, as of March 31,
2000:
<TABLE>
<CAPTION>
Average Net Asset Value
SEC Yield* Weighted Maturity Per Share
---------- ----------------- ---------------
<S> <C> <C> <C>
Maryland Tax-Free +4.73% 15.11 Years $15.42
Pennsylvania Tax-Free +4.80% 14.91 Years 15.57
Tax-Free Intermediate +4.26% 7.28 Years 15.09
</TABLE>
Each of the Funds seeks a high level of current income exempt from federal
income tax. The Maryland and Pennsylvania Tax-Free Funds also seek income which
is exempt from state and local income taxes in each respective state. The Funds
purchase only securities which have received investment grade ratings from
Moody's Investors Service or Standard & Poor's or which are judged by their
investment adviser to be of comparable quality. Moody's ratings of securities
currently owned by the Funds are:
<TABLE>
<CAPTION>
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate
-------- ------------ ------------
<S> <C> <C> <C>
Aaa 43.8% 72.2% 60.2%
Aa 36.5 23.8 27.2
A 14.9 0.0 7.4
Baa 2.9 0.0 1.3
Short-term securities 1.9 4.0 3.9
</TABLE>
Some shareholders regularly add to their 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
May 5, 2000
- --------------
* SEC yields reported are for the 30 days ended March 31, 2000. If no fees had
been waived by the Adviser, the 30-day SECyields for Maryland Tax-Free,
Pennsylvania Tax-Free and Tax-Free Intermediate would have been 4.48%, 4.46%
and 3.95%, respectively.
<PAGE>
Portfolio Manager's Comments
Legg Mason Tax-Free Income Fund
Market Overview and Commentary
During the 12 months ended March 31, 2000, prices of municipal bonds declined,
and tax-free yields increased 65 basis points/1/ for 30-year bonds and almost
100 basis points for 5-year bonds. However, the path to these yield levels was
not a smooth one. During the last nine months of 1999, yields on long-term
municipal bonds rose almost a full percentage point. Tax-free rates climbed
steadily as brisk economic growth and heightened inflation fears caused the
Federal Reserve to tighten monetary policy in an attempt to slow the economy.
Faced with a stream of robust economic data, the Federal Reserve has been
active, interrupting its tightening pattern only long enough to ensure adequate
liquidity and financial tranquility over year-end. Since last June, the Fed has
tightened five times in 25 basis point steps, moving the Fed Funds Rate from
4.75% to 6.00% currently.
The trend of rising tax-free rates that persisted through most of 1999
reversed course early in the New Year. During the first quarter of 2000, the
municipal bond market posted strong total returns, and tax-free yields on long-
term bonds fell about 25 basis points. A classic combination of low supply and
increased demand drove municipal bond prices higher during this period.
Municipal bond issuance is currently trending 32% below last year's level,
largely as a result of the sharp drop in refunding activity. In addition, many
municipalities are flush with cash, a happy by-product of the country's long
economic expansion that has boosted tax receipts at the state and local level.
The healthy position of municipal balance sheets enables more governments to
finance projects on a pay-as-you-go basis rather than turning to the debt
markets for funding. While supply was falling, investor appetite for municipal
bonds intensified. The volatility of the stock market during the first quarter,
particularly the technology sector, made some investors queasy enough to seek
the relative calm of the municipal market.
Maryland Tax-Free Income Trust
For the fiscal year ended March 31, 2000, the Fund's total return was -0.79%.
The average maturity of the Fund decreased to 15.11 years from 16.00 years over
the last 12 months.
Pennsylvania Tax-Free Income Trust
For the fiscal year ended March 31, 2000, the Fund's total return was -0.84%.
The average maturity of the Fund decreased to 14.91 years from 16.39 years over
the last 12 months.
Tax-Free Intermediate-Term Income Trust
For the fiscal year ended March 31, 2000, the Fund's total return was 0.58%.
The average maturity of the Fund decreased to 7.28 years from 7.70 years over
the last 12 months.
- --------------
/1/ 100 basis points = 1%.
2
<PAGE>
Outlook
As a result of strong income growth and the surging net worth of many
households, the demand for municipal bonds by individuals has grown and is
expected to continue to grow in the coming year. There seems to have been a
modest reallocation out of equities into municipal bonds on the part of
investors over the past few months. This would likely accelerate in the face of
a steep and protracted sell-off in the stock market. We believe that municipal
issuance will increase modestly from its current depressed pace, but is likely
to remain well below last year's level. Compared to many other investment
sectors, the municipal bond market has been a sea of tranquility. We believe
that this relative stability will persist, despite the activities of the Fed,
given the positive outlook for supply and demand in the municipal market.
Strategy
We continue to add to positions in bonds that we believe have good performance
characteristics in both rising and falling markets, and we have worked to
improve call protection in each Fund. We continue to favor high quality bonds,
and, as a result, the average credit quality in the Funds is currently AA or
better. Our decision to maintain only moderate exposure to the health care
sector has helped the Funds' performance as the prices of hospital bonds have
suffered disproportionately over the last year. Due to the competitive and
financial challenges facing many of these issuers, the market has penalized the
entire health care sector, in some cases unfairly. We believe that certain
credits may present value due to the higher yields which health care bonds
currently offer, and we expect to be selectively adding to our positions in this
industry.
Jane E. Trust, CFA
Portfolio Manager
May 1, 2000
3
<PAGE>
Performance Information
Legg Mason Tax-Free Income Fund
Performance Comparison of a $10,000 Investment as of March 31, 2000
The returns shown on these pages are based on historical results and are
not intended to indicate future performance. The investment return and
principal value of an investment in each of these Funds will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Average annual returns tend to smooth out variations in
a Fund's return, so that they differ from actual year-to-year results. No
adjustment has been made for any income taxes payable by shareholders.
The Pennsylvania Tax-Free Income Trust has two classes of shares: Primary
Class and Navigator Class. Information about the Navigator Class, offered
only to certain institutional investors, is contained in a separate report to
its shareholders.
The following graphs compare each Fund's total returns against that of a
closely matched broad-based securities market index. The lines illustrate the
cumulative total return of an initial $10,000 investment for the periods
indicated after subtracting each Fund's maximum sales load and after
deducting all Fund investment management and other administrative expenses
and the transaction costs of buying and selling portfolio securities. The
line representing the securities market index does not include any
transaction costs associated with buying and selling securities in the index
or other administrative expenses. Both the Legg Mason Funds' results and the
indices' results assume reinvestment of all dividends and distributions.
Maryland Tax-Free Income Trust
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- -----------------------------------------------------------------------
<S> <C> <C>
One Year -3.51% -3.51%
Five Years +24.02 +4.40
Life of Fund(dagger) +66.22 +5.86
- -----------------------------------------------------------------------
</TABLE>
(dagger) Inception date -- May 1, 1991
* Includes maximum sales charge of 2.75%
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Maryland Tax-Free Lehman Brothers Municipal
Years ended March 31, Income Trust Bond Index/1/
<S> <C> <C>
1991/+/ $10,000 $10,000
9,733 10,079
10,160 10,471
10,477 10,822
1992 10,506 10,854
10,884 11,265
11,146 11,565
11,349 11,776
1993 11,816 12,213
12,212 12,613
12,658 13,039
12,729 13,222
1994 12,230 12,496
12,338 12,634
12,422 12,721
12,332 12,539
1995 13,038 13,425
13,328 13,748
13,657 14,143
14,158 14,727
1996 13,964 14,550
14,070 14,661
14,369 14,997
14,666 15,380
1997 14,624 15,343
15,035 15,871
15,421 16,350
15,793 16,793
1998 15,936 16,987
16,148 17,245
16,601 17,775
16,676 17,881
1999 16,758 18,040
16,456 17,721
16,282 17,651
16,116 17,514
2000 16,622 18,025
</TABLE>
/1/ The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade tax-exempt bond market.
Index returns are for the periods beginning April 30, 1991.
/+/ Fund inception--May 1, 1991.
4
<PAGE>
Pennsylvania Tax-Free Income Trust
- ---------------------------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- ---------------------------------------------------------------------------
One Year -3.56% -3.56%
Five Years +24.52 +4.48
Life of Fund(dagger) +66.65 +6.07
- ---------------------------------------------------------------------------
(dagger) Inception date -- August 1, 1991
* Includes maximum sales charge of 2.75%
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Pennsylvania Tax-Free Lehman Brothers Municipal
Years ended March 31, Income Trust Bond Index/1/
<S> <C> <C>
1991/+/ $10,000 $10,000
9,964 10,264
10,321 10,608
1992 10,342 10,640
10,779 11,043
11,080 11,337
11,297 11,543
1993 11,718 11,972
12,195 12,364
12,631 12,781
12,739 12,961
1994 12,164 12,249
12,265 12,384
12,334 12,469
12,253 12,291
1995 13,019 13,160
13,309 13,477
13,590 13,864
14,121 14,436
1996 13,867 14,263
13,987 14,372
14,302 14,701
14,568 15,076
1997 14,507 15,040
14,972 15,558
15,387 16,027
15,766 16,462
1998 15,929 16,651
16,156 16,905
16,602 17,423
16,674 17,528
1999 16,811 17,683
16,528 17,371
16,318 17,302
16,126 17,168
2000 16,665 17,669
</TABLE>
/1/ The Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade tax-exempt bond market. Index
returns are for the periods beginning July 31, 1991.
/+/ Fund inception--August 1, 1991.
Tax-Free Intermediate-Term Income Trust
- ------------------------------------------------------------
Cumulative Average Annual
Total Return* Total Return*
- ------------------------------------------------------------
One Year -1.43% -1.43%
Five Years +22.20 +4.09
Life of Fund(dagger) +40.09 +4.66
- ------------------------------------------------------------
(dagger) Inception Date -- November 9, 1982
* Includes maximum sales charge of 2.00%
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Tax-Free Lehman Brothers 7-Year
Years ended March 31, Intermediate Trust Municipal Bond Index/1/
<S> <C> <C>
1992/+/ $10,000 $10,000
9,953 10,232
1993 10,226 10,559
10,509 10,851
10,829 11,166
10,944 11,300
1994 10,634 10,874
10,724 10,989
10,804 11,094
10,729 10,987
1995 11,234 11,564
11,506 11,893
11,737 12,233
12,011 12,542
1996 11,961 12,497
12,017 12,551
12,197 12,776
12,430 13,089
1997 12,405 13,074
12,700 13,433
12,947 13,792
13,187 14,092
1998 13,288 14,253
13,431 14,419
13,791 14,876
13,880 14,970
1999 13,928 15,097
13,718 14,840
13,770 14,962
13,777 14,948
2000 14,009 15,185
</TABLE>
/1/ The Lehman Brothers 7-Year Municipal Bond Index is a total return
performance benchmark for investment grade tax-exempt bonds with maturities
ranging from six to eight years. Index returns are for the periods beginning
October 31, 1992.
/+/ Fund inception--November 9, 1992.
5
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 2000
(Amounts in Thousands)
Maryland Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 96.9%
Annapolis (City of), Economic Development
Revenue (St. John's College Facility), Series 1998 5.500% 10/1/18 $1,000 $ 909
Annapolis (City of), Economic Development
Revenue (St. John's College Facility), Series 1998 5.500% 10/1/23 870 770
Anne Arundel County (Baltimore Gas & Electric
Project), PCR Refunding 6.000% 4/1/24 4,500 4,494
Anne Arundel County, Consolidated Water and
Sewer, GO 5.000% 9/1/16 1,000 944
Anne Arundel County, Maryland GO 6.500% 5/15/06 1,000 1,085
Baltimore, Maryland Consolidated Public
Improvement, Series D
Refunding (AMBAC insured) 6.000% 10/15/06 1,140 1,209
Baltimore, Maryland Revenue Refunding
Waste Water Project Series A (FGIC insured) 5.000% 7/1/22 1,550 1,412
Baltimore, Maryland Revenue Refunding
Waste Water Project Series A (FGIC insured) 5.500% 7/1/26 1,000 964
Baltimore City Water Utility Project (Water Projects)
Series A Refunding (Pre-refunded 7/1/00)
(MBIA insured) 6.500% 7/1/20 1,250 1,257/A/
Baltimore County, Consolidated Public
Improvement, GO (Pre-refunded 7/1/02) 6.125% 7/1/09 2,000 2,097/A/
Baltimore County, Consolidated Public
Improvement, GO 4.750% 7/1/18 3,150 2,839
Baltimore County, Nursing Home (Stella Maris)
Series A (Pre-refunded 3/1/01) 7.250% 3/1/11 890 929/A/
Calvert County, Maryland (Baltimore Gas &
Electric Project), PCR Refunding 5.550% 7/15/14 1,000 1,009
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/20 1,000 972
Carroll County, Consolidated Public
Improvement, GO 5.375% 11/1/25 1,000 956
Charles County, GO (Pre-refunded 6/1/01) 6.600% 6/1/06 1,000 1,044/A/
Community Development Administration,
Maryland Department of Housing and Community
Development, Residential Revenue Bonds
Series D AMT 5.375% 9/1/24 2,000 1,810
Series H AMT 6.000% 9/1/17 3,000 3,028
Frederick County, GO Series 1990
(Pre-refunded 8/1/03) 6.625% 8/1/20 250 269/A/
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick County, Public Facility 1991 GO
(Pre-refunded 5/1/01) 6.500% 5/1/07 $ 650 $ 677/A/
Harford County, Maryland
Pre-refunded 3/1/06 5.000% 3/1/12 315 321/A/
Unrefunded Balance 5.000% 3/1/12 685 673
Harford County, GO (Pre-refunded 12/1/00) 6.400% 12/1/10 500 517/A/
Howard County, Metropolitan District GO
Series 1998 A Refunding 4.750% 2/15/27 3,385 2,920
Howard County, Metropolitan District GO,
Series B Refunding 6.000% 8/15/19 1,500 1,509
Howard County, Public Improvement GO
Series B Refunding 0.000% 8/15/07 1,000 686/B/
Laurel (City of), Public Improvement GO Refunding
(Pre-refunded 7/1/01) (MBIA insured) 7.000% 7/1/09 250 263/A/
Laurel (City of), Public Improvement GO Refunding
(Pre-refunded 7/1/01) (MBIA insured) 7.000% 7/1/11 1,000 1,050/A/
Maryland Community Development Administration,
Multi-Family Insured, Mortgage Series B 5.800% 5/15/26 1,500 1,443
Maryland Community Development Administration,
Multi-Family Insured Mortgage, Series G 7.100% 5/15/23 150 154
Maryland Community Development Administration,
Single Family AMT, Fourth Series 7.450% 4/1/32 170 174
Maryland Community Development Administration,
Single Family AMT, Second Series 6.650% 4/1/04 1,000 1,017
Maryland Community Development Administration,
Single Family AMT, Sixth Series 7.125% 4/1/14 365 369
Maryland Community Development Administration,
Single Family Non-AMT, Third Series 7.250% 4/1/27 670 685
Maryland Health and Higher Educational Facilities
Authority, Anne Arundel Medical Center Issue,
Series 1998 (FSA insured) 5.125% 7/1/28 2,000 1,804
Maryland Health and Higher Educational Facilities
Authority, College Of Notre Dame (MBIA insured) 5.300% 10/1/18 925 906
Maryland Health and Higher Educational Facilities
Authority, College Of Notre Dame (MBIA insured) 4.650% 10/1/23 1,400 1,180
Maryland Health and Higher Educational Facilities
Authority, Francis Scott Key Medical Center
Refunding 5.625% 7/1/25 995 936
Pre-refunded 7/1/00 (FGIC insured) 6.750% 7/1/23 1,500 1,539/A/
Refunding (FGIC insured) 5.000% 7/1/23 2,000 1,781
</TABLE>
7
<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> <C> <C> <C>
Maryland Health and Higher Educational Facilities
Authority, Greater Baltimore Medical Center
(Pre-refunded 7/1/01) 6.750% 7/1/19 $1,000 $ 1,047/A/
Maryland Health and Higher Educational Facilities
Authority, Howard County General Hospital 5.500% 7/1/21 2,825 2,793
Maryland Health and Higher Educational Facilities
Authority, Johns Hopkins Hospital, Series 1990 0.000% 7/1/19 4,000 1,308/B/
Maryland Health and Higher Educational Facilities
Authority, Johns Hopkins Medicine Refunding
(MBIA insured) 5.000% 7/1/29 2,000 1,758
Maryland Health and Higher Educational Facilities
Authority, Johns Hopkins University Refunding 6.000% 7/1/08 1,000 1,071
Maryland Health and Higher Educational Facilities
Authority, Johns Hopkins University Refunding 6.000% 7/1/10 500 539
Maryland Health and Higher Educational Facilities
Authority, Johns Hopkins University Series 1997
Refunding 5.625% 7/1/17 1,000 1,005
Maryland Health and Higher Educational Facilities
Authority, Kennedy Institute, Series 1991
Pre-refunded 7/1/01 7.400% 7/1/11 630 664/A/
Pre-refunded 7/1/01 6.750% 7/1/22 1,000 1,027/A/
Maryland Health and Higher Educational Facilities
Authority, Kennedy Krieger Issue, Series 1997 5.125% 7/1/22 1,000 764
Maryland Health and Higher Educational Facilities
Authority, Loyola College Issue, Series 1999 5.000% 10/1/39 1,000 852
Maryland Health and Higher Educational Facilities
Authority, Maryland Institute, College of
Art Issue (FSA insured) 5.000% 6/1/29 2,000 1,763
Maryland Health and Higher Educational Facilities
Authority, Medlantic/Helix Issue Revenue
Bonds, Series 1998 B (AMBAC insured) 5.250% 8/15/38 2,900 2,660
Maryland Health and Higher Educational Facilities
Authority, Union Memorial Hospital, Series A
(MBIA insured) 6.750% 7/1/11 65 68
Maryland Health and Higher Educational Facilities
Authority, Union Memorial Hospital, Series A
MBIA insured 6.750% 7/1/21 390 408
Pre-refunded 7/1/01 (MBIA insured) 6.750% 7/1/11 35 37/A/
Pre-refunded 7/1/01 (MBIA insured) 6.750% 7/1/21 210 220/A/
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland Health and Higher Educational Facilities
Authority, Union Memorial Hospital, Series B
Pre-refunded 7/1/01 (MBIA insured) 6.750% 7/1/11 $ 500 $ 524/A/
Pre-refunded 7/1/01 (MBIA insured) 6.750% 7/1/21 1,300 1,361/A/
Maryland Health and Higher Educational Facilities
Authority, University of Maryland Medical System,
Series 1993 Refunding (FGIC insured) 5.375% 7/1/13 2,000 2,006
Maryland National Capital Park and Planning
Commission (Prince George's County), Series L2
(Pre-refunded 7/1/02) 6.000% 7/1/05 500 523/A/
Maryland Transportation Authority, Series 1985
Refunding 5.750% 7/1/15 5,250 5,296
Maryland Water Quality Financing Administration,
Revolving Loan Fund Revenue, Series 1993A
(Pre-refunded 9/1/03) 5.400% 9/1/12 1,500 1,531/A/
Mayor and City Council of Baltimore, Baltimore
City Water Projects Refunding (FGIC insured) 5.000% 7/1/24 5,600 5,081
Mayor and City Council of Baltimore, Capital
Appreciation GO
Series A (FGIC insured) 0.000% 10/15/11 940 486/B/
Pre-refunded 10/15/05 (FGIC insured) 0.000% 10/15/11 1,060 557/A,B/
Mayor and City Council of Baltimore, Parking
Revenue, Series A (Pre-refunded 7/1/02)
(FGIC insured) 6.250% 7/1/21 500 526/A/
Montgomery County (Potomac Electric Project),
1994 Series, PCR Refunding 5.375% 2/15/24 1,000 932
Montgomery County, Consolidated Public
Improvement
GO Series A Refunding 5.800% 7/1/07 4,000 4,217
GO Series A Refunding 0.000% 7/1/10 3,000 1,753/B/
Montgomery County, HOC Single Family Series A 6.800% 7/1/17 810 824
Montgomery County, Parking Revenue (Silver
Spring Parking Lot), 1992 Series A Refunding
(FGIC insured) 6.250% 6/1/07 2,000 2,093
Morgan State University Academic and Auxiliary
Fees Revenue, Series A (Pre-refunded 7/1/00)
(MBIA insured) 7.000% 7/1/20 1,000 1,027/A/
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue (Montgomery County
Resource Recovery Project)
AMT Series 1993A 6.000% 7/1/07 1,000 1,029
AMT Series 1993A 6.300% 7/1/16 3,000 3,062
</TABLE>
9
<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> <C> <C> <C>
Port Facilities Revenue (Consolidated Coal
Sales Co. Project)
Series A 6.500% 10/1/11 $5,000 $ 5,273
Series B 6.500% 10/1/11 1,000 1,055
Prince George's County (Potomac Electric Project),
1993 Series PCR Refunding 6.375% 1/15/23 2,250 2,302
Prince George's County, Consolidated Public
Improvement, GO Refunding 6.700% 7/1/04 585 610
Prince George's County, Consolidated Public
Improvement, GO Refunding 6.750% 7/1/11 585 611
Prince George's County, Solid Waste Management
System Revenue, Series 1990
Pre-refunded 6/30/00 6.750% 6/30/02 250 257/A/
Pre-refunded 6/30/00 6.900% 6/30/06 750 770/A/
Prince George's County, Solid Waste Management
System Revenue, Series 1993 Refunding 5.250% 6/15/13 1,000 949
State of Maryland, GO 5.400% 6/1/07 2,000 2,054
State of Maryland, GO, Third Series 6.700% 7/15/02 500 506
Talbot County, Bank Qualified, GO
Pre-refunded 5/1/01 6.700% 5/1/10 500 522/A/
Pre-refunded 5/1/01 6.700% 5/1/11 415 434/A/
University of Maryland Auxiliary Facilities and
Tuition Revenue, Series A 5.600% 4/1/15 1,000 1,011
University of Maryland Auxiliary Facilities and
Tuition Revenue, Series A Refunding 5.125% 4/1/17 2,000 1,899
University of Maryland Auxiliary Facilities and
Tuition Revenue, Series B (Pre-refunded 10/1/02) 6.375% 4/1/09 1,000 1,057/A/
University System of Maryland Auxiliary Facility
and Tuition Revenue Bonds, 1999 Series A 4.500% 10/1/19 5,000 4,257
Washington County, Maryland (Water & Sewer
Project), GO Refunding (FGIC insured) 0.000% 1/1/17 385 149/B/
Washington Suburban Sanitary District 5.500% 6/1/13 1,000 1,015
Washington Suburban Sanitary District
(Pre-refunded 6/1/02) 6.100% 6/1/07 1,000 1,047/A/
Washington Suburban Sanitary District
Refunding 5.250% 6/1/11 1,000 1,004
Refunding 5.250% 6/1/15 1,000 986
Refunding 5.250% 6/1/16 1,000 986
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Washington Suburban Sanitary District -- continued
Refunding 5.750% 6/1/17 $2,000 $ 2,080
Refunding 6.000% 6/1/18 2,705 2,885
Refunding 6.000% 6/1/19 3,665 3,889
Washington Suburban Sanitary District, First Series
(Pre-refunded 6/1/01) 6.900% 6/1/13 400 419/A/
Worcester County Sanitary District, GO
(Pre-refunded 5/1/01) 6.750% 5/1/15 115 120/A/
--------
Total Municipal Bonds (Identified Cost -- $136,152) 137,560
-----------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations/C/ -- 1.1%
District of Columbia Revenue Multimodal
Medlantic Series C 5.100% 4/3/00 800 800
Texas Water Development Board, State
Revolving Fund, Multi-Modal Interchangeable
Rate Revenue Bond, Series 1992-A 4.000% 4/3/00 800 800
--------
Total Variable Rate Demand Obligations (Identified Cost -- $1,600) 1,600
-----------------------------------------------------------------------------------------------------------------
Total Investments -- 98.0% (Identified Cost -- $137,752) 139,160
Other Assets Less Liabilities -- 2.0% 2,793
--------
Net assets consisting of:
Accumulated paid-in capital applicable to
9,206 shares outstanding $141,483
Accumulated net realized gain/(loss) on investments (938)
Unrealized appreciation/(depreciation) of investments 1,408
--------
Net assets -- 100.0% $141,953
========
Net asset value and redemption price per share:/D/ $15.42
======
-----------------------------------------------------------------------------------------------------------------
</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 March 31, 2000, and the maturity shown is
the longer of the next interest readjustment date or the date the original
principal amount owed can be recovered through demand.
/D/ Sales charges have been waived since November 3, 1997. If the sales
charges were in effect, the maximum offering price per share at March 31,
2000, would have been $15.86.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
11
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 2000
(Amounts in Thousands)
Pennsylvania Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 95.0%
Allegheny County, Airport Revenue 1992-B AMT
(FSA insured) 6.625% 1/1/22 $1,000 $ 1,023
Allegheny County, Baldwin-Whitehall School District,
GO Series 1992-A (Pre-refunded 8/15/02)
(FGIC insured) 6.600% 8/15/10 1,000 1,043/A/
Allegheny County, Pennsylvania Higher Education,
Duquesne University Project Refunding
(AMBAC insured) 5.125% 3/1/13 1,000 974
Allegheny County, West Jefferson Hills School
District, GO (Pre-refunded 2/1/01) (FGIC insured) 7.100% 2/1/11 1,000 1,024/A/
Allegheny County Hospital Development Authority,
Children's Hospital Refunding (MBIA insured) 6.875% 7/1/14 1,000 1,005
Beaver County, Ohio Edison Company IDA PCR
Refunding (FGIC insured) 7.000% 6/1/21 1,000 1,042
Berks County, Pennsylvania, GO Series 1995
Refunding (FGIC insured) 5.850% 11/15/18 1,000 1,009
Bucks County, Council Rock School District, GO
(Pre-refunded 3/1/01) (FGIC insured) 6.750% 3/1/11 250 256/A/
Central Dauphin School District, Dauphin County,
Pennsylvania, GO Bonds, Series AA of 1998
(MBIA insured) 4.500% 12/1/18 2,250 1,903
Chester County Health and Education Facilities
Authority, Jefferson Health System Revenue
Bonds, Series 1997 B 5.375% 5/15/27 1,500 1,269
Commonwealth of Pennsylvania, GO
First Series 6.125% 9/15/03 1,000 1,038
Second Series (Pre-refunded 11/1/01) 6.500% 11/1/09 1,000 1,044/A/
County of Chester, Pennsylvania, GO Bonds,
Series of 1998 5.000% 6/15/15 1,000 941
County of Delaware, Pennsylvania GO Bonds,
Series of 1999 5.125% 10/1/16 1,000 947
Deer Lakes School District, Pennsylvania GO
(MBIA insured) 6.450% 1/15/19 1,750 1,831
Delaware County Authority, University Revenue,
Villanova University (Pre-refunded 8/1/01)
(MBIA insured) 6.850% 8/1/11 500 515/A/
Delaware County, GO (Pre-refunded 11/15/02) 6.000% 11/15/22 1,000 1,031/A/
Delaware County, GO Refunding 6.000% 11/15/22 220 221
Delaware River Port Authority (FGIC insured) 5.500% 1/1/26 1,000 964
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Erie County, Pennsylvania Sewer Authority, Sewer
Revenue Bonds Series 1997 (Pre-refunded 6/1/07)
(AMBAC insured) 5.625% 6/1/17 $2,000 $ 2,077/A/
Lehigh County, Pennsylvania, Power & Light
Company Project IDA PCR 1994, Series A
Refunding (MBIA insured) 5.500% 2/15/27 1,000 937
Lower Bucks County Joint Municipal Authority,
Bucks County, Pennsylvania, Water & Sewer
Revenue Bonds, Series of 1998 (FSA insured) 5.000% 11/15/17 1,000 921
Montgomery County, Upper Gwynedd-Towamencin
Guaranteed Sewer Revenue Series 1991-A
(MBIA insured) 6.750% 10/15/06 250 258
Montgomery County Higher Education and Health
Authority, Saint Joseph's University Revenue
Series 1992 Refunding (Connie Lee insured) 6.250% 12/15/04 500 526
Montgomery Township Municipal Sewer Authority,
Guaranteed Sewer Revenue Series 1991-A
(MBIA insured) 6.700% 5/15/21 250 251
Northampton County Higher Education Authority,
Lehigh University Revenue Series 1996-B 5.250% 11/15/21 2,500 2,332
Pennsylvania Convention Center Authority
Revenue Bonds, 1989 Series A (FGIC insured) 6.000% 9/1/19 1,000 1,045
Pennsylvania Economic Development Revenue IDA
Series 1991-A (Pre-refunded 7/1/01) 7.000% 1/1/11 1,000 1,050/A/
Series 1994-A Refunding (AMBAC insured) 5.500% 1/1/14 1,525 1,526
Pennsylvania Higher Education, University of
Pittsburgh Series 1997-A (FGIC insured) 5.125% 6/1/22 1,000 908
Pennsylvania Higher Education Assistance Agency,
Student Loan Revenue AMT Series 1991-C
(AMBAC insured) 7.150% 9/1/21 1,000 1,085
Pennsylvania Higher Educational Facilities
Authority, Bryn Mawr College Revenue Bonds
(MBIA insured) 5.625% 12/1/27 500 486
Pennsylvania Higher Educational Facilities
Authority, Temple University Revenue First Series
(Pre-refunded 4/1/01) (MBIA insured) 6.500% 4/1/21 250 260/A/
Pennsylvania Higher Educational Facilities Authority
(Commonwealth of Pennsylvania), The Trustees
of the University of Pennsylvania, Revenue Bonds
Series 1998 4.500% 7/15/16 1,750 1,509
Series 1998 4.625% 7/15/30 2,000 1,623
</TABLE>
13
<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> <C> <C> <C>
Pennsylvania Housing Finance Agency, Rental
Housing Series 1992-C (FNMA insured) 6.500% 7/1/23 $ 750 $ 757
Pennsylvania Housing Finance Agency, Rental
Housing Series 1993-C (FNMA insured) 5.800% 7/1/22 1,000 955
Pennsylvania Housing Finance Agency, Single
Family Mortgage Series 1991-32 Refunding 7.150% 4/1/15 435 447
Pennsylvania Housing Finance Agency, Single
Family Mortgage Series 1992-33 6.900% 4/1/17 250 256
Pennsylvania Intergovernmental Co-op Authority
(Pre-refunded 6/15/03) (MBIA insured) 5.600% 6/15/15 1,000 1,024/A/
Pennsylvania Intergovernmental Co-op Authority
(Pre-refunded 6/15/03) (MBIA insured) 5.600% 6/15/16 2,000 2,048/A/
Pennsylvania Intergovernmental Co-op Authority,
Special Tax Revenue Refunding (FGIC insured) 4.750% 6/15/23 1,550 1,317
Pennsylvania State University, Series A Refunding 5.100% 3/1/18 1,500 1,394
Pennsylvania Turnpike Commission, Oil Franchise
Tax Subordinated Revenue Bonds, Series B of 1998
(AMBAC insured) 4.750% 12/1/27 2,000 1,680
Pennsylvania Turnpike Commission,
Revenue Series N 5.500% 12/1/17 1,000 977
Philadelphia Gas Works Series B (MBIA insured) 7.000% 5/15/20 500 572
Philadelphia Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding
Children's Hospital Series 1993 A 5.000% 2/15/21 1,000 842
Philadelphia Municipal Authority, Justice Lease
Revenue Series 1991-B
Pre-refunded 11/15/01 (FGIC insured) 7.000% 11/15/04 500 528/A/
Pre-refunded 11/15/01 (FGIC insured) 7.100% 11/15/05 500 529/A/
Philadelphia Water and Wastewater Refunding,
Series 1998 (AMBAC insured) 5.250% 12/15/12 1,000 1,002
Philadelphia Water and Wastewater Revenue
(MBIA insured) 5.600% 8/1/18 2,000 1,982
Pittsburgh (City of), Pennsylvania, GO
(AMBAC insured) 5.250% 9/1/18 2,000 1,900
Port Authority of Allegheny County (Pennsylvania),
Special Revenue Transportation Bonds Series of
1999 (MBIA insured) 6.375% 3/1/14 1,000 1,078
Sayre, Pennsylvania Healthcare Revenue Volunteer
Hospital Authority, Guthrie Healthcare System
(AMBAC insured) 7.200% 12/1/20 500 527
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schuylkill County, Pennsylvania, Charity
Obligation Group IDA, Series A 5.000% 11/1/28 $ 500 $ 417
Somerset County General Authority, Commonwealth
Lease Revenue (Pre-refunded 10/15/01)
(FGIC insured) 7.000% 10/15/13 500 518/A/
Swarthmore Borough Authority, Swarthmore
College Refunding Revenue Series 1992
Pre-refunded 9/15/02 6.000% 9/15/12 180 189/A/
Pre-refunded 9/15/02 6.000% 9/15/20 370 388/A/
Unrefunded balance 6.000% 9/15/12 820 847
Unrefunded balance 6.000% 9/15/20 1,630 1,647
University of Pittsburgh 1997-B Refunding
(MBIA insured) 5.000% 6/1/21 1,000 896
University of Pittsburgh Series 1992-A (MBIA insured) 6.125% 6/1/21 350 355
University of Pittsburgh Series 1992-A
(Pre-refunded 6/1/02) (MBIA insured) 6.125% 6/1/21 650 680/A/
Upper St. Clair Township School District, Allegheny
County, Pennsylvania GO Bonds, Series of 1997 5.200% 7/15/27 1,150 1,047
Washington County Hospital Authority, Hospital
Refunding Revenue, Shadyside Hospital Project,
Series 1992 (Pre-refunded 12/15/02)
(AMBAC insured) 6.000% 12/15/18 1,000 1,049/A/
Westmoreland County GO (AMBAC insured) 0.000% 8/1/13 2,000 961/B/
Westmoreland County GO (AMBAC insured) 0.000% 8/1/14 2,475 1,115/B/
--------
Total Municipal Bonds (Identified Cost -- $65,099) 65,798
-----------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations/C/ -- 1.0%
Pennsylvania Higher Educational Facilities Authority,
Carnegie Mellon University Series 1995 D 3.950% 4/3/00 700 700
--------
Total Variable Rate Demand Obligations (Identified Cost -- $700) 700
-----------------------------------------------------------------------------------------------------------------
Total Investments -- 96.0% (Identified Cost -- $65,799) 66,498
Other Assets Less Liabilities -- 4.0% 2,763
--------
Net assets -- 100.0% $ 69,261
========
</TABLE>
15
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets consisting of:
Accumulated paid-in capital applicable to:
4,444 Primary Class shares outstanding $ 69,278
4 Navigator Class shares outstanding 72
Accumulated net realized gain/(loss) on investments (788)
Unrealized appreciation/(depreciation) of investments 699
--------
Net assets -- 100.0% $ 69,261
========
Net asset value and redemption price per share:/D/
Primary Class $15.57
======
Navigator Class $15.57
======
-----------------------------------------------------------------------------------------------------------------
</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 March 31, 2000, and the maturity shown is
the longer of the next interest readjustment date or the date the original
principal amount owed can be recovered through demand.
/D/ Sales charges have been waived since November 3, 1997. If the sales charges
were in effect, the maximum offering price per share would have been
$16.01.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
16
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
March 31, 2000
(Amounts in Thousands)
Tax-Free Intermediate-Term Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 95.0%
Alaska -- 1.1%
North Slope Borough GO, Capital Appreciation
Series 1998 A (MBIA insured) 0.000% 6/30/09 $1,000 $ 608/B/
--------
Arizona -- 4.5%
Arizona Transportation Board Subordinated
Highway Revenue, Series 1992 A 6.000% 7/1/00 500 502
Salt River Project Agricultural Improvement and
Power District, Electric System Refunding
Revenue, 1993 Series A 5.300% 1/1/03 1,000 1,015
Scottsdale Street and Highway User Revenue
Refunding, Series 1993 5.000% 7/1/02 1,000 1,008
--------
2,525
--------
Connecticut -- 1.9%
State of Connecticut Special Tax Obligation,
Transportation Infrastructure, 1990 Series A
(Pre-refunded 6/1/01) 7.100% 6/1/04 1,000 1,040/A/
--------
Florida -- 5.6%
Northwest Florida Water Management District,
Land Acquisition Revenue Refunding,
Series 1992 (FGIC insured) 5.500% 4/1/02 1,000 1,017
Seminole County, Florida Water & Sewer Revenue
Refunding (MBIA insured) 6.000% 10/1/12 1,000 1,078
State Board of Education Capital Outlay, Series
1996 A 5.600% 1/1/08 1,000 1,029
--------
3,124
--------
Georgia -- 3.1%
State of Georgia GO Bonds, Series 1997 C 6.250% 8/1/10 1,000 1,098
State of Georgia GO Bonds, Series 1997 C 2.250% 8/1/17 1,000 627
--------
1,725
--------
Illinois -- 4.0%
Illinois Regional Transportation Authority,
Refunding (MBIA insured) 5.400% 6/1/15 1,000 991
State of Illinois Sales Tax Revenue, Series O 5.900% 6/15/01 1,220 1,240
--------
2,231
--------
Kentucky -- 1.8%
Turnpike Authority of Kentucky, Economic
Development Road Revenue Refunding
(Revitalization Projects) Series 1993
(AMBAC insured) 5.300% 7/1/04 1,000 1,019
--------
</TABLE>
17
<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> <C> <C> <C>
Louisiana -- 5.6%
City of New Orleans Audubon Park Commission
Aquarium Refunding, Series 1993 (FGIC insured) 6.000% 10/1/08 $1,000 $ 1,044
City of New Orleans, Louisiana GO Refunding
Bonds, Series 1998 (FGIC insured) 5.500% 12/1/10 2,000 2,052
--------
3,096
--------
Maine -- 1.8%
Maine Municipal Bond Bank GO Refunding,
1993 Series A 5.200% 11/1/05 1,000 1,012
--------
Maryland -- 6.0%
Maryland Health and Higher Educational Facilities
Authority Refunding Revenue, Kennedy
Kreiger Issue 5.200% 7/1/09 400 369
Maryland Health and Higher Educational Facilities
Authority Refunding Revenue, Kennedy
Kreiger Issue 5.250% 7/1/10 400 365
Maryland Transportation Authority, Transportation
Facilities Projects Refunding Revenue, Series 1992 5.700% 7/1/05 1,000 1,038
Mayor and City Council of Baltimore GO
Consolidated Public Improvement Refunding,
1995 Series A (FGIC insured) 0.000% 10/15/06 750 532/B/
Northeast Maryland Waste Disposal Authority
Solid Waste Revenue (Montgomery County
Resource Recovery Project), Series 1983A, AMT 5.600% 7/1/02 1,000 1,011
--------
3,315
--------
Massachusetts -- 1.9%
Massachusetts State GO, Series A Refunding
(AMBAC insured) 5.750% 8/1/10 1,000 1,052
--------
Michigan -- 3.9%
Williamston Michigan Community School GO
(MBIA insured) 6.250% 5/1/09 2,000 2,165
--------
Nebraska -- 1.9%
Nebraska Public Power District 5.700% 1/1/04 1,000 1,027
--------
Nevada -- 0.9%
State of Nevada GO LT (Nevada Municipal Bond
Bank Refunding Project No. 4) Series 1989 B 6.700% 2/1/01 500 509
--------
New Hampshire -- 1.8%
New Hampshire Municipal Bond Bank GO
Refunding, 1991 Series H 5.700% 2/15/01 1,000 1,012
--------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey -- 3.7%
New Jersey Turnpike Authority, Turnpike Revenue,
Series 1991 C Refunding (AMBAC insured) 6.400% 1/1/07 $2,000 $ 2,058
--------
Pennsylvania -- 3.5%
City of Philadelphia, Pennsylvania Water and
Wastewater Revenue Bonds, Series 1993
(AMBAC insured) 5.625% 6/15/08 1,000 1,035
The Pennsylvania State University Bonds Series A 5.000% 8/15/16 1,000 929
--------
1,964
--------
Rhode Island -- 3.0%
Rhode Island Health and Educational Building
Corporation, Higher Education Facilities Revenue
Bonds, Brown University Issue, Series 1998 5.000% 9/1/16 1,805 1,680
--------
South Carolina -- 3.7%
Berkeley County Water and Sewer Revenue
Refunding and Improvement (MBIA insured) 6.500% 6/1/06 1,000 1,041
South Carolina Public Service Authority Revenue,
Series B Refunding 6.700% 7/1/02 1,000 1,041
--------
2,082
--------
Tennessee -- 1.8%
State of Tennessee GO, 1994 Series A Refunding 5.250% 3/1/02 1,000 1,011
--------
Texas -- 14.4%
City of Austin Combined Utility Systems Revenue
Refunding, Series 1992A (MBIA insured) 6.000% 11/15/04 1,000 1,044
City of Houston, GO Revenue Refunding, Series C 5.625% 4/1/10 1,000 1,020
City of Houston Water and Sewer System Junior
Lien Revenue Refunding, Series 1992 C
(MBIA insured) 5.400% 12/1/01 1,000 1,012
Irving, Texas Independent School District Refunding,
Series A (PSFG insured) 0.000% 2/15/17 1,190 448/B/
Manor, Texas Independent School District Refunding 5.000% 8/1/17 1,000 923
Tarrant County, Texas Health Facilities
Development, Series B (FGIC insured) 5.000% 9/1/15 395 374
Tarrant County, Texas Health Facilities
Development, Series A (FGIC insured) 5.000% 9/1/15 250 237
</TABLE>
19
<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> <C> <C> <C>
Texas -- (continued)
Texas Public Finance Authority, GO Refunding,
Series B 5.125% 10/1/15 $1,000 $ 955
Texas Public Finance Authority, GO Refunding
(Superconducting Super Collider Project),
Series 1992 C (FGIC insured) 0.000% 4/1/02 1,000 907/B/
United Independent School District (Webb County,
Texas) Unlimited Tax School Building Bonds,
Series 1995 (PSFG insured) 7.100% 8/15/06 1,000 1,110
--------
8,030
--------
Virginia -- 13.0%
Commonwealth of Virginia Transportation Board,
Transportation Contract Revenue Refunding,
Series 1992 (Route 28 Project) 6.000% 4/1/06 1,000 1,037
Fairfax County Public Improvement,
Series 1992 C Refunding 5.500% 10/1/03 2,000 2,022
Henrico County GO Public Improvement
Refunding, Series 1993 5.250% 1/15/09 1,100 1,111
Metro Washington DC Airport Authority Revenue
Refunding, Series A (FGIC insured) AMT 5.250% 10/1/12 1,000 982
Virginia Resources Authority Clean Water State
Revolving Fund Revenue Bonds, Series 1999 5.750% 10/1/13 1,000 1,042
Virginia State Public Building Authority,
Revenue Refunding Series 1992 B 5.625% 8/1/02 1,000 1,021
--------
7,215
--------
Washington -- 6.1%
King County, Washington Sewer Revenue
Second Series (FGIC insured) 6.000% 1/1/10 1,115 1,188
State of Washington, Various Purpose GO
Bonds, Series 2000B 6.000% 1/1/11 1,000 1,063
Washington State Motor Vehicle Fuel Tax
Revenue, Series D 6.500% 1/1/07 1,045 1,129
--------
3,380
--------
Total Municipal Bonds (Identified Cost -- $52,521) 52,880
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable Rate Demand Obligations/C/ -- 3.8%
District of Columbia Multimodal Revenue Bonds
Medlantic/Helix Issue, Series 1998A 5.100% 4/3/00 $ 400 $ 400
Emery County PCR Refunding Bonds (PacifiCorp
Project) Series 1994 4.000% 4/3/00 500 500
Texas State Water Development Authority, Series A 4.000% 4/3/00 1,200 1,200
-------
Total Variable Rate Demand Obligations (Identified Cost -- $2,100) 2,100
----------------------------------------------------------------------------------------------------------------------------
Total Investments -- 98.8% (Identified Cost -- $54,621) 54,980
Other Assets Less Liabilities -- 1.2% 661
-------
Net assets consisting of:
Accumulated paid-in capital applicable to
3,688 shares outstanding $55,877
Accumulated net realized gain/(loss) on investments (595)
Unrealized appreciation/(depreciation) of investments 359
-------
Net assets -- 100.0% $55,641
=======
Net asset value and redemption price per share:/D/ $15.09
======
----------------------------------------------------------------------------------------------------------------------------
</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 March 31, 2000, and the maturity shown is
the longer of the next interest readjustment date or the date the original
principal amount owed can be recovered through demand.
/D/ Sales charges have been waived since November 3, 1997. If the sales charges
were in effect, the maximum offering price at March 31, 2000, would have
been $15.40.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
21
<PAGE>
Sector Diversification
Legg Mason Tax-Free Income Fund
March 31, 2000 (Unaudited)
(Amounts in Thousands)
<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> <C> <C> <C> <C> <C>
Education Revenue 11.4 $ 16,164 19.5 $13,496 4.7 $ 2,610
Escrowed 2.0 2,793 8.0 5,524 1.1 610
General Obligation--Local 15.2 21,619 7.2 5,019 19.6 10,922
General Obligation--School -- -- 4.3 2,951 8.4 4,646
General Obligation--State 1.8 2,560 1.5 1,038 16.0 8,871
Health Care and Hospital Revenue 9.5 13,492 5.9 4,060 1.3 734
Housing Revenue 6.7 9,504 3.5 2,416 -- --
Lease Revenue -- -- -- -- 1.8 1,021
Other -- -- 1.9 1,318 2.2 1,240
Parking Revenue 1.5 2,093 -- -- -- --
Port Facilities Revenue 4.5 6,328 -- -- -- --
Pre-Refunded Bonds 16.6 23,634 22.0 15,252 1.9 1,040
Small Business Administration
Revenue -- -- 2.2 1,526 -- --
Solid Waste Revenue -- -- -- -- 1.8 1,011
Student Loan Revenue 3.5 5,039 1.5 1,085 -- --
Transportation Revenue 3.7 5,296 8.3 5,722 15.5 8,634
Utility 6.2 8,737 2.8 1,979 7.4 4,127
Water and Sewer Revenue 14.3 20,301 6.4 4,412 13.3 7,414
Short-Term Investments 1.1 1,600 1.0 700 3.8 2,100
Other Assets Less Liabilities 2.0 2,793 4.0 2,763 1.2 661
----- -------- ----- ------- ----- -------
100.0 $141,953 100.0 $69,261 100.0 $55,641
===== ======== ===== ======= ===== =======
</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
FNMA Fannie Mae
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
22
<PAGE>
Statements of Operations
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended 3/31/00
--------------------------------------------------
Maryland Pennsylvania Tax-Free
Tax-Free Tax-Free Intermediate-Term
Income Trust Income Trust Income Trust
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest $ 8,733 $ 4,157 $ 3,100
------- ------- -------
Expenses:
Investment advisory fee 852 402 334
Distribution and service fees 387 182 152
Transfer agent and shareholder servicing expense 47 23 16
Audit and legal fees 52 30 33
Custodian fee 96 87 64
Registration fees 9 3 9
Reports to shareholders 24 9 5
Trustees' fees 6 6 6
Other expenses 9 5 2
------- ------- -------
1,482 747 621
Less: Fees waived (397) (264) (194)
Compensating balance credits (1) (1) (2)
------- ------- -------
Total expenses, net of waivers and compensating
balance credits 1,084 482 425
------- ------- -------
Net Investment Income 7,649 3,675 2,675
------- ------- -------
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on investments (938) (788) (554)
Change in unrealized appreciation/(depreciation) of investments (8,593) (3,707) (1,924)
------- ------- -------
Net Realized and Unrealized Gain/(Loss) on Investments (9,531) (4,495) (2,478)
------------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $(1,882) $ (820) $ 197
------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
23
<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
------------------- ------------------- --------------------
Years Ended Years Ended Years Ended
3/31/00 3/31/99 3/31/00 3/31/99 3/31/00 3/31/99
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in Net Assets:
Net investment income $ 7,649 $ 7,598 $ 3,675 $ 3,426 $ 2,675 $ 2,573
Net realized gain/(loss) on investments (938) 779 (788) 171 (554) 52
Change in unrealized appreciation/
(depreciation) of investments (8,593) (218) (3,707) 198 (1,924) 253
-------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (1,882) 8,159 (820) 3,795 197 2,878
Distributions to shareholders:
From net investment income:
Primary Class (7,649) (7,598) (3,670) (3,413) (2,675) (2,573)
Navigator Class NA NA (5) (13) NA NA
From net realized gain on investments:
Primary Class (587) (519) (79) (189) -- (23)
Navigator Class NA NA N.M. (1) NA NA
Change in net assets from Fund share
transactions:
Primary Class (14,387) 11,948 (1,331) 6,867 (5,383) 3,965
Navigator Class NA NA (204) 186 NA NA
-------------------------------------------------------------------------------------------------------------------------
Change in net assets (24,505) 11,990 (6,109) 7,232 (7,861) 4,247
Net Assets:
Beginning of year 166,458 154,468 75,370 68,138 63,502 59,255
-------------------------------------------------------------------------------------------------------------------------
End of year $141,953 $166,458 $ 69,261 $75,370 $55,641 $63,502
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
NA - Not applicable.
N.M. - Not meaningful.
See notes to financial statements.
24
<PAGE>
Financial Highlights
Legg Mason Tax-Free Income Fund
Contained below is per share operating performance data for a Primary Class
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 Operations Distributions
--------------------------------------- ---------------------------------------
From
Net Asset Net Realized Total From Net Net Asset
Value, Net and Unrealized From Net Realized Value,
Beginning Investment Gain/(Loss) on Investment Investment Gain on Total End of
of Year Income Investments Operations Income Investments Distributions Year
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maryland Tax-Free Income Trust
Years Ended Mar. 31,
2000 $16.39 $.77/D/ $(.91) $(.14) $(.77) $(.06) $(.83) $15.42
1999 16.39 .78/D/ .05 .83 (.78) (.05) (.83) 16.39
1998 15.91 .81/D/ .59 1.40 (.81) (.11) (.92) 16.39
1997 16.07 .83/D/ (.09) .74 (.83) (.07) (.90) 15.91
1996 15.87 .86/D/ .25 1.11 (.86) (.05) (.91) 16.07
Pennsylvania Tax-Free Income Trust
Years Ended Mar. 31,
2000 $16.53 $.79/E/ $(.94) $(.15) $(.79) $(.02) $(.81) $15.57
1999 16.48 .80/E/ .10 .90 (.80) (.05) (.85) 16.53
1998 15.80 .81/E/ .71 1.52 (.81) (.03) (.84) 16.48
1997 16.10 .83/E/ (.11) .72 (.83) (.19) (1.02) 15.80
1996 16.02 .89/E/ .15 1.04 (.89) (.07) (.96) 16.10
Tax-Free Intermediate-Term Income Trust
Years Ended Mar. 31,
2000 $15.68 $.67/F/ $(.59) $ .08 $(.67) $ -- $(.67) $15.09
1999 15.61 .67/F/ .08 .75 (.67) (.01) (.68) 15.68
1998 15.22 .67/F/ .39 1.06 (.67) -- (.67) 15.61
1997 15.34 .68/F/ (.12) .56 (.68) -- (.68) 15.22
1996 15.06 .68/F/ .28 .96 (.68) -- (.68) 15.34
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------------
Net
Total Net Investment Net Assets,
Expenses Expenses Income Portfolio End of
Total to Average to Average to Average Turnover Year
Return/A/ Net Assets/B/ Net Assets/C/ Net Assets Rate (in thousands)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maryland Tax-Free Income Trust
Years Ended Mar. 31,
2000 (.79)% .70%/D/ .70%/D/ 4.94%/D/ 23.0% $141,953
1999 5.16% .70%/D/ .70%/D/ 4.71%/D/ 12.9% 166,458
1998 8.97% .70%/D/ .70%/D/ 4.97%/D/ 18.9% 154,468
1997 4.73% .67%/D/ .66%/D/ 5.18%/D/ 6.0% 145,974
1996 7.11% .59%/D/ .58%/D/ 5.29%/D/ 14.1% 146,645
Pennsylvania Tax-Free Income Trust
Years Ended Mar. 31,
2000 (.84)% .66%/E/ .66%/E/ 5.03%/E/ 28.6% $ 69,195
1999 5.54% .70%/E/ .70%/E/ 4.82%/E/ 10.6% 75,093
1998 9.80% .71%/E/ .70%/E/ 5.00%/E/ 14.1% 68,048
1997 4.61% .67%/E/ .66%/E/ 5.20%/E/ 13.6% 64,875
1996 6.52% .54%/E/ .53%/E/ 5.42%/E/ 17.2% 65,275
Tax-Free Intermediate-Term Income Trust
Years Ended Mar. 31,
2000 .58% .70%/F/ .70%/F/ 4.40%/F/ 35.6% $ 55,641
1999 4.82% .70%/F/ .70%/F/ 4.24%/F/ 17.9% 63,502
1998 7.12% .71%/F/ .70%/F/ 4.34%/F/ 9.0% 59,255
1997 3.71% .67%/F/ .66%/F/ 4.43%/F/ 8.9% 54,736
1996 6.47% .57%/F/ .56%/F/ 4.41%/F/ -- 60,042
----------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Excluding sales charge. Sales charges have been waived since November 3,
1997.
/B/ This ratio reflects total expenses before compensating balance credits,
but net of the voluntary expense waivers described below.
/C/ This ratio reflects expenses net of compensating balance credits and
voluntary expense waivers described below.
/D/ Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.55% until July 31, 1995; 0.60% until March 31,
1996; 0.65% until December 31, 1996; and 0.70% through July 31, 2000. If
no fees had been waived by the Adviser, the annualized ratio of expenses
to average daily net assets for each year ended March 31 would have been
as follows: 2000, .96%; 1999, 0.94%; 1998, 0.93%; 1997, 0.96%; and 1996,
0.95%.
/E/ Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.50% until July 31, 1995; 0.55% until March 31,
1996; 0.65% until December 31, 1996; and 0.70% through July 31, 2000. If
no fees had been waived by the Adviser, the annualized ratio of expenses
to average daily net assets for each year ended March 31 would have been
as follows: 2000, 1.02%; 1999,1.00%; 1998, 1.00%; 1997, 1.04%; and 1996,
1.02%.
/F/ Net of fees waived by the Adviser in excess of voluntary expense
limitations as follows: 0.35% until July 31, 1995; 0.65% until December
31, 1996; and 0.70% through July 31, 2000. If no fees had been waived by
the Adviser, the annualized ratio of expenses to average daily net assets
for each year ended March 31 would have been as follows: 2000, 1.02%;
1999, 1.03%; 1998, 1.06%; 1997, 1.11%; and 1996, 1.10%.
See notes to financial statements.
25
<PAGE>
Notes to Financial Statements
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
-----------------------------------------------------------------------------
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 a "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.
Each Fund consists of two classes of shares: Primary Class, offered since
May 1, 1991, for Maryland Tax-Free; since August 1, 1991, for Pennsylvania
Tax-Free; and since November 9, 1992, for Tax-Free Intermediate; and
Navigator Class, offered to certain institutional investors since March 10,
1998, for Pennsylvania Tax-Free. The Navigator Classes of Maryland Tax-Free
and Tax-Free Intermediate have not commenced operations. Information about
the Navigator Class is contained in a separate report to its shareholders.The
income and expenses of a Fund are allocated proportionately to the two
classes of shares except for Rule 12b-1 distribution fees, which are charged
only on Primary Class shares, and transfer agent and shareholder servicing
expenses, which are determined separately for each class.
Security Valuation
Portfolio securities are valued based upon market quotations obtained from
an independent pricing service. 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 on, 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 for financial reporting and federal income tax purposes.
Dividend income and distributions to shareholders are allocated at the class
level and are recorded on the ex-dividend date. Dividends from net investment
income will be declared daily and paid monthly. When available, net capital
gain distributions, which are calculated at the Fund level, are declared and
paid after the end of the tax year in which the gain is realized.
Distributions are determined in accordance with federal income tax
regulations, which may differ from those determined in accordance with
generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Funds' capital accounts to reflect
income and gains available for distribution under federal income tax
regulations. At March 31, 2000, accrued dividends payable were as follows:
Maryland Tax-Free, $308; Pennsylvania Tax-Free, $151; and Tax-Free
Intermediate, $107.
26
<PAGE>
-----------------------------------------------------------------------------
Security 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. At March 31,
2000, receivables for securities sold and payables for securities purchased
for each Fund were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
-----------------------------------------------------------------
Maryland Tax-Free $1,037 $ --
Pennsylvania Tax-Free 2,015 --
Tax-Free Intermediate -- --
Federal Income Taxes
No provision for federal income or excise taxes is required since each
Fund intends to continue to qualify as a regulated investment company and
distribute substantially all of its taxable income to its shareholders. At
March 31, 2000, Maryland Tax-Free, Pennsylvania Tax-Free, and Tax-Free
Intermediate had capital loss carryforwards for federal income tax purposes
of $600, $354, and $312, respectively, expiring in 2008.
Use of Estimates
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.
Other
Compensating balance credits reflect credits earned on daily, uninvested
cash balances at the custodian, and are used to reduce each Fund's expenses.
2. Investment Transactions:
For the year ended March 31, 2000, investment transactions (excluding
short-term investments) were as follows:
Purchases Proceeds From Sales
----------------------------------------------------------
Maryland Tax-Free $34,189 $46,555
Pennsylvania Tax-Free 19,652 20,520
Tax-Free Intermediate 20,673 25,666
At March 31, 2000, cost, gross unrealized appreciation and gross
unrealized depreciation based on the cost of securities for federal income
tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Net Appreciation/
Cost Appreciation Depreciation (Depreciation)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland Tax-Free $137,752 $4,394 $(2,986) $1,408
Pennsylvania Tax-Free 65,799 1,794 (1,095) 699
Tax-Free Intermediate 54,621 684 (325) 359
</TABLE>
27
<PAGE>
Notes to Financial Statements--Continued
-----------------------------------------------------------------------------
3. Transactions With Affiliates:
Each Fund has an investment advisory and management agreement with Legg
Mason Capital Management, Inc. ("Adviser"). Pursuant to their respective
agreements, the Adviser provides the Funds with investment advisory and
management 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 in any month to the extent a
Fund's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during that month certain annual rates. The following chart
shows the annual rate of management fees, expense limits and their expiration
dates, total management fees waived, and management fees payable for each
Fund:
<TABLE>
<CAPTION>
Year Ended
March 31, 2000 At March 31, 2000
-------------- -----------------
Advisory Advisory
Advisory Expense Expense Limitation Fees Fees
Fund Fee Limitation Expiration Date Waived Payable
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maryland Tax-Free 0.55% 0.70% July 31, 2000, or until $397 $15
net assets reach
$200 million
Pennsylvania Tax-Free 0.55% 0.70% July 31, 2000, or until 264 3
net assets reach
$125 million
Tax-Free Intermediate 0.55% 0.70% July 31, 2000, or until 194 8
net assets reach
$100 million
</TABLE>
Legg Mason Fund Adviser, Inc. ("LMFA") serves as administrator to each
Fund pursuant to an administration agreement with the Adviser. The Adviser
pays LMFA a fee, computed daily and payable monthly, at an annual rate of
0.05% of each Fund's average daily net assets.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New
York Stock Exchange, serves as distributor of the Funds. Legg Mason receives
an annual distribution fee and an annual service fee, based on each Fund's
Primary Class's average daily net assets, computed daily and payable monthly
as follows:
<TABLE>
<CAPTION>
At March 31, 2000
------------------------
Distribution Service Distribution and Service
Fund Fee Fee Fees Payable
------------------------------------------------------------------------------
<S> <C> <C> <C>
Maryland Tax-Free 0.125% 0.125% $30
Pennsylvania Tax-Free 0.125% 0.125% 15
Tax-Free Intermediate 0.125% 0.125% 12
</TABLE>
Legg Mason also has an agreement with the Funds' transfer agent to assist
it with some of its duties. For this assistance, the transfer agent paid Legg
Mason the following amounts for the year ended March 31, 2000: Maryland Tax-
Free, $17; Pennsylvania Tax-Free, $8; and Tax-Free Intermediate, $6.
28
<PAGE>
-----------------------------------------------------------------------------
The Adviser, LMFA and Legg Mason are corporate affiliates and wholly owned
subsidiaries of Legg Mason, Inc.
4. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in a
$200 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 Credit Agreement bear
interest at prevailing short-term interest rates. For the year ended March
31, 2000, the Funds had no borrowings under the Credit Agreement.
5. Fund Share Transactions:
At March 31, 2000, 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> <C> <C> <C> <C> <C> <C> <C>
Maryland Tax-Free
-- Primary Class
Year Ended March 31, 2000 1,161 $18,376 398 $6,220 (2,507) $(38,983) (948) $(14,387)
Year Ended March 31, 1999 1,898 31,226 367 6,039 (1,538) (25,317) 727 11,948
Pennsylvania Tax-Free
-- Primary Class
Year Ended March 31, 2000 758 $12,022 174 $2,731 (1,030) $(16,084) (98) $ (1,331)
Year Ended March 31, 1999 938 15,546 157 2,609 (681) (11,288) 414 6,867
-- Navigator Class
Year Ended March 31, 2000 -- $ -- -- $ -- (13) $ (204) (13) $ (204)
Year Ended March 31, 1999 23 373 -- 4 (11) (191) 12 186
Tax-Free Intermediate
-- Primary Class
Year Ended March 31, 2000 790 $12,095 131 $1,996 (1,282) $(19,474) (361) $ (5,383)
Year Ended March 31, 1999 1,067 16,756 123 1,931 (937) (14,722) 253 3,965
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Report of Independent Accountants
To the Board of Trustees of Legg Mason Tax-Free Income Fund and the Shareholders
of Maryland Tax-Free Income Trust, Pennsylvania Tax-Free Income Trust, and
Tax-Free Intermediate-Term Income Trust:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Maryland Tax-Free Income Trust, Pennsylvania Tax-Free Income Trust and Tax-Free
Intermediate-Term Income Trust (comprising Legg Mason Tax-Free Income Fund,
hereafter referred to as the "Funds") at March 31, 2000, and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at March 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
May 5, 2000
30
<PAGE>
[LEGG MASON FUNDS LOGO]
The Art of Investing/SM/
Legg Mason offers a wide range of mutual funds to meet investors' varying
financial needs and investment goals. The funds are listed below:
- -------------------------------------------------------------------------------
Equity Funds: Specialty Funds:
- -------------------------------------------------------------------------------
Value Trust, Inc. Market Neutral Trust
Special Investment Trust, Inc. Balanced Trust
Total Return Trust, Inc. Financial Services Fund
American Leading Companies Opportunity Trust
Trust
Classic Valuation Fund
Focus Trust, Inc.
U.S. Small-Capitalization
Value Trust
- -------------------------------------------------------------------------------
Global Funds: Taxable Bond Funds:
- -------------------------------------------------------------------------------
Global Income Trust U.S. Government Intermediate-Term
Europe Fund Portfolio
International Equity Trust Investment Grade Income Portfolio
Emerging Markets Trust High Yield Portfolio
- -------------------------------------------------------------------------------
Tax-Free Bond Funds: Money Market Funds:
- -------------------------------------------------------------------------------
Tax-Free Intermediate-Term U.S. Government Money Market
Income Trust Portfolio
Maryland Tax-Free Income Trust Cash Reserve Trust
Pennsylvania Tax-Free Income Trust Tax Exempt Trust, Inc.
For information on the specific risks, charges, and expenses associated with any
Legg Mason fund, please consult a Legg Mason Financial Advisor for a prospectus.
Read it carefully before investing or sending money.
<PAGE>
Investment Manager
Legg Mason Fund Advisor, Inc.
Baltimore, MD
Investment Adviser
Legg Mason Capital Management, Inc.
Baltimore, MD
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
Nelson A. Diaz
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
G. Peter O'Brien
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
PricewaterhouseCoopers LLP
Baltimore, MD
This report is not to be distributed unless preceded or
accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
-------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
[LOGO]
Printed on Recycled Paper
LMF-030
5/00
