UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
| | |
Investment Company Act file number: | | 811-06223 |
Legg Mason Tax-Free Income Fund
|
| 100 Light Street, Baltimore, MD 21202 |
| Address of Principal Executive Offices: |
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford CT 06902
|
| Name and address of agent for service: |
Registrant’s telephone number, including area code: (410) 539-0000
Date of fiscal year end: March 31
Date of reporting period: March 31, 2009
| Item 1. | Report to Shareholders |
Legg Mason
Maryland Tax-Free Income Trust
Investment Commentary and Annual Report to Shareholders March 31, 2009
Legg Mason Maryland Tax-Free Income Trust
Total returns for the Fund for various periods ended March 31, 2009 are presented below, along with those of comparative indices:
| | | | | | | | | | |
| | | Six
Months | | One
Year | | Average Annual Total Returns |
| | | | | Five
Years | | Ten
Years | | Since
Inception |
Without Sales Charges | | | | | | |
Class A* | | +4.26% | | +2.46% | | +2.86% | | +4.03% | | +5.38% |
Class C | | N/A | | N/A | | N/A | | N/A | | +0.53% |
Institutional Class | | +4.32% | | N/A | | N/A | | N/A | | +1.58% |
Barclays Capital Municipal Bond IndexA | | +5.00% | | +2.27% | | +3.21% | | +4.60% | | +5.97% |
Lipper Maryland Municipal Debt Funds Category AverageB | | +0.54% | | –2.82% | | +1.69% | | +3.23% | | +5.05% |
| | | |
With Sales Charges | | | | | | |
Class A* | | –0.19% | | –1.92% | | +1.98% | | +3.58% | | +5.13% |
Class C | | N/A | | N/A | | N/A | | N/A | | –0.47% |
Institutional Class | | +4.32% | | N/A | | N/A | | N/A | | +1.58% |
The performance data quoted represent past performance and do not guarantee future results. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume the reinvestment of dividends and capital gain distributions. Performance would have been lower if fees and expenses had not been waived and/or reimbursed in various periods. Performance figures for periods shorter than one year represent cumulative figures and are not annualized. Please note that the C and Institutional Classes have been in existence for less than one year. Results for longer periods may differ, in some cases, substantially.
For performance data including the effects of sales charges, Class A shares reflect the deduction of a maximum initial sales charge of 4.25%, and Class C shares reflect the deduction of a contingent deferred sales charge of 1.00%, which applies if shares are redeemed within one year of purchase.
The inception dates of the A, C and Institutional Classes are May 1, 1991, February 5, 2009 and July 30, 2008, respectively. The Index return is for the period beginning April 30, 1991. The Lipper return is for the period beginning April 30, 1991. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The gross expense ratios for the A, C and Institutional Classes were 0.86%, 1.41% and 0.71%, respectively, as indicated in the Fund’s most current prospectus dated February 1, 2009. These expenses include management
The Investment Commentary is not a part of the Annual Report to Shareholders.
| | |
Investment Commentary | | iii |
fees, 12b-1 distribution and service fees and other expenses. As a result of expense limitations, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 0.70% for Class A shares, 1.25% for Class C shares and 0.45% for the Institutional Class. These voluntary waivers are expected to continue until August 1, 2009, but may be terminated at any time.
* Prior to February 1, 2009, Class A was known as the Primary Class. In addition, on February 1, 2009, the class lowered its 12b-1 fee and began to charge an initial sales charge on sales made on and after that date.
Fixed-income investors continued to face a difficult environment. Each sector of the market had unique challenges to navigate, and government intervention created an uncertainty that is hard to model and renders past market history somewhat irrelevant. Over the past year, historic and untested strategies were utilized to fight the credit crunch and combat the global economic meltdown. Most notably, the Federal Reserve Board (“Fed”)C lowered the federal funds rateD to a record low range of zero to 0.25%. In addition, the Federal Open Market Committee (“FOMC”)E finally embarked on an unconventional “credit easing” campaign that involves buying fixed-income securities such as Treasuries and mortgage-backed bonds in the secondary market to manipulate interest rates lower. Meanwhile, the U.S. Department of the Treasury rolled out the framework of a much-anticipated investment plan that will attempt to remove “toxic assets” from bank balance sheets which are perceived to be hindering loan creation. An additional program was finally launched to revive the securitization market, which facilitates lending to consumer sectors such as automobiles, among others. On the fiscal front, the American Recovery and Reinvestment Act created a $787 billion stimulus package that includes targeted tax relief, infrastructure spending and aid to distressed state and local governments.
The stimulus funds provided a needed boost to the municipal market. Facing an estimated $200 billion deficit over the next two fiscal years, states were preparing draconian cuts in order to balance their budgets, as most are required to do by constitution or statute. The damage to the economy would have been devastating and somewhat unquantifiable. Economic activity generated by local governments accounts for approximately 15% of U.S. gross domestic product (“GDP”)F, and municipalities and their agencies are major employers within their respective jurisdictions. In addition, most local infrastructure (roads, water and sewer, etc.) is funded and constructed on the local government level, as is a large portion of social programs such as Medicaid. Given the municipal bond market is the only meaningful avenue for local governments to raise capital for projects, continued dysfunction and lack of market access would negatively impact the life of every American, and make it difficult for an economic recovery to take hold. Due to the importance of stabilizing local government finances, we believed it was likely that aid to the states would be a consequential part of the stimulus package. While the form of aid was as we expected (primarily heavy infrastructure spending and an increase in the federal share of Medicaid costs), the size of the plan far exceeded our projections. In fact, approximately $227 billion of the entire $787 billion package will eventually be filtered through municipalities in various
The Investment Commentary is not a part of the Annual Report to Shareholders.
forms. While still not a panacea for cash-strapped states with large structural deficits like New York and California, we believe it will buy time for the economy to recuperate and allow economically-sensitive sales and income tax receipts to recover.
R. Scott Pierce, CFA
April 15, 2009
Investment risks: All investments involve risk, including the loss of principal. Bonds are subject to a variety of risks including interest rate, credit and inflation risk. As interest rates rise, bond prices fall, reducing the value of a fixed-income investment.
As a “non-diversified” fund, an investment in the Fund will entail greater price risk than an investment in a diversified fund because a higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund’s portfolio. Please see the Fund’s prospectus for more information on these and other risks.
The views expressed in this commentary reflect those solely of the portfolio manager as of the date of this commentary and may differ from those of Legg Mason, Inc. as a whole or the other portfolio managers of its affiliates. Any such views are subject to change at any time based on market or other conditions, and the portfolio manager, Legg Mason Maryland Tax-Free Income Trust and Legg Mason Investor Services, LLC disclaim any responsibility to update such views. These views are not intended to be a forecast of future events, a guarantee of future results or investment advice. Because investment decisions for the Legg Mason Funds are based on numerous factors, these views may not be relied upon as an indication of trading intent on behalf of any Legg Mason Fund. The information contained herein has been prepared from sources believed to be reliable, but is not guaranteed by the portfolio manager, Legg Mason Maryland Tax-Free Income Trust or Legg Mason Investor Services, LLC as to its accuracy or completeness. Please note that an investor cannot invest directly in an index.
A | The Barclays Capital (formerly Lehman Brothers) Municipal Bond Index is a market value weighted index of investment grade municipal bonds with maturities of one year or more. |
B | Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. The Lipper Maryland Municipal Debt Funds Category Average is comprised of the Fund’s peer group of mutual funds. |
C | The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. |
D | The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. |
E | The Federal Open Market Committee (“FOMC”) is a policy-making body of the Federal Reserve System responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. |
F | Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time. |
N/A — Not applicable.
The Investment Commentary is not a part of the Annual Report to Shareholders.
Annual Report to Shareholders
Legg Mason
Maryland Tax-Free Income Trust
March 31, 2009
| | |
Annual Report to Shareholders | | 1 |
To Our Shareholders,
We are pleased to provide you with Legg Mason Maryland Tax-Free Income Trust’s annual report for the year ended March 31, 2009.
The following table summarizes key statistics for the Fund for periods ended March 31, 2009:
| | | | | | | |
| | | Total Returns (excluding
sales charges) | | Net Asset Value
Per Share |
| | Six Months | | Twelve Months | |
Class A* | | +4.26% | | +2.46% | | $ | 15.58 |
Institutional Class | | +4.32% | | N/A | | $ | 15.58 |
The performance data quoted represent past performance and do not guarantee future results. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors. The investment return, yield and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume the reinvestment of dividends and capital gain distributions. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sale charges were reflected, the performance would be lower. Performance would have been lower if fees and expenses had not been waived and/or reimbursed in various periods. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Performance information for the twelve-month period is not provided for the Institutional Class as this share class commenced operations on July 30, 2008.
Performance of Class C shares is not shown because this share class commenced operations on February 5, 2009.
The 30-Day SEC Yields for the period ended March 31, 2009 for the A, C and Institutional Classes were 3.91%, 3.37% and 4.14%, respectively. Current expense reimbursements and/or fee waivers are voluntary and may be reduced or terminated at any time. Absent current expense reimbursements and/or fee waivers, the 30-Day SEC Yields for the A, C and Institutional Classes would have been 3.08%, 2.39% and 1.60%, respectively. The 30-Day SEC Yield is the average annualized net investment income per share for the 30-day period indicated and is subject to change.
* Prior to February 1, 2009, Class A was known as the Primary Class. In addition, on February 1, 2009, the class lowered its 12b-1 fee and began to charge an initial sales charge on sales made on and after that date.
Further information about the Fund’s performance is shown in the Performance Information section within this report.
| | |
2 | | Annual Report to Shareholders |
PricewaterhouseCoopers LLP, the Fund’s independent registered public accounting firm, has completed its annual examination of the Fund, and audited financial statements for the fiscal year ended March 31, 2009 are included in this report.
The Fund may purchase only securities which have received investment grade ratings from Moody’s Investors Service or Standard & Poor’s or which are judged by the investment adviser to be of comparable quality. Moody’s ratings for the portfolio as of March 31, 2009 are:
| | |
| | | Maryland Tax-Free Income Trust |
Aaa | | 35.7% |
Aa | | 24.9% |
A | | 23.9% |
Baa | | 12.6% |
Cash | | 2.9% |
Many Class A and Class C shareholders invest regularly in Fund shares on a dollar cost averaging basis. Most do so by authorizing automatic, monthly transfers of $50 or more from their bank checking or brokerage accounts. Dollar cost averaging is a convenient and sensible way to invest, as it encourages continued purchases over time regardless of fluctuating price levels. Of course, it does not ensure a profit nor protect against declines in the value of your investment. Your financial advisor will be happy to help you establish a dollar cost averaging account should you wish to do so.
This is my first letter to you as Chairman of the Fund. In November, the Fund’s Board of Directors elected David Odenath as President and me as Chairman of the Board of Directors of the Fund. At that meeting, Jack Curley, who served as Chairman of all the Legg Mason Funds, retired after many years of exemplary service. Jack embodied the finest qualities of a good chairman; he was ethical, hard-working and perceptive. He had a deep understanding of mutual fund issues and always acted in the shareholders’ best interests. I have big shoes to fill and I will work hard to do so. We wish Jack all the best and thank him for his many years of service.
| | |
Sincerely, 
| | 
|
Mark R. Fetting Chairman | | David Odenath President |
May 19, 2009
| | |
Annual Report to Shareholders | | 3 |
Management’s Discussion of Fund Performance
Legg Mason Maryland Tax-Free Income Trust
Total returns, excluding sales charges, for the Fund for periods ended March 31, 2009 are presented below, along with those of comparative indices:
| | | | | | |
| | | Six
Months | | | Twelve
Months | |
Class A* | | +4.26 | % | | +2.46 | % |
Institutional Class | | +4.32 | % | | N/A | |
Barclays Capital Municipal Bond IndexA | | +5.00 | % | | +2.27 | % |
Lipper Maryland Municipal Debt Funds Category AverageB | | +0.54 | % | | –2.82 | % |
The performance data quoted represent past performance and do not guarantee future results. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume the reinvestment of dividends and capital gain distributions. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sales charges were reflected, the performance data quoted would be lower. Performance would have been lower if fees and expenses had not been waived and/or reimbursed in various periods. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Performance information for the twelve-month period is not provided for the Institutional Class as this share class commenced operations on July 30, 2008.
Performance of Class C shares is not shown because this share class commenced operations on February 5, 2009.
* Prior to February 1, 2009, Class A was known as the Primary Class. In addition, on February 1, 2009, the class lowered its 12b-1 fee and began to charge an initial sales charge on sales made on and after that date.
As concerns about the overall credit quality of the tax-free market abated in February 2009, municipals staged a strong rally, with yields approximately 150 basis pointsC (“bps”) lower than what we saw during the tumultuous fourth quarter of 2008. With municipalities regaining access to the market at more favorable terms toward the end of the reporting period, issuance picked up nationally, which halted the advance in prices somewhat. We became more cautious in our approach as a result, primarily because rates were lower, but also because we were a relatively aggressive buyer during the attractive interest rate environment that prevailed in the fourth quarter of 2008. At that time, heavy government intervention had succeeded in bringing down interest rates on taxable fixed-income securities, while support for the municipal bond market remained unclear. The lack of clarity combined with forced selling by insurance companies, hedge funds, and certain mutual funds to create the highest relative yields versus
| | |
4 | | Annual Report to Shareholders |
Management’s Discussion of Fund Performance — Continued
Legg Mason Maryland Tax-Free Income Trust
Treasuries ever recorded, and absolute yields approached the highest of the current decade. Believing most of the factors causing dysfunction within the market were temporary, we extended the average maturity of the Fund throughout the market sell-off to lock in the prevailing yields.
For the twelve months ended March 31, 2009, Class A shares of Legg Mason Maryland Tax-Free Income Trust, excluding sales charges, returned 2.46%. The Fund’s unmanaged benchmark, the Barclays Capital Municipal Bond Index, returned 2.27% for the same period. The Lipper Maryland Municipal Debt Funds Category Average returned -2.82% over the same time frame.
Certain investors may be subject to the federal alternative minimum tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
The drivers of performance were nearly identical to last year. Higher-quality issues were the best performers as credit spreads widened for lower-rated issuers to unprecedented levels. Insured bonds continued to perform poorly as the threat of credit downgrades among the insurance companies became a reality. We remained committed to a high-quality portfolio (AA average quality) and had a relatively low weighting to insured bonds (16% of Fund assets), which provided stability during the weakening credit environment. In addition, shorter maturity bonds fared better than longer maturities, reflecting the aggressive interest rate cuts by the Federal Reserve Board (“Fed”)D and heavy buying by retail investors, who historically favor shorter maturities. The Fund continued to maintain a meaningful weighting to Pre-refundedE and Escrowed municipals of short maturity and the highest quality, which offset some of our longer maturity holdings that did not perform as well in the steepening yield curveF environment. Our sector positioning overall was accretive to performance. Heavy weightings to the aforementioned Escrowed and Pre-refunded bonds, tax-backed debt, and essential service revenue issues for Water and Sewer authorities performed well. Similar to last year, Health Care issues negatively impacted performance due to profitability concerns stemming from reimbursement pressures and declining volumes as patients defer elective surgeries. The Higher Education sector likewise detracted from our results, as declining endowment values pressured the entire sector.
R. Scott Pierce, CFA
April 15, 2009
| | |
Annual Report to Shareholders | | 5 |
Past performance is no guarantee of future results.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
A | The Barclays Capital (formerly Lehman Brothers) Municipal Bond Index is a market value weighted index of investment grade municipal bonds with maturities of one year or more. |
B | Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended March 31, 2009, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 36 funds for the six-month period and among the 34 funds for the twelve-month period in the Fund’s Lipper category, and excluding sales charges. |
C | A basis point is one one-hundredth (1/100 or 0.01) of one percent. |
D | The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. |
E | A pre-refunded bond is a bond in which the original security has been replaced by an escrow, usually consisting of treasuries or agencies, which has been structured to pay principal and interest and any call premium, either to a call date (in the case of a pre-refunded bond), or to maturity (in the case of an escrowed to maturity bond). |
F | The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities. |
N/A — Not applicable.
| | |
6 | | Annual Report to Shareholders |
Expense Example
Legg Mason Maryland Tax-Free Income Trust
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
For Class A† and Institutional Class shares, the example is based on an investment of $1,000 invested on October 1, 2008 and held through March 31, 2009; For Class C shares, the example is based on an investment of $1,000 invested on February 5, 2009 (commencement of operations) and held through March 31, 2009. The ending values assume dividends were reinvested at the time they were paid.
Actual Expenses
The first line for each class in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for the Fund under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account if your shares were held through the entire period.
Hypothetical Example for Comparison Purposes
The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the class’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples, with the 5% hypothetical examples that appear in the shareholder reports of other funds. Because the example is intended to be comparable to the examples provided by other funds, it is based on a hypothetical investment of $1,000 invested on October 1, 2008 and held through March 31, 2009 for each class, even though the Class C shares, did not begin operations until February 5, 2009. The ending values assume dividends were reinvested at the time they were paid.
| † | On February 1, 2009, Primary Class shares were renamed Class A shares. |
| | |
Annual Report to Shareholders | | 7 |
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional cost, such as sales charges (loads). Therefore the second line for each class of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | | | | | | | |
| | | Beginning
Account
Value
(see footnotes
below) | | | Ending
Account
Value
3/31/09 | | Expenses Paid
During the
Period
(see footnotes
below) | |
Class A†: | | | | | | | | | | | |
Actual | | $ | 1,000.00 | A | | $ | 1,042.60 | | $ | 3.56 | B |
Hypothetical (5% return before expenses) | | $ | 1,000.00 | A | | $ | 1,021.44 | | $ | 3.53 | B |
Class C: | | | | | | | | | | | |
Actual | | $ | 1,000.00 | C | | $ | 1,005.30 | | $ | 1.74 | D |
Hypothetical (5% return before expenses) | | $ | 1,000.00 | A | | $ | 1,005.66 | | $ | 1.74 | B |
Institutional Class: | | | | | | | | | | | |
Actual | | $ | 1,000.00 | A | | $ | 1,043.20 | | $ | 2.29 | B |
Hypothetical (5% return before expenses) | | $ | 1,000.00 | A | | $ | 1,022.69 | | $ | 2.27 | B |
| † | On February 1, 2009, Primary Class shares were renamed Class A shares. |
A | Beginning account value is as of October 1, 2008. |
B | These calculations are based on expenses incurred from October 1, 2008 to March 31, 2009. The dollar amount shown as “Expenses Paid” is equal to the annualized expense ratio of 0.70%, 1.17% and 0.45% for the Class A, Class C and Institutional Class shares, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal period (182) and divided by 365. |
C | Beginning account value is as of February 5, 2009 (commencement of operations). |
D | This calculation is based on expenses incurred from February 5, 2009 (commencement of operations) to March 31, 2009. The dollar amount shown as “Expenses Paid” is equal to the annualized expense ratio of 1.17% for the Class C shares, multiplied by the average values over the period, multiplied by the number of days in the fiscal period (55) and divided by 365. |
| | |
8 | | Annual Report to Shareholders |
Legg Mason Maryland Tax-Free Income Trust
Sector Diversification
March 31, 2009
| | | | | | |
| | | % of Net Assets | | | Market Value |
Education Revenue | | 14.6 | % | | $ | 21,950,567 |
Escrowed | | 6.3 | | | | 9,492,500 |
General Obligation — Local | | 6.7 | | | | 10,159,418 |
General Obligation — School | | 5.0 | | | | 7,460,270 |
General Obligation — State | | 1.4 | | | | 2,124,420 |
Health Care and Hospital Revenue | | 22.3 | | | | 33,690,272 |
Health Care-Services | | 0.7 | | | | 1,060,962 |
Housing Revenue | | 5.2 | | | | 7,905,864 |
Industrial Development | | 0.8 | | | | 1,197,193 |
Lease Revenue | | 3.2 | | | | 4,753,499 |
Port Facilities Revenue | | 4.1 | | | | 6,228,480 |
Pre-Refunded Bonds | | 6.2 | | | | 9,343,707 |
Solid Waste Revenue | | 2.2 | | | | 3,374,310 |
Transportation Revenue | | 2.3 | | | | 3,479,850 |
Water and Sewer Revenue | | 14.8 | | | | 22,335,749 |
Short-Term Investments | | 2.0 | | | | 3,100,000 |
Other Assets less Liabilities | | 2.2 | | | | 3,275,758 |
| | | | | | |
| | 100.0 | % | | $ | 150,932,819 |
| | | | | | |
Guide to Investment Abbreviations:
| | |
| AMBAC | | AMBAC Indemnity Corporation |
| AMT | | Alternative Minimum Tax |
| FGIC | | Federal Guaranty Insurance Company |
| FSA | | Financial Security Assurance |
| GO | | General Obligation |
| IDA | | Industrial Development Authority |
| MBIA | | Municipal Bond Insurance Association |
| | |
Annual Report to Shareholders | | 9 |
Performance Information
Fund Performance
| | | | | | | | | |
Average Annual Total ReturnsA | | | |
| | | Without Sales ChargesB | |
| | | Class AC | | | Class C | | | Institutional
Class | |
Twelve Months Ended 3/31/09 | | 2.46 | % | | N/A | | | N/A | |
Five Years Ended 3/31/09 | | 2.86 | | | N/A | | | N/A | |
Ten Years Ended 3/31/09 | | 4.03 | | | N/A | | | N/A | |
Inception* through 3/31/09 | | 5.38 | | | 0.53 | %† | | 1.58 | %† |
| |
| | | With Sales ChargesD | |
| | | Class AC | | | Class C | | | Institutional
Class | |
Twelve Months Ended 3/31/09 | | –1.92 | % | | N/A | | | N/A | |
Five Years Ended 3/31/09 | | 1.98 | | | N/A | | | N/A | |
Ten Years Ended 3/31/09 | | 3.58 | | | N/A | | | N/A | |
Inception* through 3/31/09 | | 5.13 | | | –0.47 | %† | | 1.58 | %† |
| | | |
Cumulative Total ReturnsA | | | |
| | | Without Sales ChargesB | |
Class AC (3/31/99 through 3/31/09) | | 48.46 | % |
Class C (Inception date of 2/5/09 through 3/31/09) | | 0.53 | |
Institutional Class (Inception date of 7/30/08 through 3/31/09) | | 1.58 | |
A | All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. |
B | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. On February 1, 2009, Class A lowered its 12b-1 fee and began to charge an initial sales charges on sales made on and after that date. |
C | On February 1, 2009, Primary Class shares were renamed Class A shares. |
D | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum initial sales charge of 4.25%. Class C shares reflect the deduction of 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment. |
| * | Inception dates for Class A, Class C and Institutional Class shares are May 1, 1991, February 5, 2009 and July 30, 2008, respectively. |
| | |
10 | | Annual Report to Shareholders |
Performance Information
Legg Mason Maryland Tax-Free Income Trust
The graphs on the following pages compare the Fund’s Class AA and Institutional Class shares total returns to that of the Barclays Capital Municipal Bond IndexB. The graph illustrates the cumulative total return of an initial $10,000 and $1,000,000 investment in Class A and Institutional Class shares, respectively, of the Fund for the periods indicated. The lines for the Fund represents the total return after deducting the maximum initial sales charge of 4.25% at the time of investment for Class A shares and all Fund investment management and other administrative expenses and the transaction costs of buying and selling portfolio securities. The lines representing the securities market index do not take into account any transaction costs associated with buying and selling portfolio securities in the index or other administrative expenses. Due to the limited operating history of Class C, a performance graph is not presented.
Total return measures investment performance in terms of appreciation or depreciation in a fund’s net asset value per share, plus dividends and any capital gain distributions. Both the Fund’s results and the Index’s results assume the reinvestment of all dividends and distributions at the time they were paid. Average annual returns tend to smooth out variations in a fund’s return, so that they differ from actual year-to-year results.
A | On February 1, 2009, Primary Class shares were renamed Class A shares. |
B | Formerly: Lehman Brothers Municipal Bond Index. The name change is a result of Barclays’ purchase of Lehman Brothers in September 2008. |
| | |
Annual Report to Shareholders | | 11 |
Growth of a $10,000 Investment — Class A Shares
Hypothetical illustration of $10,000 invested in Class A shares (formerly, Primary Class shares) on March 31, 1999, assuming the deduction of the maximum initial sales charge of 4.25% at the time of investment and the reinvestment of all distributions, including returns of capital, if any, at net asset value through March 31, 2009. The performance data quoted represent past performance and do not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information, please visit www.leggmason.com/individualinvestors. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Performance would have been lower if fees and expenses had not been waived and/or reimbursed in various periods. Performance for other share classes will vary due to differences in sales charge structure and class expenses.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
| | |
12 | | Annual Report to Shareholders |
Growth of a $1,000,000 Investment — Institutional Class Shares
Hypothetical illustration of $1,000,000 invested in Institutional Class shares on July 30, 2008 (commencement of operations), assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through March 31, 2009. The performance data quoted represent past performance and do not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information, please visit www.leggmason.com/individualinvestors. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Performance would have been lower if fees and expenses had not been waived and/or reimbursed in various periods. Performance for other share classes will vary due to differences in sales charge structure and class expenses.
The graph does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
| | |
Annual Report to Shareholders | | 13 |
Portfolio of Investments
Legg Mason Maryland Tax-Free Income Trust
March 31, 2009
| | | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value | |
| | | | | | | | | | | |
Municipal Bonds — 95.8% | | | | | | | | | |
| | | | |
Maryland — 94.7% | | | | | | | | | | | |
Anne Arundel County, Maryland, GO Bonds, Consolidated General Improvement Bonds, Series 2007 | | 4.500% | | 3/1/23 | | $ | 1,000,000 | | $ | 1,037,030 | |
Baltimore County, Maryland, GO Bonds, Metropolitan District Bonds (70th Issue) | | 4.250% | | 9/1/26 | | | 1,000,000 | | | 973,540 | |
Baltimore County, Maryland, Revenue Bonds, Catholic Health Initiatives, Series 2006A | | 5.000% | | 9/1/20 | | | 1,050,000 | | | 1,060,962 | |
City of Annapolis, Maryland, Economic Development Revenue and Refunding Revenue Bonds (St. John’s College Facility) | | | | | | | | | | | |
Series 1998 | | 5.500% | | 10/1/18 | | | 240,000 | | | 240,002 | |
Series 1998 | | 5.500% | | 10/1/23 | | | 490,000 | | | 414,633 | |
Series 2007B | | 5.000% | | 10/1/27 | | | 1,135,000 | | | 831,842 | |
Series B | | 5.000% | | 10/1/36 | | | 2,465,000 | | | 1,657,540 | |
City of Baltimore, Maryland, (Mayor and City Council of Baltimore), Project and Refunding Revenue Bonds (Wastewater Projects) | | | | | | | | | | | |
Series 1994A (FGIC insured) | | 5.000% | | 7/1/22 | | | 1,910,000 | | | 1,970,318 | |
Series 1996A (Pre-refunded 7/1/09) | | 5.500% | | 7/1/26 | | | 1,000,000 | | | 1,012,270 | A |
City of Baltimore, Maryland, (Mayor and City Council of Baltimore), Project and Refunding Revenue Bonds (Water Projects) | | | | | | | | | | | |
Series 1994A | | 5.000% | | 7/1/24 | | | 3,800,000 | | | 4,234,074 | |
Series 1994A | | 5.000% | | 7/1/24 | | | 1,890,000 | | | 2,047,588 | |
Series 2002A (FGIC insured) | | 5.125% | | 7/1/42 | | | 1,000,000 | | | 988,110 | |
City of Baltimore, Maryland, (Mayor and City Council of Baltimore), Project and Revenue Bonds (Wastewater Projects), Series 2008A (FSA insured) | | 5.000% | | 7/1/33 | | | 4,000,000 | | | 4,017,320 | |
| | |
14 | | Annual Report to Shareholders |
Portfolio of Investments — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
| | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value |
| | | | | | | | | | |
Maryland — Continued | | | | | | | | | | |
City of Baltimore, Maryland, Project Revenue Bonds, Series 2007 C (AMBAC insured) | | 5.000% | | 7/1/23 | | $ | 1,000,000 | | $ | 1,030,580 |
Community Development Administration, Maryland Department of Housing and Community Development Residential Revenue Bonds | | | | | | | | | | |
Series 1999D AMT | | 5.375% | | 9/1/24 | | | 2,000,000 | | | 1,961,920 |
Series 2001B AMT | | 5.375% | | 9/1/22 | | | 310,000 | | | 310,214 |
Series 2001H AMT | | 5.200% | | 9/1/22 | | | 1,790,000 | | | 1,777,971 |
Community Development Administration, Maryland Department of Housing and Community Development Residential Revenue Bonds,
Series 2008 | | 5.375% | | 9/1/39 | | | 1,500,000 | | | 1,459,425 |
Community Development Administration, Maryland Department of Housing and Community Development Residential Revenue Bonds, Capital Funding Securitization, Series 2008 (FSA insured) | | 4.400% | | 7/1/21 | | | 1,000,000 | | | 1,004,550 |
Department of Transportation of Maryland, Consolidated Transportation Bonds, Series 2002 | | 5.500% | | 2/1/15 | | | 3,000,000 | | | 3,479,850 |
Frederick County, Maryland, GO Bonds, Public Facilities Refunding Bonds, Series 1998A | | 5.000% | | 7/1/15 | | | 1,000,000 | | | 1,144,910 |
Howard County, Maryland, GO Bonds, Consolidated Public Improvement Project and Refunding Bonds, Series 2004A | | 5.000% | | 8/15/19 | | | 1,000,000 | | | 1,156,750 |
| | |
Annual Report to Shareholders | | 15 |
| | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value |
| | | | | | | | | | |
Maryland — Continued | | | | | | | | | | |
IDA of Prince George’s County, Maryland, Subordinated Lease Revenue Bonds (Upper Marlboro Justice Center Expansion Project), (MBIA insured) | | | | | | | | | | |
Series 2003B | | 5.125% | | 6/30/15 | | $ | 3,340,000 | | $ | 3,692,069 |
Series 2003B | | 5.000% | | 6/30/19 | | | 1,000,000 | | | 1,061,430 |
Maryland Economic Development Corporation, Economic Development Revenue (Lutheran World Relief Inc. and Immigration and Refugee Service), Series 2007 | | 5.250% | | 4/1/29 | | | 565,000 | | | 388,070 |
Maryland Economic Development Corporation, Student Housing Revenue Bonds (University of Maryland, College Park Project) | | | | | | | | | | |
Series 2008 | | 5.750% | | 6/1/33 | | �� | 500,000 | | | 359,030 |
Series 2008 | | 5.800% | | 6/1/38 | | | 1,500,000 | | | 1,056,930 |
Maryland Economic Development Corporation, Utility Infrastructure Revenue Bonds (University of Maryland, College Park Project), Series 2001 (AMBAC insured) | | 5.375% | | 7/1/16 | | | 985,000 | | | 1,030,340 |
Maryland Health and Higher Educational Facilities Authority, Refunding Revenue Bonds, Kennedy Krieger Issue,
Series 1997 | | 5.125% | | 7/1/22 | | | 3,000,000 | | | 2,449,440 |
Maryland Health and Higher Educational Facilities Authority, Refunding Revenue Bonds, Maryland Institute College of Art Issue, Series 2007 | | 5.000% | | 6/1/36 | | | 5,000,000 | | | 3,562,850 |
Maryland Health and Higher Educational Facilities Authority, Refunding Revenue Bonds, MedStar Health Issue, Series 2004 | | 5.500% | | 8/15/25 | | | 785,000 | | | 719,892 |
| | |
16 | | Annual Report to Shareholders |
Portfolio of Investments — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
| | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value |
| | | | | | | | | | |
Maryland — Continued | | | | | | | | | | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Anne Arundel Health System Series 2009A | | 6.750% | | 7/1/29 | | $ | 2,000,000 | | $ | 2,066,920 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Board of Child Care Issue, Series 2002 | | 5.500% | | 7/1/18 | | | 1,110,000 | | | 1,153,945 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Calvert Health Systems Issue, Series 2004 | | 5.500% | | 7/1/39 | | | 2,000,000 | | | 1,727,380 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Carroll County General Hospital Issue | | | | | | | | | | |
Series 2002 | | 5.750% | | 7/1/22 | | | 1,000,000 | | | 1,000,480 |
Series 2002 | | 6.000% | | 7/1/26 | | | 2,000,000 | | | 1,972,340 |
Series 2002 | | 5.750% | | 7/1/27 | | | 1,050,000 | | | 984,533 |
Series 2002 | | 5.800% | | 7/1/32 | | | 2,000,000 | | | 1,804,360 |
Series 2002 | | 6.000% | | 7/1/37 | | | 1,000,000 | | | 890,900 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, College of Notre Dame of Maryland Issue, Series 1998 (MBIA insured) | | 5.300% | | 10/1/18 | | | 925,000 | | | 1,017,121 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Hebrew Home of Greater Washington Issue, Series 2002 | | 5.800% | | 1/1/32 | | | 2,250,000 | | | 2,010,195 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Helix Health Issue, Series 1997 (AMBAC insured) | | 5.125% | | 7/1/11 | | | 2,000,000 | | | 2,172,820 |
| | |
Annual Report to Shareholders | | 17 |
| | | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value | |
| | | | | | | | | | | |
Maryland — Continued | | | | | | | | | | | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Howard County General Hospital Issue,
Series 1993 | | 5.500% | | 7/1/21 | | $ | 2,825,000 | | $ | 3,085,606 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Johns Hopkins Medicine, Howard County General Hospital Acquisition Issue, Series 1998 (MBIA insured) | | 5.000% | | 7/1/29 | | | 2,000,000 | | | 1,732,120 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, LifeBridge Health Issue, Series 2004A
(Pre-refunded 7/1/14) | | 5.250% | | 7/1/18 | | | 1,640,000 | | | 1,865,500 | A |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Loyola College Issue, Series 2006A | | 5.000% | | 10/1/40 | | | 2,000,000 | | | 1,686,900 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Maryland Institute College of Art Series 2007 | | 5.000% | | 6/1/42 | | | 800,000 | | | 557,184 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Peninsula Regional Medical Center Issue | | | | | | | | | | | |
Series 2006 | | 5.000% | | 7/1/19 | | | 1,000,000 | | | 986,530 | |
Series 2006 | | 5.000% | | 7/1/26 | | | 2,435,000 | | | 2,127,484 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Refunding, Mercy Ridge Series 2007 | | 4.750% | | 7/1/34 | | | 2,700,000 | | | 1,962,090 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Suburban Hospital Issue, Series 2004A | | 5.500% | | 7/1/16 | | | 500,000 | | | 515,315 | |
| | |
18 | | Annual Report to Shareholders |
Portfolio of Investments — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
| | | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value | |
| | | | | | | | | | | |
Maryland — Continued | | | | | | | | | | | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, The Johns Hopkins Hospital Issue, Series 1990 | | 0.000% | | 7/1/19 | | $ | 4,000,000 | | $ | 2,366,440 | B |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, The Johns Hopkins University Issue, Series 2004A | | 5.000% | | 7/1/33 | | | 3,000,000 | | | 3,016,260 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Union Hospital of Cecil County Issue, Series 2002 | | 5.500% | | 7/1/22 | | | 250,000 | | | 234,798 | |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, University of Maryland Medical System Issue | | | | | | | | | | | |
Series 2000
(Pre-refunded 7/1/10) | | 6.750% | | 7/1/30 | | | 1,250,000 | | | 1,355,087 | A |
Series 2001
(Pre-refunded 7/1/11) | | 5.750% | | 7/1/21 | | | 3,000,000 | | | 3,279,600 | A |
Series 2002
(Pre-refunded 7/1/12) | | 6.000% | | 7/1/32 | | | 1,000,000 | | | 1,131,080 | A |
Maryland Health And Higher Educational Facilities Authority, Revenue Bonds, Washington County Hospital Issue | | | | | | | | | | | |
Series 2008 | | 4.000% | | 1/1/15 | | | 1,000,000 | | | 886,500 | |
Series 2008 | | 4.750% | | 1/1/16 | | | 1,000,000 | | | 898,480 | |
Series 2008 | | 6.000% | | 1/1/43 | | | 1,000,000 | | | 789,450 | |
Maryland IDA, Economic Development Revenue Bonds (National Aquarium in Baltimore Facility), Series 2002B | | 5.000% | | 11/1/19 | | | 500,000 | | | 468,025 | |
Maryland IDA, Refunding Revenue Bonds (American Center for Physics Headquarters Facility), Series 2001 | | 5.250% | | 12/15/15 | | | 320,000 | | | 341,098 | |
| | |
Annual Report to Shareholders | | 19 |
| | | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value | |
| | | | | | | | | | | |
Maryland — Continued | | | | | | | | | | | |
Mayor and City Council of Baltimore (City of Baltimore, Maryland), GO Bonds, Consolidated Public Improvement Refunding Bonds, Series 1995A (FGIC insured) | | 0.000% | | 10/15/11 | | $ | 940,000 | | $ | 807,187 | B |
Mayor and City Council of Baltimore, Port Facilities Revenue Bonds (Consolidation Coal Sales Company Project) | | | | | | | | | | | |
Series 1984A | | 6.500% | | 10/1/11 | | | 5,000,000 | | | 5,190,400 | |
Series 1984B | | 6.500% | | 10/1/11 | | | 1,000,000 | | | 1,038,080 | |
Montgomery County, Maryland, GO Bonds, Consolidated Public Improvement, Refunding Bonds | | | | | | | | | | | |
Series 1992A | | 0.000% | | 7/1/10 | | | 3,000,000 | | | 2,950,920 | B |
Series 1999A
(Pre-refunded 5/1/09) | | 5.000% | | 5/1/18 | | | 3,000,000 | | | 3,040,770 | A |
Montgomery County, Maryland, Revenue Bonds, Housing Opportunities Commission Single Family Mortgage,
Series 2007D AMT | | 5.000% | | 7/1/27 | | | 1,535,000 | | | 1,391,784 | |
Northeast Maryland Waste Disposal Authority, Solid Waste Refunding Revenue Bonds (Montgomery County Solid Waste Disposal System), Series 2003 AMT (AMBAC insured) | | 5.500% | | 4/1/16 | | | 3,425,000 | | | 3,374,310 | |
Prince George’s County, Maryland, GO Bonds, Consolidated Public Improvement Bonds, (FSA insured) | | | | | | | | | | | |
Series 1999
(Pre-refunded 10/1/09) | | 5.500% | | 10/1/13 | | | 2,000,000 | | | 2,070,080 | A |
Series 1999
(Pre-refunded 10/1/09) | | 5.500% | | 10/1/13 | | | 170,000 | | | 175,957 | A |
| | |
20 | | Annual Report to Shareholders |
Portfolio of Investments — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
| | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value |
| | | | | | | | | | |
Maryland — Continued | | | | | | | | | | |
Queen Anne’s County, Maryland, Public Facilities Refunding Bonds, Series 2005
(MBIA insured) | | 5.000% | | 11/15/16 | | $ | 500,000 | | $ | 550,135 |
State of Maryland, GO Bonds, State and Local Facilities Loan | | | | | | | | | | |
Series 2000, First Series | | 5.500% | | 8/1/10 | | | 2,000,000 | | | 2,124,420 |
Series 2001, First Series | | 5.500% | | 3/1/15 | | | 5,000,000 | | | 5,876,450 |
The Maryland-National Capital Park and Planning Commission, Prince George’s County, Maryland, Park Acquisition and Development GO Bonds, Series 2001Z-2 | | 5.125% | | 5/1/21 | | | 1,310,000 | | | 1,362,989 |
University System of Maryland Auxiliary Facility and Tuition Revenue Bonds, Series 2006A | | 5.000% | | 10/1/21 | | | 2,500,000 | | | 2,705,925 |
Washington Suburban Sanitary District, Maryland, (Montgomery and Prince George’s Counties), Water Supply Refunding Bonds | | | | | | | | | | |
Series 1997 | | 5.250% | | 6/1/16 | | | 1,650,000 | | | 1,941,027 |
Series 1997 | | 5.750% | | 6/1/17 | | | 2,000,000 | | | 2,432,600 |
Series 1997 | | 6.000% | | 6/1/18 | | | 2,705,000 | | | 3,355,580 |
Series 1997 | | 6.000% | | 6/1/19 | | | 3,665,000 | | | 4,552,626 |
Westminster, Maryland, Education Facilities Refunding Revenue Bonds, (McDaniel College Inc.) | | | | | | | | | | |
Series 2006 | | 5.000% | | 11/1/21 | | | 1,000,000 | | | 913,350 |
Series 2006 | | 5.000% | | 11/1/31 | | | 3,500,000 | | | 2,900,660 |
| | | | | | | | | | |
| | | | | | | | | | 142,973,241 |
| | | | | | | | | | |
| | | | |
Puerto Rico — 1.1% | | | | | | | | | | |
Commonwealth of Puerto Rico, GO Bonds, Public Improvement Bonds, Series 2005A | | 5.000% | | 7/1/25 | | | 2,000,000 | | | 1,583,820 |
| | | | | | | | | | |
Total Municipal Bonds (Cost — $142,487,402) | | | 144,557,061 |
| | |
Annual Report to Shareholders | | 21 |
| | | | | | | | | | |
| | | Rate | | Maturity
Date | | Par | | Value |
| | | | | | | | | | |
Variable Rate Demand ObligationsC — 2.0% | | | |
| | | | |
Maryland — 2.0% | | | | | | | | | | |
Baltimore County, Maryland, Economic Development Revenue, (Garrison Forest School Inc. Project), Series 2006 | | 0.350% | | 4/1/09 | | $ | 2,000,000 | | $ | 2,000,000 |
Maryland Health and Higher Educational Facilities Authority, Revenue Bonds, Bryn Mawr School Series 2005 | | 0.580% | | 4/1/09 | | | 1,100,000 | | | 1,100,000 |
| | | | | | | | | | |
Total Variable Rate Demand Obligations (Cost — $3,100,000) | | | 3,100,000 |
Total Investments — 97.8% (Cost — $145,587,402)D | | | 147,657,061 |
Other Assets Less Liabilities — 2.2% | | | | | | | | 3,275,758 |
| | | | | | | | | | |
| | | | |
Net Assets — 100.0% | | | | | | | | | $ | 150,932,819 |
| | | | | | | | | | |
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, 2009, 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 | At March 31, 2009, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows: |
| | | | |
| Gross unrealized appreciation | | $ | 7,879,125 | |
| Gross unrealized depreciation | | | (5,809,466 | ) |
| | | | |
| Net unrealized appreciation | | $ | 2,069,659 | |
| | | | |
See notes to financial statements.
| | |
22 | | Annual Report to Shareholders |
Statement of Assets and Liabilities
Legg Mason Maryland Tax-Free Income Trust
March 31, 2009
| | | | | | | |
Assets: | | | | | | | |
Investment securities at value
(cost – $142,487,402) | | | | | $ | 144,557,061 | |
Short-term securities at value
(cost – $3,100,000) | | | | | | 3,100,000 | |
Cash | | | | | | 873,511 | |
Interest receivable | | | | | | 2,179,162 | |
Receivable for fund shares sold | | | | | | 562,577 | |
Due from manager | | | | | | 41,562 | |
Other assets | | | | | | 1,706 | |
| | | | | | | |
Total assets | | | | | | 151,315,579 | |
Liabilities: | | | | | | | |
Payable for fund shares repurchased | | $ | 270,590 | | | | |
Accrued distribution and service fees | | | 27,040 | | | | |
Income distribution payable | | | 26,403 | | | | |
Accrued expenses | | | 58,727 | | | | |
| | | | | | | |
Total liabilities | | | | | | 382,760 | |
| | | | | | | |
Net Assets | | | | | $ | 150,932,819 | |
| | | | | | | |
Net assets consist of: | | | | | | | |
Accumulated paid-in-capital | | | | | $ | 149,556,823 | |
Undistributed net investment income | | | | | | 22,312 | |
Accumulated net realized loss on investments | | | | | | (715,975 | ) |
Unrealized appreciation of investments | | | | | | 2,069,659 | |
| | | | | | | |
Net Assets | | | | | $ | 150,932,819 | |
| | | | | | | |
Net Asset Value Per Share: | | | | | | | |
Class AA (and redemption price) (9,351,324 shares outstanding) | | | | | | $15.58 | |
Class C* (126,117 shares outstanding) | | | | | | $15.58 | |
Institutional Class (and redemption price) (211,546 shares outstanding) | | | | | | $15.58 | |
Maximum Public Offering Price Per Share: | | | | | | | |
Class AA (based on maximum initial sales charge of 4.25%) | | | | | | $16.27 | |
| | | | | | | | |
A | On February 1, 2009 Primary Class shares were renamed as Class A shares. |
| * | Redemption price per share is NAV of Class C shares reduced by a 1.00% CDSC, if shares are redeemed within one year of purchase payment. |
See notes to financial statements.
| | |
Annual Report to Shareholders | | 23 |
Statement of Operations
Legg Mason Maryland Tax-Free Income Trust
For the Year Ended March 31, 2009
| | | | | | | |
Investment Income: | | | | | | | |
Interest | | | | | $ | 7,552,641 | |
| | | | | | | |
Expenses: | | | | | | | |
Management fees | | 815,590 | | | | | |
Distribution and service fees: | | | | | | | |
Class A | | 345,709 | | | | | |
Class C | | 850 | | | | | |
Audit and legal fees | | 63,570 | | | | | |
Custodian fees | | 33,473 | | | | | |
Trustees’ fees and expenses | | 62,248 | | | | | |
Registration fees | | 37,423 | | | | | |
Reports to shareholders: | | | | | | | |
Class A | | 37,919 | | | | | |
Class C | | 169 | | | | | |
Institutional Class | | 643 | | | | | |
Transfer agent and shareholder servicing expense: | | | | | | | |
Class A | | 61,407 | | | | | |
Class C | | 209 | | | | | |
Institutional Class | | 1,547 | | | | | |
Other expenses | | 66,793 | | | | | |
| | | | | | | |
| | 1,527,550 | | | | | |
Less: Fees waived | | (490,547 | ) | | | | |
Compensating balance credits | | (3,724 | ) | | | | |
| | | | | | | |
Net expenses | | | | | | 1,033,279 | |
| | | | | | | |
Net Investment Income | | | | | | 6,519,362 | |
Net Realized and Unrealized Gain/(Loss) on Investments: | | | | | | | |
Net realized loss on investments | | (531,010 | ) | | | | |
Change in unrealized appreciation/(depreciation) of: | | | | | | | |
Investments | | (2,939,284 | ) | | | | |
| | | | | | | |
Net Realized and Unrealized Loss on Investments | | | | | | (3,470,294 | ) |
Change in Net Assets Resulting From Operations | | | | | $ | 3,049,068 | |
See notes to financial statements.
| | |
24 | | Annual Report to Shareholders |
Statement of Changes in Net Assets
Legg Mason Maryland Tax-Free Income Trust
| | | | | | | | |
| | | For the Years Ended March 31, | |
| | | 2009 | | | 2008 | |
Change in Net Assets: | | | | | | | | |
Net investment income | | $ | 6,519,362 | | | $ | 6,156,234 | |
Net realized loss | | | (531,010 | ) | | | (184,965 | ) |
Change in unrealized appreciation/
(depreciation) | | | (2,939,284 | ) | | | (3,318,666 | ) |
Change in net assets resulting from operations | | | 3,049,068 | | | | 2,652,603 | |
Distributions to shareholders from: | | | | | | | | |
Net investment income: | | | | | | | | |
Class A | | | (6,485,887 | ) | | | (6,156,234 | ) |
Class C | | | (4,338 | ) | | | — | |
Institutional Class | | | (29,168 | ) | | | — | |
Net realized gain on investments: | | | | | | | | |
Class A | | | — | | | | (26,781 | ) |
Change in net assets from fund share transactions: | | | | | | | | |
Class A | | | (256,995 | ) | | | 8,363,838 | |
Class C | | | 1,963,721 | | | | — | |
Institutional Class | | | 3,304,168 | | | | — | |
Change in net assets | | | 1,540,569 | | | | 4,833,426 | |
Net Assets: | | | | | | | | |
Beginning of year | | | 149,392,250 | | | | 144,558,824 | |
End of year | | $ | 150,932,819 | | | $ | 149,392,250 | |
Undistributed net investment income | | | $22,312 | | | | $22,343 | |
See notes to financial statements.
| | |
Annual Report to Shareholders | | 25 |
Financial Highlights
Legg Mason Maryland Tax-Free Income Trust
For a share of each class of beneficial interest outstanding:
Class AA :
| | | | | | | | | | | | | | | |
| | | Years Ended March 31, | |
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | |
Net asset value, beginning of year | | $15.89 | | | $16.28 | | | $16.25 | | | $16.40 | | | $16.77 | |
Investment operations: | | | | | | | | | | | | | | | |
Net investment income | | .68 | B | | .67 | B | | .68 | B | | .67 | | | .65 | |
Net realized and unrealized gain/(loss) | | (.31 | ) | | (.39 | ) | | .06 | | | (.15 | ) | | (.28 | ) |
Total from investment operations | | .37 | | | .28 | | | .74 | | | .52 | | | .37 | |
Distributions from: | | | | | | | | | | | | | | | |
Net investment income | | (.68 | ) | | (.67 | ) | | (.68 | ) | | (.67 | ) | | (.66 | ) |
Net realized gain on investments | | — | | | .00 | C | | (.03 | ) | | .00 | C | | (.08 | ) |
Total distributions | | (.68 | ) | | (.67 | ) | | (.71 | ) | | (.67 | ) | | (.74 | ) |
Net asset value, end of year | | $15.58 | | | $15.89 | | | $16.28 | | | $16.25 | | | $16.40 | |
Total return† | | 2.46 | % | | 1.76 | % | | 4.64 | % | | 3.22 | % | | 2.22 | % |
Ratios to Average Net Assets:D | | | | | | | | | | | | | | | |
Total expenses | | 1.03 | % | | .96 | % | | .97 | % | | .97 | % | | .93 | % |
Expenses net of waivers and/or expense reimbursements, if any | | .70 | % | | .71 | % | | .70 | % | | .70 | % | | .70 | % |
Expenses net of all reductions | | .70 | % | | .70 | % | | .70 | % | | .70 | % | | .70 | % |
Net investment income | | 4.40 | % | | 4.15 | % | | 4.16 | % | | 4.10 | % | | 3.91 | % |
Supplemental Data: | | | | | | | | | | | | | | | |
Portfolio turnover rate | | 7.5 | % | | 6.3 | % | | 8.9 | % | | 4.7 | % | | 9.2 | % |
Net assets, end of year (in thousands) | | $145,672 | | | $149,392 | | | $144,559 | | | $145,845 | | | $156,066 | |
A | On February 1, 2009, Primary Class shares were renamed Class A shares. |
B | Computed using average daily shares outstanding. |
C | Amount less than $.01 per share. |
D | Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers. |
| † | Performance figures, exclusive of sales charges, may reflect compensating balance credits, fee waivers and/or expense reimbursements. In the absence of compensating balance credits, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
See notes to financial statements.
| | |
26 | | Annual Report to Shareholders |
Financial Highlights — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
For a share of each class of beneficial interest outstanding:
Class C :
| | | |
| | | Period Ended
March 31, | |
| | | 2009A | |
Net asset value, beginning of period | | $15.59 | |
Investment operations: | | | |
Net investment income | | .07 | B |
Net realized and unrealized gain | | .01 | |
Total from investment operations | | .08 | |
Distributions from: | | | |
Net investment income | | (.09 | ) |
Total distributions | | (.09 | ) |
Net asset value, end of period | | $15.58 | |
Total return | | .53 | %C |
Ratios to Average Net Assets:D,E | | | |
Total expenses | | 1.99 | % |
Expenses net of waivers and/or expense reimbursements, if any | | 1.18 | % |
Expenses net of all reductions | | 1.17 | % |
Net investment income | | 3.51 | % |
Supplemental Data: | | | |
Portfolio turnover rate | | 7.5 | % |
Net assets, end of period (in thousands) | | $1,965 | |
A | For the period February 5, 2009 (commencement of operations) to March 31, 2009. |
B | Computed using average daily shares outstanding. |
C | Performance figures may reflect compensating balance credits, fee waivers and/or expense reimbursements. In the absence of compensating balance credits, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
D | Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers. |
See notes to financial statements.
| | |
Annual Report to Shareholders | | 27 |
For a share of each class of beneficial interest outstanding:
Institutional Class:
| | | |
| | | Period Ended
March 31, | |
| | | 2009A | |
Net asset value, beginning of period | | $15.83 | |
Investment operations: | | | |
Net investment income | | .47 | B |
Net realized and unrealized loss | | (.24 | ) |
Total from investment operations | | .23 | |
Distributions from: | | | |
Net investment income | | (.48 | ) |
Total distributions | | (.48 | ) |
Net asset value, end of period | | $15.58 | |
Total return | | 1.58 | %C |
Ratios to Average Net Assets:D,E | | | |
Total expenses | | 1.22 | % |
Expenses net of waivers and/or expense reimbursements, if any | | .45 | % |
Expenses net of all reductions | | .45 | % |
Net investment income | | 4.72 | % |
Supplemental Data: | | | |
Portfolio turnover rate | | 7.5 | % |
Net assets, end of period (in thousands) | | $3,296 | |
A | For the period July 30, 2008 (commencement of operations) to March 31, 2009. |
B | Computed using average daily shares outstanding. |
C | Performance figures may reflect compensating balance credits, fee waivers and/or expense reimbursements. In the absence of compensating balance credits, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
D | Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers. |
See notes to financial statements.
| | |
28 | | Annual Report to Shareholders |
Notes to Financial Statements
Legg Mason Maryland Tax-Free Income Trust
1. Organization and Significant Accounting Policies:
Legg Mason Tax-Free Income Fund (“Trust”), consisting of the Legg Mason Maryland Tax-Free Income Trust (“Maryland Tax-Free”) (“Fund”), is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as an open-end management investment company. The Fund is non-diversified.
The Fund consists of four classes of shares: Class A (formerly known as Primary Class), Class C, Institutional Class and Financial Intermediary Class (currently not active).
Preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements:
Investment Valuation
The Fund’s securities are valued under policies approved by and under the general oversight of the Board of Trustees. Effective April 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 (“FAS 157”). FAS 157 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.
| | • | | Level 1 – quoted prices in active markets for identical investments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Debt securities are valued at the last quoted bid prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities at fair value as determined in accordance with the procedures approved by the Fund’s Board of Trustees.
| | |
Annual Report to Shareholders | | 29 |
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
| | | | | | | | | | |
| | | March 31, 2009 | | Quoted Prices
(Level 1) | | Other Significant
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
Investments in Securities | | $ | 147,657,061 | | — | | $ | 147,657,061 | | — |
Security Transactions
Security transactions are accounted for as of 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.
For the year ended March 31, 2009, security transactions (excluding short-term investments) were:
| | |
| Purchases | | Proceeds From Sales |
| $25,682,358 | | $10,592,455 |
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond premiums and discounts are amortized for financial reporting and federal income tax purposes. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income are declared daily and paid monthly. When available, net capital gain distributions are declared and paid annually in June, if available. An additional distribution may be made in December, to the extent necessary, in order to comply with Federal excise tax requirements. Distributions are determined in accordance with federal income tax regulations, which may differ from those determined in accordance with GAAP. Accordingly, periodic reclassifications are made within the Fund’s capital accounts to reflect income and gains available for distribution under federal income tax regulations.
Compensating Balance Credits
The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments.
| | |
30 | | Annual Report to Shareholders |
Notes to Financial Statements — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
Credit and Market Risk
The Fund invests substantially all of its assets in securities issued by or on behalf of the State of Maryland its political subdivisions, municipalities, agencies, instrumentalities, and public authorities. Changes in economic conditions in, or governmental policies of, the State of Maryland could have a significant impact on the performance of the Fund.
The Fund may focus a significant amount of its investments in a single sector of the municipal securities market. In doing so, the Fund is more susceptible to factors adversely affecting that sector than would a fund not following that practice. The Fund may invest a significant portion of assets in securities issued by local governments or public authorities that are rated according to their particular creditworthiness, which may vary significantly from the state’s general obligations. The value of the Fund’s shares will be more susceptible to being materially impacted by a single economic, political or regulatory event affecting those issuers or their securities than shares of a diversified fund.
Other
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent upon claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.
2. Federal Income Taxes:
It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute to shareholders substantially all of its income and net realized gains on investments, if any, yearly. Therefore, no federal income tax provision is required in the Fund’s financial statements.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years and has concluded that as of March 31, 2009, no provision for income tax would be required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
| | |
Annual Report to Shareholders | | 31 |
Reclassifications:
GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the current year, the Fund had no reclassifications.
Distributions to Shareholders:
The tax character of distributions paid during the years ended March 31, were as follows:
| | | | | | |
| | | 2009 | | 2008 |
Distributions paid from: | | | | | | |
Tax-Exempt Income | | $ | 6,454,435 | | $ | 6,129,286 |
Ordinary Income | | | 64,958 | | | 26,981 |
Net Long-term Capital Gains | | | — | | | 26,748 |
| | | | | | |
Total Taxable Distributions | | $ | 64,958 | | $ | 53,729 |
| | | | | | |
Total Distributions Paid | | $ | 6,519,393 | | $ | 6,183,015 |
| | | | | | |
Accumulated Earnings on a Tax Basis:
As of March 31, 2009, the components of accumulated earnings on a tax basis were as follows:
| | | | |
Undistributed tax-exempt income — net | | $ | 57,517 | |
Capital loss carryforward* | | | (715,975 | ) |
Other book/tax temporary differences | | | (35,205 | )A |
Unrealized appreciation/(depreciation) | | | 2,069,659 | |
| | | | |
Total accumulated earnings/(losses) — net | | $ | 1,375,996 | |
| | | | |
| * | The Fund had the following net capital loss carryforward remaining: |
| | |
| Year of Expiration | | Amount |
| 03/31/2016 | | $(112,575) |
| 03/31/2017 | | (603,400) |
| | |
| | $(715,975) |
| | |
| | These amounts will be available to offset any future taxable capital gains. |
A | Other book/tax temporary differences are attributable primarily to the book/tax differences in the timing of the deductibility of various expenses. |
| | |
32 | | Annual Report to Shareholders |
Notes to Financial Statements — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
Tax Cost of Investments:
As of March 31, 2009, the aggregate cost of investments for federal income tax purposes was $145,587,402.
3. Transactions With Affiliates:
The Fund has an investment advisory and management agreement with Legg Mason Fund Adviser, Inc. (“LMFA”). Pursuant to the agreement, LMFA provides the Fund with investment management and administrative services for which the Fund pays a fee, computed daily and payable monthly, at an annual rate of 0.55% of the Fund’s average daily net assets.
LMFA has voluntarily agreed to waive its fees in any month to the extent the Fund’s expenses (exclusive of taxes, interest, brokerage and extraordinary expenses) exceed during that month certain annual rates of each class of the Fund’s average daily net assets shown in the table below. These waivers may be terminated at any time. The following chart summarizes the management fees and expense limitations for the Fund:
| | | | | | | | | |
| | | | | | | | | Year Ended
March 31, 2009 |
| Fund | | Advisory
Fee | | | Expense
Limitation | | | Management
Fees Waived |
Maryland Tax-Free | | | | | | | | | |
Class AA | | 0.55 | % | | 0.70 | % | | $ | 421,887 |
Class CB | | 0.55 | % | | 1.25 | % | | $ | 775 |
Institutional ClassC | | 0.55 | % | | 0.45 | % | | $ | 2,824 |
A | On February 1, 2009, Primary Class shares were renamed as Class A shares. |
B | For the period February 5, 2009 (commencement of operations) to March 31, 2009. |
C | For the period July 30, 2008 (commencement of operations) to March 31, 2009. |
Legg Mason Investment Counsel, LLC (“LMIC”) serves as investment adviser to the Fund pursuant to a sub-advisory agreement with LMFA. LMFA (not the Fund) pays LMIC a fee, computed daily and payable monthly, at an annual rate of 0.50% of the Fund’s average daily net assets.
| | |
Annual Report to Shareholders | | 33 |
Legg Mason Investor Services, LLC (“LMIS”) serves as distributor of the Fund. LMIS receives an annual distribution fee and an annual service fee, based on the Fund’s Class A and Class C average daily net assets, computed daily and payable monthly as follows:
| | | | | | |
| Fund | | Distribution
Fees | | | Service
Fees | |
Class AA,B | | | | | 0.15 | % |
Class C | | 0.45 | % | | 0.25 | % |
A | On February 1, 2009, Primary Class shares were renamed Class A shares. |
B | Prior to February 1, 2009 Class A shares paid a 12b-1 fee of 0.25% of its average net assets. |
LMFA, LMIC and LMIS are corporate affiliates and wholly owned subsidiaries of Legg Mason, Inc.
There is a maximum initial sales charge of 4.25% for Class A shares. In addition, on February 1, 2009 Class C shares began charging a contingent deferred sales charge (“CDSC”) of 1.00%, on shares bought by investors on and after that date, which applies if redemption occurs within one year from purchase payment. In certain cases, Class A shares have a 1.00% CDSC to certain redemptions made within 12 months following purchase of $1,000,000 or more without an initial sales charge.
For the year ended March 31, 2009, LMIS and its affiliates received sales charges of approximately $2,000 on sales of the Fund’s Class A shares. In addition, for the year ended March 31, 2009, there were no CDSCs paid to LMIS and its affiliates.
Under a Deferred Compensation Plan (the “Plan”), trustees may elect to defer receipt of all or a specified portion of their compensation. A participating trustee may select one or more funds in which his or her deferred trustee’s fees will be invested. Deferred fees remain invested in certain funds until distributed in accordance with the Plan.
4. Line of Credit:
The Fund, along with certain other Legg Mason Funds, participates in a $200 million line of credit (“Credit Agreement”) to be used for temporary or emergency purposes. 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 a rate equal to the prevailing federal funds rate plus the federal funds rate margin. The Fund did not utilize the line of credit during the year ended March 31, 2009.
| | |
34 | | Annual Report to Shareholders |
Notes to Financial Statements — Continued
Legg Mason Maryland Tax-Free Income Trust — Continued
5. Fund Share Transactions:
At March 31, 2009, there were unlimited shares authorized at $0.001 par value for the Fund. Share transactions for the Fund were as follows:
| | | | | | | | | | | | | | |
| | | Year Ended
March 31, 2009 | | | Year Ended
March 31, 2008 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Class AA | | | | | | | | | | | | | | |
Shares sold | | 1,863,617 | | | $ | 28,855,036 | | | 1,646,528 | | | $ | 26,501,372 | |
Shares issued on reinvestment | | 431,972 | | | | 6,683,580 | | | 280,578 | | | | 4,506,397 | |
Shares repurchased | | (2,345,840 | ) | | | (35,795,611 | ) | | (1,407,628 | ) | | | (22,643,931 | ) |
| | | | | | | | | | | | | | |
Net Increase (Decrease) | | (50,251 | ) | | $ | (256,995 | ) | | 519,478 | | | $ | 8,363,838 | |
| | | | | | | | | | | | | | |
Class CB | | | | | | | | | | | | | | |
Shares sold | | 126,699 | | | $ | 1,972,745 | | | — | | | | — | |
Shares issued on reinvestment | | 270 | | | | 4,212 | | | — | | | | — | |
Shares repurchased | | (852 | ) | | | (13,236 | ) | | — | | | | — | |
| | | | | | | | | | | | | | |
Net Increase | | 126,117 | | | $ | 1,963,721 | | | — | | | | — | |
| | | | | | | | | | | | | | |
Institutional Class C | | | | | | | | | | | | | | |
Shares sold | | 211,466 | | | $ | 3,303,003 | | | — | | | | — | |
Shares issued on reinvestment | | 238 | | | | 3,614 | | | — | | | | — | |
Shares repurchased | | (158 | ) | | | (2,449 | ) | | — | | | | — | |
| | | | | | | | | | | | | | |
Net Increase | | 211,546 | | | $ | 3,304,168 | | | — | | | | — | |
| | | | | | | | | | | | | | |
A | On February 1, 2009, Primary Class shares were renamed as Class A shares. |
B | For the period February 5, 2009 (commencement of operations) to March 31, 2009. |
C | For the period July 30, 2008 (commencement of operations) to March 31, 2009. |
6. Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. Management is currently evaluating the impact the
| | |
Annual Report to Shareholders | | 35 |
adoption of FAS 161 will have on the Fund’s financial statements and related disclosures.
In April 2009, FASB issued FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with FAS 157, when the volume and level of activity for the asset or liability have significantly decreased as well as guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. Management is currently evaluating the impact the adoption of FSP 157-4 will have on the Fund’s financial statement disclosures.
| | |
36 | | Annual Report to Shareholders |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Legg Mason Tax-Free Income Fund and Shareholders of Maryland Tax-Free Income Trust:
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, 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 (comprising Legg Mason Tax-Free Income Fund, the “Fund”) at March 31, 2009, the results of its operations, the changes in its net assets, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s 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 the standards of the Public Company Accounting Oversight Board (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, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
May 19, 2009
| | |
Annual Report to Shareholders | | 37 |
Important Tax Information (Unaudited)
98.92% and 99.27% of the net investment income distributions paid monthly by the Fund from April 2008 through December 2008 and from January 2009 through March 2009, respectively, qualify as a tax-exempt interest dividends for Federal income tax purposes.
The following information is applicable to non-U.S. resident shareholders:
All of the ordinary income distributions paid monthly by the Fund represent Qualified Net Interest Income and Qualified Short-Term Gain eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.
Please retain this information for your records.
| | |
38 | | Annual Report to Shareholders |
Trustees and Officers
The table below provides information about each of the Trust’s trustees and officers, including biographical information about their business experience and information about their relationships with Legg Mason, Inc. and its affiliates. The mailing address of each trustee and officer is 100 Light Street, Attn: Fund Secretary, 32nd Floor, Baltimore, Maryland 21202.
| | | | | | | | |
Name,
(Year of Birth) and
Position with Trust | | Term of
Office and
Length of
Time
ServedA | | Number of
Funds in
Fund Complex
Overseen
by Trustee | | Other
Directorships
Held by Trustee | | Principal Occupation(s) During the Past Five Years |
| INDEPENDENT TRUSTEESB : | | | | | | |
Hearn, Ruby P.
(1940)
Trustee | | Since 2004 | | 14 | | None | | Senior Vice President Emerita of The Robert Wood Johnson Foundation (non-profit) since 2001. Formerly: Senior Vice President of The Robert Wood Johnson Foundation (1996-2001). |
Lehman, Arnold L.
(1944)
Lead Independent Trustee | | Since 1990 | | 14 | | None | | Director of the Brooklyn Museum since 1997; Trustee of American Federation of Arts since 1998. Formerly: Director of The Baltimore Museum of Art (1979- 1997). |
Masters, Robin J.W.
(1955)
Trustee | | Since 2002 | | 14 | | Director of Cheyne Capital International Limited (investment advisory firm). Director/Trustee of Legg Mason Asian Funds plc, Legg Mason Institutional Funds plc, WA Fixed Income Funds plc., and Western Asset Debt Securities Fund plc. | | Retired. Formerly: Chief Investment Officer of ACE Limited (insurance) (1986-2000). |
McGovern, Jill E.
(1944)
Trustee | | Since 1990 | | 14 | | None | | Senior Consultant, American Institute for Contemporary German Studies (AICGS) since 2007. Formerly: Chief Executive Officer of The Marrow Foundation (non-profit) (1993- 2007); Executive Director of the Baltimore International Festival (1991-1993); Senior Assistant to the President of The Johns Hopkins University (1986-1990). |
| | |
Annual Report to Shareholders | | 39 |
| | | | | | | | |
Name,
(Year of Birth) and
Position with Trust | | Term of
Office and
Length of
Time
ServedA | | Number of
Funds in
Fund Complex
Overseen
by Trustee | | Other
Directorships
Held by Trustee | | Principal Occupation(s)
During the Past Five Years |
Mehlman, Arthur S.
(1942)
Trustee | | Since 2002 | | Director/Trustee of all Legg Mason funds consisting of 14 portfolios; Director/Trustee of the Royce Family of Funds consisting of 28 portfolios. | | Director of Municipal Mortgage & Equity, LLC. | | Retired. Formerly: Partner, KPMG LLP (international accounting firm) (1972-2002). |
O’Brien, G. Peter
(1945)
Trustee | | Since 1999 | | Director/Trustee of all Legg Mason funds consisting of 14 portfolios; Director/Trustee of the Royce Family of Funds consisting of 28 portfolios. | | Director of Technology Investment Capital Corp. | | Retired. Trustee Emeritus of Colgate University; Board Member, Hill House, Inc. (residential home care); Board Member, Bridges School (pre- school). Formerly: Managing Director, Equity Capital Markets Group of Merrill Lynch & Co. (1971-1999). |
Rowan, S. Ford
(1943)
Trustee | | Since 2002 | | 14 | | None | | Chairman, National Center for Critical Incident Analysis, National Defense University, since 2004; Professional Lecturer in Organizational Sciences, The George Washington University, since 2008. Formerly: Consultant, Rowan & Blewitt Inc. (management consulting) (1984- 2007). |
Tarola, Robert M.
(1950)
Trustee | | Since 2004 | | 14 | | Director of Teletech Holdings, Inc. | | President of Right Advisory LLC (corporate finance and governance consulting) since 2008; Formerly: Senior Vice President and Chief Financial of W. R. Grace & Co. (specialty chemicals and materials) (1999- 2008) and of MedStar Health, Inc. (hospitals and healthcare) (1996-1999); Partner, Price Waterhouse, LLP (accounting and auditing) (1984-1996). |
| | |
40 | | Annual Report to Shareholders |
Trustees and Officers — Continued
| | | | | | | | |
Name,
(Year of Birth) and
Position with Trust | | Term of
Office and
Length of
Time
ServedA | | Number of
Funds in
Fund Complex
Overseen
by Trustee | | Other
Directorships
Held by Trustee | | Principal Occupation(s)
During the Past Five Years |
| INTERESTED TRUSTEESC : | | | | | | |
Fetting, Mark R.
(1954)
Chairman and Trustee | | Trustee since 2002 and Chairman since 2008 | | Chairman and Director/Trustee of all Legg Mason Funds consisting of 14 portfolios; Director/Trustee of the Royce Family of Funds consisting of 28 portfolios. | | None | | President, CEO, Chairman and Director of Legg Mason, Inc. and Chairman of Legg Mason Funds since 2008. Formerly: President of all Legg Mason Funds (2001-2008). Senior Executive Vice President of Legg Mason, Inc., Director and/or officer of various Legg Mason, Inc. affiliates (2000-2008). Division President and Senior Officer of Prudential Financial Group, Inc. and related companies, including fund boards and consulting services to subsidiary companies (1991- 2000); Partner, Greenwich Associates (financial consulting); Vice President, T. Rowe Price Group, Inc. |
Odenath, David
(1957)
President and Trustee | | Since 2008 | | 14 | | None | | Senior Executive Vice President of Legg Mason, Inc. and President of Legg Mason Funds since 2008. Formerly: President of Prudential Annuities (2002-2008); Executive Vice President (2003-2008) of American Skandia Investment Services, Inc; Chief Executive Officer and Director (2003-2008) of American Skandia Life Assurance Corporation, American Skandia Information Services and Technology Corporation and Skandia U.S. Inc.; President, Chief Executive Officer and Director (2003-2008) of American Skandia Marketing, Inc.; Formerly President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (1999-2003) of PI; Senior Vice President (since 1999-2003) of Prudential; formerly Senior Vice President (1993-1999) of PaineWebber Group, Inc. |
| | |
Annual Report to Shareholders | | 41 |
| | | | | | | | |
Name,
(Year of Birth) and
Position with Trust | | Term of
Office and
Length of
Time
ServedA | | Number of
Funds in
Fund Complex
Overseen
by Trustee | | Other
Directorships
Held by Trustee | | Principal Occupation(s)
During the Past Five Years |
| EXECUTIVE OFFICERS : | | | | | | |
Gerken, R. Jay
(1951)
Vice President | | Since 2009 | | N/A | | N/A | | Managing Director of Legg Mason & Co., LLC, Chairman, President and Chief Executive Officer of certain mutual funds associated with Legg Mason & Co., LLC or its affiliates (2005-present); President of Legg Mason Partners Fund Advisor, LLC (“LMPFA”) (2006-present); Chairman of Smith Barney Fund Management LLC and Citi Fund Management Inc. (2002-2005); Chairman, President and Chief Executive Officer of Travelers Investment Adviser, Inc. (2002-2005). |
Ozsolak, Kaprel
(1965)
Chief Financial Officer and Treasurer | | Since 2009 | | N/A | | N/A | | Director of Legg Mason; Chief Financial Officer and Treasurer of certain mutual funds associated with Legg Mason; formerly, Controller of certain mutual funds associated with certain predecessor firms of Legg Mason (from 2002 to 2004) |
Frenkel, Robert I.
(1954) Secretary and Chief Legal Officer | | Since 2009 | | N/A | | N/A | | Managing Director and General Counsel of Global Mutual Funds for Legg Mason and its predecessors (since 1994); Secretary and Chief Legal Officer of mutual funds associated with Legg Mason (since 2003); formerly, Secretary of CFM (from 2001 to 2004) |
Becker, Ted P.
(1951)
Vice President and Chief Compliance Officer | | Since 2007 | | N/A | | N/A | | Director of Global Compliance at Legg Mason (2006 to present); Managing Director of Compliance at Legg Mason & Co. (2005 to present); Chief Compliance Officer with certain mutual funds associated with Legg Mason & Co. (since 2006); Chief Compliance Officer of Legg Mason Partners Funds and certain affiliates; Managing Director of Compliance at Citigroup Asset Management (2002 to 2005). Prior to 2002, Managing Director-Internal Audit & Risk Review at Citigroup Inc. |
| | |
42 | | Annual Report to Shareholders |
ADDITIONAL INFORMATION ABOUT THE TRUST’S TRUSTEES
AND OFFICERS IS CONTAINED IN THE STATEMENT OF ADDITIONAL
INFORMATION, AVAILABLE WITHOUT CHARGE UPON REQUEST BY
CALLING 1-800-822-5544 OR ON THE
SECURITIES AND EXCHANGE COMMISSION
WEBSITE (http://www.sec.gov).
A | Officers of the Trust are elected annually to serve until their successors are elected and qualified. Trustees of the Trust serve a term of indefinite length until their retirement, in accordance with the Board’s retirement policy resignation or removal, and stand for re-election by shareholders only as and when required by the 1940 Act. |
B | Each of the Independent Trustees serves on the standing committees of the Board of Trustees, which include the Audit Committee (chair: Arthur Mehlman), the Nominating Committee (co-chairs: Peter O’Brien and Jill McGovern), and the Independent Trustees Committee (chair: Arnold Lehman). |
C | Mr. Fetting and Mr. Odenath are considered to be interested persons, as defined in the 1940 Act, of the Trust on the basis of their current employment with the Trust’s investment advisor or its affiliated entities (including the Trust’s principal underwriter) and Legg Mason Inc., the parent holding company of these entities as well as their ownership of Legg Mason Inc. stock. |
| | |
Annual Report to Shareholders | | 43 |
Board Consideration of Legg Mason Maryland Tax-Free Income Trust’s Investment Advisory and Management Agreement and Sub-Advisory Agreement
At its November 2008 meeting, the Board of Trustees (the “Board”), including all of the Independent Trustees, approved the continuation of the Investment Advisory and Management Agreement between Legg Mason Fund Adviser, Inc. (the “Manager”) and Legg Mason Tax-Free Income Fund on behalf of Legg Mason Maryland Tax-Free Income Trust (“Maryland Tax-Free”), and the Sub-Advisory Agreement between the Manager and Legg Mason Investment Counsel, LLC (the “Sub-Adviser”) (each an “Agreement”). In voting to approve the continuation of each Agreement, the Board considered whether continuance would be in the best interest of Maryland Tax-Free and its shareholders, an evaluation largely based on the nature and quality of the services provided under each Agreement and the overall fairness of each Agreement to Maryland Tax-Free. In considering each Agreement, the Board did not identify any single factor or item of information as all-important or controlling. Based on its evaluation of all material factors, including those described below, the Board concluded that the terms of each Agreement are reasonable and fair and that the continuation of each Agreement is in the best interest of Maryland Tax-Free and its shareholders.
Prior to the Board action, the Independent Trustees met as a committee, together with experienced 1940 Act counsel, to consider their recommendation as to continuance of each Agreement. As part of the process to consider each Agreement, legal counsel to Maryland Tax-Free requested certain information from the Manager and the Sub-Adviser on behalf of the Independent Trustees, and in response, the Manager and the Sub-Adviser provided extensive reports that addressed specific factors designed to inform the Board’s consideration of each Agreement. Counsel also provided the Independent Trustees and the Board with a memorandum detailing their responsibilities pertaining to the continuance of each Agreement.
In addition to the November meeting, the Independent Trustees met in executive session in October 2008, at which time they reviewed and analyzed materials relating to each Agreement. The Independent Trustees also retained independent consultants to assist them in their review and analysis of each Agreement. The Board meets at least another three times per year in order to oversee the Legg Mason Funds, including meetings at which the portfolio manager of Maryland Tax-Free or others make presentations and discuss performance, compliance and other applicable issues. The Board also drew upon its long association with the Manager, the Sub-Adviser and their personnel and the Board members’ familiarity with their culture and the manner in which the management entities have sought to strengthen and enhance themselves.
With respect to the nature, scope and quality of the services provided, the Board considered the experience and commitment of the Manager’s and the Sub-Adviser’s personnel and their efforts to build and support a strong service team. The Board also considered the nature and quality of the Sub-Adviser’s investment process. In assessing
| | |
44 | | Annual Report to Shareholders |
Board Consideration of Legg Mason Maryland Tax-Free Income Trust’s Investment Advisory and Management Agreement and Sub-Advisory Agreement — Continued
performance, the Board compared Maryland Tax-Free’s returns to the average of an appropriate Lipper category, a specified benchmark index and a peer group of investment companies pursuing similar strategies, all over multiple time periods. The Board noted Maryland Tax-Free’s performance record and the measures that the Manager and the Sub-Adviser were taking in an effort to maintain attractive long-term performance for Maryland Tax-Free. The Board considered whether a reduction in assets under management in the Legg Mason organization would adversely affect the resources available to the Manager and the Sub-Adviser. The Board also considered the level of service provided by the Manager to Maryland Tax-Free, including oversight of the transfer agent and the custodian and preparation of regulatory filings. The Board considered the Sub-Adviser’s procedures for executing portfolio transactions for Maryland Tax-Free. The Board also reviewed the Sub-Adviser’s policies and procedures for the selection of brokers and dealers.
In determining whether the terms of each Agreement are reasonable and fair, the Board considered the terms and fee structure of each Agreement. In that connection, the Board considered the costs to the Manager and the Sub-Adviser in providing services to Maryland Tax-Free and profitability for the Manager and its affiliates from their overall association with Maryland Tax-Free. The Board reviewed information about the advisory fee schedule and overall expense ratio of Maryland Tax-Free and comparable fee schedules and expense ratios of a peer group of funds. Although Maryland Tax-Free has not grown to a size where any potential economies of scale might become apparent, the Board satisfied itself that the fees paid by Maryland Tax-Free at its current asset level are appropriate and noted that the Manager has voluntarily waived fees for Maryland Tax-Free. Finally, the Board considered other benefits accruing to the Manager, the Sub-Adviser and their affiliates by virtue of their relationship to Maryland Tax-Free.
After an evaluation of all material factors, including those in the foregoing discussion, the Board concluded that the continuation of each Agreement is in the best interest of Maryland Tax-Free.
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Sub-Adviser
Legg Mason Investment Counsel, LLC
Baltimore, MD
Board of Trustees
Mark R. Fetting, Chairman
David R. Odenath, President
Dr. Ruby P. Hearn
Arnold L. Lehman
Robin J.W. Masters
Dr. Jill E. McGovern
Arthur S. Mehlman
G. Peter O’Brien
S. Ford Rowan
Robert M. Tarola
Officers
R. Jay Gerken, Vice President
Kaprel Ozsolak, Chief Financial Officer and Treasurer
Robert I. Frenkel, Secretary and Chief Legal Officer
Ted P. Becker, Vice President and Chief Compliance Officer
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Braintree, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
K&L Gates LLP
Washington, DC
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Baltimore, MD
About the Legg Mason Funds
| | | | |
| | Equity Funds American Leading Companies Trust Batterymarch U.S. Small Capitalization
Equity Portfolio Classic Valuation Fund Growth Trust Special Investment Trust U.S. Small-Capitalization Value Trust Value Trust Specialty Fund Opportunity Trust Global Funds Emerging Markets Trust International Equity Trust Taxable Bond Funds Investment Grade Income Portfolio Limited Duration Bond Portfolio Tax-Free Bond Fund Maryland Tax-Free Income Trust | | Legg Mason, Inc., based in Baltimore, Maryland, has built its reputation, at least in part, on the success of the Legg Mason Funds, introduced in 1979. The primary purpose of our funds is to enable investors to diversify their portfolios across various asset classes and, consequently, enjoy the stability and growth prospects generally associated with diversification. The success of our funds is contingent on the experience, discipline, and acumen of our fund managers. We believe the quality of our managers is crucial to investment success. Unlike many firms, which focus on a particular asset class or the fluctuations of the market, at Legg Mason we focus on providing a collection of top-notch managers in all the major asset classes. Information about the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities is contained in the Statement of Additional Information, available without charge upon request by calling 1-800-822-5544 or on the Securities and Exchange Commission’s (“SEC”) website (http://www.sec.gov). Information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is also available on the SEC’s website or through the Legg Mason Funds’ website at www.leggmason.com/individualinvestors. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. You may obtain a free copy of the Fund’s portfolio holdings, as filed on Form N-Q, by contacting the Fund at the appropriate phone number, address or website listed below. Additionally, the Fund’s Form N-Q is available on the SEC’s website or may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. Information about the operation of the Public Reference Room can be obtained by calling 1-800-SEC-0330. |
This report must be preceded or accompanied by a free prospectus. Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. For a free prospectus for this or any other Legg Mason Fund, visit www.leggmason.com/individualinvestors. Please read the prospectus carefully before investing.
| | |
Legg Mason Funds For A and C Shareholders P.O. Box 55214 Boston, MA 02205-8504 800-822-5544 www.leggmason.com/individualinvestors | | Legg Mason Funds For R, FI and I Class Shareholders P.O. Box 55214 Boston, MA 02205-8504 888-425-6432 www.leggmason.com/individualinvestors |
Legg Mason Investor Services, LLC, Distributor
A Legg Mason, Inc. subsidiary
LMF-030-SR09-806/A (05/09)
| Item 2. | Code of Ethics Applicable to Registrant’s Principal Executive Officer and Principal Financial Officer |
| | | | | | |
| | (a) | | Legg Mason Tax-Free Income Fund (“Registrant”) has adopted a Code of Ethics, as defined in the instructions to Form N-CSR that applies to the Registrant’s President and Treasurer, which is designed to deter wrongdoing and to promote: |
| | |
| | | | • Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| | | | |
| | | | • Full, fair, accurate, timely and understandable disclosure in reports and documents the Registrant files with, or submits to, the SEC or in other public communications made by the Registrant; • Compliance with applicable governmental laws, rules and regulations; • Prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and • Accountability for adherence to the Code of Ethics. |
| | |
| | (b) | | No response required. |
| | |
| | (c) | | Not applicable. |
| | |
| | (d) | | The Registrant has not granted a waiver, including an implicit waiver, from a provision of the Code of Ethics to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions during the period covered by this report. |
| | |
| | (e) | | Not applicable. |
| | |
| | (f) | | A copy of the Code of Ethics is attached as Exhibit 12(a)(1) to this Form N-CSR. |
| Item 3. | Audit Committee Financial Expert |
| | | | | | |
| | (a) | | (1) | | The Registrant’s Board of Directors have determined that the Registrant has at least one Audit Committee financial expert serving on its Audit Committee. |
| | | |
| | (a) | | (2) | | The Audit Committee’s financial experts are Mr. Arthur S. Mehlman and Mr. Robert M. Tarola. They are “independent” as defined in Form N-CSR Item 3(a)(2). |
| Item 4. | Principal Accounting Fees and Services |
| | | | | | |
| | (a) | | Audit Fees PricewaterhouseCoopers LLP Fiscal Year Ended March 31, 2008 – $23,750 Fiscal Year Ended March 31, 2009 – $33,770 |
| | | | | | |
| | (b) | | Audit-Related Fees There were no additional fees billed to the Registrant during either of the last two fiscal years in addition to those disclosed in Item 4(a). There were no fees billed to the Registrant for assurance and related services that required preapproval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the Registrant’s last two fiscal years. |
| | |
| | (c) | | Tax Fees PricewaterhouseCoopers LLP Fiscal Year Ended March 31, 2008 – $2,400 Fiscal Year Ended March 31, 2009 – $2,400 Services include preparation of federal and state income tax returns and preparation of excise tax returns. There were no fees billed to the Registrant for tax services that required preapproval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the Registrant’s last two fiscal years. |
| | |
| | (d) | | All Other Fees There were no fees billed to the Registrant during either of the last two fiscal years in addition to those disclosed in Item 4(a) through Item 4(c) above. There were no fees billed to the Registrant for services not included in Items 4(a) through 4(c) above that required preapproval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the Registrant’s last two fiscal years. |
| | | |
| | (e) | | (1) | | The Audit Committee’s policy is to delegate to its chairperson the authority to preapprove items prior to the next meeting of the Committee. Such preapprovals are reported at the next quarterly meeting of the Audit Committee. |
| | | |
| | | | (2) | | There were no services provided to the Registrant that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| | | | |
| | | | There were no fees billed to the Registrant for services where pre-approval by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during the Registrant’s last two fiscal years. |
| | |
| | (f) | | The percentage of hours expended by the principal accountant’s engagement to audit the Registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants’ full-time, permanent employees was zero. |
| | |
| | (g) | | Non-Audit Fees for services rendered to Registrant or Registrant’s investment manager and any entity controlling, controlled by, or under common control with the investment manager. |
| | |
| | | | PricewaterhouseCoopers LLP Fiscal Year Ended March 31, 2008 – $1,249,000 Fiscal Year Ended March 31, 2009 – $589,500 |
| | |
| | (h) | | The members of the Registrant’s Audit Committee have considered whether the non-audit services that were rendered by the Registrant’s principal accountant to the Registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are compatible with maintaining the principal accountant’s independence. |
| Item 5. | Audit Committee of Listed Registrants |
The Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
| Item 6. | Schedule of Investments |
The schedule of investments in securities of unaffiliated issuers is included in the annual report.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers |
Not applicable.
| Item 10. | Submission of Matters to a Vote of Security Holders |
The Nominating Committee will accept recommendations for nominations from shareholders. Shareholders may forward recommendations to the Fund Secretary at 100 Light Street, 32nd Floor, Baltimore, Maryland 21202, Attn.: Fund Secretary.
| Item 11. | Controls and Procedures |
| | | | |
| | (a) | | The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing date of this report, that the Registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the SEC’s rule and forms and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. |
| | |
| | (b) | | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| | | | | | |
| | (a) | | File the exhibits listed below as part of this Form. |
| | | |
| | | | (1) | | The Registrant’s Code of Ethics applicable to Registrant’s principal executive officer and principal financial officer is attached hereto. |
| | | |
| | | | (2) | | Separate certifications for the Registrant’s chief executive officer and chief financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto. |
| | | | |
| | (b) | | Separate certifications for the Registrant’s chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| Legg Mason Tax-Free Income Fund |
| |
| By: | | /s/ David R. Odenath |
| | David R. Odenath |
| | President, Legg Mason Tax-Free Income Fund |
|
| Date: June 4, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | |
| By: | | /s/ David R. Odenath |
| | David R. Odenath |
| | President, Legg Mason Tax-Free Income Fund |
|
| Date: June 4, 2009 |
| | |
| By: | | /s/ Kaprel Ozsolak |
| | Kaprel Ozsolak |
| | Chief Financial Officer and Treasurer, Legg Mason Tax-Free Income Fund |
|
| Date: June 4, 2009 |
