<PAGE>
--------------------------------------------
------------------------------
Semi-Annual Report
September 30, 2000
Legg Mason
Tax-Free
Income Fund
Pennsylvania Tax-Free
Navigator Class
------------------------------
[LOGO]
--------------------------------------------
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Tax-Free Income Fund's
semi-annual report for the six months ended September 30, 2000. This report
includes financial information for the Navigator Class of Pennsylvania Tax-Free
Income Trust.
The following table summarizes key statistics for the Navigator Class of
shares of the Fund, as of September 30, 2000:
<TABLE>
<CAPTION>
Average Net Asset Value
SEC Yield* Weighted Maturity Per Share
---------- ----------------- --------------
<S> <C> <C> <C>
Pennsylvania Tax-Free 4.50% 14.08 Years $15.65
</TABLE>
The Fund seeks a high level of current income exempt from federal, state and
local income taxes. The Fund purchases 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 of securities currently owned by the Fund are:
<TABLE>
<CAPTION>
Pennsylvania
Tax-Free
--------------
<S> <C>
Aaa 72.1%
Aa 19.8
A 4.7
Baa --
Short-term securities 3.4
</TABLE>
For the twelve months ended September 30, 2000, the total return for
Pennsylvania Tax-Free was +5.57%. (Total return measures investment performance
in terms of appreciation or depreciation in net asset value per share plus
dividends and any capital gain distributions. It assumes that dividends and
distributions were reinvested at the time they were paid.) Of course, past
performance does not guarantee future results.
Normally, the weighted average maturity for the Fund will be kept within a
range of 12 to 24 years. Because of the relatively long average weighted
maturities, the Fund offers potentially higher yields than short-term and
intermediate-term tax-free bond funds. However, the net asset values per share
typically will decline more when interest rates rise and gain more when interest
rates fall than net asset values per share of tax-free bond funds with short-
and intermediate-term average weighted maturities.
Sincerely,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman
October 25, 2000
_______________________
*The SEC yield reported is for the 30 days ended September 30, 2000. If no fees
had been waived by the Adviser, the 30-day SECyield would have been 4.31%.
<PAGE>
Statement of Net Assets
Legg Mason Tax-Free Income Fund
September 30, 2000 (Unaudited)
(Amounts in Thousands)
Pennsylvania Tax-Free Income Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 95.4%
Pennsylvania -- 95.4%
Allegheny County, Airport Revenue
1992-B AMT (FSA insured) 6.625% 1/1/22 $1,000 $ 1,033
Allegheny County, Baldwin-Whitehall School
District, GO Series 1992-A (Pre-refunded 8/15/02)
(FGIC insured) 6.600% 8/15/10 1,000 1,039/A/
Allegheny County, Pennsylvania Higher Education,
Duquesne University Project Refunding
(AMBAC insured) 5.125% 3/1/13 1,000 987
Allegheny County, West Jefferson Hills School
District, GO (Pre-refunded 2/1/01)
(FGIC insured) 7.100% 2/1/11 1,000 1,009/A/
Allegheny County Hospital Development Authority,
Children's Hospital Refunding (MBIA insured) 6.875% 7/1/14 1,000 1,019
Allegheny County Hospital Development Authority,
Health Center Revenue Bonds, Series 1997B
(MBIA insured) 6.000% 7/1/24 1,000 1,039
Beaver County, Ohio Edison Company
IDA PCR Refunding (FGIC insured) 7.000% 6/1/21 1,000 1,033
Bucks County, Council Rock School District, GO
(Pre-refunded 3/1/01) (FGIC insured) 6.750% 3/1/11 250 252/A/
Central Dauphin School District, Dauphin County,
Pennsylvania, GO Bonds, Series AA of 1998
(MBIA insured) 4.500% 12/1/18 2,250 1,919
Commonwealth of Pennsylvania, GO
First Series 6.125% 9/15/03 1,000 1,036
Second Series (Pre-refunded 11/1/01) 6.500% 11/1/09 1,000 1,037/A/
County of Chester, Pennsylvania, GO Bonds,
Series of 1998 5.000% 6/15/15 1,000 955
County of Delaware, Pennsylvania, GO Bonds,
Series of 1999 5.125% 10/1/16 1,000 959
Deer Lakes School District, Pennsylvania GO
(MBIA insured) 6.450% 1/15/19 1,750 1,827
Delaware County Authority, University Revenue,
Villanova University (Pre-refunded 8/1/01) 6.850% 8/1/11 500 510/A/
Delaware County
GO (Pre-refunded 11/15/02) 6.000% 11/15/22 1,000 1,030/A/
GO Refunding 6.000% 11/15/22 220 222
Delaware River Port Authority (FGIC insured) 5.500% 1/1/26 1,000 985
</TABLE>
2
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Erie County, Pennsylvania Sewer Authority,
Sewer Revenue Bonds, Series 1997 (Pre-refunded
6/1/07) (AMBAC insured) 5.625% 6/1/17 $2,000 $ 2,102/A/
Lower Bucks County Joint Municipal Authority,
Bucks County, Pennsylvania, Water & Sewer
Revenue Bonds, Series of 1998 (FSA insured) 5.000% 11/15/17 1,000 930
Montgomery County, Upper Gwynedd -
Towamencin Guaranteed Sewer Revenue,
Series 1991-A (MBIA insured) 6.750% 10/15/06 250 256
Montgomery County Higher Education and Health
Authority, Saint Joseph's University Revenue,
Series 1992 Refunding (Connie Lee insured) 6.250% 12/15/04 500 526
Montgomery Township Municipal Sewer Authority,
Guaranteed Sewer Revenue, Series 1991-A
(MBIA insured) 6.700% 5/15/21 250 250
Northampton County Higher Education Authority,
Lehigh University Revenue, Series 1996-B 5.250% 11/15/21 2,500 2,360
Pennsylvania Convention Center Authority
Revenue Bonds, 1989 Series A (FGIC insured) 6.000% 9/1/19 1,000 1,055
Pennsylvania Economic Development Revenue IDA
Series 1991-A (Pre-refunded 7/1/01) 7.000% 1/1/11 1,000 1,039/A/
Series 1994-A Refunding (AMBAC insured) 5.500% 1/1/14 1,525 1,530
Pennsylvania Higher Education, University of
Pittsburgh, Series 1997-A (FGIC insured) 5.125% 6/1/22 1,000 924
Pennsylvania Higher Education Assistance Agency,
Student Loan Revenue AMT, Series 1991-C
(AMBAC insured) 7.150% 9/1/21 1,000 1,066
Pennsylvania Higher Educational Facilities Authority,
Temple University Revenue First Series
(Pre-refunded 4/1/01) (MBIA insured) 6.500% 4/1/21 250 258/A/
Pennsylvania Higher Educational Facilities Authority
(Commonwealth of Pennsylvania), The Trustees of
the University of Pennsylvania, Revenue Bonds
Series 1998 4.500% 7/15/16 1,750 1,517
Series 1998 4.625% 7/15/30 2,000 1,626
Pennsylvania Housing Finance Agency, Rental
Housing
Series 1993-C (Fannie Mae insured) 5.800% 7/1/22 1,000 979
Series 1992-C (Fannie Mae insured) 6.500% 7/1/23 750 775
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania Housing Finance Agency, Single
Family Mortgage
Series 1991-32 Refunding 7.150% 4/1/15 $ 435 $ 448
Series 1992-33 6.900% 4/1/17 230 239
Pennsylvania Intergovernmental Co-op Authority
(Pre-refunded 6/15/03) (MBIA insured) 5.600% 6/15/15 1,000 1,027/A/
(Pre-refunded 6/15/03) (MBIA insured) 5.600% 6/15/16 2,000 2,054/A/
Pennsylvania Intergovernmental Co-op Authority,
Special Tax Revenue Refunding (FGIC insured) 4.750% 6/15/23 1,550 1,332
Pennsylvania State University, Series A Refunding 5.100% 3/1/18 1,500 1,404
Pennsylvania Turnpike Commission, Oil
Franchise Tax Subordinated Revenue Bonds,
Series B of 1998 (AMBAC insured) 4.750% 12/1/27 2,000 1,707
Pennsylvania Turnpike Commission, Revenue
Series N 5.500% 12/1/17 1,000 987
Philadelphia Gas Works, Series B (MBIA insured) 7.000% 5/15/20 500 575
Philadelphia Hospitals and Higher Education
Facilities Authority, Hospital Revenue Refunding,
Children's Hospital, Series 1993-A 5.000% 2/15/21 1,000 850
Philadelphia Municipal Authority, Justice Lease
Revenue
Series 1991-B (Pre-refunded 11/15/01)
(FGIC insured) 7.000% 11/15/04 500 524/A/
Series 1991-B (Pre-refunded 11/15/01)
(FGIC insured) 7.100% 11/15/05 500 524/A/
Philadelphia Water and Wastewater Revenue
Bonds, Series 1995 6.250% 8/1/11 2,000 2,204
Pittsburgh (City of), Pennsylvania, GO
(AMBAC insured) 5.250% 9/1/18 2,000 1,915
Port Authority of Allegheny County (Pennsylvania),
Special Revenue Transportation Bonds,
Series of 1999 (MBIA insured) 6.375% 3/1/14 1,000 1,086
Sayre, Pennsylvania Healthcare Revenue Volunteer
Hospital Authority, Guthrie Healthcare System
(AMBAC insured) 7.200% 12/1/20 500 522
Schuylkill County, Pennsylvania, Charity Obligated
Group IDA, Series A 5.000% 11/1/28 500 428
Somerset County General Authority,
Commonwealth Lease Revenue (Pre-refunded
10/15/01) (FGIC insured) 7.000% 10/15/13 500 513/A/
</TABLE>
4
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax-Free Income Fund
Pennsylvania Tax-Free Income Trust -- Continued
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swarthmore Borough Authority, Swarthmore
College Refunding Revenue
Series 1992 (Pre-refunded 9/15/02) 6.000% 9/15/12 $ 180 $ 189/A/
Unrefunded Balance 6.000% 9/15/12 820 853
Series 1992 (Pre-refunded 9/15/02) 6.000% 9/15/20 370 387/A/
Unrefunded Balance 6.000% 9/15/20 1,630 1,657
University of Pittsburgh
1997-B Refunding (MBIA insured) 5.000% 6/1/21 2,000 1,820
Series 1992-A (MBIA insured) 6.125% 6/1/21 350 356
Series 1992-A (Pre-refunded 6/1/02)
(MBIA insured) 6.125% 6/1/21 650 679/A/
Upper St. Clair Township School District,
Allegheny County, Pennsylvania GO Bonds,
Series of 1997 5.200% 7/15/27 1,150 1,063
Washington County Hospital Authority, Hospital
Refunding Revenue, Shadyside Hospital
Project, Series 1992 (Pre-refunded 12/15/02)
(AMBAC insured) 6.000% 12/15/18 1,000 1,050/A/
Westmoreland County
GO (AMBAC insured) 0.000% 8/1/13 2,000 1,008/B/
GO (AMBAC insured) 0.000% 8/1/14 2,475 1,166/B/
--------
Total Municipal Bonds (Identified Cost -- $62,394) 63,651
-----------------------------------------------------------------------------------------------------------------------
Variable Rate Demand Obligations/C/ -- 3.3%
Pennsylvania -- 3.3%
Pennsylvania Higher Educational Facilities Authority
Revenue Refunding (Carnegie Mellon University),
Series 1995 A 5.600% 10/2/00 200 200
Pennsylvania Higher Educational Facilities Authority,
Carnegie Mellon University, Series 1995 D 5.600% 10/2/00 1,400 1,400
The Hospitals and Higher Education Facilities
Authority of Philadelphia, Hospital Revenue Bond
(The Children's Hospital of Philadelphia Project),
Series 1992 B 5.600% 10/2/00 600 600
--------
Total Variable Rate Demand Obligations
(Identified Cost -- $2,200) 2,200
-----------------------------------------------------------------------------------------------------------------------
Total Investments -- 98.7% (Identified Cost -- $64,594) 65,851
Other Assets Less Liabilities -- 1.3% 849
--------
Net assets -- 100.0% $ 66,700
========
</TABLE>
5
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
<S> <C>
Net assets consisting of:
Accumulated paid-in capital applicable to:
4,256 Primary Class shares outstanding $66,373
4 Navigator Class shares outstanding 72
Accumulated net realized gain/(loss) on investments (1,002)
Unrealized appreciation/(depreciation) of investments 1,257
-------
Net assets -- 100.0% $66,700
=======
Net asset value and redemption price per share: D
Primary Class $ 15.66
=======
Navigator Class $ 15.65
=======
--------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Pre-refunded bond -- Bonds are referred to as pre-refunded when the issue
has been advance refunded by a subsequent issue. The original issue is
usually escrowed with U.S. Treasury securities in an amount sufficient to
pay the interest, principal and call premium, if any, to the earliest call
date. On that call date, the bond "matures." The pre-refunded date is used
in determining weighted average portfolio maturity.
/B/ Zero-coupon bond -- A bond with no periodic interest payments which is sold
at such a discount as to produce a current yield to maturity.
/C/ The rate shown is the rate as of September 30, 2000, and the maturity shown
is the longer of the next interest readjustment or the date the original
principal amount owed can be recovered through demand.
/D/ Sales charges have been waived since November 3, 1997. If the sales charges
were in effect, the maximum offering price per share would have been
$16.10.
A guide to abbreviations follows Sector Diversification.
See notes to financial statements.
6
<PAGE>
Sector Diversification
Legg Mason Tax-Free Income Fund
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Pennsylvania Tax-Free
Income Trust
--------------------------------
% of Market
Net Assets Value
---------------------------------------------------------------------------------------------
<S> <C> <C>
Education Revenue 21.0 $14,030
Escrowed 8.4 5,631
General Obligation--Local 6.1 4,050
General Obligation--School 4.5 2,982
General Obligation--State 1.5 1,036
Health Care and Hospital Revenue 5.8 3,858
Housing Revenue 3.7 2,441
Lease Revenue -- --
Other 5.9 3,929
Parking Revenue -- --
Port Facilities Revenue -- --
Pre-Refunded Bonds 22.8 15,223
Small Business Administration
Revenue -- --
Solid Waste Revenue -- --
Student Loan Revenue -- --
Transportation Revenue 8.7 5,798
Utility 1.5 1,033
Water and Sewer Revenue 5.5 3,640
Short-Term Investments 3.3 2,200
Other Assets Less Liabilities 1.3 849
------- --------
100.0 $66,700
======= ========
</TABLE>
______________________________________________________
Guide to Investment Abbreviations
Legg Mason Tax-Free Income Fund
AMBAC AMBAC Indemnity Corporation
AMT Alternative Minimum Tax
Connie Lee Connie Lee Insurance Company
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GO General Obligation
HOC Housing Opportunities Commission
IDA Industrial Development Authority
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
7
<PAGE>
Statement of Operations
Legg Mason Tax-Free Income Fund
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 9/30/00
------------------------
Pennsylvania
Tax-Free
Income Trust
----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 1,943
-------
Expenses:
Investment advisory fee 185
Distribution and service fees 84
Transfer agent and shareholder servicing expense 10
Audit and legal fees 16
Custodian fee 41
Registration fees 1
Reports to shareholders 8
Trustees' fees 4
Other expenses N.M.
-------
349
Less: Fees waived (134)
Compensating balance credits N.M.
-------
Total expenses, net of waivers and compensating
balance credits 215
-------
Net Investment Income 1,728
-------
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on investments (214)
Change in unrealized appreciation/(depreciation) of investments 558
-------
Net Realized and Unrealized Gain/(Loss) on Investments 344
----------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $ 2,072
----------------------------------------------------------------------------------------------
N.M.--Not meaningful.
See notes to financial statements.
</TABLE>
8
<PAGE>
Statement of Changes in Net Assets
Legg Mason Tax-Free Income Fund
(Amounts in Thousands)
<TABLE>
<CAPTION>
Pennsylvania
Tax-Free
Income Trust
---------------------------
Six Months Year
Ended Ended
9/30/00 3/31/00
-----------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Change in Net Assets:
Net investment income $ 1,728 $ 3,675
Net realized gain/(loss) on investments (214) (788)
Change in unrealized appreciation/
(depreciation) of investments 558 (3,707)
-----------------------------------------------------------------------------------------------
Change in net assets resulting from operations 2,072 (820)
Distributions to shareholders:
From net investment income:
Primary Class (1,726) (3,670)
Navigator Class (2) (5)
From net realized gain on investments:
Primary Class -- (79)
Navigator Class -- N.M.
Change in net assets from Fund share transactions:
Primary Class (2,905) (1,331)
Navigator Class -- (204)
-----------------------------------------------------------------------------------------------
Change in net assets (2,561) (6,109)
Net Assets:
Beginning of period 69,261 75,370
-----------------------------------------------------------------------------------------------
End of period $66,700 $69,261
-----------------------------------------------------------------------------------------------
</TABLE>
N.M.--Not meaningful.
See notes to financial statements.
9
<PAGE>
Financial Highlights
Legg Mason Tax-Free Income Fund
Contained below is per share operating performance data for a
Navigator Class share of beneficial interest outstanding, total investment
return, ratios to average net assets and other supplemental data. This
information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
Investment Operations Distributions
--------------------------------------- -------------------------------------
From
Net Asset Net Realized Total From Net Net Asset
Value, Net and Unrealized From Net Realized Value,
Beginning Investment Gain (Loss) on Investment Investment Gain on Total End of
of Period Income Investments Operations Income Investments Distributions Period
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania Tax-Free Income Trust
Six Months Ended
Sept. 30, 2000* $15.57 $.42/C/ $ .08 $ .50 $(.42) $ -- $(.42) $15.65
Years Ended Mar. 31,
2000 16.53 .82/C/ (.94) (.12) (.82) (.02) (.84) 15.57
1999 16.48 .84/C/ .10 .94 (.84) (.05) (.89) 16.53
1998/D/ 16.44 .05/C/ .04 .09 (.05) -- (.05) 16.48
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------------------------------------
Net
Total Net Investment Net Assets,
Expenses Expenses Income Portfolio End of
Total to Average to Average to Average Turnover Period
Return Net Assets/A/ Net Assets/B/ Net Assets Rate (in thousands)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Tax-Free Income Trust
Six Months Ended
Sept. 30, 2000* 3.23%/E/ .45%/C,F/ .45%/C,F/ 5.33%/C,F/ 13.1%/F/ $ 67
Years Ended Mar. 31,
2000 (.62)% .45%/C/ .45%/C/ 5.13%/C/ 28.6% 66
1999 5.79% .46%/C/ .45%/C/ 5.04%/C/ 10.6% 277
1998/D/ .55%/E/ .45%/C,F/ .45%/C,F/ 4.82%/C,F/ 14.1%/F/ 90
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ This ratio reflects total expenses before compensating balance
credits, but net of the voluntary expense waivers described below.
/B/ This ratio reflects expenses net of compensating balance credits and
voluntary expense waivers described below.
/C/ Net of fees waived by the Adviser in excess of a voluntary expense
limitation of 0.45%. If no fees had been waived by the Adviser, the
annualized ratio of expenses to average daily net assets for each
period would have been as follows: for the six months ended September
30, 2000, 0.85%; for the years ended March 31, 2000, 0.81%; 1999,
0.75%; and for the period ended March 31, 1998, 0.75%.
/D/ For the period March 10, 1998 (commencement of sale of Navigator Class
shares) to March 31,1998.
/E/ Not annualized.
/F/ Annualized.
* Unaudited
See notes to financial statements.
10
<PAGE>
Notes to Financial Statements
Legg Mason Tax-Free Income Fund
(Amounts in Thousands) (Unaudited)
___________________________________________________________________________
1. Significant Accounting Policies:
The Legg Mason Tax-Free Income Fund ("Trust"), consisting of the
Maryland Tax-Free Income Trust ("Maryland Tax-Free"), the Pennsylvania Tax-
Free Income Trust ("Pennsylvania Tax-Free") and the Tax-Free Intermediate-
Term Income Trust ("Tax-Free Intermediate") (each a "Fund"), is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. All series of the Trust are non-diversified.
Pennsylvania Tax-Free consists of two classes of shares: Primary
Class, offered to retail investors since August 1, 1991, and Navigator
Class, offered since March 10, 1998. The Navigator Classes of Maryland Tax-
Free and Tax-Free Intermediate have not commenced operations. Information
about the Primary Class is contained in a separate report to its
shareholders. The income and expenses of a Fund are allocated
proportionately to the two classes of shares except for Rule 12b-1
distribution fees, which are charged only on Primary Class shares, and
transfer agent and shareholder servicing expenses, which are determined
separately for each class.
Security Valuation
Portfolio securities are valued based upon market quotations obtained
from an independent pricing service. When market quotations are not readily
available, securities are valued based on prices received from recognized
broker-dealers in the same or similar securities. Fixed income securities
with 60 days or less remaining to maturity are valued using the amortized
cost method, which approximates current market value.
Pennsylvania Tax-Free follows an investment policy of investing
primarily in municipal obligations of the Commonwealth of Pennsylvania.
Economic changes affecting Pennsylvania and certain of its public bodies
and municipalities may affect the ability of issuers within the state to
pay interest on, or repay principal of, municipal obligations held by the
Fund.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized for financial reporting and federal income tax purposes.
Dividend income and distributions to shareholders are allocated at the
class level and are recorded on the ex-dividend date. Dividends from net
investment income will be declared daily and paid monthly. When available,
net capital gain distributions, which are calculated at the Fund level, are
declared and paid after the end of the tax year in which the gain is
realized. Distributions are determined in accordance with federal income
tax regulations, which may differ from those determined in accordance with
generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Funds' capital accounts to reflect
income and gains available for distribution under federal income tax
regulations. At September 30, 2000, accrued dividends payable for
Pennsylvania Tax-Free were $124.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes.
11
<PAGE>
___________________________________________________________________________
At September 30, 2000, receivables for securities sold and payables for
securities purchased for the Fund were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
------------------------------------------------------------------------
Pennsylvania Tax-Free $20 $5
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
Use of Estimates
Preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Other
Compensating balance credits reflect credits earned on daily,
uninvested cash balances at the custodian, and are used to reduce the
Fund's expenses.
2. Investment Transactions:
For the six months ended September 30, 2000, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds From Sales
--------------------------------------------------------------------------
Pennsylvania Tax-Free $4,162 $6,728
At September 30, 2000, cost, gross unrealized appreciation and gross
unrealized depreciation based on the cost of securities for federal income
tax purposes for the Fund were as follows:
<TABLE>
<CAPTION>
Net Appreciation/
Cost Appreciation Depreciation (Depreciation)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania Tax-Free $ 64,594 $1,888 $(631) $1,257
</TABLE>
3. Transactions With Affiliates:
The Fund has a management agreement with Legg Mason Fund Adviser, Inc.
("LMFA"). Pursuant to the agreement, LMFA provides the Fund with 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.
12
<PAGE>
Notes to Financial Statements--Continued
___________________________________________________________________________
LMFA has 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. The following
chart shows the annual rate of management fees; expense limits and their
expiration dates; total management fees waived; and management fees payable
for the Fund:
<TABLE>
<CAPTION>
Six Months Ended At
September 30, 2000 September 30, 2000
------------------ ------------------
Advisory Expense Expense Limitation Advisory Advisory
Fee Limitation Expiration Date Fees Waived Fees Payable
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
0.55% 0.45% July 31, 2001, or until N.M. N.M.
net assets reach
$125 million
</TABLE>
---------------------
N.M. - Not meaningful.
Legg Mason Trust, fsb ("Adviser") serves as investment adviser to the
Fund and is responsible for the investment activity of the Fund. LMFA pays
the Adviser a fee, computed daily and payable monthly, at an annual rate of
0.50% of the Fund's average daily net assets (net of any fee waivers).
Prior to August 1, 2000, Legg Mason Capital Management, Inc. served as
investment adviser to the Fund, under compensation arrangements
substantially similar to those with the current adviser. For its services
during the fiscal years ended March 31, 1996 through 2000, and for the four
months ended August 1, 2000, the Fund paid the adviser fees as shown in the
table above, net of any waivers.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor of the Fund. Legg Mason
receives an annual distribution fee and an annual service fee, based on the
Fund's Primary Class's average daily net assets, computed daily and payable
monthly as follows:
At September 30, 2000
------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
------------------------------------------------------------
0.125% 0.125% $14
Legg Mason also has an agreement with the Fund's transfer agent to
assist it with some of its duties. For this assistance, the transfer agent
paid Legg Mason $3 for the six months ended September 30, 2000.
LMFA, the Adviser and Legg Mason are corporate affiliates and wholly
owned subsidiaries of Legg Mason, Inc.
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 utilized as an
emergency source of cash in the event of unanticipated, large redemption
requests by shareholders. Pursuant to the Credit Agreement, each
participating Fund is liable only for principal and interest payments
related to borrowings made by that Fund. Borrowings under the Credit
Agreement bear interest at prevailing short-term interest rates. For the
six months ended September 30, 2000, the Fund had no borrowings under the
Credit Agreement.
13
<PAGE>
________________________________________________________________________________
5. Fund Share Transactions:
At September 30, 2000, there were unlimited shares authorized at $.001
par value for the Navigator Class of the Fund. Share transactions were as
follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------- ----------------- ------------------- -----------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania Tax-Free
-- Primary Class
Six Months Ended Sept. 30, 2000 153 $ 2,384 79 $ 1,238 (420) $ (6,527) (188) $ (2,905)
Year Ended March 31, 2000 758 12,022 174 2,731 (1,030) (16,084) (98) (1,331)
-- Navigator Class
Six Months Ended Sept. 30, 2000 -- $ -- -- $ -- -- $ -- -- $ --
Year Ended March 31, 2000 -- -- -- -- (13) (204) (13) (204)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Legg Mason offers a wide range of mutual funds to meet investors' varying
financial needs and investment goals. The funds are listed below:
Equity Funds: Specialty Funds:
Value Trust Balanced Trust
Special Investment Trust Financial Services Fund
Total Return Trust Opportunity Trust
American Leading Companies
Trust
Classic Valuation Fund
Focus Trust
U.S. Small-Capitalization
Value Trust
Global Funds: Taxable Bond Funds:
Global Income Trust U.S. Government Intermediate-Term
Europe Fund Portfolio
International Equity Trust Investment Grade Income Portfolio
Emerging Markets Trust High Yield Portfolio
Tax-Free Bond Funds: Money Market Funds:
Tax-Free Intermediate-Term U.S. Government Money Market
Income Trust Portfolio
Maryland Tax-Free Income Trust Cash Reserve Trust
Pennsylvania Tax-Free Income Trust Tax Exempt Trust
For information on the specific risks, charges, and expenses associated with any
Legg Mason fund, please consult a Legg Mason Financial Advisor for a prospectus.
Read it carefully before investing or sending money.
[LOGO]
<PAGE>
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
Legg Mason Trust, fsb
Baltimore, MD
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
Nelson A. Diaz
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
G. Peter O'Brien
T. A. Rodgers
Edward A. Taber, III
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants
PricewaterhouseCoopers LLP
Baltimore, MD
This report is not to be distributed unless preceded or accompanied by a
prospectus.
Legg Mason Wood Walker, Incorporated
------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 . 539 . 0000
