Investment Manager
Legg Mason Fund Adviser, Inc. Report to Shareholders
Baltimore, MD For the Year Ended
August 31, 1996
Investment Adviser
Western Asset Management Company
Pasadena, CA
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr.
Richard G. Gilmore
Charles F. Haugh The
Arnold L. Lehman Legg Mason
Dr. Jill E. McGovern Cash
T. A. Rodgers Reserve
Edward A. Taber, III Trust
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Putting Your Future First
Custodian
State Street Bank & Trust Company
Boston, MA
[Legg Mason Logo]
Counsel LEGG
Kirkpatrick & Lockhart LLP Washington, D.C. MASON
Independent Auditors FUNDS
Ernst &Young LLP
Baltimore, MD
This fund is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the
fund will always be able to maintain a stable net
asset value of $1.00 per share.
This report is not to be distributed unless preceded or
accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
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111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
[recycle logo] Printed on Recycled Paper
LMF-018
<PAGE>
To Our Shareholders,
The Legg Mason Cash Reserve Trust now has $1.22 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written on September 25, 1996, the Trust's annualized
yield for the past 7 days is 4.72%* (an effective yield of 4.83% when the
compounding effect of dividend reinvestments is included). The average weighted
maturity of our portfolio is 60 days.
A complete listing of the Trust's portfolio holdings at August 31, 1996
appears in this report. You will note that approximately 60% of the Trust's net
assets are invested in U.S. government and government agency securities and
repurchase agreements fully secured by such securities.
You may add to your Cash Reserve Trust account at any time by sending a
check for $500 or more (made payable to Legg Mason Cash Reserve Trust) to:
Legg Mason Cash Reserve Trust
P.O. Box 1476
Baltimore, Maryland 21203-1476
Please include your account number on any checks you send to us.
Sincerely,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman
September 25, 1996
*The yields shown here are for past periods and are not intended to indicate
future performance.
<PAGE>
Statement of Net Assets
Legg Mason Cash Reserve Trust
August 31, 1996
(Amounts in Thousands)
<TABLE>
<CAPTION>
Par Rate Value
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<S> <C>
Asset-Backed Securities -- 9.0%
Case Equipment Loan Trust
$ 7,947 2/15/97 5.00% $ 7,945
Caterpillar Financial
Asset Trust
16,557 5/11/97 5.42 16,557
NationsBank Auto
Owner Trust
33,476 8/15/97 5.78 33,476
Navistar Financial
Owner Trust
16,224 6/15/97 5.25 16,219
Olympic Automobile
Receivables Trust
12,365 6/15/97 5.39 12,365
Western Financial
Owner Trust
23,469 3/1/97 to 5/20/97 5.35 to 5.52 23,469
Total Asset-Backed Securities 110,031
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Bank Note -- 2.1%
Fifth Third Bank
25,000 11/15/96 5.50 25,000
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Certificates of Deposit -- 9.2%
Bank One
25,000 9/19/96 5.30 25,000
First Alabama Bank
27,000 9/24/96 5.46 27,000
Harris Bank
31,000 9/26/96 5.29 31,000
National Bank of Detroit
30,000 10/17/96 5.53 30,000
Total Certificates of Deposit 113,000
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Commercial Paper -- 5.5%
Financial -- 1.9%
Corporate Receivables
Corporation
24,000 10/24/96 5.30 23,813
Managerial Services -- 2.0% PHH Corp.
25,000 10/7/96 5.29 24,868
Telecommunications -- 1.6%
Lucent Technologies Inc.
19,000 9/12/96 5.25 18,970
Total Commercial Paper 67,651
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</TABLE>
<TABLE>
<CAPTION>
Par Rate Value
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<S> <C>
Medium-term Notes -- 4.9%
Commercial Credit
Group, Inc.
$ 5,250 3/1/97 8.13% $ 5,310
General Electric
Capital Corp.
10,000 2/10/97 4.84 9,996
General Motors
Acceptance Corp.
18,500 12/6/96 to 12/10/96 5.25 to 7.75 18,567
John Deere Capital
Corporation
6,000 6/30/97 5.95 5,995
Pepsico Inc.
5,000 11/15/96 7.00 5,014
Philip Morris Companies
Incorporated
15,240 3/15/97 7.50 15,374
Total Medium-term Notes 60,256
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Time Deposits -- 9.4%
American Express
Centurion Bank
25,000 9/9/96 5.50 25,000
Bank of America
30,000 10/23/96 5.35 30,000
Bank of Hawaii
30,000 10/25/96 5.31 30,000
Mellon Bank
30,000 9/10/96 5.44 30,000
Total Time Deposits 115,000
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U.S. Government Securities -- 3.3%
United States
Treasury Notes
40,000 9/30/96 to 3/31/97 6.50 to 6.63 40,103
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U.S. Government Agency Obligations -- 41.5%
Federal Farm Credit Bank
3,300 3/3/97 5.43 3,300
Federal Home Loan Mortgage
Corporation
335,197 9/12/96 to 10/15/96 5.21 to 5.37 334,293
Federal National Mortgage
Association
151,070 9/10/96 to 9/30/96 5.17 to 5.29 150,738
Student Loan Marketing
Association
20,000 9/30/96 5.32 19,914
Total U.S. Government
Agency Obligations 508,245
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</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Par Rate Value
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<S> <C>
Repurchase Agreement -- 14.5%
J.P. Morgan Securities, Inc.
dated 8/30/96, to be
repurchased at $177,643 on
9/3/96 (Collateral:
$150,000 Federal
National Mortgage
Association, 0%
due 12/27/96, value
$147,375; $18,650
Tennessee Valley Authority,
6.13% due 7/15/03,
value $17,930; $15,657
U.S. Treasury Note,
7.25% due 5/15/16,
$177,539 value $16,261) 5.28% $177,539
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Total Investments,
at amortized cost
and value-- 99.4% 1,216,825(dagger)
Management Fee
Payable -- (N.M.) (502)
Other Assets Less
Liabilities-- (0.6%) 8,158
Net assets applicable to
1,224,779 shares
outstanding-- 100.0% $1,224,481
Net asset value per share $1.00
</TABLE>
(dagger) Also represents cost for federal income tax purposes.
N.M. Not meaningful
See notes to financial statements.
3
<PAGE>
Statement of Operations
Legg Mason Cash Reserve Trust
For the Year Ended August 31, 1996
(Amounts in Thousands)
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Investment Income:
Interest $67,654
Expenses:
Management fee $5,897
Transfer agent and shareholder servicing expense 1,839
Shareholder meeting 209
Reports to shareholders 205
Custodian fee 185
Registration fees 145
Audit and legal fees 117
Trustees' fees 11
Other expenses 38
Total expenses 8,646
Net Investment Income 59,008
Net Realized Gain on Investments 114
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Increase in Net Assets Resulting from Operations $59,122
Statement of Changes in Net Assets
Legg Mason Cash Reserve Trust
<TABLE>
<CAPTION>
For the Years Ended August 31,
(Amounts in Thousands) 1996 1995
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<S> <C>
Change in Net Assets:
Net investment income $ 59,008 $ 47,830
Net realized gain on investments 114 108
Increase in net assets resulting from operations 59,122 47,938
Distributions to shareholders from net investment income (59,008) (47,830)
Contribution from Manager 400 480
Increase in net assets from Trust share transactions 70,837 366,221
Change in net assets 71,351 366,809
Net Assets:
Beginning of year 1,153,130 786,321
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End of year $1,224,481 $1,153,130
</TABLE>
See notes to financial statements.
4
<PAGE>
Financial Highlights
Legg Mason Cash Reserve Trust
Contained below is per share operating performance data for a share
of beneficial interest outstanding, total investment return, ratios to
average net assets and other supplemental data. This information has been
derived from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Years Ended August 31,
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1996 1995 1994 1993 1992
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<S> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
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Net investment income .05 .05 .03 .03 .04
Net realized gain (loss) on investments Nil Nil (Nil) -- Nil
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Total from investment operations .05 .05 .03 .03 .04
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Dividends paid from:
Net investment income (.05) (.05) (.03) (.03) (.04)
Realized gain on investments -- -- -- -- (Nil)
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Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
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Total return 4.92% 5.08% 3.08% 2.85% 4.37%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses .70% .71% .72% .76% .75%
Net investment income 4.81% 5.03% 3.05% 2.82% 4.11%
Net assets, end of year (in thousands) $1,224,481 $1,153,130 $786,321 $754,996 $733,789
</TABLE>
See notes to financial statements.
Notes to Financial Statements
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
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1. Significant Accounting Policies:
The Legg Mason Cash Reserve Trust ("Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
management investment company. The policies set forth below are in
conformity with generally accepted accounting principles.
Security Valuation
Portfolio securities are valued under the amortized cost method,
which approximates current market value. Under this method, securities are
valued at cost when purchased and, thereafter, a constant proportionate
amortization of any discount or premium is recorded until maturity of the
security.
Dividends to Shareholders
Dividends are declared daily and paid monthly. Dividends payable are
recorded on the dividend record date. Net investment income for dividend
purposes consists of interest accrued, original issue and market discount
earned, less amortization of market premium and accrued expenses. At
August 31, 1996, dividends payable of $2,490 were accrued.
Security Transactions
Security transactions are accounted for on the trade date and the
cost of investments sold is determined by use of the specific
identification method for both financial reporting and income tax
purposes. At August 31, 1996, $25,009 was receivable
5
<PAGE>
for securities sold but not yet delivered and $28,300 was payable for
securities purchased but not yet received.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in
the possession of the Trust's custodian. The value of such collateral
includes accrued interest.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Trust intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Trust Share Transactions:
The Trust is authorized to issue an unlimited number of full and
fractional shares of beneficial interest (without par value). At August
31, 1996, net assets consisted of paid-in capital of $1,224,779 and
accumulated net realized losses of $298. Since the Trust has sold and
redeemed shares at a constant net asset value of $1.00 per share, the
number of shares represented by such sales and redemptions is the same as
the amounts shown below for such transactions:
For the Years Ended August 31,
1996 1995
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Shares sold $4,744,925 $ 4,083,397
Shares reinvested 57,357 45,368
Shares repurchased 4,731,444 (3,762,544)
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Net increase $ 70,837 $ 366,221
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3. Transactions with Affiliates:
The Trust has a management agreement with Legg Mason Fund Adviser,
Inc. ("Manager"), a corporate affiliate of Legg Mason Wood Walker,
Incorporated ("Legg Mason"), a member of the New York Stock Exchange and
the distributor for the Trust. Under this agreement, the Manager provides
the Trust with management and administrative services for which the Trust
pays a fee at an annual rate ranging from 0.50% of the first $500 million
of average daily net assets of the Trust to 0.40% of average daily net
assets in excess of $2 billion. For the year ended August 31, 1996, the
management fee was $5,897.
Administrative personnel and services are provided by Legg Mason at
no additional expense to the Trust.
Western Asset Management Company ("Adviser"), a corporate affiliate
of the Manager and Legg Mason, serves as investment adviser to the Trust.
The Adviser is responsible for the actual investment activity of the
Trust, for which the Manager pays the Adviser a fee at an annual rate
equal to 30% of the fee received by the Manager. For the year ended August
31, 1996, the advisory fee was $1,769.
At a special meeting of the Fund's shareholders, a Distribution Plan
was approved under which Legg Mason may collect a fee for distribution
services at an annual rate of 0.15% of average daily net assets. No
distribution fee was paid to Legg Mason during the year ended August 31,
1996.
During the years ended August 31, 1996 and 1995, Legg Mason
contributed $400 and $480, respectively, to offset a portion of the
Trust's net realized losses.
Legg Mason has an agreement with the Trust's transfer agent to assist
with certain of its duties. For this assistance, Legg Mason was paid $590
by the transfer agent for the year ended August 31, 1996.
6
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Trustees of
Legg Mason Cash Reserve Trust:
We have audited the accompanying statement of net assets of the Legg
Mason Cash Reserve Trust as of August 31, 1996, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 1996, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Legg Mason Cash Reserve Trust at August 31, 1996, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
September 24, 1996
