Annual Report
August 31, 1998
Legg Mason
Cash
Reserve
Trust
The Art of Investing
[Legg Mason Funds logo]
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
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
Arnold L. Lehman
Dr. Jill E. McGovern
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 Auditors
Ernst &Young LLP
Philadelphia, PA
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
- -------------------------------------------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
LMF-018
<PAGE>
To Our Shareholders,
The Legg Mason Cash Reserve Trust now has $1.42 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written, the Trust's annualized yield for the past 7 days
is 4.75%* (an effective yield of 4.86% when the compounding effect of dividend
reinvestments is included). The average weighted maturity of our portfolio is 75
days.
A complete listing of the Trust's portfolio holdings at August 31, 1998
appears in this report. You will note that approximately 60% of the Trust's
portfolio is 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 30, 1998
- ----------
*The yields shown are for past periods and are not intended to indicate future
performance. An investment in the Trust is neither insured nor guaranteed by the
U.S. Government and there can be no assurance that the Trust will be able to
maintain a stable net asset value of $1.00 per share.
<PAGE>
Statement of Net Assets
Legg Mason Cash Reserve Trust
August 31, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset-backed Securities -- 4.5%
Associates Corporation N.A. 6.04% 10/13/98 $ 1,000 $ 1,000
Merrill Lynch STEERS 5.755% 1/25/99 16,305 16,305(A,C)
Merrill Lynch STEERS 5.706% 3/23/99 18,000 18,000(A)
Monte Rosa Capital Corporation 5.54% 10/13/98 14,000 13,910(A)
Structured Product Asset Return Certificate-- 1998A 5.68% 6/18/99 15,000 15,000(A,C)
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Total Asset-backed Securities 64,215
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Bank Notes -- 1.8%
First USA Bank 6.25% 10/9/98 4,000 4,002
Key Bank North America 6% 10/7/98 6,000 6,001
Key Bank North America 6.125% 2/3/99 5,000 5,011
Morgan Guaranty Trust Company 5.55% 2/4/99 10,000 9,997
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Total Bank Notes 25,011
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Certificates of Deposit -- 16.4%
ABN Amro Bank 5.645% 3/22/99 10,000 9,995
American Express Centurion Bank 5.56% 9/2/98 20,000 20,000
American Express Centurion Bank 5.56% 9/18/98 20,000 20,000
Bank Boston N.A. 5.55% 11/24/98 20,000 20,000
Bankers Trust Company 5.66% 7/13/99 25,000 24,987
Bankers Trust Company 5.68% 7/23/99 25,000 24,986
Bayerische LandesBank 5.81% 12/17/98 1,000 1,001(B)
Canadian Imperial Bank of Commerce, PLC 5.705% 3/30/99 5,000 4,998(B)
Deutsche Bank 5.94% 10/26/98 5,000 5,000
Deutsche Bank 5.74% 4/27/99 5,000 4,998(B)
First Chicago Bank 5.75% 5/10/99 5,000 4,999
Harris Trust and Savings Bank 5.56% 10/2/98 15,000 15,000
Harris Trust and Savings Bank 5.56% 10/7/98 20,000 20,000
NationsBank Corporation 5.58% 9/2/98 13,000 13,000
Societe General 5.91% 10/15/98 20,000 19,999
Societe General 5.70% 1/7/99 15,000 15,008
Wilmington Trust Company 5.58% 11/10/98 10,000 10,000
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Total Certificates of Deposit 233,971
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Commercial Paper -- 3.7%
Moat Funding, LLC 5.58% 9/11/98 20,000 19,969
Park Avenue Recreation Corporation 5.55% 9/17/98 10,000 9,975
Park Avenue Recreation Corporation 5.55% 9/22/98 7,000 6,977
Republic Industries Fund 5.54% 10/13/98 15,000 14,903
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Total Commercial Paper 51,824
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</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Other Bonds -- 4.8%
Chemical New York Corporation 9.75% 6/15/99 $10,000 $10,304
Ford Motor Credit Company 8% 1/15/99 1,215 1,225
Ford Motor Credit Company 7.25% 5/15/99 4,150 4,191
Fortune Brands, Inc. 9% 6/15/99 1,775 1,819
General Electric Capital Corporation 5.75% 11/10/98 2,000 1,999
General Motors Acceptance Corporation 5.70% 9/2/98 1,000 1,000
Household Finance Company 7.125% 4/30/99 1,000 1,009
Household Finance Company 6.62% 5/28/99 6,000 6,034
International Bank for Reconstruction
and Development 8.40% 11/1/98 5,000 5,021
International Leasing and Finance Corporation 6.70% 4/30/99 10,000 10,060
Norwest Financial Incorporated 6.23% 9/1/98 6,555 6,555
Norwest Financial Incorporated 6% 10/13/98 7,000 7,001
Portland General Electric Company 5.52% 9/11/98 2,000 1,997
Province of Manitoba 9.625% 3/15/99 9,000 9,185
Prudential Realty Inc. 0% 1/15/99 1,483 1,452(D)
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Total Corporate and Other Bonds 68,852
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Medium-term Notes -- 6.0%
Boeing Capital Corporation 5.80% 9/15/99 5,000 5,001
Caterpillar Financial Services 6.84% 9/15/99 15,000 15,194
Chrysler Financial Corporation 6.16% 7/28/99 1,500 1,507
CIT Group Holdings 5.875% 12/15/98 2,000 2,001
CIT Group Holdings 6.375% 5/21/99 1,000 1,004
Ford Motor Credit Company 7.95% 5/17/99 3,000 3,044
General Motors Acceptance Corporation 8.375% 1/19/99 4,890 4,936
General Motors Acceptance Corporation 5.95% 2/12/99 8,000 8,006
General Motors Acceptance Corporation 5.45% 3/1/99 2,000 1,998
General Motors Acceptance Corporation 6.04% 3/19/99 1,000 1,002
Household Finance Company 5.747% 3/8/99 3,000 3,000
IBM Credit Corporation 5.80% 11/4/98 2,000 2,000
IBM Credit Corporation 5.60% 6/4/99 4,000 3,997
IBM Credit Corporation 5.68% 7/7/99 16,000 15,990
International Leasing and Finance Corporation 6.27% 2/10/99 2,000 2,004
John Deere Capital Corporation 5.928% 9/14/98 5,000 5,000
John Deere Capital Corporation 6% 2/1/99 3,000 3,005
Merrill Lynch and Co., Inc. 6.20% 7/19/99 5,225 5,253
NationsBank Corporation 5.125% 9/15/98 1,500 1,500
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Total Medium-term Notes 85,442
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Time Deposits -- 0.7%
Mellon Bank 5.55% 9/2/98 10,000 10,000
-------
Total Time Deposits 10,000
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</TABLE>
3
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Cash Reserve Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations -- 40.6%
Fannie Mae 5.47% 9/22/98 $40,000 $39,872
Fannie Mae 5.46% 9/25/98 19,659 19,587
Fannie Mae 5.38% 11/25/98 10,000 9,873
Fannie Mae 5.226% 6/15/99 4,000 3,833
Federal Home Loan Bank 5.595% 3/10/99 5,000 5,000
Freddie Mac 5.46% 9/1/98 47,000 47,000
Freddie Mac 5.465% 9/3/98 40,000 39,988
Freddie Mac 5.48% 9/4/98 25,000 24,989
Freddie Mac 5.46% 9/11/98 40,000 39,939
Freddie Mac 5.47% 9/14/98 38,000 37,925
Freddie Mac 5.46% 9/16/98 30,000 29,932
Freddie Mac 5.47% 9/17/98 69,750 69,581
Freddie Mac 5.47% 9/18/98 40,000 39,897
Freddie Mac 5.465% 9/23/98 12,598 12,556
Freddie Mac 5.465% 9/24/98 35,000 34,878
Freddie Mac 5.47% 9/25/98 27,850 27,748
Freddie Mac 5.44% 10/9/98 40,000 39,770
Freddie Mac 5.45% 10/9/98 35,000 34,799
Freddie Mac 5.46% 10/15/98 10,000 9,933
Freddie Mac 5.505% 3/12/99 5,540 5,534
Sallie Mae 5.40% 2/10/99 5,000 4,996
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Total U.S. Government Agency Obligations 577,630
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Repurchase Agreements -- 21.7%
J.P. Morgan Securities, Inc.
5.85%, dated 8/31/98, to be repurchased at $308,866 on 9/1/98
(Collateral: $95,000 Fannie Mae Medium-term Notes, 6.09% - 6.32% due
8/13/03 - 12/20/27, value $99,037; $179,345 Federal Home Loan Bank
Notes, 5.58% - 6.10% due 8/24/00 - 6/3/08, value $182,194; $35,390
Federal Farm Credit Bank Medium-term Notes, 5.90% due 8/6/01, value
$35,842)
Total Repurchase Agreements $308,816 $ 308,816
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Total Investments, at amortized cost and value-- 100.2% 1,425,761(E)
Other Assets Less Liabilities-- (0.2%) (3,149)
----------
Net assets applicable to 1,422,553 shares outstanding-- 100.0% $1,422,612
==========
Net asset value per share $1.00
=====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Rule 144a Security -- A security purchased pursuant to Rule 144a under
the Securities Act of 1933 which may not be resold subject to that
rule except to qualified institutional buyers.
(B) Yankee Certificates of Deposit -- Dollar-denominated Certificates of
Deposit issued in the U.S. by foreign entities.
(C) The rate of interest earned on this security is tied to the London
Interbank Offered Rate (LIBOR). The coupon rate shown is the rate at
August 31, 1998.
(D) 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.
(E) Also represents cost for federal income tax purposes.
See notes to financial statements.
4
<PAGE>
Statement of Operations
Legg Mason Cash Reserve Trust
For the Year Ended August 31, 1998
(Amounts in Thousands)
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------
Investment Income:
Interest $74,042
Expenses:
Management fee $6,285
Distribution fee 1,299
Transfer agent and shareholder servicing expense 1,916
Audit and legal fees 108
Custodian fee 216
Registration fees 137
Reports to shareholders 169
Trustees' fees 22
Other expenses 58
------
Total expenses 10,210
-------
Net Investment Income 63,832
Net Realized Gain on Investments 42
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Change in Net Assets Resulting from Operations $63,874
=======
</TABLE>
-------------------------------------------------
Statement of Changes in Net Assets
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the Years Ended August 31,
---------------------------------
1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income $ 63,832 $ 60,327
Net realized gain on investments 42 324
---------- ----------
Change in net assets resulting from operations 63,874 60,651
Distributions to shareholders from net investment income (63,832) (60,327)
Change in net assets from Trust share transactions 79,931 117,834
---------- ----------
Change in net assets 79,973 118,158
Net Assets:
Beginning of year 1,342,639 1,224,481
----------------------------------------------------------------------------------------------
End of year $1,422,612 $1,342,639
========== ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
Financial Highlights
Legg Mason Cash Reserve Trust
Contained below is per share operating performance data for a share of
common stock 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
Net Asset Net Realized Total From Net Asset
Value, Net Gain From Net Value,
Beginning Investment (Loss) on Investment Investment End of
of Year Income Investments Operations Income Year
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Years Ended Aug. 31,
1998 $1.00 $.05 Nil $.05 $(.05) $1.00
1997 1.00 .05 Nil .05 (.05) 1.00
1996 1.00 .05 Nil .05 (.05) 1.00
1995 1.00 .05 Nil .05 (.05) 1.00
1994 1.00 .03 (Nil) .03 (.03) 1.00
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Net Net
Investment Assets,
Expenses Income End of
Total to Average to Average Year
Return Net Assets Net Assets (in millions)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Years Ended Aug. 31,
1998 4.96% .78% 4.86% $1,423
1997 4.84% .75% 4.73% 1,343
1996 4.92% .70% 4.81% 1,224
1995 5.08% .71% 5.03% 1,153
1994 3.08% .72% 3.05% 786
- -----------------------------------------------------------------------
</TABLE>
See notes to financial statements.
-----------------------------
Notes to Financial Statements
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
-------------------------------------------------------------------------
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, plus original issue and market
discount earned, less amortization of market premium and accrued expenses.
At August 31, 1998, dividends payable of $2,527 were accrued.
6
<PAGE>
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Investment Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes. At
August 31, 1998, payables for securities purchased but not yet received
were $31,952.
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. 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. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially. The Trust's investment adviser,
acting under the supervision of the Board of Trustees, reviews the value
of the collateral and the creditworthiness of those banks and dealers with
which the Trust enters into repurchase agreements to evaluate potential
risks.
3. Transactions with Affiliates:
The Trust has a management agreement with Legg Mason Fund Adviser,
Inc. ("LMFA"). Pursuant to this agreement, LMFA 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. Management fees of $557 were payable to LMFA at
August 31, 1998.
Western Asset Management Company ("Adviser") serves as investment
adviser to the Trust. The Adviser is responsible for the actual investment
activity of the Trust. LMFA pays the Adviser a fee at an annual rate equal
to 30% of the fee received by LMFA. For the year ended August 31, 1998,
the advisory fee was $1,886.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor of the Trust. Legg Mason
may receive an annual distribution fee of up to 0.15% of the Trust's
average daily net assets, however, Legg Mason has agreed to limit such
fees paid by the Trust to 0.10% through January 10, 1999. Distribution and
service fees of $135 were payable to the distributor at August 31, 1998.
Legg Mason also has an agreement with the Trust's transfer agent to
assist it with certain of its duties. For this assistance, Legg Mason was
paid $550 by the transfer agent for the year ended August 31, 1998.
The Adviser, LMFA and Legg Mason are corporate affiliates and are
wholly owned subsidiaries of Legg Mason, Inc.
7
<PAGE>
Notes to Financial Statements -- Continued
4. 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, 1998, net assets consisted of paid-in capital of $1,422,553 and
accumulated net realized gain of $59. 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:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended August 31, 1998 $4,532,879 $62,048 $(4,514,996) $ 79,931
Year Ended August 31, 1997 4,783,717 58,446 (4,724,329) 117,834
</TABLE>
8
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees and Beneficial Shareholders
Legg Mason Cash Reserve Trust:
We have audited the accompanying statement of net assets of the Legg Mason
Cash Reserve Trust (the "Trust") as of August 31, 1998, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the 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 and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the Trust's
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 the
Legg Mason Cash Reserve Trust at August 31, 1998, 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 its financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 21, 1998
9
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