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
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 report is not to be distributed unless preceded or accompanied by a
prospectus.
LEGG MASON WOOD WALKER, INCORPORATED
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100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
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Semi-Annual Report
February 28, 1999
LEGG MASON
CASH
RESERVE
TRUST
LEGG MASON FUNDS
HOW TO INVEST(SM)
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<PAGE>
To Our Shareholders,
The Legg Mason Cash Reserve Trust now has $1.6 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written on April 7, the Trust's annualized yield for the
past 7 days is 4.28%* (an effective yield of 4.37% when the compounding effect
of dividend reinvestments is included). The average weighted maturity of our
portfolio is 67 days.
A complete listing of the Trust's portfolio holdings at February 28, 1999
appears in this report. You will note that over 65% of the Trust's portfolio is
invested in U.S. government agency securities and repurchase agreements fully
secured by such securities.
During 1998 and into 1999, the focus on the Year 2000 issue has increased
tremendously. As you may know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Trust's Year 2000 project is well underway, and
is designed to ensure that the Year 2000 date change will have no adverse impact
on our ability to service our shareholders. The Trust is committed to taking
those steps necessary to protect Trust investors, including efforts to determine
that the Year 2000 problem will not affect such vital service functions as
shareholder transaction processing and recordkeeping. In addition, we are
continuously monitoring the Year 2000 efforts of our vendors, and will perform
tests with our critical vendors throughout 1999. Although the Trust is taking
steps to ensure that all of its systems will function properly before, during,
and after the Year 2000, the Trust could be adversely affected by computer
related problems associated with the Year 2000. Contingency plans to ensure that
functions critical to the Trust's operations will continue without interruption
are under development. We are on target to complete this important project and
look forward to continuing extensive testing (including industry-wide testing)
with our industry peers, regulators and vendors throughout 1999.
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
April 7, 1999
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*The yields shown here are for past periods and are not intended to indicate
future performance. An investment in this Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
<PAGE>
STATEMENT OF NET ASSETS
Legg Mason Cash Reserve Trust
February 28, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ------------------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities -- 4.7%
<S> <C> <C> <C> <C> <C>
Associates Corporation N.A 5.62% 4/5/99 $15,000 $15,000
Merrill Lynch STEERS 5.445% 3/23/99 18,000 18,000A,C
Merrill Lynch STEERS 5.05% 1/25/00 12,374 12,373A,C
Structured Product Asset Return Certificate - 1998A 5.28% 6/18/99 25,000 24,999A,C
WFS Financial Owner Trust 5.008% 2/1/00 15,000 15,000
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Total Asset-backed Securities 85,372
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Bank Notes -- 0.3%
MBNA America Bank 7.30% 9/8/99 5,000 5,045
National City Bank 6% 10/1/99 4,000 4,021
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Total Bank Notes 9,066
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Certificates of Deposit -- 5.4%
ABN Amro Bank 5.645% 3/22/99 10,000 9,999B
American Express 4.86% 3/17/99 20,000 20,000
Canadian Imperial Bank of Commerce, PLC 5.705% 3/30/99 5,000 5,000B
Commerzbank 4.99% 1/25/00 5,000 4,999B
Commerzbank 5.09% 2/16/00 10,000 9,997B
Deutsche Bank 5.74% 4/27/99 5,000 4,999B
First Chicago Bank 5.75% 5/10/99 5,000 5,000
Huntington National Bank 4.80% 4/5/99 20,000 20,000
Regions Bank 5.15% 2/18/00 5,000 5,000
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Total Certificates of Deposit 84,994
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Commercial Paper -- 0.4%
Receivables Capital Corporation 4.85% 3/5/99 6,000 5,997
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Total Commercial Paper 5,997
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Corporate and Other Bonds -- 15.9%
American General Finance Corporation 6.875% 1/15/00 4,380 4,447
American Home Products 7.70% 2/15/00 6,000 6,145
American Honda Finance Corporation 4.972% 1/20/00 10,000 9,996
Bankers Trust Company 5.66% 7/13/99 25,000 24,987
Bankers Trust Company 5.68% 7/23/99 25,000 24,994
Bass America Incorporated 6.75% 8/1/99 10,000 10,048
Bear Stearns Company Incorporated 4.64% 3/09/99 10,000 9,999
Chase Manhattan Corporation 9.75% 6/15/99 10,300 10,416
First Chicago Corporation 9.875% 7/1/99 4,000 4,056
Ford Motor Credit Company 7.25% 5/15/99 4,150 4,162
Fortune Brands, Inc. 7.50% 5/15/99 1,000 1,004
Fortune Brands, Inc. 9% 6/15/99 1,775 1,791
Franklin Resources Incorporated 6.19% 12/15/99 4,000 4,033
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
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Corporate and Other Bonds -- continued
<S> <C> <C> <C> <C> <C>
General Motors Acceptance Corporation 8% 10/1/99 $ 3,000 $ 3,041
General Motors Acceptance Corporation 8.40% 10/15/99 10,000 10,182
Goldman Sachs Group 5.40% 2/25/00 10,000 10,000
Household Finance Company 7.125% 4/30/99 1,000 1,002B
Household Finance Company 8.95% 9/15/99 3,000 3,062
International Leasing and Finance Corporation 6.70% 4/30/99 10,000 10,015
John Deere Capital Corporation 6.30% 6/1/99 3,000 3,006
Merrill Lynch and Company, Inc. 5.09% 2/7/00 10,000 10,000
Morgan Stanley Group Incorporated 5.625% 3/1/99 10,000 10,000
Morgan Stanley Group Incorporated 7.50% 9/1/99 9,022 9,117
PHH Corporation 5.58% 2/17/00 4,000 3,999
Province of Manitoba 9.625% 3/15/99 9,000 9,013B
Rockwell International Corporation 8.875% 9/15/99 2,000 2,040
Shell Canada Limited 7.375% 6/1/99 5,000 5,028
TCI Communications, Inc. 7.25% 6/15/99 5,000 5,033
TCI Communications, Inc. 6.46% 3/6/00 1,000 1,011
Texas Instruments Incorporated 6.75% 7/15/99 1,000 1,007
Travelers Group 7% 5/15/99 5,265 5,282
Travelers Group 6.50% 3/1/00 5,000 5,066
US Leasing Capital Corporation 5.14% 4/19/99 5,000 5,001
Wal-Mart Stores Incorporated 5.65% 2/1/00 5,000 5,026
Wells Fargo Company 6% 3/15/00 2,500 2,521
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Total Corporate and Other Bonds 235,530
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Medium-term Notes -- 11.7%
American General Finance Corporation 7.20% 11/30/99 6,000 6,090
Baltimore Gas & Electric 7.42% 7/1/99 5,000 5,038
Boeing Capital Corporation 5.80% 9/15/99 6,000 6,005
Caterpillar Financial Services 6.84% 9/15/99 15,000 15,101
Caterpillar Financial Services 6.87% 11/30/99 2,000 2,030
Chrysler Financial Corporation 6.16% 7/28/99 1,500 1,503
Chrysler Financial Corporation 6.32% 11/8/99 3,000 3,030
Chrysler Financial Corporation 9.50% 12/15/99 2,000 2,066
CIT Group Holdings 6.375% 5/21/99 1,000 1,001
CIT Group Holdings 6.25% 10/4/99 9,500 9,564
Countrywide Funding Corporation 5.048% 1/26/00 10,000 10,000
Credite Suisse First Boston 5.11% 4/8/99 10,000 9,946
Ford Motor Credit Company 7.95% 5/17/99 3,000 3,013
Ford Motor Credit Company 7.50% 11/15/99 4,000 4,074
General Motors Acceptance Corporation 5.45% 3/1/99 2,000 2,000
General Motors Acceptance Corporation 6.04% 3/19/99 1,000 1,000
General Motors Acceptance Corporation 6.15% 9/20/99 8,000 8,047
3
</TABLE>
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Cash Reserve Trust
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
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Medium-term Notes -- continued
<S> <C> <C> <C> <C> <C>
Goldman Sachs Group 5.913% 1/10/00 $10,000 $10,071
Household Finance Company 5.747% 3/8/99 3,000 3,000
Household Finance Company 6.62% 5/28/99 6,000 6,011
IBM Credit Corporation 5.60% 6/4/99 4,000 3,999
IBM Credit Corporation 5.68% 7/7/99 16,000 15,996
Merrill Lynch and Company, Inc. 6.20% 7/19/99 5,225 5,237
NYNEX Capital Funding Company 8.14% 11/1/99 3,000 3,063
Sears Roebuck Acceptance Corporation 6.22% 3/25/99 3,800 3,803
Southern California Gas Corporation 6.21% 11/8/99 10,000 10,072
SunAmerica Incorporated 6.20% 10/31/99 13,000 13,078
Wells Fargo Company 7.625% 10/15/99 5,000 5,070
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Total Medium-term Notes 168,908
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U.S. Government Agency Obligations -- 43.5%
Fannie Mae 4.70% 3/4/99 10,000 9,996
Fannie Mae 4.97% 3/5/99 20,000 19,989
Fannie Mae 4.75% 3/10/99 40,000 39,952
Fannie Mae 4.77% 4/1/99 20,000 19,918
Fannie Mae 4.752% 4/8/99 20,000 19,900
Fannie Mae 4.73% 5/18/99 14,000 13,857
Fannie Mae 5.226% 6/15/99 4,000 3,938
Fannie Mae 5.92% 8/11/99 3,000 3,012
Federal Farm Credit Bank 4.75% 3/22/99 30,000 29,917
Federal Farm Credit Bank 4.90% 3/1/99 15,000 15,000
Federal Home Loan Bank 5.595% 3/10/99 5,000 5,000
Federal Home Loan Bank 4.94% 3/19/99 10,000 9,976
Federal Home Loan Bank 4.74% 4/14/99 15,000 14,913
Federal Home Loan Bank 5.54% 7/15/99 3,000 3,010
Federal Home Loan Bank 4.93% 1/19/00 5,000 5,004
Federal Home Loan Bank 5% 1/27/00 10,000 10,000
Federal Home Loan Bank 4.98% 2/16/00 3,000 3,000
Federal Home Loan Bank 4.75% 3/12/99 24,000 23,965
Freddie Mac 4.71% 3/5/99 40,000 39,979
Freddie Mac 4.77% 3/8/99 27,500 27,474
Freddie Mac 5.505% 3/12/99 5,540 5,540
Freddie Mac 4.75% 3/15/99 30,000 29,944
Freddie Mac 4.75% 3/18/99 28,000 27,937
Freddie Mac 4.76% 3/19/99 40,000 39,905
Freddie Mac 4.75% 3/24/99 40,000 39,879
Freddie Mac 4.75% 3/26/99 48,000 47,842
Freddie Mac 4.75% 3/31/99 20,000 19,921
Freddie Mac 4.76% 4/6/99 40,000 39,809
Freddie Mac 4.75% 4/14/99 50,000 49,710
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
- ------------------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations -- continued
<S> <C> <C> <C> <C> <C>
Sallie Mae 4.75% 4/1/99 $ 10,000 $ 9,959
Sallie Mae 4.60% 6/30/99 15,000 14,768
Sallie Mae 4.845% 2/10/00 5,000 4,995
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Total U.S. Government Agency Obligations 648,009
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Repurchase Agreements -- 22.6%
J.P. Morgan Securities, Inc.
4.82% dated 2/26/99, to be repurchased at $372,208 on 3/1/99 (Collateral:
$340,365 Freddie Mac Notes 5.00%-5.25% due 2/15/01 to 2/16/01, value
$331,546, $48,340 Fannie Mae Notes, 6% due 8/19/99 - 6/3/01, value
$49,785)
Total Repurchase Agreements 372,059 372,059
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Total Investments, at amortized cost and value -- 97.9% $1,609,935D
Other Assets Less Liabilities-- 2.1% 34,816
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Net assets applicable to 1,644,691 shares outstanding -- 100.0% $1,644,751
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Net asset value per share $1.00
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</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 Bond or Certificate of Deposit -- Dollar-denominated Bond or
Certificate 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 February 28, 1999.
(D)Also represents cost for federal income tax purposes.
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Legg Mason Cash Reserve Trust
For the Six Months Ended February 28, 1999
(Amounts in Thousands) (Unaudited)
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<S> <C>
Investment Income:
Interest $39,143
Expenses:
Management fee $3,541
Distribution fee 778
Transfer agent and shareholder servicing expense 1,004
Audit and legal fees 53
Custodian fee 120
Registration fees 68
Reports to shareholders 73
Trustees' fees 9
Other expenses 57
------
Total expenses 5,703
----------------------------
NET INVESTMENT INCOME 33,440
NET REALIZED GAIN ON INVESTMENTS 1
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CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $33,441
----------------------------
-------------------------------------------
Statement of Changes in Net Assets
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
For the Six For the
Months Ended Year Ended
February 28, 1999 August 31, 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
Change in Net Assets:
Net investment income $ 33,440 $ 63,832
Net realized gain on investments 1 42
--------- ---------
Change in net assets resulting from operations 33,441 63,874
Distributions to shareholders from net investment income (33,440) (63,832)
Change in net assets from Trust share transactions 222,138 79,931
--------- ---------
Change in net assets 222,139 79,973
Net Assets:
Beginning of period 1,422,612 1,342,639
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End of period $1,644,751 $1,422,612
---------- ----------
</TABLE>
See notes to financial statements.
6
<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 Ratios/Supplemental Data
--------------------- ------------------------
Distributions Net Net
Net Asset Net Realized Total From Net Asset Investment Assets,
Value, Net Gain From Net Value, Expenses Income End of
Beginning Investment (Loss)on Investment Investment End of Total to Average to Average Period
of Period Income Investments Operations Income Period Return Net Assets Net Assets (in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Feb. 28, 1999* $1.00 $.02 Nil $.02 $(.02) $1.00 4.52%A .76%A 4.48%A $1,645
Years Ended Aug. 31,
1998 1.00 .05 Nil .05 (.05) 1.00 4.96% .78% 4.86% 1,423
1997 1.00 .05 Nil .05 (.05) 1.00 4.84% .75% 4.73% 1,343
1996 1.00 .05 Nil .05 (.05) 1.00 4.92% .70% 4.81% 1,224
1995 1.00 .05 Nil .05 (.05) 1.00 5.08% .71% 5.03% 1,153
1994 1.00 .03 (Nil) .03 (.03) 1.00 3.08% .72% 3.05% 786
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Annualized
* Unaudited
See notes to financial statements.
----------------
Notes to Financial Statements
Legg Mason Cash Reserve Trust
(Amounts in Thousands) (Unaudited)
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 February 28, 1999, dividends payable of $2,326 were accrued.
7
<PAGE>
Notes to Financial Statements -- Continued
---------------------------------------------------------------------------
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.
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 $577 were payable to LMFA at February 28,
1999.
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 six months ended February 28,
1999, the advisory fee was $1,062.
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% indefinitely. Distribution and service fees of $122 were
payable to the distributor at February 28, 1999.
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 $277 by the transfer agent for the six months ended February 28, 1999.
The Adviser, LMFA and Legg Mason are corporate affiliates and are
wholly owned subsidiaries of Legg Mason, Inc.
8
<PAGE>
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 February
28, 1999, net assets consisted of paid-in capital of $1,644,691 and
accumulated net realized gain of $60. 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>
Six Months Ended Feb. 28, 1999 $2,559,541 $32,543 $(2,369,946) $222,138
Year Ended August 31, 1998 4,532,879 62,048 (4,514,996) 79,931
</TABLE>
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