<PAGE>
TO OUR SHAREHOLDERS,
The Legg Mason Cash Reserve Trust now has $1.95 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written on September 15, the Trust's annualized yield for
the past 7 days is 5.91%* (an effective yield of 6.08% when the compounding
effect of dividend reinvestments is included). The average weighted maturity of
our portfolio is 53 days.
A complete listing of the Trust's portfolio holdings at August 31, 2000,
appears in this report. You will note that more than 75% of the Trust's
portfolio was 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 15, 2000
--------------
*The yields shown here are for past periods and are not intended to indicate
future performance. An investment in the Trust is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Trust seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Trust.
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON CASH RESERVE TRUST
AUGUST 31, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 0.3%
Americredit Automobile Receivables Trust 6.04% 2/5/01 $ 1,698 $ 1,698
World Omni Automobile Receivables Trust 6.694% 8/15/01 4,804 4,804
------------
Total Asset-Backed Securities 6,502
--------------------------------------------------------------------------------------------------------------------
BANK NOTES -- 0.8%
National City Bank 6.67% to 6.98% 3/13/01 to 8/2/01 15,000 14,992
------------
Total Bank Notes 14,992
--------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 3.4%
Dresdner Bank Limited 7.11% 5/3/01 15,000 15,001(A)
Harris Trust & Savings Bank 6.53% 9/14/00 20,000 20,000
Landesbank Baden-Wurttemberg 7.39% 6/5/01 20,000 20,042(A)
Michigan National Bank 6.88% 4/6/01 10,000 10,003
------------
Total Certificates of Deposit 65,046
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 7.2%
AT&T Corp. 6.78% 6/14/01 10,000 10,000(B),(C)
Edison Asset Securities LLC 6.51% 9/11/00 15,486 15,458(B)
General Electric Capital Corporation 6.50% 9/11/00 25,000 24,955
IBM Credit Corporation 6.48% 10/16/00 10,000 9,919
Lucent Technologies Inc. 6.48% 9/6/00 15,000 14,986
Pharmacia Corporation 6.48% 9/13/00 20,000 19,957
The Procter & Gamble Company 6.48% 9/13/00 11,000 10,976
Unilever Capital Corporation 6.72% 9/7/01 15,000 15,000(B),(C)
Verizon Global Funding 6.48% 10/23/00 20,000 19,813
------------
Total Commercial Paper 141,064
--------------------------------------------------------------------------------------------------------------------
CORPORATE AND OTHER BONDS -- 4.8%
Associates Corporation North America 5.85% 1/15/01 5,000 4,987
AT&T Capital Corporation 6.875% 1/16/01 10,000 10,005
Bank of America Corporation 5.75% 3/15/01 5,000 4,972
Bank of America NA 6.73% 2/26/01 15,000 15,008(C)
Chase Manhattan Corporation 10.125% 11/1/00 10,000 10,061
Ford Motor Credit Company 6.375% 10/6/00 10,000 9,999
General Motors Corporation 9.125% 7/15/01 10,000 10,164
Kellogg Company 6.125% 8/6/01 4,000 3,965
Salomon Smith Barney Holdings Incorporated 5.875% 2/1/01 10,000 9,965
Vodafone Airtouch PLC 6.862% 6/5/01 12,000 12,000(A),(B),(C)
The Walt Disney Company 6.375% 3/30/01 3,000 2,995
------------
Total Corporate and Other Bonds 94,121
--------------------------------------------------------------------------------------------------------------------
2
<PAGE>
<CAPTION>
Rate Maturity Date Par Value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDIUM-TERM NOTES -- 7.4%
American Honda Finance Corporation 6.63% 7/20/01 $ 6,000 $ 6,000(B),(C)
Bank of America Corporation 7.034% 7/16/01 5,000 5,013(C)
Beneficial Corporation 6.49% 9/27/00 5,000 5,001
Chrysler Financial Corporation 5.25% to 6.71% 10/19/00 to 1/29/01 15,000 14,991(C)
Citigroup Inc. 6.58% 4/4/01 10,000 10,000(C)
Continental Bank NA 12.50% 4/1/01 3,000 3,094
General Motors Acceptance Corporation 5.40% 2/26/01 5,000 4,967
Heller Financial, Inc. 6.849% to 6.972% 2/2/01 to 4/2/01 16,000 16,007
International Lease Finance Corporation 6.78% 9/5/01 8,000 7,993
John Deere Capital Corporation 6.27% to 6.75% 10/11/00 to 3/7/01 15,000 15,001
Lehman Brothers Holdings Inc. 7.305% 11/15/00 11,000 11,012(C)
National Rural Utilities Cooperative 6.71% 7/20/01 10,000 10,000(C)
Norwest Corporation 6.125% 10/15/00 5,000 5,000
Statoil 6.25% 10/10/00 10,000 9,996(A)
Textron Financial Corporation 6.742% 2/2/01 10,000 10,000(B),(C)
US Leasing Capital Corporation 5.79% 1/23/01 10,000 9,970
------------
Total Medium-Term Notes 144,045
----------------------------------------------------------------------------------------------------------------------
TIME DEPOSITS -- 1.0%
American Express Centurion Bank 6.56% 9/5/00 20,000 20,000
------------
Total Time Deposits 20,000
----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 56.5%
Fannie Mae 6.38% to 6.45% 9/7/00 to 11/2/00 157,400 156,744
Federal Farm Credit Bank 5.80% to 6.39% 9/6/00 to 10/2/00 90,000 89,926
Federal Home Loan Bank 6.38% to 6.45% 9/1/00 to 10/20/00 385,000 383,083
Freddie Mac 6.38% to 6.61% 9/5/00 to 11/9/00 413,400 411,106
Sallie Mae 6.35% 9/27/00 20,000 19,908
Tennessee Valley Authority 6.37% 9/18/00 40,000 39,880
------------
Total U.S. Government and Agency Obligations 1,100,647
--------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 21.1%
J.P. Morgan Securities, Inc.
6.62%, dated 8/31/00, to be repurchased at $155,828 on 9/1/00
(Collateral: $168,610 Fannie Mae Notes, 6.25%, due 5/15/29,
value $163,000) 155,799 155,799
3
<PAGE>
<CAPTION>
STATEMENT OF NET ASSETS--CONTINUED
LEGG MASON CASH RESERVE TRUST
Par Value
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- CONTINUED
Lehman Brothers, Inc.
6.60%, dated 8/31/00, to be repurchased at $255,988 on 9/1/00
(Collateral: $646,695 Federal Home Loan Bank Notes, 0%, due 7/28/09 -
2/25/19, value $212,797; $48,085 Fannie Mae Floating Rate Notes, 6.76%,
due 11/15/09, value $48,262) $255,941 $ 255,941
----------
Total Repurchase Agreements 411,740
---------------------------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value -- 102.5% 1,998,157(D)
Other Assets Less Liabilities -- (2.5)% (48,138)
----------
NET ASSETS APPLICABLE TO 1,949,964 SHARES OUTSTANDING -- 100.0% $1,950,019
==========
NET ASSET VALUE PER SHARE $1.00
=====
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) YANKEE CERTIFICATES OF DEPOSIT OR BONDS -- DOLLAR-DENOMINATED CERTIFICATES
OF DEPOSIT OR BONDS ISSUED IN THE U.S. BY FOREIGN ENTITIES.
(B) RULE 144a SECURITY -- A SECURITY PURCHASED PURSUANT TO RULE 144a UNDER THE
SECURITIES ACT OF 1933 WHICH MAY NOT BE RESOLD EXCEPT TO QUALIFIED
INSTITUTIONAL BUYERS. THESE SECURITIES REPRESENT 3.51% OF NET ASSETS.
(C) THE RATES OF INTEREST EARNED ON THESE SECURITIES ARE TIED TO THE LONDON
INTERBANK OFFERRED RATE (LIBOR). THE COUPON RATES ARE AS OF
AUGUST 31, 2000.
(D) 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, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $108,556
EXPENSES:
Management fee $8,531
Distribution and service fees 1,793
Transfer agent and shareholder servicing expense 1,496
Audit and legal fees 117
Custodian fee 295
Registration fees 135
Reports to shareholders 95
Trustees' fees 21
Other expenses 38
------
Total expenses 12,521
--------
NET INVESTMENT INCOME 96,035
NET REALIZED GAIN/(LOSS) ON INVESTMENTS (2)
-----------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $96,033
--------
-----------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON CASH RESERVE TRUST
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 96,035 $ 70,120
Net realized gain/(loss) on investments (2) (2)
---------- ----------
Change in net assets resulting from operations 96,033 70,118
Distributions to shareholders from net investment income (96,035) (70,120)
Change in net assets from Trust share transactions 172,801 354,610
---------- ----------
Change in net assets 172,799 354,608
NET ASSETS:
Beginning of year 1,777,220 1,422,612
-----------------------------------------------------------------------------------------------------------------------
End of year $1,950,019 $1,777,220
========== ==========
</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>
Ratios/Supplemental Data
------------------------------------------------
Distributions Net Net
Net Asset From Net Asset Investment Assets,
Value, Net Net Value, Expenses Income End of
Beginning Investment Investment End of Total to Average to Average Year
of Year Income Income Year Return Net Assets Net Assets (in millions)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years Ended Aug. 31,
2000 $1.00 $.05 $(.05) $1.00 5.36% .68% 5.25% $1,950
1999 1.00 .04 (.04) 1.00 4.46% .75% 4.37% 1,777
1998 1.00 .05 (.05) 1.00 4.96% .78% 4.86% 1,423
1997 1.00 .05 (.05) 1.00 4.84% .75% 4.73% 1,343
1996 1.00 .05 (.05) 1.00 4.92% .70% 4.81% 1,224
--------------------------------------------------------------------------------------------------------------------------------
</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 using 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, 2000, dividends payable of $5,001 were accrued.
6
<PAGE>
--------------------------------------------------------------------------
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, 2000, payables for securities purchased were $60,266.
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 substantially 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.
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
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 $762 were payable to LMFA at
August 31, 2000.
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, 2000,
the advisory fee was $2,559.
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 $162 were payable to Legg Mason at August 31, 2000.
Legg Mason also has an agreement with the Trust's transfer agent to
assist it with some of its duties. For this assistance, the transfer agent
paid Legg Mason $602 for the year ended August 31, 2000.
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, 2000, net assets consisted of paid-in capital of $1,949,964 and
accumulated net realized gain of $55. 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, 2000 $5,826,918 $91,397 $(5,745,514) $172,801
Year Ended August 31, 1999 5,305,974 67,169 (5,018,533) 354,610
</TABLE>
8
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE TRUSTEES AND BENEFICIAL SHAREHOLDERS OF
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, 2000, 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 auditing standards generally
accepted in the United States. 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, 2000, 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, 2000, 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 accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 22, 2000
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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, Inc. Balanced Trust
Special Investment Trust, Inc. Financial Services Fund
Total Return Trust, Inc. Opportunity Trust
American Leading Companies
Trust
Classic Valuation Fund
Focus Trust, Inc.
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, Inc.
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]
LEGG
MASON
FUNDS
THE ART OF INVESTING-SM-
<PAGE>
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.
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
Ernst & Young LLP
Philadelphia, PA
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
ANNUAL REPORT
AUGUST 31, 2000
LEGG MASON
CASH
RESERVE
TRUST
[LOGO]
LEGG
MASON
FUNDS
THE ART OF INVESTING-SM-
LMF-018
10/00
