<PAGE>
INVESTMENT ADVISER
Legg Mason Fund Adviser, Inc.
Baltimore, MD
BOARD OF DIRECTORS
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services
Boston, MA
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart
Washington, D.C.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Baltimore, MD
THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
LEGG MASON WOOD WALKER, INCORPORATED
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
(recycle logo) PRINTED ON RECYCLED PAPER
LMF-030
REPORT TO SHAREHOLDERS
FOR THE SIX MONTHS ENDED
JUNE 30, 1995
THE
LEGG MASON
TAX
EXEMPT
TRUST, INC.
PUTTING YOUR FUTURE FIRST
(Legg Mason logo)
<PAGE>
TO OUR SHAREHOLDERS,
At the end of the June quarter, the Legg Mason Tax Exempt Trust
had $235 million invested in a diversified portfolio of high-quality,
short-term municipal securities. The Trust's 30-day yield was 3.10%
and its average weighted maturity was 39 days.
The Trust's income dividends continue to be exempt from federal
income tax and a portion may be exempt from state income taxes as
well, depending upon your state of residence. The Trust does not
purchase investments whose income is subject to the federal
alternative minimum tax.
We appreciate your ownership of the Trust, and hope you will let
us know whenever you have questions or suggestions.
Sincerely,
(signature)
John F. Curley, Jr.
Chairman
August 9, 1995
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON TAX EXEMPT TRUST, INC.
JUNE 30, 1995 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Alabama -- 8.7%
Mobile Industrial
Development Board
(Scott Paper Company
Project) Series A, B &
C VRDN
(Aa1/P1, AAA/A1+)
$ 4,400 7/5/95 4.05%(A) $ 4,400
Series D & E VRDN
(Aa1/P1, AA+/A1+)
4,500 7/5/95 4.05(A) 4,500
Montgomery Industrial
Development Board
(General Electric
Project) Series 1990
VRDN
(Aaa/P1, AAA/A1+)
11,465 7/7/95 to 9/7/95 3.55 to 4.55(A) 11,465
20,365
Alaska -- 0.2%
Valdez (City of) Marine
Terminal Revenue Bonds
(Exxon) VRDN
(Aaa/P1, AAA/A1+)
500 7/3/95 4.20(A) 500
Arizona -- 4.0%
Maricopa Co. IDA PCR
(Motorola, Inc.
Project) Series 1984
VRDN (AA/A1+)
300 7/5/95 4.25(A) 300
Phoenix (City of) GO
Series, 94-1 & 94-2
VRDN
(Aa/VMIG1, AA+/A1+)
2,900 7/3/95 4.50(A) 2,900
Salt River Project
Agricultural
Improvement & Power
District TECP (P1, A1+)
6,298 7/10/95 to 8/16/95 3.20 to 3.90 6,298
9,498
Colorado -- 1.3%
Colorado (State of) TRAN
Series 1995 (SP1+)
3,000 6/27/96 4.50 3,022
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Connecticut -- 0.3%
Connecticut Health &
Educational Facilities
Authority (Yale
University)
Series O TECP VRDN
(Aaa/VMIG1, AAA/A1+)
$ 650 7/10/95 3.45%(A) $ 650
Florida -- 6.7%
Gainesville (City of)
Utilities Systems
Series C TECP (P1/A1+)
3,936 7/11/95 to 8/31/95 3.50 to 3.65 3,936
Jacksonville Electric
Authority Series A TECP
(P1/A1+)
4,000 8/2/95 to 8/8/95 3.10 to 3.85 4,000
Pinellas County Florida
Health Facilities
Authority (Bayfront
Medical Center, Inc.
Project) Refunding
Revenue Bonds
Series 1989 VRDN
(Aaa/VMIG1, AAA/A1)
600 7/5/95 4.20(A) 600
Putnam County
Development Authority
PCR Bonds (Seminole
Electric Cooperative,
Inc.) Series 1984D
(Aa3, AA-/A1+)
1,000 12/15/95 3.40(A) 1,000
Series 1984 H-1 & H-2
VRDN
(Aa3, AA-/A1+)
2,100 7/5/95 4.30(A) 2,100
Sunshine State
Governmental Financing
Commission
Series 1986 VRDN
(Aa2/VMIG1)
4,000 7/14/95 2.95(A) 4,000
15,636
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Hawaii -- 2.5%
Hawaii Department of
Budget & Finance
(Queens Medical Center)
Series 1985B VRDN
(Aaa/VMIG1, AAA/A1)
$ 5,800 7/5/95 4.25%(A) $ 5,800
Illinois -- 1.3%
Illinois Development
Finance Authority PCR
Bonds (Amoco Oil
Company Project) Series
1994 VRDN
(Aa1/VMIG1, AAA/A1+)
3,000 7/3/95 4.20(A) 3,000
Indiana -- 7.3%
Hammond Indiana PCR
Bonds (Amoco Oil
Company Project) Series
1984 VRDN
(Aa1/VMIG1, AAA/A1+)
2,320 7/3/95 4.20(A) 2,320
Jasper County PCR Bonds
(Northern Indiana
Public Service Company
Project) Series 1988A
VRDN (Aa2/VMIG1,
AA/A1+)
3,900 8/15/95 3.10(A) 3,900
Petersburg (City Of) PCR
Bonds (Indianapolis
Power & Light Company
Project) Series 1991
VRDN
(Aa3/VMIG1, A+/A1+)
3,000 7/13/95 to 8/23/95 3.60 to 3.65(A) 3,000
Sullivan (City of)
Floating/Fixed Rate PCR
(Hoosier Energy Rural
Electric Cooperative,
Inc. Project) Series
1985 L3, L5, & L-6
(A1/P1, AA-/A1+)
7,905 7/7/95 to 7/31/95 2.75 to 3.85(A) 7,905
17,125
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Iowa -- 1.5%
Louisa County PCR (Iowa-
Illinois Gas & Electric
Company Project) Series
1986A VRDN
(A1, A+/A1+)
$ 3,600 7/5/95 4.45%(A) $ 3,600
Kentucky -- 2.5%
Jefferson (County of)
PCR Bonds (Louisville
Gas and Electric
Company Project) Series
1993 A VRDN
(Aa2/VMIG1, AA/A1+)
2,500 8/17/95 3.55(A) 2,500
Trimble (County of) PCR
Bonds (Louisville Gas
and Electric Company
Project) Series 1992 A
VRDN
(Aa2/VMIG1, AA/A1+)
3,300 7/11/95 3.50(A) 3,300
5,800
Louisiana -- 2.7%
Lake Charles Harbor and
Terminal District Port
Facilities Revenue
Bonds (Conoco Inc.
Project) Series 1984
VRDN (Aa3/P1, AA-/A1+)
3,900 7/3/95 4.25(A) 3,900
St. Charles (Parish of)
PCR Refunding Bonds
(Shell Oil Company
Project) Series 1992 B
VRDN
(Aa2/VMIG1, AAA/A1+)
2,500 7/3/95 4.20(A) 2,500
6,400
Maryland -- 6.9%
Maryland Health & Higher
Educational Facilities
Authority (Loyola
College) Series 1985
VRDN
(Aa3/VMIG1, A1+)
5,500 7/3/95 4.05(A) 5,500
</TABLE>
3
<PAGE>
STATEMENT OF NET ASSETS -- CONTINUED
LEGG MASON TAX EXEMPT TRUST, INC.
JUNE 30, 1995 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Maryland -- Continued
Maryland Health & Higher
Educational Facilities
Authority (Pooled Loan
Program Issue)
Series 1985A & 1985B
VRDN (A1/VMIG1)
$ 10,800 7/5/95 4.30%(A) $ 10,800
16,300
Massachusetts -- 4.4%
Massachusetts Health &
Educational Facilities
Authority Revenue Bonds
Harvard University
Issue Series L VRDN
(Aaa/VMIG1, AAA/A1+)
10,350 7/6/95 to 8/25/95 3.40 to 4.50(A) 10,350
Minnesota -- 6.0%
Regents of the
University of Minnesota
Series 1985 I VRDN
(Aa/VMIG1, AA/A1+)
9,585 7/14/95 to 8/31/95 3.50 to 3.65(A) 9,585
Rochester (City of)
Health Care Facilities
Revenue Bonds (Mayo
Foundation/Mayo Medical
Center)
Series 1992 A VRDN
(AA+/A1+)
4,400 8/3/95 3.70(A) 4,400
13,985
Mississippi -- 1.6%
Jackson County PCR
Refunding Bonds
(Chevron USA, Inc.
Project) Series 1993
VRDN (Aa2/P1)
300 7/3/95 4.20(A) 300
Jackson County Ms.
Port Facility Refunding
Bonds (Chevron USA,
Inc. Project)
Series 1993 (Aa2/P1)
3,500 7/3/95 4.05(A) 3,500
3,800
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Montana -- 3.1%
Forsyth (City of) PCR
(Portland General
Electric Company
Colstrip Project)
Series 1983 A
(Aaa/P1, AAA/A1+)
$ 2,800 7/5/95 4.05%(A) $ 2,800
Series 1983 C & 1983 D
(Aaa/VMIG1, AA-/A1+)
1,500 7/5/95 4.05(A) 1,500
Series 1984 VRDN
(Aa1/P1)
2,900 7/5/95 4.05(A) 2,900
7,200
Nebraska -- 2.0%
Omaha Public Power
District TECP Series A
(P1, A1+)
4,700 8/4/95 3.85 4,700
North Carolina -- 0.4%
Winston-Salem Water &
Sewer Revenue Bonds
Series 1988 VRDN
(Aa/VMIG1, AA/A1+)
1,000 8/4/95 3.85(A) 1,000
Oregon -- 0.6%
Port St. Helens Oregon
PCR (Portland
Beneficial Electric
Company)
Series 1985 A VRDN
(Aa3/VMIG1, AA-/A1+)
1,500 7/3/95 4.25(A) 1,500
Pennsylvania -- 5.4%
Allegheny County
Hospital Development
Authority (Presbyterian
Hospital) Series A, B &
D VRDN
(Aaa/VMIG1, AAA/A1+)
10,250 7/6/95 4.05(A) 10,250
Delaware County IDA
(Scott Paper Company
Project) Series 1984 D
& E
VRDN (Aa2/P1, AA/A1+)
2,400 7/5/95 4.15(A) 2,400
12,650
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
South Carolina -- 2.5%
Berkeley County PCR
(Amoco Chemical Company
Project)
Series 1994 VRDN
(Aa1/VMIG1, AAA/A1+)
$ 1,000 7/3/95 4.20%(A) $ 1,000
South Carolina Public
Service TECP (P1, A1)
4,950 7/31/95 to 9/8/95 3.60 4,950
5,950
Texas -- 15.6%
Capital Industrial
Development Corporation
PCR (Motorola, Inc.
Project) Series 1984
VRDN (AA/A1+)
1,900 7/5/95 4.25(A) 1,900
Dallas (City of)
Waterworks and Sewer
Systems Series A TECP
(P1, A1+)
7,103 7/12/95 to 8/16/95 3.20 to 3.60 7,103
Harris County Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(St. Luke's Episcopal
Hospital Project)
Series B, C, D & 1992A
VRDN (AA/A1+)
5,800 7/3/95 4.50(A) 5,800
Harris County Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(Methodist Hospital)
Series 1994 VRDN
(AA/A1+)
5,800 7/3/95 4.50(A) 5,800
Houston (City of) GO
Public Improvement
Series 1992 A VRDN
(Aa/VMIG1, AA-/A1+)
3,000 7/5/95 4.00(A) 3,000
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Texas -- Continued
Houston (City of) TRAN
Series 1995 (MIG1,
SP1+)
$ 3,000 6/27/96 4.50% $ 3,023
Texas (State of) TRAN
Series 1994
(MIG1, SP1+)
10,000 8/31/95 5.00 10,015
36,641
Utah -- 2.6%
Emery County PCR
Refunding Bonds
(PacifiCorp Project)
Series 1994
(Aaa/VMIG1, AAA/A1+c)
2,000 7/3/95 4.25(A) 2,000
Intermountain Power
Agency Variable Rate
Power Supply Revenue
Bonds
Series 1985E & 1985F
(Aa/VMIG1, AA-/A1)
4,000 9/15/95 to 6/17/96 3.80 to 4.15(A) 4,000
6,000
Virginia -- 2.1%
Chesterfield County IDA
PCR Bonds (Virginia
Electric and Power
Company) Series 1987A
VRDN
(A3/VMIG1, A-/A1)
4,000 8/1/95 3.95(A) 4,000
Prince William County
IDA PCR Bonds (Virginia
Electric and Power
Company) Series 1986
VRDN
(A3/VMIG1, A-/A1)
1,000 8/11/95 4.20(A) 1,000
5,000
Washington -- 3.1%
Washington State Housing
Finance Committee
Series 1988B VRDN
(AAA/A1+)
7,250 7/5/95 4.50(A) 7,250
</TABLE>
5
<PAGE>
STATEMENT OF NET ASSETS -- CONTINUED
LEGG MASON TAX EXEMPT TRUST, INC.
JUNE 30, 1995 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Wisconsin -- 3.5%
Carlton (Town of) PCR
Refunding Bonds
Series 1991 B & C
(Wisconsin Power and
Light Company
Projects) VRDN
(Aa2/VMIG1, AA/A1+)
$ 1,400 7/3/95 4.65%(A) $ 1,400
Oak Creek (City of) PCR
Series 1986 (Wisconsin
Electric Power Company
Project) VRDN
(Aa3/P1, AA)
1,700 7/5/95 4.10(A) 1,700
Wisconsin (State of)
Operating Notes
Series 1985 (MIG1,
SP1+)
5,000 6/17/96 4.50 5,039
8,139
<CAPTION>
Par Rate Value
<C> <S> <C> <C>
Wyoming -- 4.8%
Lincoln County PCR Bonds
(Exxon Project) Series
1984A, B, C & D VRDN
(Aaa/P1, AAA/A1+)
$ 5,300 7/3/95 4.25%(A) $ 5,300
Sweetwater County PCR
Bonds (PacificCorp
Projects) Series 1994
VRDN
(Aaa/VMIG1, AAA/A1c)
5,900 7/3/95 4.50(A) 5,900
11,200
Total Investments, at
amortized cost and
value -- 103.6% 243,061(B)
Other Assets Less
Liabilities -- (3.6)% (8,426)
NET ASSETS APPLICABLE TO
234,663 SHARES
OUTSTANDING -- 100.0% $234,635
NET ASSET VALUE PER
SHARE $1.00
</TABLE>
(A) THE RATE SHOWN IS THE RATE AS OF JUNE 30, 1995 AND THE MATURITY SHOWN IS
THE LONGER OF THE NEXT INTEREST READJUSTMENT DATE OR THE DATE THE
PRINCIPAL AMOUNT OWED CAN BE RECOVERED THROUGH DEMAND.
(B) ALSO REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES.
A GUIDE TO ABBREVIATIONS APPEARS ON THE NEXT PAGE.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
LEGG MASON TAX EXEMPT TRUST, INC.
INVESTMENT ABBREVIATIONS:
<TABLE>
<S> <C>
GO General Obligation
IDA Industrial Development Authority
PCR Pollution Control Revenue
TECP Tax-Exempt Commercial Paper
TRAN Tax and Revenue Anticipation Note
VRDN Variable Rate Demand Note
</TABLE>
MUNICIPAL NOTE, BOND AND COMMERCIAL PAPER RATINGS:
Municipal Notes
MIG1 AND MIG2: Moody's ratings for state and municipal notes and other
short-term obligations are designated Moody's Investment Grade (MIG).
Notes bearing the designation MIG1 are judged to be of the best quality
and notes bearing the designation MIG2 are judged to be of high quality
(VMIG1 and VMIG2 are ratings for variable rate obligations).
SP1 and SP2: The two highest municipal note ratings assigned by
Standard & Poor's Ratings Group. A plus (+) sign may be added to the SP1
rating to indicate that an issue possesses very strong credit
characteristics.
Commercial Paper
P1 and P2: Prime 1 and Prime 2 are the two highest commercial paper
ratings assigned by Moody's Investors Service, Inc.
A1 and A2: The two highest commercial paper ratings assigned by
Standard & Poor's Ratings Group. A plus (+) sign designates issues
possessing very strong credit characteristics.
Municipal Bonds
Aaa, Aa, A and Baa: Investment grade bond ratings assigned by Moody's
Investors Service, Inc. A numeric modifier (1, 2, and 3) may be added to
the ratings to indicate high, medium and low relative credit strength,
respectively, within a particular rating category.
AAA, AA, A and BBB: Investment grade bond ratings assigned by Standard
& Poor's Ratings Group. A plus (+) or minus (-) sign may be added to the
ratings to indicate relative credit strength within a particular rating
category.
The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at June 30, 1995. These ratings are not
audited by the Fund's independent accountants.
MATURITY SCHEDULE OF PORTFOLIO:
<TABLE>
<CAPTION>
June 30, 1995
Maturity Percentage of
Period Amount/Par Portfolio
(000) (cum)
<S> <C> <C> <C>
1-7 days $125,415 51.6% 51.6%
8-30 days 24,153 9.9 61.5
31-45 days 35,135 14.5 76.0
46-90 days 44,259 18.2 94.2
Over 90 days 14,000 5.8 100.0
$242,962 100.0%
</TABLE>
Average Weighted Maturity -- 39 days
7
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON TAX EXEMPT TRUST, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Interest $4,490
EXPENSES:
Advisory fee $579
Transfer agent and shareholder servicing expense 61
Custodian fee 38
Registration fees 24
Legal and audit fees 22
Reports to shareholders 17
Directors' fees 5
Other expenses 9
Total expenses 755
NET INVESTMENT INCOME $3,735
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON TAX EXEMPT TRUST, INC.
<TABLE>
<CAPTION>
For the Six
Months Ended For the
June 30, Year Ended
(Amounts in Thousands) 1995 December 31, 1994
(Unaudited)
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 3,735 $ 5,464
Net realized loss on investments -- (8)
Increase in net assets resulting from operations 3,735 5,456
Distributions to shareholders from net investment income (3,735) (5,464)
Change in net assets from Fund share transactions 12,145 (15,113)
Change in net assets 12,145 (15,121)
NET ASSETS:
Beginning of period 222,490 237,611
End of period $234,635 $ 222,490
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON TAX EXEMPT TRUST, INC.
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>
For the Six
Months Ended For the Years Ended December 31,
June 30, 1995 1994 1993 1992 1991 1990
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .0159 .0223 .0174 .0231 .0386 .0518
Dividends paid from net investment
income (.0159) (.0223) (.0174) (.0231) (.0386) (.0518)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return 3.23%(A) 2.25% 1.75% 2.34% 3.93% 5.30%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses .65%(A) .65% .69% .73% .69% .70%
Net investment income 3.22%(A) 2.23% 1.74% 2.33% 3.88% 5.18%
Net assets, end of period (in
thousands) $234,635 $222,490 $237,611 $170,046 $176,752 $183,756
</TABLE>
(A) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON TAX EXEMPT TRUST, INC.
(AMOUNTS IN THOUSANDS) (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Tax Exempt Trust, Inc., ("Fund") is registered under
the Investment Company Act of 1940, as amended, as an open-end,
diversified investment company.
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. Net investment income
for dividend purposes consists of interest accrued plus original issue
discount earned, less amortization of market premium and accrued expenses.
At June 30, 1995 dividends payable of $321 were accrued.
Investment Transactions
Investment 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. Included in Other Assets Less Liabilities at June 30, 1995 was
$11,086 for investments purchased but not yet received and $100 for
investments sold but not yet delivered.
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. The Fund has
unused capital loss carryforwards for federal income tax purposes of $28
which expire in 2000 through 2002.
2. FUND SHARE TRANSACTIONS:
The Fund is authorized to issue 2,000,000 shares of common stock with
a par value of $.001 per share. At June 30, 1995, paid in capital
aggregated $234,663. Since the Fund 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>
For the Six
Months Ended For the
June 30, Year Ended
1995 December 31, 1994
<S> <C> <C>
Shares sold $ 439,381 $ 794,480
Shares reinvested 3,344 5,295
Shares repurchased (430,580) (814,888)
Net change $ 12,145 $ (15,113)
</TABLE>
3. TRANSACTIONS WITH AFFILIATES:
Legg Mason Fund Adviser, Inc. ("Adviser"), an affiliate of Legg Mason
Wood Walker, Incorporated, serves as the Fund's investment adviser and is
responsible for the investment management of the Fund's assets. As
compensation for its advisory services, the Fund pays the Adviser a fee,
calculated daily and payable monthly, at an annual rate of 0.50% of the
Fund's average daily net assets. Advisory fees of $93 were payable to the
Adviser at June 30, 1995.
Legg Mason also has an agreement with the Fund's transfer agent to
assist with certain of its duties. For this assistance, Legg Mason was
paid $21 by the transfer agent for the six months ended June 30, 1995.
10
