Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., President
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 LLP
Washington, D.C.
Independent Accountants
Coopers & Lybrand L.L.P.
Baltimore, MD
The 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
[recycled logo] Printed on Recycled Paper
LMF-016
Report to Shareholders
For the Six Months Ended
June 30, 1996
The
Legg Mason
Tax
Exempt
Trust, Inc.
Putting Your Future First
[Legg Mason Funds logo]
FUNDS
<PAGE>
To Our Shareholders,
At the end of the June quarter, the Legg Mason Tax Exempt Trust had $288
million invested in a diversified portfolio of high-quality, short-term
municipal securities. The Trust's 7-day yield was 2.78% and its average weighted
maturity was 59 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,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman
August 8, 1996
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
June 30, 1996 (Unaudited)
(Amounts in Thousands)
Par Rate Value
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Alabama -- 2.7%
Montgomery Industrial
Development Board
(General Electric Project)
Series 1990 VRDN
(Aaa/P1, AAA/A1+)
$ 7,505 7/26/96 to 10/11/96 3.35 to 3.55%(A) $ 7,505
Alaska -- 0.1%
Valdez (City of) Marine
Terminal Revenue Bonds
(Exxon) VRDN
(Aaa/P1, AAA/A1+)
400 7/1/96 3.55(A) 400
Arizona -- 3.4%
Salt River Project
Agricultural
Improvement & Power
District TECP (P1, A1+)
9,400 8/9/96 to 10/24/96 3.45 to 3.65 9,400
Colorado -- 1.8%
Colorado (State of) TRAN
Series 1996 (SP1+)
5,000 6/27/97 4.50 5,032
Connecticut -- 0.7%
Connecticut Health &
Educational Facilities
Authority (Yale University)
Series L & O TECP VRDN
(Aaa/VMIG1, AAA/A1+)
1,850 7/24/96 to 7/25/96 3.55 to 3.60(A) 1,850
Florida -- 8.4%
Gainesville (City of)
Utilities Systems
Series C TECP (P1, A1+)
1,813 9/24/96 3.60 1,813
Jacksonville Electric
Authority Series A &
C-1 TECP (P1, A1+)
6,300 8/13/96 to 9/9/96 3.40 to 3.55 6,300
Pinellas County Florida
Health Facilities
Authority (Bayfront
Medical Center, Inc.
Project) Refunding
Revenue Bonds
Series 1989 VRDN
(Aaa/VMIG1, AAA/A1)
2,700 7/3/96 3.35(A) 2,700
Par Rate Value
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Florida -- Continued
Putnam County
Development Authority
PCR Bonds (Seminole
Electric Cooperative, Inc.)
Series 1984 H-3
(Aa3, AA-/A1+)
$ 2,000 9/15/96 3.25%(A) $ 2,000
Series 1984 H-1 &
H-2 VRDN
(Aa3, AA-/A1+)
3,450 7/3/96 3.15(A) 3,450
Sunshine State
Governmental Financing
Commission
Series 1986 VRDN
(Aa2/VMIG1)
7,100 9/23/96 to 10/30/96 3.55 to 3.60(A) 7,100
23,363
Hawaii -- 3.1%
Hawaii Department of
Budget & Finance
(Queens Medical Center)
Series 1985B VRDN
(Aaa/VMIG1, AAA/A1)
8,450 7/3/96 3.10(A) 8,450
Idaho -- 1.5%
Idaho (State of) TAN
Series 1996 (MIG1, SP1+)
4,000 6/30/97 4.50(A) 4,023
Indiana -- 4.4%
Jasper County PCR Bonds
(Northern Indiana Public
Service Company Project)
Series 1988 B
(Aa2/P1, AA/A1+)
1,300 7/30/96 3.45(A) 1,300
Mount Vernon (City of)
PCR (General Electric
Company Project)
Series 1989 A
(Aaa/P1, AAA/A1+)
5,300 10/18/96 to 10/31/96 3.60(A) 5,300
Petersburg (City Of)
PCR Bonds (Indianapolis
Power & Light Company
Project) Series 1991 VRDN
(Aa3/VMIG1, A+/A1+)
3,000 10/10/96 3.60(A) 3,000
2
<PAGE>
Par Rate Value
- --------------------------------------------------------------------------------
Indiana -- Continued
Sullivan (City of)
Floating/Fixed Rate PCR
(Hoosier Energy Rural
Electric Cooperative, Inc.
Project) Series 1985 L-2, L-3
(A1/P1, AA-/A1+)
$ 2,500 8/8/96 to 9/27/96 3.55%(A) $ 2,500
12,100
Iowa -- 2.9%
Louisa County PCR (Iowa-
Illinois Gas & Electric
Company Project) Series
1986A VRDN
(A1, A+/A1+)
8,000 7/3/96 3.30(A) 8,000
Kentucky -- 1.4%
Trimble (County of) PCR
Bonds (Louisville Gas
and Electric Company
Project) Series 1992 A
VRDN
(Aa2/VMIG1, AA/A1+)
3,800 9/27/96 3.50(A) 3,800
Louisiana -- 5.7%
Lake Charles Harbor and
Terminal District Port
Facilities Revenue Bonds
(Conoco Inc. Project)
Series 1984 VRDN
(Aa3/P1, AA-/A1+)
11,400 7/1/96 3.60(A) 11,400
Saint Charles (Parish of)
PCR Refunding Bonds
(Shell Oil Company
Project) Series 1992 B
VRDN
(Aa2/VMIG1, AAA/A1+)
4,500 7/1/96 3.55(A) 4,500
15,900
Maine -- 0.7%
Maine (State of) TAN
(MIG1, SP1+)
2,000 6/27/97 4.50 2,012
Maryland -- 17.2%
Baltimore County
Consolidated Public
Improvement BAN
Series 1995 (P1, A1+)
12,500 8/7/96 to 10/7/96 3.40 to 3.50 12,500
Par Rate Value
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Maryland -- Continued
Baltimore County,
Maryland PCR
Revenue Refunding
Bonds (Baltimore Gas &
Electric) Series 1985
VRDN
(A2/VMIG1, A/A1)
$ 7,500 7/10/96 to 8/6/96 3.40 to 3.70%(A) $ 7,500
Howard County
Consolidated Public
Improvement BAN
Series A (P1, A1+)
6,000 9/10/96 3.55 to 3.70 6,000
Maryland Health & Higher
Educational Facilities
Authority (Pooled Loan
Program Issue) Series
1985A & B VRDN
(Aa3/VMIG1)
13,600 7/3/96 3.30 to 3.35(A) 13,600
Montgomery County,
Maryland BAN
Series 1995 (P1, A1+)
8,000 9/5/96 to 9/9/96 3.45 to 3.55 8,000
47,600
Massachusetts -- 4.9%
Massachusetts Health &
Educational Facilities
Authority Revenue Bonds
Harvard University Issue
Series L VRDN
(Aaa/VMIG1, AAA/A1+)
13,450 7/25/96 to 10/8/96 3.40 to 3.55(A) 13,450
Minnesota -- 6.7%
Regents of the University
of Minnesota
Series 1985 I VRDN
(Aa/VMIG1, AA/A1+)
9,675 8/22/96 to 10/18/96 3.35 to 3.60(A) 9,675
Rochester (City of) Health
Care Facilities Revenue
Bonds (Mayo
Foundation/Mayo
Medical Center)
Series 1992 A & C VRDN
(AA+/A1+)
8,900 7/22/96 to 8/15/96 3.35 to 3.65(A) 8,900
18,575
3
<PAGE>
Par Rate Value
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Mississippi -- 0.4%
Jackson County Port Facility
Refunding Bonds (Chevron USA,
Inc. Project) Series 1993
(Aa2/P1)
$ 1,000 7/1/96 3.55%(A) $ 1,000
Montana -- 4.2%
Forsyth (City of) PCR
(Portland General Electric
Company Colstrip
Project)
Series 1983 A
(Aaa/P1, AAA/A1+)
6,300 7/3/96 3.20(A) 6,300
Series 1983 D
(Aa1/P1, AA+/A1+)
2,000 7/3/96 3.30(A) 2,000
Series 1984 (Aa1/P1)
3,400 7/3/96 3.30(A) 3,400
11,700
Nebraska -- 2.4%
Omaha Public Power
District (P1, A1+)
6,500 9/25/96 to 10/11/96 3.55 to 3.60 6,500
North Carolina -- 0.9%
Winston-Salem (City of)
Water & Sewer Revenue
Bonds Series 1988
(Aa/VMIG1, AA/A1+)
1,000 8/20/96 3.60(A) 1,000
Series 1994 VRDN
(Aa/VMIG1, AA+/A1+)
1,600 7/3/96 3.30(A) 1,600
2,600
Oregon -- 0.1 %
St. Helens, Oregon
PCR VRDN
(Portland General Electric)
Series 1985 B
(Aa3/VMIG1, AA-/A1)
400 7/1/96 3.55(A) 400
Pennsylvania -- 6.9%
Allegheny County Hospital
Development Authority
(Presbyterian Hospital)
Series A, B, & D VRDN
(Aaa/VMIG1, AAA/A1+)
11,250 7/5/96 3.55(A) 11,250
Par Rate Value
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Pennsylvania -- Continued
Series B2 VRDN
(A1/VMIG1)
$ 1,090 7/5/96 3.55%(A) $ 1,090
Pennsylvania Higher
Educational Facilities
Authority Carnegie
Mellon University
Series 1995B, C & D VRDN
(AA-/A1 +)
6,700 7/1/96 3.70(A) 6,700
19,040
South Carolina -- 5.0%
Berkeley County PCR Bonds
(Amoco Chemical
Company Project)
Series 1994 VRDN
(Aa1/VMIG1, AAA/A1+)
3,100 7/1/96 3.55(A) 3,100
South Carolina Public
Service TECP (P1, A1)
10,650 8/22/96 to 10/9/96 3.40 to 3.60 10,650
13,750
Texas -- 5.8%
Capital Industrial
Development
Corporation PCR Bonds
(Motorola, Inc. Project)
Series 1984 VRDN
(AA/A1+)
2,600 7/3/96 3.55(A) 2,600
Harris County,
Texas PCR Bonds
(Exxon Project) Series
1984A & B VRDN
(Aaa, AAA/A1+)
2,300 7/1/96 3.60(A) 2,300
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue
Bonds (The Methodist
Hospital)
Series 1994
VRDN (AA/A1+)
2,100 7/1/96 3.70(A) 2,100
4
<PAGE>
Par Rate Value
- --------------------------------------------------------------------------------
Texas -- Continued
Harris County,
Texas Health Facilities
Development Corp.
Hospital Revenue
Bonds (St. Luke's
Episcopal Hospital Project)
Series B, C & D
VRDN (AA/A1+)
$ 5,100 7/1/96 3.70%(A) $ 5,100
Texas (State of )
TRAN Series 1995A
(MIG1, SP1+)
4,000 8/30/96 4.75 4,005
16,105
Utah -- 1.0%
Intermountain Power
Agency Variable Rate
Power Supply Revenue
Bonds Series 1985F
VRDN
(Aa1 /VMIG1, AA+/A1+)
2,700 9/15/96 3.35(A) 2,700
Virginia -- 0.4%
Prince William County IDA
PCR Bonds (Virginia
Electric and Power
Company) Series 1986
VRDN
(A3/VMIG1, A-/A1)
1,000 8/23/96 3.65(A) 1,000
Washington -- 7.3%
Washington (State of)
Adjustable Rate GO
Series VR - 96B
(Aa/VMIG1, AA/A1+)
13,000 7/3/96 3.25(A) 13,000
Washington State Housing
Finance Committee
Series 1988B VRDN
(AAA/A1+)
7,075 7/3/96 3.25(A) 7,075
20,075
Par Rate Value
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Wisconsin -- 3.7%
Carlton (Town of) PCR
Refunding Bonds
Series 1991B & C
(Wisconsin Power and
Light Company
Projects) VRDN
(Aa2/VMIG1, AA/A1+)
$ 4,200 7/1/96 3.70%(A) $ 4,200
Oak Creek (City of) PCR
Series 1986 (Wisconsin
Electric Power Company
Project) VRDN
(Aa3/P1, AA)
2,100 7/3/96 3.45(A) 2,100
Wisconsin (State of)
Operating Notes
Series 1995 (MIG1, SP1+)
4,000 6/16/97 4.50 4,023
10,323
Wyoming -- 0.8%
Lincoln County PCR Bonds
(Exxon Project) Series
1985 (Aaa/P1, AAA/A1+)
500 7/1/96 3.55(A) 500
Lincoln County PCR Bonds
(PacifiCorp Project)
Series 1991
(Aaa/VMIG1, AAA/A1+)
1,500 7/24/96 3.45(A) 1,500
Sublett County PCR Bonds
(Exxon Project)
Series 1984
(Aaa/P1, AAA/A1+)
200 7/1/96 3.55(A) 200
2,200
Total Investments, at
amortized cost and
value -- 104.5% 288,853(B)
Other Assets Less
Liabilities--(4.5)% (12,328)
Net assets applicable to
276,553 shares
outstanding-- 100.0% $276,525
Net asset value per
share $1.00
(A) The rate shown is the rate as of June 30, 1996 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.
5
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Investment Abbreviations:
BAN Bond Anticipation Note
IDA Industrial Development Authority
PCR Pollution Control Revenue
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
TRAN Tax and Revenue Anticipation Note
VRDN Variable Rate Demand Note
Municipal Note, Commercial Paper and Bond Ratings:
Municipal Notes
MIG1 and MIG2: Moody's Investors Service, Inc. 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, 1996. These ratings are not
audited by the Fund's independent accountants.
Maturity Schedule of Portfolio:
June 30, 1996
- --------------------------------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
- --------------------------------------------------------------------------------
(000) (cum)
1-7 days $128,515 44.5% 44.5%
8-30 days 15,755 5.5 50.0
31-45 days 20,400 7.1 57.1
46-65 days 18,350 6.3 63.4
66-90 days 46,688 16.2 79.6
90-120 days 40,750 14.1 93.7
Over 120 days 18,300 6.3 100.0
$288,758 100.0%
Average Weighted Maturity -- 59 days
6
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Six Months Ended June 30, 1996 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Investment Income:
Interest $4,516
Expenses:
Advisory fee $660
Transfer agent and shareholder servicing expense 67
Custodian fee 46
Registration fees 37
Audit and legal fees 26
Reports to shareholders 9
Directors' fees 5
Other expenses 9
859
Less compensating balance credits (4)
Total expenses, net of compensating balance credits 855
Net Investment Income $3,661
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Statement of Changes in Net Assets
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
(Amounts in Thousands) June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 3,661 $ 7,383
Distributions to shareholders from net investment income (3,661) (7,383)
Increase in net assets from Fund share transactions 51,869 2,166
Increase in net assets 51,869 2,166
Net Assets:
Beginning of period 224,656 222,490
End of period $276,525 $224,656
</TABLE>
See notes to financial statements.
7
<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 For the Years Ended December 31,
Months Ended --------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <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 .0138 .0313 .0223 .0174 .0231 .0386
Dividends paid from net investment income (.0138) (.0313) (.0223) (.0174) (.0231) (.0386)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return 2.80%(C) 3.17% 2.25% 1.75% 2.34% 3.93%
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A) .65%(C) .66% -- -- -- --
Net expenses(B) .65%(C) .65% .65% .69% .73% .69%
Net investment income 2.77%(C) 3.14% 2.23% 1.74% 2.33% 3.88%
Net assets, end of period (in thousands) $276,525 $224,656 $222,490 $237,611 $170,046 $176,752
</TABLE>
(A) Pursuant to new Securities Exchange Commission regulations effective
December 31, 1995, this ratio reflects total expenses before compensating
balance credits. Previously, the credits were included in the ratio.
(B) This ratio reflects total expenses reduced by the impact of compensating
balance credits
(C) Annualized
See notes to financial statements.
8
<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, 1996, dividends payable of $278 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 June 30, 1996, $15,090 was payable for securities purchased
but not yet received.
Compensating Balance Credits
The Fund has an arrangement with its custodian bank whereby a portion
of the custodian's fees are paid indirectly by credits earned on the
Fund's cash on deposit with the bank. This deposit arrangement is an
alternative to purchasing overnight investments.
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 $26 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, 1996, paid in capital
aggregated $276,553. 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:
For the Six For the
Months Ended Year Ended
June 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Shares sold $479,194 $879,501
Shares reinvested 3,301 7,219
Shares repurchased (430,626) (884,554)
- --------------------------------------------------------------------------------
Net change $ 51,869 $ 2,166
- --------------------------------------------------------------------------------
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 $114 were payable to the
Adviser at June 30, 1996.
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, 1996.
9
