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
-------------------------------------------
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
LMF-016
SEMI-ANNUAL REPORT
JUNE 30, 1997
LEGG MASON
TAX
EXEMPT
TRUST, INC.
Putting Your Future First
[LEGG MASON LOGO]
FUNDS
<PAGE>
To Our Shareholders,
On June 30, 1997, the Legg Mason Tax Exempt Trust had $309 million invested
in a diversified portfolio of high-quality, short-term municipal securities. As
this letter is written, the Trust's 7-day yield is 2.73% and its average
weighted maturity is 40 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 14, 1997
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
June 30, 1997 (Unaudited)
(Amounts in Thousands)
Par Rate Value
- -------------------------------------------------------------------
Alabama -- 1.9%
Montgomery Industrial
Development Board
(General Electric Project)
Series 1990 VRDN
(Aaa/P1, AAA/A1+)
$ 5,905 7/18/97 to 9/19/97 3.60 to 3.85%(A) $ 5,905
-------
Alaska -- 0.4%
Valdez (City of) Marine
Terminal Revenue Bonds
(Exxon) VRDN
(Aaa/P1, AAA/A1+)
1,100 7/1/97 4.00(A) 1,100
-------
Arizona -- 2.4%
Salt River Project
Agricultural
Improvement & Power
District TECP (P1, A1+)
7,500 8/8/97 to 9/18/97 3.60 to 3.80 7,500
-------
Connecticut -- 2.9%
Connecticut Health &
Educational Facilities
Authority (Yale University)
Series L & S TECP VRDN
(Aaa/VMIG1, AAA/A1+)
9,000 8/11/97 to 9/11/97 3.70 to 3.75(A) 9,000
-------
Florida -- 7.3%
Gainesville (City of), Utilities
System Series C TECP
(P1, A1+)
3,000 9/19/97 3.75 3,000
Jacksonville Electric
Authority Series A & D-1
TECP (P1, A1+)
5,500 8/6/97 to 8/22/97 3.70 to 3.80 5,500
Pinellas County Florida
Health Facilities
Authority (Bayfront
Medical Center, Inc.
Project) Refunding
Revenue Bonds
Series 1989 VRDN
(Aaa/VMIG1, AAA/A1)
2,700 7/2/97 4.15(A) 2,700
Par Rate Value
- -------------------------------------------------------------------
Florida -- Continued
Putnam County
Development Authority
PCR Bonds (Seminole
Electric Cooperative, Inc.)
Series 1984 H-3 VRDN
(Aa3, AA-/A1+)
$ 5,000 9/15/97 3.55%(A) $ 5,000
Series 1984 H-1 &
H-2 VRDN
(Aa3, AA-/A1+)
6,350 7/2/97 4.20(A) 6,350
-------
22,550
-------
Idaho -- 1.0%
Idaho (State of) TANS
Series 1996 (MIG1, SP1+)
3,000 6/30/98 4.63 3,021
-------
Indiana -- 3.3%
Mount Vernon (City of)
PCR (General Electric
Company Project)
Series 1989 A VRDN
(Aaa/P1, AAA/A1+)
8,400 8/22/97 to 9/12/97 3.70(A) 8,400
Rockport (City of)
PCR Refunding Bonds
(AEP Generating Company
Project) Series 1995 A VRDN
(AAA/A1)
1,800 7/1/97 4.05(A) 1,800
-------
10,200
-------
Iowa -- 2.4%
Louisa County PCR (Iowa-
Illinois Gas & Electric
Company Project) Series
1986 A VRDN
(A3/P1, A/A1)
7,500 7/2/97 4.20(A) 7,500
-------
Kentucky -- 5.1%
Jefferson (County of)
PCR Bonds (Louisville
Gas and Electric Company
Project) Series 1993 A VRDN
(Aa3/VMIG1, AA-/A1+)
6,250 9/17/97 to 9/18/97 3.65 to 3.70(A) 6,250
2
<PAGE>
Par Rate Value
- -------------------------------------------------------------------
Kentucky -- Continued
Kentucky Economic
Development Finance
Authority Hospital Revenue
Bonds, Series 1997 (Baptist
Healthcare System Obligated
Group) VRDN (AA-/A1+)
$ 4,000 7/2/97 4.10%(A) $ 4,000
Trimble (County of) PCR
Bonds (Louisville Gas
and Electric Company
Project) Series 1992 A
VRDN
(Aa3/VMIG1, AA-/A1+)
5,400 8/22/97 to 9/19/97 3.70 to 3.80(A) 5,400
-------
15,650
-------
Louisiana -- 4.7%
Ascension (Parish of)
PCR Refunding (Shell Oil
Company Project)
Series 1993 VRDN
(AAA/A1+)
2,800 7/1/97 4.05(A) 2,800
Parish of East Baton Rouge,
State of Louisiana Pollution
Control Revenue Refunding
Bonds (Exxon Project) 1993
Series VRDN
(Aaa/P1, AAA/A1+)
1,900 7/1/97 4.05(A) 1,900
Lake Charles Harbor and
Terminal District Port
Facilities Revenue Bonds
(Conoco Inc. Project)
Series 1984 VRDN
(Aa3/P1, AA-/A1+)
7,800 7/1/97 4.10(A) 7,800
Saint Charles (Parish of)
PCR Refunding Bonds
(Shell Oil Company
Project) Series 1992 B
VRDN
(Aa1/VMIG1, AAA/A1+)
1,900 7/1/97 4.00(A) 1,900
-------
14,400
-------
Par Rate Value
- -------------------------------------------------------------------
Maryland -- 15.1%
Anne Arundel County,
Maryland General
Obligation BANS Series B
(Consolidated Water and
Sewer Series) (P1, A1+)
$ 4,500 9/9/97 3.70% $ 4,500
Baltimore County
Consolidated Public
Improvement BANS
Series 1995 (P1, A1+)
11,000 8/4/97 to 10/1/97 3.55 to 3.65 11,000
Baltimore County,
Maryland PCR
Revenue Refunding
Bonds (Baltimore Gas &
Electric) Series 1985
VRDN (A2/VMIG1, A/A1)
14,000 8/5/97 to 10/1/97 3.60 to 3.80(A) 14,000
Baltimore County, Maryland
Revenue Bonds (The Sheppard
and Enoch Pratt Hospital
Facility) Series 1992 VRDN
(Aa3/VMIG1)
3,000 7/2/97 4.15(A) 3,000
County Commissioners of
Charles County Consolidated
Public Improvement
Bonds 1997 (Aa3, AA-)
1,000 2/1/98 5.00 1,008
Maryland Health & Higher
Educational Facilities
Authority (Pooled Loan
Program Issue) Series
1985 A & B VRDN
(Aa3/VMIG1)
13,200 7/2/97 4.15(A) 13,200
-------
46,708
-------
Massachusetts -- 2.0%
Massachusetts Health &
Educational Facilities
Authority Revenue Bonds
Harvard University Issue
Series L VRDN
(Aaa/VMIG1, AAA/A1+)
6,050 8/21/97 3.65(A) 6,050
-------
3
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------
Minnesota -- 3.9%
Rochester (City of) Health
Care Facilities Revenue
Bonds (Mayo
Foundation/Mayo
Medical Center)
Series 1992 A, B & C VRDN
(AA+/A1+)
$12,200 8/12/97 to 9/10/97 3.75 to 3.80%(A) $12,200
-------
Michigan -- 1.5%
Michigan State Housing
Development Authority Rental
Housing Revenue Bonds,
Series 1997 B VRDN
(Aaa/VMIG1, AAA/A1+)
4,500 7/2/97 4.15(A) 4,500
-------
Missouri -- 0.6%
Independence (City of) Water
Utility Revenue Bonds Series
1993 VRDN (VMIG1/Aa1)
1,900 8/22/97 3.80(A) 1,900
-------
Mississippi -- 1.0%
Jackson County Port Facility
Refunding Bonds (Chevron
USA, Inc. Project) Series 1993
VRDN (Aa2/P1)
3,100 7/1/97 4.00(A) 3,100
-------
Montana -- 2.1%
Forsyth (City of) PCR
(Portland General Electric
Company Colstrip
Project) VRDN
Series 1983 D
(Aa1/P1, AA+/A1+)
3,000 7/2/97 4.15(A) 3,000
Series 1984 (Aa1/P1)
3,400 7/2/97 4.15(A) 3,400
-------
6,400
-------
Nebraska -- 1.6%
Omaha Public Power
District TECP (P1, A1+)
4,800 8/27/97 to 9/17/97 3.60 to 3.75 4,800
-------
Par Rate Value
- -------------------------------------------------------------------
North Carolina -- 4.2%
Winston-Salem (City of)
Water & Sewer Revenue
Bonds VRDN
(Aa/VMIG1, AA/A1+)
$ 5,300 8/8/97 to 9/12/97 3.70 to 3.80%(A) $ 5,300
Series 1994 VRDN
(Aa/VMIG1, AA+/A1+)
7,800 7/2/97 4.20(A) 7,800
-------
13,100
-------
Oregon -- 0.8%
Port St. Helens, Oregon PCR
(General Electric)
Series 1985 B VRDN
(Aa3/VMIG1, AA-/A1+)
2,600 7/1/97 4.05(A) 2,600
-------
Pennsylvania -- 8.5%
Allegheny County Hospital
Development Authority
(Presbyterian Hospital)
Series A, C, & D VRDN
(Aaa/VMIG1, AAA/A1)
7,400 7/3/97 4.20(A) 7,400
Series B2 VRDN
(A1/VMIG1)
4,800 7/3/97 4.20(A) 4,800
Pennsylvania Higher
Educational Facilities
Authority Carnegie
Mellon University
Series 1995 A, B, C & D VRDN
(AA-/A1+)
14,000 7/1/97 4.15(A) 14,000
-------
26,200
-------
South Carolina -- 3.6%
Berkeley County, South
Carolina (Amoco Chemical
Company Project) Pollution
Control Revenue Refunding
Bonds, Series 1994 VRDN
(Aa1/VMIG1, AAA/A1+)
1,800 7/1/97 4.00(A) 1,800
South Carolina Public
Service TECP (P1, A1)
9,295 8/22/97 to 9/26/97 3.70 to 3.80 9,295
-------
11,095
-------
4
<PAGE>
Par Rate Value
- -------------------------------------------------------------------
Tennessee -- 1.6%
State of Tennessee General
Obligation BANS Series
1997 A VRDN
(MIG1/VMIG1, SP-1+/A1+)
$ 5,000 7/2/97 4.25%(A) $ 5,000
-------
Texas -- 11.9%
Capital Industrial Development
Corporation PCR Bonds
(Motorola, Inc. Project)
Series 1984 VRDN
(AA/A1+)
3,100 7/2/97 4.00(A) 3,100
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(Memorial Hospital
System Project)
Series 1997 B VRDN
(VMIG1, A1+)
11,800 7/2/97 4.15(A) 11,800
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(The Methodist Hospital)
Series 1994 VRDN
(AA/A1+)
1,100 7/1/97 4.15(A) 1,100
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue
Bonds (St. Luke's
Episcopal Hospital Project)
Series 1992 A VRDN
(AA/A1+)
4,700 7/1/97 4.15(A) 4,700
Harris County, Texas
Health Facilities
Development Corp.
Medical Facilities
Revenue Bonds (Baylor
College of Medicine Project)
Series 1997 VRDN (AA+/A1+)
12,000 7/2/97 4.15(A) 12,000
Par Rate Value
- -------------------------------------------------------------------
Texas -- Continued
Harris County Industrial
Development Corp.
Pollution Control Revenue
Bonds (Exxon Project)
1984-A Series VRDN
(Aaa, AAA/A1+)
$ 600 7/1/97 4.05%(A) $ 600
Houston (City of)
TRANS Series 1995
(MIG1, SP-1+)
3,000 6/30/98 4.50 3,019
Southwest Higher Education
Authority, Incorporated,
Higher Education Revenue
Bonds (Southern Methodist
University Project) Refunding
Series 1985 VRDN
(Aa1/VMIG1)
200 7/1/97 4.10(A) 200
Texas (State of)
TRANS Series 1996 A
(MIG1, SP1+)
330 8/29/97 4.75 330
-------
36,849
-------
Utah -- N.M.
Emery County PCR Refunding
Bonds (PacifiCorp Project)
Series 1994 VRDN
(Aaa/VMIG1, AAA/A1+)
100 7/1/97 4.10(A) 100
-------
Washington -- 6.5%
Washington (State of)
Adjustable Rate GO
Series VR - 96B
(Aa/VMIG1, AA/A1+)
12,000 7/2/97 4.10(A) 12,000
Washington State Housing
Finance Committee
Series 1988 B VRDN
(AAA/A1+)
8,080 7/2/97 4.25(A) 8,080
-------
20,080
-------
5
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------
Wisconsin -- 5.2%
Carlton (Town of) PCR
Refunding Bonds
Series 1991 C
(Wisconsin Power and
Light Company
Projects) VRDN
(Aa2/VMIG1, AA/A1+)
$ 1,000 7/1/97 4.25%(A) $ 1,000
Series B & C
(Aa2/P1, AA/A1+)
2,075 7/1/97 4.25(A) 2,075
Oak Creek (City of) PCR
Series 1986 (Wisconsin
Electric Power Company
Project) VRDN
(Aa3/P1, AA)
5,000 7/2/97 4.15(A) 5,000
Wisconsin (State of)
Operating Notes
Series 1997 (MIG1, SP1+)
5,000 6/15/98 4.50 5,030
Wisconsin (State of)
General Obligation
Commercial Paper Notes
1997, Series A
(MIG1, SP-1+)
3,000 8/19/97 3.65 3,000
-------
16,105
-------
Par Rate Value
- -------------------------------------------------------------------
Wyoming -- 1.4%
Lincoln County PCR Bonds
(PacifiCorp Project)
Series A, B, C &D VRDN
(Aaa/P1, AAA/A1+)
$ 2,900 7/1/97 4.10%(A) $ 2,900
Sublette County PCR Bonds
(Exxon Project)
Series 1984 VRDN
(Aaa/P1, AAA/A1+)
1,500 7/1/97 4.00(A) 1,500
--------
4,400
--------
Total Investments, at
amortized cost and
value -- 102.9% 318,013(B)
Other Assets Less
Liabilities-- (2.9)% (9,037)
--------
NET ASSETS APPLICABLE TO
309,004 SHARES
OUTSTANDING-- 100.0% $308,976
========
NET ASSET VALUE PER
SHARE $1.00
=====
- -------------------------------------------------------------------
(A) The rate shown is the rate as of June 30, 1997 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.
N.M. Not meaningful
A guide to abbreviations appears on the next page.
See notes to financial statements.
6
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Investment Abbreviations:
BANS Bond Anticipation Notes
GO General Obligation
IDA Industrial Development Authority
PCR Pollution Control Revenue
TANS Tax Anticipation Notes
TECP Tax-Exempt Commercial Paper
TRANS Tax and Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
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, 1997. These ratings are not
audited by the Fund's independent accountants.
Maturity Schedule of Portfolio:
June 30, 1997
- -----------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
- -----------------------------------------------------------
(000) (cum)
1-7 days $177,605 55.8% 55.8%
8-30 days 3,305 1.0 56.8
31-45 days 29,500 9.3 66.1
46-90 days 91,525 28.8 94.9
Over 90 days 16,078 5.1 100.0
-------- -----
$318,013 100.0%
======== =====
Average Weighted Maturity -- 34 days
7
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Six Months Ended June 30, 1997 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Interest $5,366
Expenses:
Management fee $746
Distribution and service fees 142
Transfer agent and shareholder servicing expense 67
Custodian fee 50
Registration fee 39
Legal and audit fees 27
Reports to shareholders 14
Directors' fees 6
Other expenses 6
-----
1,097
Less compensating balance credits (12)
-----
Total expenses, net of compensating balance credits 1,085
------
NET INVESTMENT INCOME $4,281
======
</TABLE>
-----------------------------------------------------
Statement of Changes in Net Assets
Legg Mason Tax Exempt Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income $ 4,281 $ 7,746
Distributions to shareholders from net investment income (4,281) (7,746)
Change in net assets from Fund share transactions 30,484 53,836
-------- --------
Change in net assets 30,484 53,836
Net Assets:
Beginning of period 278,492 224,656
- ---------------------------------------------------------------------------------------------------------
End of period $308,976 $278,492
======== ========
</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 For the Years Ended December 31,
Months Ended -----------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
(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 .0141 .0282 .0313 .0223 .0174 .0231
Dividends paid from net investment
income (.0141) (.0282) (.0313) (.0223) (.0174) (.0231)
-------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================
Total return 2.90%(C) 2.85% 3.17% 2.25% 1.75% 2.34%
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A) .74%(C) .64% .66% -- -- --
Net expenses(B) .73%(C) .64% .65% .65% .69% .73%
Net investment income 2.87%(C) 2.82% 3.14% 2.23% 1.74% 2.33%
Net assets, end of period (in thousands) $308,976 $278,492 $224,656 $222,490 $237,611 $170,046
</TABLE>
(A) Pursuant to 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 expenses net of compensating balance credits.
(C) 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.
Investment Income and Dividends to Shareholders
Income and expenses are recorded on the accrual basis. 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,
1997, dividends payable of $383 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, 1997, $11,070 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 from 2000 through 2002.
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. 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, 1997, paid in capital
aggregated $309,004. 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, 1997 December 31, 1996
-----------------------------------------------------
(Unaudited)
Shares sold $ 518,612 $1,008,112
Shares reinvested 3,791 7,565
Shares repurchased (491,919) (961,841)
-----------------------------------------------------
Net change $ 30,484 $ 53,836
=====================================================
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 $127 were payable to the
Adviser at June 30, 1997.
Effective January 10, 1997, Tax Exempt Trust began compensating Legg
Mason for distribution costs and services at an annual rate equal to 0.10%
of its average daily net assets. Legg Mason has agreed to limit such fees
paid by the Fund to 0.10% for the next two years. If this voluntary limit
is not extended beyond January 10, 1999, Tax Exempt Trust may pay Legg
Mason a fee for its distribution services in an amount not to exceed an
annual rate of 0.15% of the Fund's average daily net assets. Distribution
and service fees of $25 were payable to the distributor at June 30, 1997.
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 $20 by the transfer agent for the year ended June 30, 1997.
10
<PAGE>
Legg Mason Family of Funds
Equity Funds
LEGG MASON BALANCED TRUST
Growth and Income--An equity mutual fund which seeks long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk.
LEGG MASON TOTAL RETURN TRUST
Growth and Income--An equity mutual fund with investment objectives of capital
appreciation and current income.
LEGG MASON AMERICAN LEADING COMPANIES TRUST
Growth--A large capitalization equity mutual fund which seeks long-term capital
appreciation and current income consistent with prudent investment management.
LEGG MASON VALUE TRUST
Growth--An equity mutual fund which seeks long-term growth of capital using the
"Value Approach" to investing.
LEGG MASON SPECIAL INVESTMENT TRUST
Aggressive Growth--An equity mutual fund which seeks capital appreciation.
It invests principally in securities of companies that are involved in
restructurings or other special situations, or are out of favor with, or not
closely followed by the market.
Global Funds*
LEGG MASON EMERGING MARKETS TRUST
Aggressive Growth--A mutual fund which is designed for investors seeking
long-term growth possibilities available in emerging markets.
LEGG MASON INTERNATIONAL EQUITY TRUST
Aggressive Growth--A diversified, professionally managed portfolio seeking
maximum long-term total return by investing primarily in common stocks of
companies located outside the United States.
LEGG MASON GLOBAL GOVERNMENT TRUST
Growth and Income--A global bond fund which seeks to provide a competitive
total return by investing primarily in a global portfolio of high quality
debt securities of U.S. and foreign governments, their agencies and
instrumentalities, denominated in various currencies.
Taxable Bond Funds
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
Conservative Income--A mutual fund which seeks to achieve high current income
consistent with prudent investment risk and liquidity needs.
LEGG MASON INVESTMENT GRADE INCOME PORTFOLIO
Income--A mutual fund which seeks to provide investors with a high level of
current income through a diversified portfolio of debt instruments.
LEGG MASON HIGH YIELD PORTFOLIO
Growth and Income--A fund which seeks to provide high current income, and as a
secondary objective, seeks capital appreciation. Under normal circumstances, the
Fund will invest a majority of its total assets in high yield fixed income
securities commonly known as "junk" bonds. The Fund may invest up to 25% of
total assets in foreign securities.
Tax-Free Bond Funds(dagger)
LEGG MASON TAX-FREE INTERMEDIATE-TERM INCOME TRUST
Tax-Free Income--A fund which seeks a high level of current income exempt
from federal income tax consistent with prudent investment risk.
LEGG MASON MARYLAND TAX-FREE INCOME TRUST
Tax-Free Income--A fund whose objective is a high level of current income exempt
from federal, Maryland state, and local income taxes.
LEGG MASON PENNSYLVANIA TAX-FREE INCOME TRUST
Tax-Free Income--A fund which seeks a high level of current income exempt from
federal income tax and Pennsylvania personal income tax.
Money Market Funds(dagger)(dagger)
LEGG MASON U.S. GOVERNMENT MONEY MARKET PORTFOLIO
A professionally managed portfolio seeking high current income consistent with
liquidity and conservation of principal.
LEGG MASON CASH RESERVE TRUST
A diversified management investment company investing in money market
instruments to achieve stability of principal and current income consistent
with stability of principal.
LEGG MASON TAX EXEMPT TRUST
A money market fund seeking to produce high current income exempt from federal
income tax, to preserve capital and to maintain liquidity.
* Investment in foreign securities involves increased risks, such
as currency rate fluctuations, foreign taxation and political
changes.
(dagger) Income produced from the tax-free funds may be subject to state
and local taxes. Long-term capital gain distributions generally
are taxable. A portion of each Fund's dividends may be subject
to the federal alternative minimum tax.
(dagger dagger) An investment in any of these Funds is neither insured nor
guaranteed by the U.S. Government and there can be no guarantee
that these Funds will maintain a stable $1 share price.
For a prospectus containing more complete information, including charges and
expenses on any of the Legg Mason funds, call 1-800-577-8589. Please read the
prospectus carefully before investing or sending money.
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