Semi-Annual Report
June 30, 1998
Legg Mason
Tax
Exempt
Trust, Inc.
The Art of Investing
[LEGG MASON LOGO]
FUNDS
Investment Adviser
Legg Mason Capital Management, 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
PricewaterhouseCoopers LLP
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
- --------------------------------------------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
LMF-016
<PAGE>
To Our Shareholders,
On June 30, 1998, the Legg Mason Tax Exempt Trust had $304 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 2.82% and its average
weighted maturity is 28 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.
Many of our shareholders regularly add to their fund holdings by
authorizing automatic, monthly transfers from their bank checking or Legg Mason
accounts. Your Legg Mason Financial Advisor will be happy to help you make these
arrangements if you would like to purchase shares in this convenient way.
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
July 29, 1998
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
June 30, 1998 (Unaudited)
(Amounts in Thousands)
Par Rate Value
- -------------------------------------------------------------------------------
Alabama -- 0.7%
Montgomery Industrial
Development Board
(General Electric Project)
Series 1990 VRDN
(Aaa/P-1, AAA/A-1+)
$ 2,000 7/13/98 3.70%(A) $ 2,000
--------
Arizona -- 0.7%
Salt River Project
Agricultural
Improvement & Power
District TECP (P-1, A-1+)
2,000 8/3/98 3.55 2,000
--------
Colorado -- 1.0%
Colorado (State of) General Fund
Tax and Revenue Anticipation
Series 1998A (SP-1+, F1+)
3,000 6/25/99 4.00 3,013
--------
Connecticut -- 4.0%
State of Connecticut Health &
Educational Facilities Authority
Revenue Bonds, Yale University
Issue, Series T VRDN
(Aaa/VMIG1, AAA/A-1+)
8,000 7/2/98 3.45 to 3.50(A) 8,000
State of Connecticut Health &
Educational Facilities
Authority Revenue Bonds,
Yale University
Issue, Series S VRDN
(Aaa/VMIG1, AAA/A-1+)
4,000 8/14/98 3.40(A) 4,000
--------
12,000
--------
Florida -- 7.9%
Gainesville (City of)
Utilities Systems Series C
TECP
(Aaa/P-1, AAA/A-1+)
5,000 10/13/98 3.60 5,000
Jacksonville Electric Authority
Series A TECP
(Aaa/P-1, AAA/A-1+, F1+)
6,000 8/28/98 to 9/9/98 3.60 6,000
Par Rate Value
- -------------------------------------------------------------------------------
Florida -- Continued
Pinellas County, Florida
Health Facilities
Authority (Bayfront
Medical Center, Inc.
Project) Refunding
Revenue Bonds
Series 1989 VRDN
(Aaa/VMIG1, AAA/A-1)
$ 2,700 7/1/98 3.40%(A) $ 2,700
Putnam County
Development Authority
PCR Bonds (Seminole
Electric Cooperative, Inc.)
Series 1984 H-1 & H-2 VRDN
(Aa3, AA-/A-1+)
10,135 7/1/98 3.65(A) 10,135
--------
23,835
--------
Georgia -- 4.4%
Burke (County of) Georgia
Development Authority
Pollution Control Revenue
Bonds (Oglethorpe Power
Corp. Vogtle Project)
Series 98A & 98B
(Aaa/P-1, AAA/A-1+)
13,325 9/16/98 to 10/9/98 3.55 to 3.75(A) 13,325
--------
Idaho -- 1.3%
Idaho (State of) TANS
Series 1998 (MIG1, SP-1+, F1+)
4,000 6/30/99 4.50 4,035
--------
Illinois -- 0.4%
Illinois Development Authority
(Amoco)
Series 1994 VRDN
(VMIG1/A-1+)
1,300 7/1/98 3.80(A) 1,300
--------
Indiana -- 5.4%
Hammond (City of)
Indiana Pollution
Control Revenue
Refunding Bonds (Amoco
Oil Company Project)
Series 1994 VRDN
(Aa1/VMIG1, AAA/A-1+)
700 7/1/98 3.80(A) 700
2
<PAGE>
Par Rate Value
- -------------------------------------------------------------------------------
Indiana -- Continued
Mount Vernon (City of)
PCR (General Electric
Company Project)
Series 1989 A VRDN
(Aaa/P-1, AAA/A-1+)
$11,290 9/8/98 to 9/11/98 3.50 to 3.65%(A) $ 11,290
Sullivan (City of)
Floating/Fixed Rate PCR
(Hoosier Energy Rural Elective
Cooperative, Inc. Project)
Series L2, L3, &L6, VRDN
(A-1/P-1, AA-/A-1+)
4,500 8/11/98 to 10/13/98 3.55 to 3.70(A) 4,500
--------
16,490
--------
Iowa -- 1.6%
Louisa County PCR (Iowa-
Illinois Gas & Electric
Company Project) Series
1986 A VRDN
(A3/P-1, A/A-1)
5,000 7/1/98 3.60(A) 5,000
--------
Kentucky -- 4.6%
Jefferson (County of)
PCR Bonds (Louisville
Gas & Electric Company
Project) Series 1993 A VRDN
(Aa2/VMIG1, AA-/A-1+)
1,900 9/10/98 to 9/17/98 3.60(A) 1,900
Jefferson (County of)
PCR Bonds (Louisville
Gas & Electric Company
Project) Series 1996 A VRDN
(Aa3/VMIG1, A+/A-1+)
3,000 9/17/98 3.55(A) 3,000
Kentucky Economic
Development Finance
Authority Hospital Revenue
Bonds, Series 1997 (Baptist
Healthcare System Obligated
Group) VRDN
(AA-/A-1+, AA-, F1+)
9,000 7/1/98 3.50(A) 9,000
--------
13,900
--------
Par Rate Value
- -------------------------------------------------------------------------------
Louisiana -- 3.4%
Ascension (Parish of)
PCR Refunding (Shell Oil
Company Project)
Series 1993 VRDN
(AAA/A-1+)
$ 3,900 7/1/98 4.00%(A) $ 3,900
Lake Charles (City of)
Harbor & Terminal District
Port Facilities Revenue
Bonds Series 1984 VRDN
(Aa3/P-1, AA-/A-1+)
5,400 7/1/98 3.85(A) 5,400
Parish of East Baton Rouge,
State of Louisiana Pollution
Control Revenue Refunding
Bonds (Exxon Project) 1993
Series VRDN
(Aaa/P-1, AAA/A-1+)
1,000 7/1/98 3.90(A) 1,000
--------
10,300
--------
Maryland -- 8.3%
Annapolis (City of) Maryland
General Obligation Public
Improvement and Refunding
Bonds, 1998 Series
(Aa2/AA-)
1,000 11/1/98 4.375 1,002
Anne Arundel County,
Maryland General
Obligation Bonds, Series 1998
(Aa2, AA+/AA+)
3,800 2/1/99 4.50 3,817
Baltimore County,
Maryland PCR
Revenue Refunding
Bonds (Baltimore Gas &
Electric) Series 1985
VRDN (A2/MIG1, A/A-1)
2,500 8/7/98 3.80(A) 2,500
Baltimore County, Maryland
Revenue Bonds (The Sheppard
and Enoch Pratt Hospital
Facility) Series 1992 VRDN
(Aa3/VMIG1)
2,600 7/1/98 3.60(A) 2,600
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------------------
Maryland -- Continued
Maryland Health & Higher
Educational Facilities
Authority (Pooled Loan
Program Issue) Series
1985 A & B VRDN
(Aa3/VMIG1)
$ 8,500 7/1/98 3.50%(A) $ 8,500
Maryland Health & Higher
Educational Facilities
Authority (Johns Hopkins
University) Series C TECP
(Aa3/P-1, AA-/A-1+)
5,800 9/11/98 to 9/17/98 3.55 to 3.60 5,800
Maryland State Government
GO Bond Second Series
(Aaa, AAA)
1,000 7/15/98 6.40 1,001
--------
25,220
--------
Massachusetts -- 0.3%
Massachusetts Health & Educational
Facilities Authority Revenue Bonds
Harvard University Issue Series L
VRDN (Aaa/P-1, AAA/A-1+)
1,000 10/9/98 3.60(A) 1,000
--------
Michigan -- 1.8%
Michigan State Housing
Development Authority Rental
Housing Revenue Bonds,
Series 1997 B VRDN
(Aaa/VMIG1, AAA/A-1+)
5,600 7/1/98 3.50(A) 5,600
--------
Minnesota -- 1.8%
Rochester (City of) Health
Care Facilities Revenue
Bonds (Mayo Foundation/
Mayo Medical Center)
Series 1992 C VRDN
(AA+/A-1+)
5,500 8/13/98 to 8/19/98 3.60 to 3.70(A) 5,500
--------
Par Rate Value
- -------------------------------------------------------------------------------
Mississippi -- 4.3%
Jackson County Port Facility
Refunding Bonds (Chevron
USA, Inc. Project) Series 1993
VRDN (Aa2/P-1)
$13,000 7/1/98 3.80%(A) $ 13,000
--------
Nebraska -- 2.0%
Omaha Public Power
District TECP (P-1, A-1+)
6,000 9/4/98 to 9/11/98 3.65 to 3.75 6,000
--------
North Carolina -- 4.3%
Winston-Salem (City of)
Water & Sewer Revenue
Bonds VRDN
(Aa/VMIG1, AA+/A-1+)
7,200 9/8/98 to 9/10/98 3.60 to 3.65(A) 7,200
Series 1994 VRDN
(Aa/VMIG1, AA+/A-1+)
6,000 7/1/98 3.50(A) 6,000
--------
13,200
--------
Ohio -- 0.7%
County of Cuyahoga, Ohio
Hospital Revenue Refunding
Bonds (The Cleveland
Clinic Foundation)
Series 1997 A VRDN
(Aaa/VMIG1, AAA/A-1+)
2,000 7/1/98 3.55(A) 2,000
--------
Pennsylvania -- 4.0%
Allegheny County Hospital
Development Authority
(Presbyterian Hospital)
Series B, B2 & D VRDN
(Aaa/VMIG1, AAA/A-1)
7,930 7/2/98 3.60(A) 7,930
Pennsylvania Higher
Educational Facilities
Authority Carnegie
Mellon University
Series 1995 B & D VRDN
(AA-/A-1+)
4,100 7/1/98 4.00(A) 4,100
--------
12,030
--------
4
<PAGE>
Par Rate Value
- -------------------------------------------------------------------------------
South Carolina -- 6.1%
Berkeley (County of), South
Carolina (Amoco Chemical
Company Project) Pollution
Control Revenue Refunding
Bonds, Series 1994 VRDN
(Aa1/VMIG1, AAA/A-1+)
$ 7,450 7/1/98 3.80%(A) $ 7,450
South Carolina Public
Service TECP (P-1, A-1, F1+)
11,000 8/3/98 to 9/14/98 3.55 to 3.75 11,000
--------
18,450
--------
Tennessee -- 1.9%
State of Tennessee General
Obligation BANS Series
1997 A VRDN
(MIG1/VMIG1, SP-1+/A-1+)
5,800 7/1/98 3.40(A) 5,800
--------
Texas -- 13.1%
Board of Regents of the
University of Texas
System Revenue Financing
System, Series A
(P-1, A-1+)
1,000 8/28/98 3.60 1,000
Capital Industrial Development
Corporation PCR Bonds
(Motorola, Inc. Project)
Series 1984 VRDN
(AA/A-1+)
3,100 7/1/98 3.70(A) 3,100
Harris County, General
Obligation Notes Series A TECP
(P-1, A-1+, F1+)
2,591 9/1/98 3.65 2,591
Harris County, Texas
Health Facilities
Development Corporation
Hospital Revenue Bonds
(Memorial Hospital
System Project)
Series 1997 B VRDN
(Aaa/VMIG1, AAA/A-1+)
12,600 7/1/98 3.40(A) 12,600
Par Rate Value
- -------------------------------------------------------------------------------
Texas -- Continued
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(The Methodist Hospital)
Series 1994 VRDN
(AA/A-1+)
$12,200 7/1/98 4.00%(A) $ 12,200
Series 1997 VRDN
(AA/A-1+)
1,200 7/1/98 4.00(A) 1,200
Harris County, Texas
Health Facilities
Development Corp.
Medical Facilities
Revenue Bonds (Baylor
College of Medicine Project)
Series 1997 VRDN (AA+/A-1+)
2,000 7/1/98 3.60(A) 2,000
Harris County Industrial
Development Corp.
PCR Bonds
(Exxon Project)
Series 1984 A VRDN
(Aaa, AAA/A-1+)
5,200 7/1/98 3.90(A) 5,200
--------
39,891
--------
Utah -- 1.7%
Emery County PCR Refunding
Bonds (PacifiCorp Project)
Series 1994 VRDN
(Aaa/VMIG1, AAA/A-1+)
700 7/1/98 3.85(A) 700
State of Utah General
Obligation Highway
Commercial Paper Notes
Series 1997 A TECP
(P-1, A-1+, F1+)
4,500 9/30/98 3.70 to 3.75 4,500
--------
5,200
--------
Washington -- 7.0%
Washington (State of)
Adjustable Rate GO
Series VR - 1996B VRDN
(Aa1/VMIG1, AA+/A-1+)
12,000 7/1/98 3.45(A) 12,000
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------------------
Washington -- Continued
Washington State Housing
Finance Committee
Series 1988 B VRDN
(AAA/A-1+)
$ 9,400 7/1/98 3.50%(A) $ 9,400
--------
21,400
--------
Wisconsin -- 5.6%
Carlton (Town of) PCR
Refunding Bonds
Series 1991 B & D
(Wisconsin Power and
Light Company
Projects) VRDN
(Aa2/P-1, AA/A-1+)
12,700 7/1/98 3.80(A) 12,700
Wisconsin (State of)
Operating Notes
Series 1997A TECP
(P-1, A-1+, F1+)
4,302 10/9/98 3.60 4,302
--------
17,002
--------
Par Rate Value
- -------------------------------------------------------------------------------
Wyoming -- 2.7%
Lincoln County PCR Bonds
(Exxon Project)
Series C & 85 VRDN
(Aaa/P-1, AAA/A-1+)
$ 5,950 7/1/98 3.80 to 4.00%(A) $ 5,950
Sublette County, Wyoming
Pollution Control Revenue
(Exxon Project)
(Aaa/P-1, AAA/A-1+)
2,300 7/1/98 3.80(A) 2,300
--------
8,250
--------
Total Investments, at
amortized cost and
value -- 101.0% 306,741(B)
Other Assets Less
Liabilities-- (1.0)% (3,002)
--------
Net assets applicable to
303,760 shares
outstanding-- 100.0% $303,739
========
Net asset value per
share $1.00
=====
- --------------------------------------------------------------------------------
(A) The rate shown is the rate as of June 30, 1998 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:
BANS Bond Anticipation Notes
GO General Obligation
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. A plus (+) sign may be added to the SP1 rating to
indicate that an issue possesses very strong credit characteristics.
F1 and F2: The two highest municipal note ratings assigned by Fitch
IBCA, Inc. A plus (+) sign may be added to an F1 rating to denote any
exceptionally strong credit feature.
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. A plus (+) sign designates issues possessing very
strong credit characteristics.
F1 and F2: The two highest commercial paper ratings assigned by Fitch
IBCA, Inc. A plus (+) sign may be added to an F1 rating to denote any
exceptionally strong credit feature.
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. A plus (+) or minus (-) sign may be added to the
ratings to indicate relative credit strength within a particular rating
category.
AAA, AA, A and BBB: Investment grade bond ratings assigned by Fitch
IBCA, Inc. A plus (+) or minus (-) sign may be added to a rating to denote
relative status within major rating categories.
The Moody's, Standard & Poor's or Fitch IBCA ratings indicated are
believed to be the most recent ratings available at June 30, 1998. These
ratings are not audited by the Fund's independent accountants.
Maturity Schedule of Portfolio:
June 30, 1998
- ------------------------------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
- ------------------------------------------------------------------------------
(000) (cum)
1-7 days $189,465 61.8% 61.8%
8-30 days 3,001 1.0 62.8
31-45 days 20,300 6.6 69.4
46-90 days 59,981 19.5 88.9
Over 90 days 33,994 11.1 100.0
-------- -----
$306,741 100.0%
======== =====
Average Weighted Maturity -- 36 days
7
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Six Months Ended June 30, 1998 (Unaudited)
(Amounts in Thousands)
<TABLE>
<S><C>
- -------------------------------------------------------------------------------------------------
Investment Income:
Interest $5,720
Expenses:
Management fee $ 814
Distribution and service fees 163
Transfer agent and shareholder servicing expense 64
Custodian fees 58
Registration fees 39
Legal and audit fees 26
Reports to shareholders 13
Directors' fees 6
Other expenses 10
------
1,193
Less compensating balance credits (20)
------
Total expenses, net of compensating balance credits 1,173
------
Net Investment Income $4,547
======
</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, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income $ 4,547 $ 9,252
Net realized gain on investments -- 6
-------- --------
Increase in net assets resulting from operations 4,547 9,258
Distributions to shareholders from net investment income (4,547) (9,252)
Change in net assets from Fund share transactions (3,632) 28,873
-------- --------
Change in net assets (3,632) 28,879
Net Assets:
Beginning of period 307,371 278,492
- ------------------------------------------------------------------------------------------------------
End of period $303,739 $307,371
======== ========
</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, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(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 .0139 .0292 .0282 .0313 .0223 .0174
Dividends to shareholders from
net investment income (.0139) (.0292) (.0282) (.0313) (.0223) (.0174)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total return 2.80%(C) 2.95% 2.85% 3.17% 2.25% 1.75%
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A) .73%(C) .73% .64% .66% -- --
Net expenses(B) .72%(C) .72% .64% .65% .65% .69%
Net investment income 2.79%(C) 2.92% 2.82% 3.14% 2.23% 1.74%
Net assets, end of period (in thousands) $303,739 $307,371 $278,492 $224,656 $222,490 $237,611
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) 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,
1998, dividends payable of $355 were accrued.
Security Transactions
Security transactions are accounted for on the trade date and the
cost of investments sold is deter-mined by use of the specific
identification method for both financial reporting and income tax
purposes. At June 30, 1998, $1,100 was receivable for investments sold but
not yet delivered, and $7,047 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 $20
which expire from 2001 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, 1998, paid in capital
aggregated $303,760. 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, 1998 December 31, 1997
- -------------------------------------------------------------------------------
(Unaudited)
Shares sold $ 593,615 $1,016,283
Shares reinvested 4,064 9,018
Shares repurchased (601,311) (996,428)
- -------------------------------------------------------------------------------
Net change $ (3,632) $ 28,873
===============================================================================
3. Transactions with Affiliates:
Legg Mason Capital Management, Inc. ("Adviser"), 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 $124
were payable to the Adviser at June 30, 1998.
Legg Mason Fund Adviser, Inc. ("LMFA") serves as administrator to the
Fund pursuant to an administration agreement with the Adviser. The Adviser
pays LMFA a fee, computed daily and payable monthly at an annual rate of
0.05% of the Fund's average daily net assets.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor of the Fund. The Fund pays
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 that it will
not request payment of more than 0.10% annu-
10
<PAGE>
ally from the Fund until January 10, 1999. If this voluntary limit is not
extended beyond January 10, 1999, the Fund may pay Legg Mason a fee for
its distribution services in an amount not to exceed an annual rate of
0.20% of the Fund's average daily net assets. Distribution and service
fees of $25 were payable to Legg Mason at June 30, 1998.
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 six months ended June 30, 1998.
The Adviser, LMFA and Legg Mason are wholly owned subsidiaries of
Legg Mason, Inc.
11
