Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
John F. Curley, Jr., Chairman Annual Report
Edmund J. Cashman, Jr., President December 31, 1997
Richard G. Gilmore
Charles F. Haugh Legg Mason
Arnold L. Lehman Tax
Dr. Jill E. McGovern Exempt
T. A. Rodgers Trust, Inc.
Transfer and Shareholder Servicing Agent The Art of Investing
Boston Financial Data Services [LEGG MASON LOGO]
Boston, MA FUNDS
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
- --------------------------------------------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
LMF-016
<PAGE>
To Our Shareholders,
On December 31, 1997, the Legg Mason Tax Exempt Trust had $307 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 2.87% and its
average weighted maturity is 21 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.
Coopers & Lybrand L.L.P., the Tax Exempt Trust's independent auditors, have
completed their annual examination, and audited financial statements for the
fiscal year ended December 31, 1997 are included in this report.
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
February 2, 1998
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
December 31, 1997
(Amounts in Thousands)
Par Rate Value
- -------------------------------------------------------------------------------
Alabama -- 0.4%
Montgomery Industrial
Development Board
(General Electric Project)
Series 1990 VRDN
(Aaa/P1, AAA/A1+)
$ 1,100 2/26/98 3.75%(A) $ 1,100
--------
Alaska -- 0.3%
Valdez (City of) Marine
Terminal Revenue Bonds
(Exxon) VRDN
(Aaa/P1, AAA/A1+)
800 1/2/98 4.95(A) 800
--------
Arizona -- 0.8%
Salt River Project
Agricultural
Improvement & Power
District TECP (P1, A1+)
2,500 2/24/98 3.80 2,500
--------
Connecticut -- 4.1%
State of Connecticut Health &
Educational Facilities
Authority (Yale University)
Series T & S VRDN
(Aaa/VMIG1, AAA/A1+)
12,600 1/7/98 to 3/11/98 3.75 to 3.80(A) 12,600
--------
Florida -- 5.2%
Gainesville (City of), Utilities
System Series C TECP
(P1, A1+)
3,000 2/24/98 3.80 3,000
Pinellas County Florida
Health Facilities
Authority (Bayfront
Medical Center, Inc.
Project) Refunding
Revenue Bonds
Series 1989 VRDN
(Aaa/VMIG1, AAA/A1)
2,700 1/7/98 3.65(A) 2,700
Par Rate Value
- -------------------------------------------------------------------------------
Florida--Continued
Putnam County
Development Authority
PCR Bonds (Seminole
Electric Cooperative, Inc.)
Series 1984 H-1 & H-2 VRDN
(Aa3, AA-/A1+)
$10,350 1/7/98 3.85%(A) $ 10,350
--------
16,050
--------
Idaho -- 1.0%
Idaho (State of) TANS
Series 1997 (MIG1, SP1+)
3,000 6/30/98 4.63 3,011
--------
Indiana -- 7.1%
Mount Vernon (City of)
PCR (General Electric
Company Project)
Series 1989 A VRDN
(Aaa/P1, AAA/A1+)
13,000 2/13/98 to 4/7/98 3.70 to 3.80(A) 13,000
Rockport (City of)
PCR Refunding Bonds
(AEP Generating Company
Project) Series 1995 A VRDN
(AAA/A1)
4,500 1/2/98 5.00(A) 4,500
Sullivan (City of)
Floating/Fixed Rate PCR
(Hoosier Energy Rural Elective
Cooperative, Inc. Project)
Series L4, VRDN
(A1/P1, AA-/A1+)
4,295 2/25/98 3.80 4,295
--------
21,795
--------
Iowa -- 1.6%
Louisa County PCR (Iowa-
Illinois Gas & Electric
Company Project) Series
1986 A VRDN
(A3/P1, A/A1)
5,000 1/7/98 4.00(A) 5,000
--------
2
<PAGE>
Par Rate Value
- -------------------------------------------------------------------------------
Kentucky -- 2.5%
Jefferson (County of)
PCR Bonds (Louisville
Gas and Electric Company
Project) Series 1993 A VRDN
(Aa2/VMIG1, AA-/A1+)
$ 2,000 2/25/98 3.80%(A) $ 2,000
Kentucky Economic
Development Finance
Authority Hospital Revenue
Bonds, Series 1997 (Baptist
Healthcare System Obligated
Group) VRDN
(AA-/A1+, AA-/F1+)
4,000 1/7/98 3.65(A) 4,000
Trimble (County of) PCR
Bonds (Louisville Gas
and Electric Company
Project) Series 1992 A
VRDN
(Aa2/VMIG1, AA-/A1+)
1,565 2/26/98 3.75(A) 1,565
--------
7,565
--------
Louisiana -- 0.4%
Ascension (Parish of)
PCR Refunding (Shell Oil
Company Project)
Series 1993 VRDN
(AAA/A1+)
500 1/2/98 4.80(A) 500
Parish of East Baton Rouge,
State of Louisiana Pollution
Control Revenue Refunding
Bonds (Exxon Project) 1993
Series VRDN
(Aaa/P1, AAA/A1+)
600 1/2/98 4.80(A) 600
--------
1,100
--------
Maryland -- 18.2%
Anne Arundel County,
Maryland General
Obligation BANS Series B
(Consolidated Water and
Sewer Series) TECP (P1, A1+, F1+)
8,000 2/6/98 to 2/10/98 3.70 to 3.80 8,000
Baltimore County
Consolidated Public
Improvement BANS
Series 1995 TECP (P1, A1+, F1+)
7,100 1/9/98 to 2/6/98 3.70 to 3.80 7,100
Par Rate Value
- -------------------------------------------------------------------------------
Maryland -- Continued
Baltimore County Metro
District BANS Series 1995
TECP (P1, A1+, F1+)
$ 5,400 1/12/98 to 2/5/98 3.70 to 3.80% $ 5,400
Baltimore County,
Maryland PCR
Revenue Refunding
Bonds (Baltimore Gas &
Electric) Series 1985
VRDN (A2/VMIG1, A/A1)
8,500 1/13/98 to 2/23/98 3.70 to 3.85(A) 8,500
Baltimore County, Maryland
Revenue Bonds (The Sheppard
and Enoch Pratt Hospital
Facility) Series 1992 VRDN
(Aa3/VMIG1)
2,900 1/7/98 3.75(A) 2,900
County Commissioners of
Charles County Consolidated
Public Improvement
Bonds 1997 (Aa3, AA-)
1,000 2/1/98 5.00 1,001
Howard County Consolidated
Public Improvement
BANS Series B TECP
(P1, A1+, F1+)
10,000 2/27/98 to 3/6/98 3.80 10,000
Maryland Health & Higher
Educational Facilities
Authority (Pooled Loan
Program Issue) Series
1985 A & B VRDN
(Aa3/VMIG1)
13,200 1/7/98 3.70 to 3.75(A) 13,200
--------
56,101
--------
Massachusetts -- 2.7%
Massachusetts Health &
Educational Facilities
Authority Revenue Bonds
Harvard University Issue
Series L VRDN
(Aaa/VMIG1, AAA/A1+)
8,200 2/13/98 to 4/7/98 3.70 to 3.75(A) 8,200
--------
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------------------
Minnesota -- 2.1%
Rochester (City of) Health
Care Facilities Revenue
Bonds (Mayo
Foundation/Mayo
Medical Center)
Series 1992 C VRDN
(AA+/A1+)
$ 6,500 2/20/98 to 4/8/98 3.70 to 3.75%(A) $ 6,500
--------
Michigan -- 1.6%
Michigan State Housing
Development Authority Rental
Housing Revenue Bonds,
Series 1997 B VRDN
(Aaa/VMIG1, AAA/A1+)
5,000 1/7/98 3.70(A) 5,000
--------
Mississippi -- 2.3%
Jackson County Port Facility
Refunding Bonds (Chevron
USA, Inc. Project) Series 1993
VRDN (Aa2/P1)
7,200 1/2/98 4.95(A) 7,200
--------
Montana -- 2.1%
Forsyth (City of) PCR
(Portland General Electric
Company Colstrip
Project) VRDN
Series 1983 D
(Aa1/P1, AA+/A1+)
3,000 1/7/98 3.70(A) 3,000
Series 1984 (Aa1/P1)
3,400 1/7/98 3.70(A) 3,400
--------
6,400
--------
Nebraska -- 1.9%
Omaha Public Power
District TECP (P1, A1+)
6,000 1/23/98 to 4/9/98 3.70 to 3.80 6,000
--------
New Mexico -- 1.6%
State of New Mexico
1997-98 TRANS,
Series 1997
(MIG1/SP-1+)
5,000 6/30/98 4.50 5,015
--------
Par Rate Value
- -------------------------------------------------------------------------------
North Carolina -- 3.9%
Winston-Salem (City of)
Water & Sewer Revenue
Bonds VRDN
(Aa/VMIG1, AA+/A1+)
$ 4,100 2/11/98 3.80%(A) $ 4,100
Series 1994 VRDN
(Aa/VMIG1, AA+/A1+)
7,800 1/7/98 3.70(A) 7,800
--------
11,900
--------
Ohio -- 0.7%
County of Cuyahoga, Ohio
Hospital Revenue Refunding
Bonds (The Cleveland
Clinic Foundation)
Series 1997 A VRDN
(Aaa/VMIG1, AAA/A1+)
2,000 1/7/98 3.65(A) 2,000
--------
Pennsylvania -- 6.0%
Allegheny County Hospital
Development Authority
(Presbyterian Hospital)
Series A, B, C, & D VRDN
(Aaa/VMIG1, AAA/A1)
12,100 1/1/98 4.25(A) 12,100
Pennsylvania Higher
Educational Facilities
Authority Carnegie
Mellon University
Series 1995 A, B, & D VRDN
(AA-/A1+)
6,300 1/2/98 4.85(A) 6,300
--------
18,400
--------
South Carolina -- 4.4%
South Carolina Public
Service TECP (P1, A1)
13,545 1/22/98 to 2/20/98 3.70 to 3.85 13,545
--------
4
<PAGE>
Par Rate Value
- -------------------------------------------------------------------------------
Tennessee -- 1.6%
State of Tennessee General
Obligation BANS Series
1997 A VRDN
(MIG1/VMIG1, SP1+/A1+)
$ 5,000 1/7/98 3.60%(A) $ 5,000
--------
Texas -- 11.6%
Capital Industrial Development
Corporation PCR Bonds
(Motorola, Inc. Project)
Series 1984 VRDN
(AA/A1+)
3,100 1/7/98 3.80(A) 3,100
Harris County, Texas
Health Facilities
Development Corporation
Hospital Revenue Bonds
(Memorial Hospital
System Project)
Series 1997 B VRDN
(Aaa/VMIG1, AAA/A1+)
11,800 1/7/98 3.65(A) 11,800
Harris County, Texas
Health Facilities
Development Corp.
Hospital Revenue Bonds
(The Methodist Hospital)
Series 1994 VRDN
(AA/A1+)
1,100 1/2/98 4.90(A) 1,100
Series 1997 VRDN
(AA/A1+)
2,500 1/2/98 4.90(A) 2,500
Harris County, Texas
Health Facilities
Development Corp.
Medical Facilities
Revenue Bonds (Baylor
College of Medicine Project)
Series 1997 VRDN (AA+/A1+)
12,000 1/7/98 3.70(A) 12,000
Par Rate Value
- -------------------------------------------------------------------------------
Texas -- Continued
Harris County Industrial
Development Corp.
PCR Bonds (Exxon Project)
1984-A & B Series VRDN
(Aaa, AAA/A1+)
$ 2,300 1/2/98 4.80%(A) $ 2,300
Houston (City of)
TRANS Series 1997
(MIG1, SP1+)
3,000 6/30/98 4.50 3,009
--------
35,809
--------
Utah -- 5.1%
Emery County PCR Refunding
Bonds (PacifiCorp Project)
Series 1994 VRDN
(Aaa/VMIG1, AAA/A1+)
7,600 1/2/98 5.00(A) 7,600
State of Utah General
Obligation Highway
Commercial Paper Notes
Series 1997 A TECP(P1, A1+, F1+)
8,000 2/26/98 to 3/6/98 3.75 to 3.80 8,000
--------
15,600
--------
Washington -- 6.5%
Washington (State of)
Adjustable Rate GO
Series VR - 1996B
(Aa1/VMIG1, AA+/A1+)
12,000 1/7/98 3.60(A) 12,000
Washington State Housing
Finance Committee
Series 1988 B VRDN
(AAA/A1+)
7,905 1/7/98 3.95(A) 7,905
--------
19,905
--------
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
Par Rate Value
- -------------------------------------------------------------------------------
Wisconsin-- 4.8%
Carlton (Town of) PCR
Refunding Bonds
Series 1991 B, C, & D
(Wisconsin Power and
Light Company
Projects) VRDN
(Aa2/VMIG1, AA/A1+)
$ 9,700 1/2/98 5.05%(A) $ 9,700
Wisconsin (State of)
Operating Notes
Series 1997 (MIG1, SP1+)
5,000 6/15/98 4.50 5,014
--------
14,714
--------
Par Rate Value
- -------------------------------------------------------------------------------
Wyoming -- 1.2%
Lincoln County PCR Bonds
(Exxon Project)
Series B, C, & D VRDN
(Aaa/P1, AAA/A1+)
$ 1,900 1/2/98 5.10%(A) $ 1,900
(PacifiCorp Project)
Series 94 VRDN
(Aaa/VMIG1, AAA/A1+)
300 1/2/98 4.90 300
Sweetwater County PCR
Bonds (Pacificorp Projects)
Series 1994 VRDN
(Aaa/VMIG1, AAA/A1+)
1,660 1/2/98 4.90 1,660
--------
3,860
--------
Total Investments, at
amortized cost and
value -- 101.7% 312,670(B)
Other Assets Less
Liabilities-- (1.7)% (5,299)
--------
Net Assets Applicable to
307,393 Shares
Outstanding-- 100.0% $307,371
========
Net Asset Value Per
Share $1.00
=====
- -------------------------------------------------------------------------------
(A) The rate shown is the rate as of December 31, 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.
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 Ratings Group. 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 Ratings Group. 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 Ratings Group. 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 appended 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 December 31, 1997.
These ratings are not audited by the Fund's independent accountants.
Maturity Schedule of Portfolio:
December 31, 1997
----------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
----------------------------------------------------------
(000) (cum)
1-7 days $175,215 56.0% 56.0%
8-30 days 16,000 5.1 61.1
31-45 days 29,846 9.5 70.6
46-90 days 61,760 19.8 90.4
Over 90 days 29,849 9.6 100.0
-------- -----
$312,670 100.0%
======== =====
Average Weighted Maturity -- 33 days
7
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Year Ended December 31, 1997
(Amounts in Thousands)
<TABLE>
---------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $11,525
Expenses:
Management fee $1,582
Distribution and service fees 309
Transfer agent and shareholder servicing expense 130
Custodian fee 91
Registration fee 78
Legal and audit fees 51
Reports to shareholders 28
Directors' fees 12
Other expenses 15
------
2,296
Less compensating balance credits (23)
------
Total expenses, net of compensating balance credits 2,273
-------
Net Investment Income 9,252
Net Realized Gain on Investments:
Realized gain on investments 6
--------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ 9,258
=======
</TABLE>
---------------------------------------
Statement of Changes in Net Assets
Legg Mason Tax Exempt Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996
---------------------------------------------------------------------------------------------------
<S> <C>
Change in Net Assets:
Net investment income $ 9,252 $ 7,746
Net realized gain on investments 6 --
-------- --------
Increase in net assets resulting from operations 9,258 7,746
Distributions to shareholders from net investment income (9,252) (7,746)
Change in net assets from Fund share transactions 28,873 53,836
-------- --------
Change in net assets 28,879 53,836
Net Assets:
Beginning of year 278,492 224,656
- -----------------------------------------------------------------------------------------------------------
End of year $307,371 $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 Years Ended December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------
Net investment income .0292 .0282 .0313 .0223 .0174
Dividends to shareholders from net investment income (.0292) (.0282) (.0313) (.0223) (.0174)
----------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------
Total return 2.95% 2.85% 3.17% 2.25% 1.75%
Ratios/Supplemental Data:
Ratios to average net assets:
Total expenses(A) .73% .64% .66% -- --
Net expenses(B) .72% .64% .65% .65% .69%
Net investment income 2.92% 2.82% 3.14% 2.23% 1.74%
Net assets, end of year (in thousands) $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.
See notes to financial statements.
9
<PAGE>
Notes to Financial Statements
Legg Mason Tax Exempt Trust, Inc.
(Amounts in Thousands)
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 December 31,
1997, dividends payable of $12 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 December 31, 1997, $175 was receivable for investments sold.
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 December 31, 1997, paid in capital
aggregated $307,393. 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 Years Ended December 31,
---------------------------------------
1997 1996
-------------------------------------------------------------
Shares sold $1,016,283 $1,008,112
Shares reinvested 9,018 7,565
Shares repurchased (996,428) (961,841)
-------------------------------------------------------------
Net change $ 28,873 $ 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 $138 were payable to the
Adviser at December 31, 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 $28 were payable to the distributor at December 31,
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 $37 by the transfer agent for the year ended December 31, 1997.
10
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of Legg Mason Tax Exempt Trust, Inc.:
We have audited the accompanying statement of net assets of Legg Mason Tax
Exempt Trust, Inc. as of December 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsiblity of the Fund'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 generally accepted auditing
standards. 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. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and signficant 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
Legg Mason Tax Exempt Trust, Inc. as of December 31, 1997, and the results of
its operations, changes in its net assets, and financial highlights for each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 30, 1998
11
