TO OUR SHAREHOLDERS,
On June 30, 1999, 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 2.39% and its average
weighted maturity is 37 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.
During 1998 and into 1999, focus on the Year 2000 issue increased
significantly. As you know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Fund's Year 2000 project is well underway, and
is designed to ensure that the Year 2000 date change will have no adverse impact
on our ability to service our shareholders. The Fund is committed to taking
those steps necessary to protect Fund investors, including efforts to determine
that the Year 2000 problem will not affect such vital service functions as
shareholder transaction processing and recordkeeping. In addition, we are
continuously monitoring the Year 2000 efforts of our vendors, and will perform
tests with our critical vendors throughout 1999. Although the Fund is taking
steps to ensure that all of its systems will function properly before, during,
and after the Year 2000, the Fund could be adversely affected by
computer-related problems associated with the Year 2000. Contingency plans are
in place to ensure that functions critical to the Fund's operations will
continue without interruption. We are on target to complete this important
project and look forward to continuing extensive testing (including
industry-wide testing) with our industry peers, regulators and vendors
throughout 1999.
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
August 4, 1999
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
June 30, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Arizona -- 1.7%
Salt River Project Agricultural Improvement &
Power District TECP (P-1, A-1+) 3.05% 8/13/99 $ 5,000 $ 5,000
-------------------------------------------------------------------------------------------------------------
Connecticut -- 0.7%
State of Connecticut Health & Educational Facilities
Authority Revenue Bonds Yale University Issue
Series T VRDN (Aaa/VMIG1, AAA/A-1+) 3.60% 7/1/99 2,000 2,000(A)
-------------------------------------------------------------------------------------------------------------
Delaware -- 1.6%
University of Delaware Variable Rate Demand
Revenue Bonds Series 1998 (AA/A-1+) 3.45% 7/7/99 5,000 5,000(A)
-------------------------------------------------------------------------------------------------------------
Florida -- 5.4%
Gainesville (City of), Utilities System
Series C TECP (P1, A1+) 3.20% 9/10/99 2,000 2,000
Jacksonville Electric Authority
Series A TECP (P-1, A-1+, F1+) 3.15% 9/8/99 2,000 2,000
Pinellas County, Florida, Health Facilities Authority
(Bayfront Medical Center, Inc. Project)
Refunding Revenue Bonds Series 1989
VRDN (Aaa/VMIG1, AAA/A-1) 3.30% 7/7/99 2,700 2,700(A)
Putnam County Development Authority
PCR Bonds (Seminole Electric Cooperative, Inc.)
Series 1984 H-1 & H-2 VRDN (Aa3, AA-/A-1+) 3.55% 7/7/99 9,850 9,850(A)
--------
16,550
-------------------------------------------------------------------------------------------------------------
Georgia -- 1.1%
State of Georgia General Obligation
Bonds 1996 B (Aaa, AAA, AAA) 6.25% 4/1/00 3,330 3,407
-------------------------------------------------------------------------------------------------------------
Illinois -- 0.9%
Illinois Development Authority (Amoco)
Series 1994 VRDN (Aa1/VMIG1, AA+/A-1+) 3.40% 7/1/99 2,610 2,610(A)
-------------------------------------------------------------------------------------------------------------
Indiana -- 5.0%
Jasper County, Indiana, PCR (NIPSCO) Series 10/8/99 to
88B & 88C (A2/P-1, A/A-1) 3.30% 10/22/99 7,300 7,300
Rockport (City of) PCR Refunding Bonds
(American Electric Power Generating Company Project)
Series 1995 A VRDN (AAA/A-1+c) 3.45% 7/1/99 2,200 2,200(A)
Sullivan (City of) Floating/Fixed Rate PCR
(Hoosier Energy Rural Elective Cooperative, Inc.
Project) Series 1985 L3, L4 & L5, VRDN 9/15/99 to
(A1/P1, AA-/A-1+) 3.20 to 3.50% 2/18/00 5,765 5,765(A)
--------
15,265
-------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Kentucky -- 4.9%
Jefferson (County of) PCR Bonds
(Louisville Gas & Electric Company)
Series 1992 A VRDN (Aa3/VMIG1, A/A-1) 3.15% 9/10/99 $ 3,100 $ 3,100(A)
Kentucky Economic Development Finance Authority
Hospital Revenue Bonds Series 1999 B & C
(Baptist Healthcare System Obligated Group) 7/1/99 to
VRDN (Aaa/VMIG1, AAA/A-1+) 3.40 to 3.45% 7/7/99 11,700 11,700(A)
--------
14,800
-------------------------------------------------------------------------------------------------------------
Louisiana -- 3.1%
Ascension (Parish of) PCR Refunding
(Shell Oil Company Project)
Series 1993 VRDN (AAA/A-1+) 3.50% 7/1/99 5,100 5,100(A)
Lake Charles Harbor and Terminal District Port
Facilities Revenue Bonds (Conoco Inc. Project)
Series 1984 VRDN (Aa3/P-1, AA-/A-1+) 3.45% 7/1/99 1,700 1,700(A)
Parish of East Baton Rouge, State of Louisiana PCR
Refunding Bonds (Exxon Project Series 1989)
VRDN (Aaa/P-1, AAA/A-1+) 3.70% 7/1/99 2,200 2,200(A)
Parish of Saint Charles, State of Louisiana PCR
Refunding Bonds (Shell Oil Company Project)
Series 1992 B VRDN (Aa1/VMIG1, AAA/A-1+) 3.35% 7/1/99 500 500(A)
--------
9,500
-------------------------------------------------------------------------------------------------------------
Maryland -- 19.6%
Baltimore County Consolidated Public
Improvement BANS Series 1995 TECP
(P-1, A-1+, F1+) 3.10% 9/3/99 2,000 2,000
Baltimore County, Maryland,
Consolidated Public Improvement Bonds
(#Aaa, AAA) 6.80% 4/1/00 2,000 2,054
Baltimore County, Maryland, PCR Revenue
Refunding Bonds (Baltimore Gas & Electric)
Series 1985 VRDN (A1/VMIG1, A/A-1) 3.00% 8/6/99 6,000 6,000(A)
Baltimore County, Maryland, Revenue Bonds
(Oak Crest Village, Inc. Project) Series 1999A
VRDN (Aa3/VMIG1, AA-/F1+) 3.75% 7/7/99 7,500 7,500(A)
Baltimore County, Maryland, Revenue Bonds
(The Sheppard and Enoch Pratt Hospital Facility)
Series 1992 VRDN (Aa3/VMIG1) 3.40% 7/7/99 2,700 2,700(A)
</TABLE>
3
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Maryland -- Continued
Baltimore County Metropolitan District BANS
Series 1995 TECP (P-1, A-1+, F1+) 3.10% 9/2/99 $ 3,000 $ 3,000
Carroll County, Maryland, GO Bonds
Consolidated Public Improvement and Refunding
Bonds of 1998 (Aa3, AA, AA) 3.50% 10/1/99 1,400 1,402
Charles County Consolidated Public Improvement
Bonds 1989 VRDN (#Aaa, AA-, AA) 6.375% 12/1/99 1,580 1,633(A)
Howard County, Maryland,
Consolidated Public Improvement BANS
1999 Series A (MIG1, SP-1+, F1+) 3.07% 4/14/00 3,000 3,000
Maryland Economic Development Corporation
Revenue Bonds (The Erickson Foundation,
Inc. Student Housing Project) Series 1999
VRDN (Aa1/VMIG1) 3.75% 7/1/99 6,000 6,000(A)
Maryland Health & Higher Educational Facilities
Authority (Johns Hopkins University) 8/12/99 to
Series C TECP (P-1, A-1+) 3.15 to 3.20% 9/13/99 6,900 6,900
Maryland Health & Higher Educational Facilities
Authority (Pooled Loan Program Issue)
Series 1985 A & B VRDN (Aa2/VMIG1) 3.40 to 3.55% 7/7/99 9,900 9,900(A)
Maryland Transportation Authority, Transportation
Facilities Project Revenue Bonds
Series 1991 VRDN (A1, A+) 6.00% 7/1/99 900 900(A)
Montgomery County, Maryland, GO Bonds
Consolidated Public Improvement,
1989 Series B VRDN (#Aaa, AAA) 6.80% 11/1/99 2,000 2,036(A)
State of Maryland General Obligation Bonds,
State and Local Facilities Loan of 1990,
First Series (Aaa, AAA, AAA) 6.60% 3/1/00 2,000 2,045
State of Maryland General Obligation Bonds,
State and Local Facilities Loan of 1990,
Third Series (#Aaa, AAA, AAA) 6.75% 7/15/00 1,500 1,564
University of Maryland System
Auxiliary Facilities and Tuition Revenue
Bonds 1991 Series A (AAA, AA) 6.50% 4/1/00 1,000 1,042
--------
59,676
-------------------------------------------------------------------------------------------------------------
Massachusetts -- 3.3%
Massachusetts Health & Educational Facilities
Authority Revenue Bonds Harvard University
Issue Series L VRDN 9/9/99 to
(Aaa/VMIG1, AAA/A-1+) 3.05 to 3.30% 9/14/99 9,940 9,940(A)
-------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Michigan -- 2.2%
Michigan State Housing Development Authority
Rental Housing Revenue Bonds Series 1997 B
VRDN (Aaa/VMIG1, AAA/A-1+) 3.40% 7/7/99 $ 6,600 $ 6,600(A)
-------------------------------------------------------------------------------------------------------------
Minnesota -- 1.8%
Rochester (City of) Health Care Facilities Revenue
Bonds (Mayo Foundation/Mayo Medical Center)
Series 1992 A & C VRDN (AA+/A-1+) 3.05% 8/10/99 5,500 5,500(A)
-------------------------------------------------------------------------------------------------------------
Mississippi -- 0.1%
Jackson County Port Facility Refunding Bonds
(Chevron USA, Inc. Project)
Series 1993 VRDN (Aa2/P-1) 3.40% 7/1/99 300 300(A)
-------------------------------------------------------------------------------------------------------------
Nebraska -- 1.2% 9/10/99 to
Omaha Public Power District TECP (P-1, A-1+) 3.15% 9/13/99 3,750 3,750
-------------------------------------------------------------------------------------------------------------
North Carolina -- 3.3%
Winston-Salem (City of) Water & Sewer Revenue
Bonds VRDN Series 1988
(Aa/VMIG1, AA/A-1+) 3.15% 8/10/99 2,700 2,700(A)
Winston-Salem (City of) Water & Sewer Revenue
Bonds VRDN Series 1994 (Aa/VMIG1, AA+/A-1+) 3.35% 7/7/99 7,400 7,400(A)
--------
10,100
-------------------------------------------------------------------------------------------------------------
Ohio -- 1.3%
County of Cuyahoga, Ohio, Hospital Revenue
Refunding Bonds (The Cleveland Clinic
Foundation) Series 1997 A VRDN
(Aaa/VMIG1, AAA/A-1+) 3.50% 7/7/99 3,960 3,960(A)
-------------------------------------------------------------------------------------------------------------
Pennsylvania -- 4.6%
Delaware County, Pennsylvania, IDA
Refunding Resources Recovery Facilities
Series G VRDN (Aaa/P-1, AAA/A-1+) 3.35% 7/7/99 5,800 5,800(A)
Geisinger Authority (Montour County, Pennsylvania)
Health Systems Revenue Bonds Series B of 1998
(Penn State Geisinger Health Systems) VRDN
(Aa2/VMIG1, AA/A-1+, AA/F1+) 3.45% 7/1/99 500 500(A)
Lackawanna County, Pennsylvania, IDA (National
Book Company, Inc. Project) VRDN (A/A-1) 3.88% 7/1/99 1,200 1,200(A)
Pennsylvania Higher Educational Facilities
Authority Carnegie Mellon University
Series 1995 A, B, C & D VRDN (AA-/A-1+) 3.45% 7/1/99 5,400 5,400(A)
</TABLE>
5
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Pennsylvania -- Continued
Pennsylvania State Turnpike Commission
Revenue Series K VRDN (#Aaa, AAA) 7.50% 12/1/99 $ 1,000 $ 1,038(A)
--------
13,938
-------------------------------------------------------------------------------------------------------------
South Carolina -- 4.7%
Berkeley (County of), South Carolina
(Amoco Chemical Company Project) PCR
Refunding Bonds Series 1994 VRDN
(Aa1/VMIG1, AA+/A-1+) 3.40% 7/1/99 1,300 1,300(A)
South Carolina Public Service TECP 8/12/99 to
(P-1, A-1+, F1+) 3.05 to 3.40% 2/11/00 13,000 13,000
--------
14,300
-------------------------------------------------------------------------------------------------------------
Tennessee -- 1.6%
State of Tennessee General Obligation BANS
Series 1999 A VRDN
(MIG1/VMIG1, SP-1+/A-1+) 3.30% 7/7/99 5,000 5,000(A)
-------------------------------------------------------------------------------------------------------------
Texas -- 9.5%
Board of Regents of the University of Texas
System Revenue Financing System 8/11/99 to
Series A TECP (P-1, A-1+) 3.15 to 3.30% 8/27/99 7,026 7,026
Capital Industrial Development Corporation
PCR Bonds (Motorola, Inc. Project)
Series 1984 VRDN (A+/A-1+) 3.75% 7/7/99 3,100 3,100(A)
Gulf Coast Texas Waste Disposal Authority PCR
AdjustableRefunding Bonds (Exxon Project)
VRDN (Aaa/VMIG1, AAA/A-1+) 3.40% 7/1/99 1,700 1,700(A)
Harris County Industrial Development Corp.
PCR Bonds (Exxon Project)
Series 1984 A VRDN (Aaa, AAA/A1+) 3.45% 7/1/99 100 100(A)
Harris County, Texas, General Obligation
Unlimited Tax Commercial Paper Notes
Series C TECP (P-1, A-1+, F1+) 3.20% 8/19/99 1,132 1,132
Harris County, Texas, Health Facilities Developmen
Corp. Hospital Revenue Bonds (The Memorial
Hospital) Series B VRDN (Aaa/VMIG1, AAA/A-1+) 3.30% 7/7/99 10,800 10,800(A)
Harris County, Texas, General Obligation
Commercial Paper Notes Series D
TECP (P-1, A-1+, F1+) 3.50% 2/11/00 1,450 1,450
Texas State TRANS Series 1998 (MIG1, SP-1+, F1+) 4.50% 8/31/99 3,500 3,509
--------
28,817
-------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Utah -- 5.7%
Emery County PCR Refunding Bonds
(Pacificorp Project) Series 1994 VRDN
(Aaa/VMIG1, AAA/A-1+c) 3.45% 7/1/99 $ 6,240 $ 6,240(A)
State of Utah Adjustable Rate General Obligation
Highway Bonds Series 1999 B VRDN
(Aaa/VMIG1, AAA/A-1+, AAA/F1+) 3.40% 7/7/99 4,000 4,000(A)
State of Utah General Obligation Highway
Commercial Paper Notes Series 1998 A TECP
(P-1, A-1+, F1+) 3.15 to 3.25% 8/16/99 7,000 7,000
--------
17,240
-------------------------------------------------------------------------------------------------------------
Virginia -- 2.8%
Commonwealth of Virginia Public Facilities Bonds
1993 Series B (Aaa, AAA, AAA) 4.30% 12/1/99 4,000 4,021
IDA of the Town of Louisa, Virginia
Money Market Municipals PCR Bonds
(Virginia Electric and Power Company Project) 8/11/99 to
Series 1985 VRDN (A3/P-1, A-/A-1) 3.20 to 3.45% 9/9/99 4,600 4,600(A)
--------
8,621
-------------------------------------------------------------------------------------------------------------
Washington -- 6.9%
Snohomish County, Washington,
Limited Tax General Obligation Bonds,
1997 Series A (Aaa, AAA) 4.50% 12/1/99 1,000 1,005
Washington (State of) Adjustable Rate GO
Series 1996 B VRDN (Aa1/VMIG1, AA+/A-1+) 3.40% 7/7/99 13,000 13,000(A)
Washington State Housing Finance Committee
Series 1988 B VRDN (AAA/A-1+) 3.45% 7/7/99 7,000 7,000(A)
--------
21,005
-------------------------------------------------------------------------------------------------------------
West Virginia -- 0.3%
State of West Virginia General Obligation Highway
Refunding Bonds 1992 Series A (Aa3, AA-, AA-) 5.30% 2/1/00 1,000 1,010
-------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
-------------------------------------------------------------------------------------------------------------
<S><C>
Wisconsin -- 5.6%
Carlton (Town of) PCR Refunding Bonds
Series 1991 B, C & D (Wisconsin Power and Light
Company Projects) VRDN (Aa2/P-1, AA/A-1+) 3.45% 7/1/99 $ 5,575 $ 5,575(A)
Oak Creek (City of) PCR Series 1986
(Wisconsin Electric Power Company Project)
VRDN (Aa3/P-1) 3.45% 7/7/99 3,100 3,100(A)
Wisconsin (State of) Operating Notes
Series 1997 & 1998 A TECP 9/14/99 to
(P-1, A-1+, F1+) 3.15 to 3.50% 1/28/00 8,257 8,257
--------
16,932
-------------------------------------------------------------------------------------------------------------
Wyoming -- 0.5%
Lincoln County PCR Bonds (Pacificorp Projects)
Series 1994 VRDN (Aaa/VMIG1, AAA/A-1+c) 3.50% 7/1/99 1,500 1,500(A)
-------------------------------------------------------------------------------------------------------------
Total Investments, at amortized cost and value -- 99.4% 302,321(B)
Other assets less liabilities -- 0.6% 1,776
--------
NET ASSETS APPLICABLE TO 304,119 SHARES OUTSTANDING -- 100.0% $304,097
========
NET ASSET VALUE PER SHARE $1.00
=====
-------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The rate shown is the rate as of June 30, 1999, and the maturity shown
is the longer of the next interest adjustment 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.
8
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
(Unaudited) 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).
SP-1 and SP-2: The two highest municipal note ratings assigned by
Standard & Poor's. A plus (+) sign may be added to the SP-1 rating to
indicate that an issue possesses very strong credit characteristics.
F-1 and F-2: The two highest municipal note ratings assigned by Fitch
IBCA, Inc. A plus (+) sign may be added to an F-1 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.
A-1 and A-2: The two highest commercial paper ratings assigned by
Standard & Poor's. A plus (+) sign designates issues possessing very
strong credit characteristics.
F-1 and F-2: The two highest commercial paper ratings assigned by
Fitch IBCA, Inc. A plus (+) sign may be added to an F-1 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. The letter "c" added to
a rating indicates that the holder's option to tender the security for
purchase may be canceled under certain prestated conditions enumerated in
the tender option documents. A pound sign (#) denotes a prerefunded
security. The maturity date shown is the prerefunded date.
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, 1999. These
ratings are not audited by the Fund's independent accountants.
Maturity Schedule of the Portfolio:
June 30, 1999
--------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
--------------------------------------------------------
(000) (cum)
1-7 days $166,135 55.0% 55.0%
8-30 days -- -- 55.0
31-45 days 31,900 10.5 65.5
46-90 days 60,065 19.9 85.4
Over 90 days 44,221 14.6 100.0
-------- -----
$302,321 100.0%
======== =====
Average Weighted Maturity: 50 days
9
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Six Months Ended June 30, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Interest $5,088
Expenses:
Management fee $ 845
Distribution and service fees 169
Transfer agent and shareholder servicing expense 58
Custodian fees 48
Registration fees 33
Legal and audit fees 27
Reports to shareholders 10
Directors' fees 5
Other expenses 5
------
1,200
Less compensating balance credits (16)
------
Total expenses, net of compensating balance credits 1,184
------
NET INVESTMENT INCOME $3,904
======
</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, 1999 December 31, 1998
---------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income $ 3,904 $ 9,052
-------- --------
Increase in net assets resulting from operations 3,904 9,052
Distributions to shareholders from net investment income (3,904) (9,052)
Change in net assets from Fund share transactions (26,037) 22,763
-------- --------
Change in net assets (26,037) 22,763
Net Assets:
Beginning of period 330,134 307,371
---------------------------------------------------------------------------------------------------------------------
End of period $304,097 $330,134
======== ========
</TABLE>
See notes to financial statements.
10
<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>
Investment
Operations Distributions
---------- -------------
Net Asset
Value, Net From Net Net Asset
Beginning Investment Investment Value, End
of Period Income Income of Period
--------------------------------------------------------------------------------
<S><C>
Six Months Ended
June 30, 1999* $1.00 $.0116 $(.0116) $1.00
Years Ended Dec. 31,
1998 1.00 .0271 (.0271) 1.00
1997 1.00 .0292 (.0292) 1.00
1996 1.00 .0282 (.0282) 1.00
1995 1.00 .0313 (.0313) 1.00
1994 1.00 .0223 (.0223) 1.00
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------
Total Net Investment Net Assets
Expenses Expenses Income End of
Total to Average to Average to Average Period
Return Net Assets(A) Net Assets(B) Net Assets (in thousands)
---------------------------------------------------------------------------------------------
<S><C>
Six Months Ended
June 30, 1999* 2.51%(C) .71%(C) .70%(C) 2.31%(C) $304,097
Years Ended Dec. 31,
1998 2.75% .72% .71% 2.71% 330,134
1997 2.95% .73% .72% 2.92% 307,371
1996 2.85% .64% .64% 2.82% 278,492
1995 3.17% .66% .65% 3.14% 224,656
1994 2.25% -- .65% 2.23% 222,490
---------------------------------------------------------------------------------------------
</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.
* Unaudited.
See notes to financial statements.
-----------------------------
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
11
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Tax Exempt Trust, Inc.
(Amounts in Thousands) (Unaudited)
--------------------------------------------------------------------------
earned, less amortization of market premium and accrued expenses. At June
30, 1999, dividends payable of $327 were accrued. Distributions are
determined in accordance with federal income tax regulations, which may
differ from those determined in accordance with generally accepted
accounting principles; accordingly, periodic reclassifications are made
within the Fund's capital accounts to reflect income and gains available
for distribution under federal income tax regulations.
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, 1999, $100 was receivable for investments sold and
$1,032 was payable for securities purchased.
Compensating Balance Credits
The Fund has an arrangement with its custodian bank, whereby a
portion of the custodian's fees is 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 substantially all of its taxable income to its shareholders.
The Fund has unused capital loss carryforwards for federal income tax
purposes of $12 which expire in 2001 and $8 in 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. Transactions With Affiliates:
The Fund has an investment advisory and management agreement with
Legg Mason Capital Management, Inc. ("Adviser"). Pursuant to its
agreement, the Adviser provides the Fund with investment advisory and
management services for which the Fund pays a fee, computed daily and
payable monthly at an annual rate of 0.50% of the Fund's average daily net
assets. Advisory fees of $133 were payable to the Adviser at June 30,
1999.
Legg Mason Fund Adviser, Inc. ("LMFA") serves as administrator to the
Fund pursuant to a Sub-Administration agreement with the Adviser. The
Adviser (not the Fund) 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 a 12b-1 service fee at an annual rate equal to 0.10% of its
average daily net assets for services provided to shareholders. Legg Mason
has agreed to limit such fees paid by the Fund to 0.10% indefinitely.
Service fees of $26 were payable to Legg Mason at June 30, 1999.
12
<PAGE>
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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 $19 by the transfer agent for the six months ended June 30, 1999.
The Adviser, LMFA and Legg Mason are wholly owned subsidiaries of
Legg Mason, Inc.
3. 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, 1999, paid-in capital
aggregated $304,119. Since the Fund has sold and redeemed shares at a
constant net asset value of $1.00 per share, the number of shares
represented by such sales and redemptions is the same as the amounts
shown below for such transactions:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
----------------------------------------------------------------------------------------------------------------
<S><C>
Six Months Ended June 30, 1999 $ 612,476 $3,390 $ (641,903) $(26,037)
Year Ended December 31, 1998 1,131,990 8,756 (1,117,983) 22,763
</TABLE>
13
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Investment Adviser
Legg Mason Capital Management, Inc.
Baltimore, MD
Board of Directors SEMI-ANNUAL REPORT
John F. Curley, Jr., Chairman JUNE 30, 1999
Edmund J. Cashman, Jr., President
Richard G. Gilmore LEGG MASON
Arnold L. Lehman TAX EXEMPT
Dr. Jill E. McGovern TRUST, INC.
T. A. Rodgers
LEGG MASON
Transfer and Shareholder Servicing Agent FUNDS
Boston Financial Data Services LOGO HERE
Boston, MA HOW TO INVEST(SM)
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants
PricewaterhouseCoopers LLP
Baltimore, MD
An investment in the Fund is not insured by the Federal
Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
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
