<PAGE>
Annual Report
December 31, 1999
Legg Mason
Tax
Exempt
Trust, Inc.
LEGG
MASON
FUNDS
LOGO
The Art of Investing/SM/
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
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
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
2/00
<PAGE>
To Our Shareholders,
On December 31, 1999, the Legg Mason Tax Exempt Trust had $375 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 2.61% and its
average weighted maturity is 16 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.
PricewaterhouseCoopers, LLP, Tax Exempt Trust's independent accountants, has
completed its annual examination, and audited financial statements for the year
ended December 31, 1999, are included in this report.
We are pleased to report that Legg Mason has made a seamless transition into
the new century. Our critical internal and external systems are operating free
of Y2K disruptions. Internal and external operations, including the Fund's
custodian and transfer agency, are running smoothly, and Fund shareholders are
receiving uninterrupted account maintenance and transaction support.
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
February 9, 2000
<PAGE>
Statement of Net Assets
Legg Mason Tax Exempt Trust, Inc.
December 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama--3.2%
The Industrial Development Board of the
City of Montgomery Pollution Control and
Solid Waste Disposal Revenue Refunding
Bonds (Aaa/P-1, AAA/A-1+)
General Electric Company Project,
Series 1990 VRDN 3.70% 1/10/00 $7,000 $ 7,000/A/
General Electric Company Project,
Series 1990 VRDN 3.85% 1/11/00 5,000 5,000/A/
--------
12,000
--------------------------------------------------------------------------------------------------------------------
Arizona--1.5%
Salt River Project Agricultural Improvement and
Power District, Arizona Salt River Project Electric
System Revenue Bonds (P-1, A-1+)
1991 Series A TECP 3.65% 1/26/00 2,500 2,500
1991 Series A TECP 3.75% 2/22/00 3,000 3,000
--------
5,500
--------------------------------------------------------------------------------------------------------------------
Connecticut--2.2%
State of Connecticut Health & Educational Facilities
Authority Revenue Bonds Yale University Issue
Series T VRDN (Aaa/VMIG1, AAA/A-1+) 5.10% 1/6/00 8,150 8,150/A/
--------------------------------------------------------------------------------------------------------------------
Delaware--1.7%
University of Delaware Variable Rate Demand
Revenue Bonds Series 1998 VRDN (AA/A-1+) 5.80% 1/5/00 6,500 6,500/A/
--------------------------------------------------------------------------------------------------------------------
Florida--3.6%
City of Gainesville, Utilities System Series C TECP
(P-1, A-1+) 3.80% 1/14/00 1,000 1,000
Pinellas County, Florida Health Facilities Authority
(Bayfront Medical Center, Inc. Project) Refunding
Revenue Bonds Series 1989 VRDN
(Aaa/VMIG1, AAA/A-1) 4.75% 1/5/00 2,700 2,700/A/
Putnam County Development Authority PCR Bonds
(Seminole Electric Cooperative, Inc.) (Aa3, AA-/A-1+)
Series 1984 H-1 VRDN 5.55% 1/5/00 7,200 7,200/A/
Series 1984 H-2 VRDN 5.55% 1/5/00 2,650 2,650/A/
--------
13,550
--------------------------------------------------------------------------------------------------------------------
Georgia--0.9%
State of Georgia GO Bonds,
1996 B (Aaa, AAA, AAA) 6.25% 4/1/00 3,330 3,355
--------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois--0.8%
Illinois Development Authority (Amoco) Series 1994
VRDN (Aa1/VMIG1, AA+/A-1+) 4.85% 1/3/00 $2,900 $ 2,900
--------------------------------------------------------------------------------------------------------------------
Indiana--1.4%
City of Rockport, Indiana PCR Refunding Bonds
(American Electric Power Generating Company
Project) Series 1995 A VRDN (AAA/A-1+c) 4.95% 1/3/00 2,200 2,200/A/
City of Sullivan, Indiana Floating/Fixed Rate
PCR Bonds, Hoosier Energy Rural Electric
Cooperative, Inc. Project (A1/P-1, AA-/A-1+)
Series 1985 L-3 VRDN 3.85% 1/21/00 400 400/A/
Series 1985 L-4 VRDN 3.50% 2/18/00 2,765 2,765/A/
--------
5,365
--------------------------------------------------------------------------------------------------------------------
Kentucky--3.8%
County of Jefferson, Kentucky PCR Bonds (Louisville
Gas and Electric Company Project) 1993
Series A VRDN (Aa2/VMIG1, A+/A-1) 3.75% 2/14/00 5,000 5,000/A/
Kentucky Economic Development Finance Authority
Hospital Revenue Bonds (Baptist Healthcare System
Obligated Group) (Aaa/VMIG1, AAA/A-1+)
Series 1999 C VRDN 4.95% 1/3/00 400 400/A/
Series 1999 B VRDN 5.45% 1/5/00 8,915 8,915/A/
--------
14,315
--------------------------------------------------------------------------------------------------------------------
Louisiana--3.6%
Parish of the Ascension PCR Refunding (Shell Oil
Company Project) (AAA/A-1+)
Series 1993 VRDN 4.80% 1/3/00 7,300 7,300/A/
Lake Charles Harbor and Revenue District Port
Facilities Revenue Bonds (Conoco Inc. Project)
Series 1984 VRDN (Aaa/VMIG1) 5.50% 1/5/00 3,000 3,000/A/
Parish of East Baton Rouge, State of Louisiana PCR
Refunding Bond (Exxon Project) 1993
Series VRDN(Aaa/P-1, AAA/A-1+) 4.80% 1/3/00 3,100 3,100/A/
--------
13,400
--------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland--18.8%
Baltimore County, Maryland, Consolidated Public
Improvement Bonds (Aaa, AAA) 6.80% 4/1/00 $2,000 $ 2,018
Baltimore County, Maryland, PCR Revenue Refunding
Bonds (Baltimore Gas & Electric) (A1/VMIG1, A/A-1)
Series 1985 VRDN 3.80% 3/8/00 5,000 5,000/A/
Series 1985 VRDN 3.90% 4/10/00 1,600 1,600/A/
Baltimore County, Maryland, PCR Revenue Refunding
Bonds (Baltimore Gas & Electric), Series 1985 VRDN
(A1/VMIG1, A/A-1) 3.70% 1/19/00 3,000 3,000/A/
Baltimore County, Maryland, Revenue Bonds (Oak
Crest Village, Inc. Project) Series 1999A VRDN
(Aa3/VMIG1, AA-/F1+) 5.35% 1/5/00 14,990 14,990/A/
Baltimore County, Maryland, Revenue Bonds
(The Sheppard and Enoch Pratt Hospital Facility)
Series 1992 VRDN (Aa3/VMIG1) 5.40% 1/5/00 2,700 2,700/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) 5.55% 1/5/00 9,000 9,000/A/
Maryland Health & Higher Educational Facilities
Authority (Johns Hopkins University)
Series C TECP (P-1, A-1+) 3.75% 2/16/00 4,800 4,800
Maryland Health & Higher Educational Facilities
Authority (Pooled Loan Program Issue)
Series 1985 A VRDN (Aa2/VMIG1) 5.75% 1/5/00 9,800 9,800/A/
Series 1985 B VRDN (Aa2/VMIG1) 5.15% 1/5/00 3,400 3,400
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 2,011
Third Series (#Aaa, AAA, AAA) 6.75% 7/15/00 1,500 1,541
University of Maryland System Auxiliary Facilities
and Tuition Revenue Bonds 1991
Series A (AAA, AA, AA) 6.50% 4/1/00 1,000 1,027/A/
University of Maryland System Auxiliary Facilities and
Tuition Revenue Bonds 1999 Refunding Series B
(Aa3, AA+, AA) 5.00% 10/1/00 5,895 5,951
Washington Suburban Sanitary District, Maryland
Sewage Disposal Bonds of 1995 (Second Series)
(Aa1, AA) 5.00% 6/1/00 500 501
--------
70,339
--------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan--2.2%
Michigan State Housing Development Authority
Rental Housing Revenue Bonds Series 1997 B
VRDN (Aaa/VMIG1, AAA/A-1+) 5.60% 1/5/00 $8,300 $ 8,300/A/
--------------------------------------------------------------------------------------------------------------------
Minnesota--1.5%
City of Rochester, Minnesota Health Care Facilities
Revenue Bonds (Mayo Foundation/Mayo Medical
Center) Series 1992 C VRDN (AA+/A-1+) 3.65% 3/9/00 5,500 5,500/A/
--------------------------------------------------------------------------------------------------------------------
Mississippi--1.5%
Jackson County Port Facility Refunding Bonds
(Chevron USA Inc. Project) Series 1993
VRDN (Aa2/P-1) 3.85% 5/1/00 5,750 5,750/A/
--------------------------------------------------------------------------------------------------------------------
Nebraska--2.0%
Omaha Public Power District TECP (P-1, A-1+) 3.90% 1/27/00 4,500 4,500
Omaha Public Power District TECP (P-1, A-1+) 3.50% 2/18/00 2,000 2,000
Omaha Public Power District TECP (P-1, A-1+) 3.85% 2/18/00 1,000 1,000
--------
7,500
--------------------------------------------------------------------------------------------------------------------
North Carolina--3.0%
City of Winston-Salem, NorthCarolina Water and
Sewer Revenue Bonds (Aa/VMIG1, AA+/A-1+)
Series 1994 VRDN 5.20% 1/5/00 8,700 8,700/A/
Series 1994 VRDN 3.75% 3/9/00 2,700 2,700/A/
--------
11,400
--------------------------------------------------------------------------------------------------------------------
Ohio--1.2%
County of Cuyahoga, Ohio, Hospital Revenue
Refunding Bonds (The Cleveland Clinic Foundation)
Series 1997 A VRDN (Aaa/VMIG1, AAA/A-1+) 5.65% 1/5/00 4,435 4,435/A/
--------------------------------------------------------------------------------------------------------------------
Pennsylvania--3.9%
Delaware County, Pennsylvania, IDA Refunding
Resources Recovery Facilities Series G VRDN
(Aaa/P-1, AAA/A-1+) 5.40% 1/5/00 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+) 4.80% 1/3/00 500 500/A/
Lackawanna County, Pennsylvania, IDA (National
Book Company, Inc. Project) VRDN (A/A-1) 4.25% 1/31/00 1,200 1,200/A/
</TABLE>
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania--Continued
Pennsylvania Higher Educational Facilities Authority
Carnegie Mellon University (AA-/A-1+)
Series 1995 A VRDN 4.80% 1/3/00 $2,900 $ 2,900/A/
Series 1995 C VRDN 4.80% 1/3/00 600 600/A/
Series 1995 D VRDN 4.80% 1/3/00 3,700 3,700/A/
--------
14,700
--------------------------------------------------------------------------------------------------------------------
South Carolina--1.6%
Berkeley County, South Carolina (Amoco Chemical
Company Project) PCR Refunding Bonds
Series 1994 VRDN (Aa1/VMIG1, AA+/A-1+) 4.85% 1/3/00 1,000 1,000/A/
South Carolina Public Service TECP (P-1, A-1+, F1+) 3.60% 1/21/00 2,000 2,000
South Carolina Public Service TECP (P-1, A-1+, F1+) 3.40% 2/11/00 3,000 3,000
--------
6,000
--------------------------------------------------------------------------------------------------------------------
Tennessee--4.5%
State of Tennessee GO BANS
Series 1999 A VRDN (MIG1/VMIG1, SP-1+/A-1+) 5.15% 1/5/00 17,000 17,000/A/
--------------------------------------------------------------------------------------------------------------------
Texas--13.1%
Capital Industrial Development Corporation
PCR Bonds (Motorola, Inc. Project) Series 1984
VRDN (A+/A-1+) 5.00% 1/5/00 3,100 3,100/A/
Gulf Coast Texas Waste Disposal Authority PCR
Adjustable Refunding Bonds (Exxon Project)
VRDN (Aaa/VMIG1, AAA/A-1+) 4.85% 1/3/00 300 300/A/
Harris County Industrial Development Corp.
PCR Bonds (Exxon Project) (Aaa, AAA/A-1+)
Series 1984 A VRDN 4.80% 1/3/00 1,000 1,000/A/
Series 1984 B VRDN 4.80% 1/3/00 1,000 1,000/A/
Harris County, Texas General Obligation Commercial
Paper Notes (P-1, A-1+, F1+)
Series D TECP 3.50% 2/11/00 1,450 1,450
Series D TECP 3.90% 2/11/00 3,400 3,400
Harris County, Texas, Health Facilities Development
Corp. Hospital Revenue Bonds (The Memorial
Hospital) (AA/A-1+)
Series 1994 VRDN 4.80% 1/3/00 15,700 15,700/A/
Series 1997 B VRDN 3.70% 3/1/00 11,900 11,900/A/
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas--Continued
Southwest Higher Education Authority, Inc. Higher
Education Revenue Bonds (Southern Methodist
University Project) Refunding Series 1985
VRDN (Aaa/VMIG1) 4.95% 1/3/00 $6,100 $ 6,100/A/
State of Texas TRANS Series 1999A (MIG1, SP-1+, F1+) 4.50% 8/31/00 5,000 5,026
--------
48,976
--------------------------------------------------------------------------------------------------------------------
Utah--3.5%
Emery County PCR Refunding Bonds (PacifiCorp
Project) Series 1994 VRDN
(Aaa/VMIG1, AAA/A-1+c) 4.95% 1/3/00 1,640 1,640/A/
State of Utah Adjustable Rate GO Highway Bonds
(Aaa/VMIG1, AAA/A-1+, AAA/F1+)
Series 1999 A VRDN 5.40% 1/5/00 7,500 7,500/A/
Series 1999 B VRDN 5.40% 1/5/00 4,000 4,000/A/
--------
13,140
--------------------------------------------------------------------------------------------------------------------
Virginia--0.9%
IDA of the Town of Louisa, Virginia, Money Market
Municipals PCR Bonds (Virginia Electric and
Power Company Project) (A3/P-1, A-/A-1)
Series 1985 3.85% 2/10/00 1,900 1,900/A/
Series 1985 3.95% 2/10/00 1,425 1,425/A/
--------
3,325
--------------------------------------------------------------------------------------------------------------------
Washington--6.0%
State of Washington Adjustable Rate GO
Series 1996 B VRDN (Aa1/VMIG1, AA+/A-1+) 5.40% 1/5/00 13,000 13,000/A/
Washington State Housing Finance Committee
Series 1988 B VRDN (AAA/A-1+) 5.50% 1/5/00 9,495 9,495/A/
--------
22,495
--------------------------------------------------------------------------------------------------------------------
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 1,001
--------------------------------------------------------------------------------------------------------------------
Wisconsin--5.5%
City of Oak Creek, Wisconsin PCR Series 1986 (Wisconsin
Electric Power Company Project) VRDN (Aa3/P-1) 5.50% 1/5/00 5,900 5,90/A/
</TABLE>
7
<PAGE>
Statement of Net Assets--Continued
Legg Mason Tax Exempt Trust, Inc.
<TABLE>
<CAPTION>
Rate Maturity Date Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wisconsin -- Continued
State of Wisconsin GO Extendible
Commercial Notes TECP (P-1, A-1+, F1+) 3.85% 2/17/00 $5,000 $ 5,000
State of Wisconsin Operating Notes Series
1997A TECP (P-1, A-1+, F1+) 3.50% 1/28/00 4,449 4,449
Town of Carlton, Wisconsin PCR Refunding Bonds
(Wisconsin Power and Light Company
Projects) (Aa2/P-1, AA/A-1+)
Series 1991 B VRDN 4.75% 1/3/00 3,300 3,300/A/
Series 1991 C VRDN 4.75% 1/3/00 1,000 1,000/A/
Series 1991 D VRDN 4.75% 1/3/00 875 875/A/
--------
20,524
--------------------------------------------------------------------------------------------------------------------
Wyoming--3.5%
Converse County PCR Refunding Bonds (PacifiCorp
Project) Series 1994 VRDN (Aaa/VMIG1, AAA/A-1+c) 4.80% 1/3/00 4,600 4,600/A/
Lincoln County PCR Bonds (Exxon Project)
Series 85 VRDN (Aaa/P-1, AAA/A-1+) 4.85% 1/3/00 800 800/A/
Lincoln County, Wyoming Pollution Control
Revenue Refunding Bonds (PacifiCorp Projects)
Series 1991 VRDN (Aa1/VMIG1, AA+/A-1+) 3.80% 1/19/00 4,400 4,400/A/
Sweetwater County, Wyoming PCR Refunding
Bonds (PacifiCorp Projects) Series 1994
VRDN (Aaa/VMIG1, AAA/A-1+c) 4.80% 1/3/00 3,500 3,500/A/
--------
13,300
--------------------------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value--95.7% 358,720/B/
Other Assets Less Liabilities--4.3% 16,133
--------
Net assets applicable to 374,874 shares outstanding--100.0% $374,853
========
Net asset value per share $1.00
=====
--------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ The rate shown is the rate as of December 31, 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 December 31, 1999.
These ratings are not audited by the Fund's independent accountants.
Maturity Schedule of the Portfolio:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------
Percentage of
Maturity Period Amount/Par Portfolio
--------------------------------------------------------
<S> <C> <C> <C>
(000) (cum)
1-7 days $244,850 68.3% 68.3%
8-30 days 22,250 6.2 74.5
31-45 days 34,740 9.7 84.2
46-90 days 33,512 9.3 93.5
Over 90 days 23,368 6.5 100.0
-------- -----
$358,720 100.0%
======== =====
</TABLE>
Average Weighted Maturity: 27 days
9
<PAGE>
Statement of Operations
Legg Mason Tax Exempt Trust, Inc.
For the Year Ended December 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest $10,744
Expenses:
Management fee $1,668
Distribution and service fees 334
Transfer agent and shareholder servicing 117
Audit and legal fees 48
Custodian fees 82
Directors' fees 10
Registration fees 70
Reports to shareholders 27
Other expenses 13
------
2,369
Less compensating balance credits (22)
------
Total expenses, net of compensating balance credits 2,347
-------
Net Investment Income $ 8,397
=======
</TABLE>
---------------------------------------
Statements of Changes in Net Assets
Legg Mason Tax Exempt Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1999 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income $ 8,397 $ 9,052
Distributions to shareholders from net investment income (8,397) (9,052)
Change in net assets from Fund share transactions 44,719 22,763
-------- --------
Change in net assets 44,719 22,763
Net Assets:
Beginning of year 330,134 307,371
---------------------------------------------------------------------------------------------------------------------
End of year $374,853 $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 Ratios/Supplemental Data
---------- ------------- -------------------------------------------------------------
Net
Net Asset Total Net Investment Net Assets
Value, Net From Net Net Asset Expenses Expenses Income End of
Beginning Investment Investment Value, End Total to Average to Average to Average Year
of Year Income Income of Year Return Net Assets/A/ Net Assets/B/ Net Assets (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years Ended Dec. 31,
1999 $1.00 $.0252 $(.0252) $1.00 2.56% .71% .70% 2.52% $374,853
1998 1.00 .0271 (.0271) 1.00 2.75% .72% .71% 2.71% 330,134
1997 1.00 .0292 (.0292) 1.00 2.95% .73% .72% 2.92% 307,371
1996 1.00 .0282 (.0282) 1.00 2.85% .64% .64% 2.82% 278,492
1995 1.00 .0313 (.0313) 1.00 3.17% .66% .65% 3.14% 224,656
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/This ratio reflects total expenses before compensating balance credits.
/B/This ratio reflects expenses net of compensating balance credits.
See notes to financial statements.
---------------------------------------
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,
1999, dividends payable of $26 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.
11
<PAGE>
Notes to Financial Statements--Continued
LEGG MASON TAX EXEMPT TRUST, INC.
--------------------------------------------------------------------------
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 federal income tax
purposes. At December 31, 1999, $460 was receivable for investments sold,
and there were no unsettled purchased investments.
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
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 $152 were payable to the Adviser at December
31, 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 Rule 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 $30 were payable to Legg Mason at December
31, 1999.
Legg Mason also has an agreement with the Fund's transfer agent to
assist with certain of its duties. For this assistance, the transfer agent
paid Legg Mason $38 for the year ended December 31, 1999.
The Adviser, LMFA and Legg Mason are wholly owned subsidiaries of
Legg Mason, Inc.
12
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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 December 31, 1999, paid-in capital
aggregated $374,874. 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> <C> <C> <C>
Year Ended December 31, 1999 $1,188,864 $8,062 $(1,152,207) $44,719
Year Ended December 31, 1998 1,131,990 8,756 (1,117,983) 22,763
</TABLE>
13
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of Legg Mason Tax Exempt Trust, Inc.:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Legg Mason Tax Exempt Trust, Inc. (hereafter referred to as the "Fund") at
December 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for each of the fiscal periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999, by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 10, 2000
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