As filed with the Securities and Exchange Commission on April 6, 2000.
1933 Act Registration File No. 2-78562
1940 Act Registration File No. 811-3526
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 24 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 22
LEGG MASON TAX EXEMPT TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
100 Light Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
MARC R. DUFFY, ESQ. ARTHUR C. DELIBERT, ESQ.
Legg Mason Wood Walker, Incorporated Kirkpatrick & Lockhart LLP
100 Light Street 1800 Massachusetts Ave., N.W.
Baltimore, Maryland 21202 Second Floor
(Name and Address of Agent for Service) Washington, D.C. 20036-1800
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[X] on April 28, 2000, pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on , 2000, pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 2000 pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Legg Mason Tax-Exempt Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Table of Contents
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
LEGG MASON
TAX EXEMPT TRUST, INC.
A money market fund seeking to produce high
current income exempt from federal income tax,
to preserve capital, and to maintain liquidity.
PROSPECTUS April 28, 2000
THE ART OF INVESTING(sm)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>
T A B L E O F C O N T E N T S
About the fund:
- ---------------
xx Investment objective
xx Principal risks
xx Performance
xx Fees and expenses of the fund
xx Management
About your investment:
- ----------------------
xx How to invest
xx How to sell your shares
xx Account policies
xx Services for investors
xx Dividends and taxes
xx Financial highlights
<PAGE>
LEGG MASON TAX EXEMPT TRUST, INC.
[icon] I N V E S T M E N T O B J E C T I VE
INVESTMENT OBJECTIVE: High current income exempt from federal income tax,
preservation of capital, and maintenance of liquidity. The fund is a money
market fund that seeks to maintain a constant net asset value of $1.00 per
share.
PRINCIPAL INVESTMENT STRATEGIES: To achieve its objective, the fund adheres to
the following practices:
o it invests primarily in short-term, high-quality municipal obligations,
the interest on which is exempt from federal income tax and is not a
tax preference item for purposes of the federal alternative minimum
tax.
o as a fundamental policy, except during defensive periods, it maintains
at least 80% of its assets invested in municipal obligations that have
remaining maturities of one year or less or that are variable or
floating rate demand notes. Variable and floating rate securities are
securities whose interest rates change at specified intervals so they
approximate current market rates.
o it invests the balance of its assets in municipal obligations that have
remaining maturities of 397 days or less or that are variable or
floating rate demand notes.
o it maintains a dollar-weighted average maturity of 90 days or less.
o it limits its investments to obligations that present minimal credit
risk in the opinion of the adviser and are rated in one of the two
highest short-term ratings categories by at least two nationally
recognized statistical rating organizations ("NRSROs"), such as Moody's
Investors Service, Inc., ("Moody's") or Standard & Poor's ("S&P") or
one NRSRO if only rated by one. If a security is unrated by any NRSRO,
the adviser may determine the security to be of comparable quality.
o it may invest, to a limited extent, in taxable short-term money market
instruments.
The fund may invest in securities issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies, instrumentalities or authorities.
These debt obligations generally are issued to obtain funds for various public
purposes, including constructing a wide range of public facilities, refunding
outstanding obligations, obtaining funds for general operating expenses and
making loans to other public institutions and facilities. Municipal obligations
in which the fund may invest include, but are not limited to:
o revenue bonds
o general obligation bonds
o private activity bonds
o tax anticipation notes
o bond anticipation notes
o revenue anticipation notes.
The fund does not intend to invest more than 25% of its net assets in:
o municipal obligations whose issuers are in the same state;
o municipal obligations that are repayable out of revenue streams
generated from economically related projects or facilities; or
o private activity bonds issued by issuers in the same industries. For
purposes of this restriction, there is no limitation on investments in
U.S. Treasury securities or other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
The fund may, from time to time, take temporary defensive positions that are
inconsistent with its principal investment strategies. At such times, the fund
may not be pursuing its principle investment strategies and it may not achieve
its investment objective.
<PAGE>
[icon] P R I N C I P A L R I S K S
IN GENERAL:
There is no assurance the fund will meet its investment objective. Although the
fund seeks to maintain a net asset value of $1.00 per share, it is possible to
lose money by investing in the fund. As with all mutual funds, an investment in
the fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
INTEREST RATE RISK:
Interest rate risk is the possibility that the market prices of the fund's
investments may decline due to an increase in interest rates. Generally, the
longer the maturity of an obligation, the greater the effect on its value when
rates change.
Certain securities pay interest at variable or floating rates. Variable rate
securities reset at specified intervals, while floating rate securities reset
whenever there is a change in a specified index rate. These reset provisions
generally reduce the effect of market interest rates on the value of the
security.
CREDIT RISK:
Credit risk is the risk that an issuer of securities will be unable to pay
principal and interest when due, or that the value of the security will suffer
because investors believe the issuer is less able to pay. This is broadly gauged
by the credit ratings of the securities in which the fund invests. However,
ratings are only the opinions of the private companies issuing them and are not
absolute guarantees as to quality.
The fund considers the "issuer" of a municipal obligation to be the entity
responsible for payment. Thus, the District of Columbia, each state, each
political subdivision, agency, instrumentality and authority thereof, and each
multi-state agency of which a state is a member is a separate "issuer" as that
term is used in this prospectus. In certain circumstances, the non-government
user of facilities financed by private activity bonds is considered to be the
issuer.
OTHER RISKS:
Not all obligations of the U.S. Government, its agencies and instrumentalities
are backed by the full faith and credit of the United States; some are backed
only by the credit of the issuing agency or instrumentality. The credit quality
of industrial development bonds and private activity bonds is usually directly
related to the credit standing of the corporate user of the facilities.
Accordingly, there may be some risk of default by the issuer.
Current efforts to restructure the federal budget and the relationship between
the federal government and state and local governments may adversely impact the
financing of some issuers of municipal securities. Some states and localities
are experiencing substantial deficits and may find it difficult for political or
economic reasons to increase taxes. Efforts are also under way that may result
in a restructuring of the federal income tax system. These developments could
reduce the value of all municipal securities, or the securities of particular
issuers.
The fund is not intended to be a balanced investment program and is not designed
for investors who are unable to benefit from tax-exempt income, such as
qualified retirement plans and individual retirement accounts. The fund is not
appropriate for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal.
The fund is not an appropriate investment for "substantial users" of certain
facilities financed by private activity bonds or persons related to such
"substantial users." For more information, see the "Additional Tax Information"
section in the Statement of Additional Information.
<PAGE>
[icon] P E R F O R M A N C E
The information below provides an indication of the risks of investing in the
fund by showing changes in its performance from year to year. Annual returns
assume reinvestment of dividends and distributions, if any. Historical
performance of the fund does not necessarily indicate what will happen in the
future.
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1990 5.30
1991 3.93
1992 2.34
1993 1.75
1994 2.25
1995 3.17
1996 2.85
1997 2.95
1998 2.75
1999 2.56
DURING THE PAST TEN YEARS:
Quarter Ended Total Return
------------- ------------
Best quarter: December 31, 1990 1.34%
Worst quarter: March 31, 1993 0.42%
For the fund's current seven-day yield, call toll-free 1-800-822-5544.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999:
1 Year 2.56%
5 Years 2.86%
10 Years 2.99%
1
<PAGE>
[icon] F E E S A N D E X P E N S E S O F T H E F U N D
The table below describes the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets so they lower the fund's dividends. Other expenses include
transfer agency, custody, professional and registration fees. The fund has no
sales charge or redemption fee, but is subject to a Rule 12b-1 service fee.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------
Management fees 0.50%
Service (12b-1)fee 0.20%(a)
Other Expenses 0.11%
- -------------- ------
Total Annual Fund Operating Expenses 0.81%
(a) Legg Mason Wood Walker, Incorporated has agreed to waive 0.10% of the 12b-1
service fee indefinitely, reducing total expenses from 0.81% to 0.71%.
EXAMPLE:
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. Actual returns may be higher or lower than 5% per
year.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$ 83 $ 259 $ 450 $1,002
<PAGE>
[icon] M AN A G E M E N T
ADVISER AND ADMINISTRATOR:
Legg Mason Capital Management, Inc. ("Adviser"), 100 Light Street, Baltimore,
Maryland 21202, is the investment adviser for the fund. The Adviser directs the
investments of the fund in accordance with its investment objectives, policies
and limitations. The Adviser acts as investment adviser to investment company
portfolios and to private accounts for institutions and individuals with
aggregate assets of about $6.6 billion as of March 31, 2000.
Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the fund's administrator. LMFA is responsible for the non-investment
affairs of the fund, providing office space and administrative staff for the
fund and directing all matters related to the operation of the fund. LMFA acts
as manager or investment adviser to investment companies with aggregate assets
of about $18.2 billion as of March 31, 2000.
For its services, the fund paid the Adviser a fee equal to an annual rate of
0.50% of the fund's average daily net assets for the fiscal year ended December
31, 1999. The Adviser paid LMFA a fee equal to an annual rate of 0.05% of the
fund's average daily net assets.
DISTRIBUTOR OF THE FUND'S SHARES:
Legg Mason Wood Walker, Incorporated, ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, distributes the fund's shares. The fund has adopted a
plan under Rule 12b-1 that allows it to pay distribution and/or shareholder
service fees for the sale of its shares and for services provided to
shareholders not to exceed an annual rate of 0.20% of the fund's average daily
net assets. However, Legg Mason has agreed that it will waive 0.10% of the 12b-1
service fee indefinitely. The fees are calculated daily and paid monthly.
Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Legg Mason may enter into agreements with other brokers to sell shares of the
fund. Legg Mason pays these brokers up to 90% of the service fee that it
receives from the fund for those sales.
The Adviser, LMFA and Legg Mason are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
<PAGE>
[icon] H O W T O I N V E S T
To open an account, contact a Legg Mason Financial Advisor, Legg Mason Funds
Investor Services ("FIS") or another entity that has entered into an agreement
with Legg Mason to sell shares of the fund. The minimum initial investment is
$1,000 and the minimum for each purchase of additional shares is $100.
Certain investment methods may be subject to lower minimum initial and
additional investments. Arrangements may also be made with some employers and
financial institutions for regular automatic monthly investments of $50 or more
in shares of the fund. Contact your financial adviser or FIS with any questions
regarding your investment options.
ONCE YOUR ACCOUNT IS OPEN, YOU MAY USE THE FOLLOWING METHODS TO PURCHASE SHARES
OF THE FUND:
- --------------------------------------------------------------------------------
In Person Give your financial adviser a check for $100 or more payable
to the fund.
- --------------------------------------------------------------------------------
Mail Mail your check, payable to the fund, for $100 or more to
your financial adviser or to Legg Mason Funds Investor
Services at P.O. Box 17023, Baltimore, MD 21297-0356.
- --------------------------------------------------------------------------------
Telephone or Wire Call your financial adviser or FIS at 1-800-822-5544 to
transfer available cash balances in your brokerage account
or to transfer money from your bank directly. Wire transfers
may be subject to a service charge by your bank.
- --------------------------------------------------------------------------------
Internet or FIS clients may purchase shares of the fund through Legg
TeleFund Mason's Internet site at http://www.leggmasonfunds.com or
through a telephone account management service "TeleFund" at
1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Future First Contact a Legg Mason Financial Adviser to enroll in Legg
Systematic Mason's Future First Systematic Investment Plan. Under this
Investment Plan plan, you may arrange for automatic monthly investments in
the fund of $50 or more. The transfer agent will transfer
funds monthly from your Legg Mason account or from your
checking/savings account to purchase shares of the fund.
- --------------------------------------------------------------------------------
Automatic Arrangements may be made with some employers and financial
Investments institutions for regular automatic monthly investments of
$50 or more in shares of the fund. You may also reinvest
dividends from certain unit investment trusts in shares of
the fund.
- --------------------------------------------------------------------------------
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
Purchase orders received in federal funds form, by either your
Legg Mason Financial Advisor or the entity offering the fund, on
any day that the New York Stock Exchange is open, will be
processed as follows:
Shares will be purchased Such shares will
at the net asset value begin to earn
If the purchase order is next determined dividends on the
received on
before 12:00 noon, Eastern time same day same day
12:00 noon or after, but before
4:00 p.m., Eastern time same day next day
4:00 p.m. or after, Eastern time next day next day
If you do not make payment in federal funds, your order will be processed when
payment is converted into federal funds, which is usually completed in two days,
but may take up to ten days. Most bank wires are federal funds.
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
YOU MAY USE ANY OF THE FOLLOWING METHODS TO SELL SHARES OF THE FUND:
- --------------------------------------------------------------------------------
Telephone Call your financial adviser or FIS at 1-800-822-5544 or
another authorized entity offering the fund and request
redemption. Please have the following information ready when
you call: the name of the fund, the number of shares (or
dollar amount) to be redeemed and your shareholder account
number.
Proceeds will be credited to your brokerage account or a
check will be sent to you, at your direction, at no charge to
you. Wire requests will be subject to a fee of $12. Be sure
that your financial adviser has your bank account information
on file.
The fund will follow reasonable procedures to ensure the
validity of any telephone redemption request, such as
requesting identifying information from callers or employing
identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
- --------------------------------------------------------------------------------
Internet or FIS clients may request a redemption of fund shares through
TeleFund Legg Mason's Internet site at http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Mail Send a letter to the fund requesting redemption of your
shares. The letter should be signed by all of the owners of
the account and their signatures guaranteed without
qualification. You may obtain a signature guarantee from most
banks or securities dealers.
- --------------------------------------------------------------------------------
Checkwriting The fund offers a free checkwriting service. You may write
checks to anyone in amounts of $250 or more. The fund's
transfer agent will redeem sufficient shares from your
account to pay the checks. You will continue to earn
dividends on your shares until the check clears at the
transfer agent. Please do not use your checks to close your
account.
- --------------------------------------------------------------------------------
Securities Legg Mason has special redemption procedures for investors
Purchases at who wish to purchase stocks, bonds or other securities at
Legg Mason Legg Mason. Once you've placed an order for securities, and
have not indicated any other payment method, fund shares will
be redeemed on the settlement date for the amount due. Fund
shares may also be redeemed to cover debit balances in your
brokerage account.
- --------------------------------------------------------------------------------
Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser, FIS or another
authorized entity offering the fund.
Redemption orders will be processed promptly. You will generally receive the
proceeds within a week. Generally, proceeds from redemption orders received
before 11:00 a.m. Eastern time will be sent that same day. Payment of the
<PAGE>
proceeds of redemptions of shares that were recently purchased by check or
acquired through reinvestment of distributions on such shares may be delayed for
up to 10 days from the purchase date in order to allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
Redemptions made through authorized entities other than Legg Mason may be
subject to transaction fees or other conditions established by those entities.
You should consult their program literature for further information.
The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.
<PAGE>
[icon] A C C O U N T P O L I C I E S
CALCULATION OF NET ASSET VALUE:
To calculate the fund's share price, the fund's assets are valued and totaled,
liabilities are subtracted, and the resulting net assets are divided by the
number of shares outstanding. The fund seeks to maintain a share price of $1.00
per share. The fund is priced twice a day, as of 12:00 noon, Eastern Time, and
at the close of regular trading on the New York Stock Exchange (normally 4:00
p.m., Eastern Time), on every day the Exchange is open. The Exchange is normally
closed on all national holidays and Good Friday. Like most other money market
funds, the fund normally values its investments using the amortized cost method.
OTHER:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. The fund will not redeem accounts that fell
below $500 solely as a result of a reduction in net asset value per share.
The fund reserves the right to:
o reject any order for shares or suspend the offering of shares for a period
of time,
o change its minimum investment amounts and
o delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions or excessive trading or
during unusual market conditions. The fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the Securities and
Exchange Commission.
<PAGE>
[icon] S E R V I C E S F O R I N V E S T O R S
For further information regarding any of the services below, please contact your
financial adviser or other authorized entity offering the fund for sale.
ACCOUNT STATEMENTS:
Legg Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account. Legg Mason
will send you statements quarterly if you participate in the Future First
Systematic Investment Plan or if you purchase shares through automatic
investments.
SYSTEMATIC WITHDRAWAL PLAN:
If you are purchasing or already own shares with a net asset value of $5,000 or
more, you may elect to make systematic withdrawals from the fund. The minimum
amount for each withdrawal is $50. You should not purchase shares of the fund
when you are a participant in the plan.
PREMIER ACCOUNT STATUS:
Legg Mason offers a Premier Asset Management Account, which allows you to
combine your fund account with a preferred customer VISA Gold debit card, a Legg
Mason brokerage account with margin borrowing availability and unlimited
checkwriting with no minimum check amount. Other services include the ability to
automatically transfer free credit balances in your brokerage account to your
fund account and the automatic redemption of fund shares to offset debit
balances in your brokerage account. Legg Mason charges an annual fee for the
Premier Account, which is currently $85 for individuals and $100 for
corporations and businesses.
EXCHANGE PRIVILEGE:
Fund shares may be exchanged for shares of any of the other Legg Mason funds,
provided these funds are eligible for sale in your state of residence. You can
request an exchange in writing or by phone. Be sure to read the current
prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, an exchange of the
fund's shares will be treated as a sale of the shares and any gain on the
transaction may be subject to tax.
The fund reserves the right to:
o terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the fund in one calendar year.
o terminate or modify the exchange privilege after 60 days' notice to
shareholders.
<PAGE>
[icon] D I VI D E N D S A N D T A X E S
The fund declares dividends from its net investment income daily and pays them
monthly. Your dividends will be automatically reinvested in additional shares of
the fund, unless you elect to receive them in cash. To change your election, you
must notify the fund at least 10 days before the next dividend is to be paid.
The fund does not expect to realize any capital gain or loss; however, if the
fund realizes any net short-term capital gains, it will pay them at least once
every twelve months. If the postal or other delivery service is unable to
deliver your check, your dividend option will automatically be converted to
having all dividends reinvested in fund shares. No interest will accrue on
amounts represented by uncashed dividend or redemption checks. You may request
that your dividends be reinvested in shares of another Legg Mason fund.
Any dividends will be "exempt-interest" dividends if, at the close of each
quarter of the fund's taxable year, at least 50% of the value of its total
assets consists of certain obligations the interest on which is excludable from
gross income for federal income tax purposes. Exempt-interest dividends are
excludable from a shareholder's gross income; however, the amount of those
dividends must be reported on the recipient's federal income tax return.
Fund distributions of any net short-term capital gains are taxable to most
investors, whether received in cash or reinvested in additional shares of the
fund. Generally, those distributions will be taxable as ordinary income.
The sale or exchange of fund shares will not result in any gain or loss for the
shareholder to the extent the fund maintains a stable share price of $1.00.
To a limited extent, the fund may invest in securities that generate income that
is not exempt from federal or state income tax. Dividends derived from interest
on municipal obligations may not be exempt from income taxation under state or
local law. A tax statement will be sent to each investor at the end of each year
detailing the tax status of the investor's distributions.
The fund will withhold 31% of all taxable dividends payable to individuals and
certain other non-corporate shareholders who do not provide the fund with a
valid taxpayer identification number or who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.
<PAGE>
[icon] F I N A N C I A L H I G H L I G H T S
The financial highlights table is intended to help you understand the fund's
financial performance for the past 5 years. Total return represents the rate
that an investor would have earned (or lost) on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information has
been audited by the fund's independent accountants, PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is incorporated by
reference into the Statement of Additional Information (see back cover) and is
included in the annual report. The annual report is available upon request by
calling toll-free 1-800-822-5544.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 1998 1997 1996 1995
- ----------------------- ---- ---- ---- ---- ----
The following information reflects financial results for a single share of the fund:
Net asset value,
beginning of year: $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .0252 .0271 .0292 .0282 .0313
Distributions:
Dividends from net investment
income: (.0252) .0271) (.0292) (.0282) (.0313)
------- ------- ------- ------- -------
Net asset value, end of year. $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return: 2.56% 2.75% 2.95% 2.85% 3.17%
Ratios/Supplemental Data:
Ratio of total expenses to average
net assets(a): .71% .72% .73% .64% .66%
Ratio of net expenses to average
net assets(b): .70% .71% .72% .64% .65%
Ratio of net investment income to
average net assets: 2.52% 2.71% 2.92% 2.82% 3.14%
Net assets, end of year
(in thousands): $374,853 $330,134 $307,371 $278,492 $224,656
</TABLE>
(a) This ratio reflects total expenses before compensating balance credits.
Previously, the credits were included in this ratio.
(b) This ratio reflects expenses net of compensating balance credits.
<PAGE>
Legg Mason
Tax Exempt Trust, Inc.
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - The SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) this prospectus. The SAI provides additional details about
the fund and its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - Additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
-----------------------------
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR database
on the SEC's Internet site at http://www.sec.gov. Investors may also obtain this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected] or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
LMF- SEC file number: 811-3526
<PAGE>
THE LEGG MASON TAX EXEMPT TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the fund's Prospectus dated April 28, 2000, which has been
filed with the Securities and Exchange Commission ("SEC"). The fund's annual
report is incorporated by reference into this Statement of Additional
Information. A copy of either the Prospectus or the annual report is available
without charge by writing to or calling the fund's distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).
LEGG MASON WOOD WALKER,
INCORPORATED
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
TABLE OF CONTENTS
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DESCRIPTION OF THE FUND 3
INVESTMENT STRATEGIES AND RISKS 3
FUND POLICIES 6
MANAGEMENT OF THE FUND 8
THE FUND'S INVESTMENT ADVISER/MANAGER 10
THE FUND'S DISTRIBUTOR 11
ADDITIONAL TAX INFORMATION 12
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 13
VALUATION OF FUND SHARES 17
HOW THE FUND'S YIELD IS CALCULATED 18
PERFORMANCE INFORMATION 19
PORTFOLIO TRANSACTIONS AND BROKERAGE 20
THE FUND'S CUSTODIAN AND TRANSFER AND
DIVIDEND DISBURSING AGENT 20
THE FUND'S LEGAL COUNSEL 20
THE FUND'S INDEPENDENT ACCOUNTANTS 20
FINANCIAL STATEMENTS 21
APPENDIX A 22
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offering made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the fund or its distributor. The Prospectus and this
Statement of Additional Information do not constitute an offering by the fund or
by the distributor in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
DESCRIPTION OF THE FUND
Legg Mason Tax Exempt Trust, Inc. ("Tax Exempt Trust" or "Trust") is a
diversified open-end management investment company that was established as a
Maryland corporation on July 26, 1982.
INVESTMENT STRATEGIES AND RISKS
This section supplements the information in the Prospectus concerning the
investments the fund may make and the techniques the fund may use. The fund
seeks to produce high current income exempt from federal income tax, to preserve
capital, and to maintain liquidity. The fund normally invests substantially all
of its assets in a diversified portfolio of obligations issued by or on behalf
of the states, territories and possessions of the United States and the District
of Columbia and their political subdivisions, agencies, instrumentalities or
authorities, the interest on which, in the opinion of counsel to the issuers, is
exempt from federal income tax and is not a tax preference item ("TPI") for
purposes of the Federal Alternative Minimum Tax ("municipal obligations").
In selecting investments, the fund considers the ratings assigned to
securities by nationally recognized statistical rating organizations ("NRSROs"),
such as Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
("S&P"). The ratings of NRSROs represent their opinions as to the quality of the
municipal obligations which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, interest rate and
rating may have different market prices. The Appendix to this Statement of
Additional Information contains information concerning the ratings of Moody's
and S&P and their significance. The fund considers each rating to include any
modifiers, e.g., "+" or "-".
Municipal obligations include "general obligation bonds," which are secured
by the issuer's pledge of its full faith and credit, including its taxing power,
and "revenue bonds," which are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a special
excise tax or other specific revenue source, such as the corporate user of the
facility being financed. Industrial development bonds and private activity bonds
usually are revenue bonds and are not payable from the unrestricted revenues of
the issuer. The credit quality of industrial development bonds and private
activity bonds is usually directly related to the credit standing of the
corporate user of the facilities. Municipal obligations also include short-term
tax anticipation notes, bond anticipation notes, revenue anticipation notes and
other forms of short-term debt obligations. Such notes may be issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
Opinions relating to the validity of municipal obligations, to the
exemption of interest thereon from federal income tax, and to the interest not
being a TPI are rendered by bond counsel to the issuers at the time of issuance.
Neither the fund nor the adviser will independently review the basis for such
opinions.
An issuer's obligations under its municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Act, and laws that may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that litigation or other
conditions may materially and adversely affect the power or ability of issuers
to meet their obligations for the payment of interest and principal on their
municipal obligations.
From time to time, Congress has considered proposals that would restrict or
eliminate the federal income tax exemption for interest on municipal
obligations. If Congress enacted such a proposal, the availability of municipal
obligations for investment by the fund and the value of its assets could be
materially and adversely affected. In that event, the fund would re-evaluate its
investment objectives and policies and consider changes in its structure or
possible dissolution.
<PAGE>
WHEN-ISSUED SECURITIES
The fund may enter into commitments to purchase municipal obligations on a
when-issued basis. Such securities are often the most efficiently priced and
have the best liquidity in the bond market. When the fund purchases securities
on a when-issued basis, it assumes the risks of ownership, including the risk of
price fluctuation, at the time of purchase, not at the time of receipt. To meet
its payment obligation, the fund will establish a segregated account with its
custodian and maintain cash or appropriate liquid obligations in an amount at
least equal to the payment that will be due. Use of this practice would have a
leveraging effect on the fund. The fund does not expect that its commitment to
purchase when-issued securities will at any time exceed, in the aggregate, 25%
of total assets.
Delivery of and payment for when-issued securities normally take place 7 to
45 days after the date of the commitment. Consequently, increases in the market
rate of interest between the commitment date and settlement date may result in a
market value for the security on the settlement date that is less than its
purchase price. Typically, no interest accrues to the purchaser until the
security is delivered.
With regard to each such commitment, the fund maintains in a segregated
account with its custodian, commencing on the date of such commitment, cash,
municipal obligations or other such high-quality liquid debt securities equal in
value to the purchase price for the when-issued securities due on the settlement
date. The fund only makes when-issued commitments with the intention of actually
acquiring the securities, but it may sell these securities before the settlement
date if market conditions warrant. When payment is due for when-issued
securities, the fund meets its obligation from then-available cash flow, from
the sale of securities or, although it would not normally expect to do so, from
the sale of the when-issued securities themselves (which may have a market value
greater or less than the fund's payment obligation). The purchase of when-issued
securities may affect the fund's share price in a manner similar to the use of
borrowing.
STAND-BY COMMITMENTS
When the fund exercises a stand-by commitment that it has acquired from a
dealer with respect to its investments in municipal obligations, the dealer
normally pays the fund an amount equal to (1) the fund's acquisition cost of the
municipal obligations (excluding any accrued interest which the fund paid on its
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the fund owned the securities, plus
(2) all interest accrued on the securities since the last interest payment date
or the date the securities were purchased by the fund, whichever is later. The
fund's right to exercise stand-by commitments is unconditional and unqualified
and exercisable by the fund at any time prior to the underlying securities'
maturity.
A stand-by commitment is not transferable by the fund without the
underlying securities, although the fund could sell the underlying municipal
obligations to a third party at any time. The fund may pay for stand-by
commitments either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to such a commitment (thus reducing the
yield to maturity otherwise available for the same securities). The total amount
paid in either manner for outstanding stand-by commitments held by the fund will
not exceed 1/2 of 1% of the fund's total asset value calculated immediately
after each stand-by commitment is acquired. The fund intends to enter into
stand-by commitments only with those banks, brokers and dealers that in the
adviser's opinion present minimal credit risks.
The fund intends to acquire stand-by commitments solely to facilitate
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not ordinarily affect
the valuation or assumed maturity of the underlying municipal obligations, which
will continue to be valued in accordance with the amortized cost method.
Stand-by commitments acquired by the fund will be valued at zero in determining
net asset value. Where the fund paid directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation during the
period the commitment is held by the fund. Stand-by commitments will not affect
the average weighted maturity of the assets of the fund.
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VARIABLE RATE AND FLOATING RATE OBLIGATIONS
The fund may invest in variable and floating rate municipal obligations. A
variable rate obligation differs from an obligation with a fixed rate coupon,
the value of which fluctuates in inverse relation to interest rate changes. If
interest rates decline, generally the value of a fixed rate obligation increases
and the obligation sells at a premium. Should interest rates increase, generally
the value of a fixed rate obligation decreases and the obligation sells at a
discount. The magnitude of such capital fluctuations is also a function of the
period of time remaining until the obligation matures. Short-term fixed rate
obligations are minimally affected by interest rate changes; the greater the
remaining period until maturity, the greater the fluctuation in value of a fixed
rate obligation is likely to be.
Variable rate obligation coupons are not fixed for the full term of the
obligation but are adjusted periodically based upon changes in prevailing
interest rates. As a result, the value of variable rate obligations is less
affected by changes in interest rates. The more frequently such obligations are
adjusted, the less such obligations are affected by interest rate changes during
the period between adjustments. The value of a variable rate obligation,
however, may fluctuate in response to market factors and changes in the
creditworthiness of the issuer.
By investing in variable rate obligations, the fund hopes to take advantage
of the normal yield curve function that usually results in higher yields on
longer-term investments. This policy also means that should interest rates
decline, the yield of the fund will decline, and the fund and its shareholders
will forgo the opportunity for capital appreciation of its portfolio investments
and of their shares. Should interest rates increase, however, the yield of the
fund will increase, and the fund and its shareholders will diminish the risk of
capital depreciation of its portfolio investments and of their shares. There is
no limitation on the percentage of the fund's assets that may be invested in
variable rate obligations. However, the fund will limit the value of its
investments in any variable rate securities that are illiquid and in all other
illiquid securities to 10% or less of its net assets.
Floating rate obligations also are not fixed, but are adjusted as specified
benchmark interest rates change. In other respects, their characteristics are
similar to variable rate notes, as discussed previously.
The fund may also invest in floating rate and variable rate demand notes. A
demand feature entitles the fund to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals, not exceeding 397 days, and upon no more than 30
days' notice. The note may be supported by an unconditional bank letter of
credit guaranteeing payment of the principal or both the principal and accrued
interest. The adviser, as permitted by the SEC, may take into consideration the
creditworthiness of the bank issuing the letter in making the investment
decision. A change in the credit quality of the bank backing a variable rate or
floating rate demand note could result in a loss to the fund and affect its
share price. The SEC permits some instruments to be deemed to have remaining
maturities of 397 days or less, notwithstanding that the date on which final
payment is due may be in excess of 397 days.
TEMPORARY INVESTMENTS
From time to time for liquidity purposes or pending the investment of the
proceeds of the sale of shares, the fund may invest up to 20% of its net assets
in: obligations of the U.S. Government, its agencies and instrumentalities;
certificates of deposit and bankers' acceptances of U.S. domestic banks with
assets of one billion dollars or more; commercial paper or other corporate notes
of high grade quality; and any of such items subject to short-term repurchase
agreements. Interest earned from such taxable investments will be taxable to
investors as ordinary income when distributed to them. For temporary defensive
purposes, the fund may invest up to 100% of its assets in U.S. Government
securities and other taxable short-term instruments.
REPURCHASE AGREEMENTS
A repurchase agreement is an agreement under which municipal obligations,
<PAGE>
U.S. Government obligations or other high-quality debt securities are acquired
by the fund from a securities dealer or bank subject to resale at a previously
agreed-upon price and date. The resale price reflects an agreed interest rate
effective for the period the securities are held and is unrelated to the
interest rate provided by the securities. In these transactions, the securities
acquired by the fund are held by a custodian bank until resold and will be
supplemented by additional collateral if necessary to maintain a total value
equal to or in excess of the value of the repurchase agreement. Repurchase
agreements are usually for periods of one week or less but may be for longer
periods. The fund will not enter into repurchase agreements of more than seven
days duration if more than 10% of its net assets would be invested in such
agreements and other illiquid investments. The fund's income from repurchase
agreements is taxable as interest income.
The fund may suffer a loss to the extent that proceeds from the sale upon a
default of the obligation to repurchase are less than the repurchase price. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, realization upon the collateral by the fund could be delayed or
limited. However, the adviser has adopted standards for the parties with whom it
will enter into repurchase agreements that it believes are reasonably designed
to assure that each party presents no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
agreement.
TRADING POLICIES
In seeking increased income, the fund may not always hold its securities to
maturity but may sell a security to buy another with a higher yield because of
short-term market movements. This may result in high portfolio turnover. The
fund, however, does not anticipate incurring significant brokerage expenses in
connection with this trading, because the transactions ordinarily are made
directly with the issuer or a dealer on a net price basis.
FUND POLICIES
Tax Exempt Trust's investment objective is to seek high current income
exempt from federal income tax, to preserve capital, and to maintain liquidity.
In addition to the investment objective, the fund has adopted certain
fundamental investment limitations, described below, that cannot be changed
without approval of shareholders.
The fund may not:
1. Borrow money, except for temporary purposes in an aggregate amount not
to exceed 10% of the value of the total assets of the fund; provided that
borrowings in excess of 5% of such value will be only from banks, and the fund
will not purchase portfolio securities while its borrowings exceed 5% (interest
paid on borrowed money would reduce income to the fund);
2. Underwrite the securities of other issuers, except insofar as the fund
may be deemed an underwriter under the Securities Act of 1933, as amended, in
disposing of a portfolio security;
3. Purchase common stocks, preferred stocks, warrants, or other equity
securities;
4. Buy or hold any real estate other than municipal bonds secured by real
estate or interests therein;
5. Buy or hold any commodity or commodity futures contracts, or any oil,
gas or mineral exploration or development program;
6. Make loans, except loans of portfolio securities and except to the
extent the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness, the entry into repurchase agreements,
or deposits with banks and other financial institutions may be considered loans;
<PAGE>
7. Mortgage or pledge any of the fund's assets, except to the extent, up
to a maximum of 10% of the value of its total assets, necessary to secure
borrowings permitted by paragraph 1;
8. Buy securities on "margin" or make "short" sales of securities;
9. Write or purchase put or call options, except to the extent that
securities subject to stand-by commitments may be purchased as set forth under
"Investment Strategies and Risks" in this Statement of Additional Information;
10. Buy securities which have legal or contractual restrictions on resale,
if the purchase causes more than 10% of the fund's assets to be invested in
illiquid securities and repurchase agreements maturing in more than seven days;
11. Buy securities issued by any other investment company, except in
connection with a merger, consolidation, acquisition or reorganization;
12. Invest more than 5% of its total assets in securities of issuers which,
including their predecessors, have been in operation for less than three years;
13. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the fund's total asset value
would be invested in such issuer, except that up to 25% of the fund's total
asset value may be invested without regard to such 5% limitation;
14. Issue senior securities, except as permitted by the 1940 Act;
15. Purchase any security if, as a result of that purchase, 25% or more of
its total assets would be invested in securities having their principal business
activities in the same industry, except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. State or local governments or subdivisions thereof are not
considered members of any industry for purposes of this limitation.
If a percentage restriction described above is complied with at the time an
investment is made, a later increase or decrease in percentage resulting from a
change in the value of portfolio securities or in the amount of net assets of
the fund will not be considered a violation of any of those restrictions. For
purposes of fundamental policy #15, the fund considers the "issuer" of an
obligation of any state or local government or subdivision thereof to be the
entity responsible for payment.
Although demand features and stand-by commitments are techniques that are
defined as "puts" under Rule 2a-7 of the 1940 Act, the fund does not consider
them to be "puts" as that term is used in the fund's investment limitations.
Demand features and stand-by commitments are features which enhance an
instrument's liquidity. The fund's investment limitation which proscribes puts
is designed to prohibit the purchase and sale of put and call options and is not
designed to prohibit the fund from using techniques which enhance the liquidity
of portfolio instruments.
The investment objective and fundamental investment limitations of the
fund, described in the preceding paragraphs and in the Prospectus, may be
changed only with the vote of a majority of the Corporation's outstanding voting
securities. Under the Investment Company Act of 1940, as amended ("1940 Act"), a
"vote of a majority of the outstanding voting securities" of the fund means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the fund or (2) 67% or more of the shares present at a shareholders' meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy.
Unless otherwise stated, the policies and limitations described in this
Statement of Additional Information are not fundamental and can be changed by
vote of the Board of Directors without shareholder approval.
<PAGE>
The Corporation in the future may organize additional separate investment
portfolios, each of which will invest in particular types of tax-exempt,
interest-bearing securities and will have separate investment objectives,
policies and limitations.
MANAGEMENT OF THE FUND
The Corporation's officers are responsible for the operation of the
Corporation under the direction of the Board of Directors. The officers and
directors of the Corporation and their principal occupations during the past
five years are set forth below. An asterisk (*) indicates officers and/or
directors who are "interested persons" of the fund as defined by the 1940 Act.
The business address of each director and officer is 100 Light Street,
Baltimore, Maryland 21202, unless otherwise indicated.
JOHN F. CURLEY, JR.* [7/24/39], Chairman and Director; President and/or
Chairman of the Board and Director/Trustee of all Legg Mason retail funds;
Retired Vice Chairman and Director of Legg Mason, Inc. and Legg Mason Wood
Walker, Inc.; Formerly: Director of Legg Mason Fund Adviser, Inc. ("LMFA") and
Western Asset Management Company (each a registered investment adviser); Officer
and/or Director of various other affiliates of Legg Mason, Inc.
EDMUND J. CASHMAN, Jr. * [8/31/36], President and Director; Senior
Executive Vice President and Director of Legg Mason Wood Walker, Inc.; Officer
and/or Director of various other affiliates of Legg Mason, Inc.; Vice Chairman
of the Board and Director of Legg Mason Income Trust, Inc., President and
Director of Legg Mason Tax Exempt Trust, Inc., and President and Director of
Legg Mason Tax-Free Income Funds.
RICHARD G. GILMORE [6/9/27], Director; 10310 Tamo Shanter Place, Bradenton,
Florida. Independent Consultant. Director of CSS Industries, Inc. (diversified
holding company whose subsidiaries are engaged in the manufacture and sale of
decorative paper products, business forms, and specialty metal packaging);
Director of PECO Energy Company (formerly Philadelphia Electric Company);
Director/Trustee of all Legg Mason retail funds. Formerly: Senior Vice President
and Chief Financial Officer of Philadelphia Electric Company (now PECO Energy
Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company, the Girard Company; and Director of
Finance, City of Philadelphia.
ARNOLD L. LEHMAN [7/18/44], Director; The Brooklyn Museum of Art, 200
Eastern Parkway, Brooklyn, New York. Director of the Brooklyn Museum of Art;
Director/Trustee of all Legg Mason retail funds. Formerly: Director of the
Baltimore Museum of Art.
JILL E. McGOVERN [8/29/44], Director; 400 Seventh Street NW, Washington,
DC. Chief Executive Officer of the Marrow Foundation. Director/Trustee of all
Legg Mason retail funds. Formerly: Executive Director of the Baltimore
International Festival (January 1991 - March 1993); and Senior Assistant to the
President of The Johns Hopkins University (1986-1991).
T.A. RODGERS [10/22/34], Director; 2901 Boston Street, Baltimore, Maryland.
Principal, T.A. Rodgers & Associates (management consulting); Director/Trustee
of all Legg Mason retail funds. Formerly: Director and Vice President of
Corporate Development, Polk Audio, Inc. (manufacturer of audio components).
The executive officers of the Corporation, other than those who also serve
as directors, are:
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer; Vice President
and Treasurer of all Legg Mason funds.
PATRICIA A. MAXEY* [7/10/67], Secretary; employee of Legg Mason since
November 1999. Formerly: employee of Select Appointments International
(1998-1999) and Fidelity Investments (1995-1997).
<PAGE>
WM. SHANE HUGHES* [4/24/68], Assistant Secretary and Assistant Treasurer;
employee of Legg Mason since May 1997. Formerly: Senior Associate of C.W. Amos
and Co. (a regional public accounting firm).
Officers and directors of the Corporation who are "interested persons" of
the Corporation receive no salary or fees from the Corporation. Each Director of
the Corporation who is not an interested person of the Corporation ("Independent
Directors") receives an annual retainer and a per meeting fee based on the
average net assets of the Fund at December 31 of the previous year.
On March 31, 2000, the directors and officers of the Corporation
beneficially owned in the aggregate less than 1% of the fund's outstanding
shares.
The following table provides certain information relating to the
compensation of the Corporation's directors. None of the Legg Mason funds has
any retirement plan for its directors.
COMPENSATION TABLE
================================================================================
Name of Person Aggregate Compensation Total Compensation From Fund and
and Position From Fund* Fund Complex Paid to Directors**
- --------------------------------------------------------------------------------
John F. Curley, Jr.,
Chairman and Director NONE NONE
- --------------------------------------------------------------------------------
Richard G. Gilmore,
Director $2400 $41,100
- --------------------------------------------------------------------------------
Arnold L. Lehman,
Director $2400 $41,100
- --------------------------------------------------------------------------------
Jill E. McGovern,
Director $2400 $41,100
- --------------------------------------------------------------------------------
T.A. Rodgers,
Director $2400 $41,100
- --------------------------------------------------------------------------------
Edmund J. Cashman, Jr.,
President and Director NONE NONE
================================================================================
* Represents fees paid to each director during the fiscal year ended December
31, 1999.
** Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1999. There are twelve open-end investment companies
in the Legg Mason Complex (with a total of twenty-four funds).
The Nominating Committee of the Board of Directors is responsible for the
selection and nomination of disinterested directors. The Committee is composed
of Messrs. Gilmore, Lehman, Rodgers and Dr. McGovern, each of whom is a
disinterested director as that term is defined in the 1940 Act.
<PAGE>
THE FUND'S INVESTMENT ADVISER/MANAGER
Legg Mason Capital Management, Inc. ("Adviser"), a Maryland corporation,
100 Light Street, Baltimore, Maryland 21202, is a wholly owned subsidiary of
Legg Mason, Inc., which is also the parent of Legg Mason Wood Walker, Inc.
("Legg Mason"). The Adviser serves as the fund's investment adviser under an
Investment Advisory and Management Agreement ("Advisory Agreement"). Effective
January 1, 1998, the Advisory Agreement was transferred to the Adviser; prior to
that date, Legg Mason Fund Adviser, Inc., ("LMFA"), also a wholly owned
subsidiary of Legg Mason, Inc., served as the fund's investment adviser and
manager under the Advisory Agreement.
The Advisory Agreement provides that, subject to overall direction by the
Board of Directors, the Adviser manages or oversees the investment and other
affairs of the fund. The Adviser is responsible for managing the fund consistent
with the fund's investment objectives and policies described in the Prospectus
and this Statement of Additional Information.
The Adviser and its affiliates pay all the compensation of directors and
officers of the Corporation who are employees of the Adviser. The fund pays all
of its expenses which are not assumed by the Adviser. These expenses include,
among others, interest expense, taxes, brokerage fees and commissions, expenses
of preparing and printing prospectuses, proxy statements and reports to
shareholders and of distributing them to existing shareholders, custodian
charges, transfer agency fees, distribution fees to Legg Mason, the fund's
distributor, compensation of the independent directors, legal and audit
expenses, insurance for sale under federal and state law, governmental fees and
expenses incurred in connection with membership in investment company
organizations. The fund is also liable for such nonrecurring expenses as may
arise, including litigation to which the fund may be a party. The Corporation
may have an obligation to indemnify its directors and officers with respect to
any litigation.
The Adviser receives for its services a fee, calculated daily and payable
monthly, at an annual rate of 0.50% of the average daily net assets of the fund.
For the years ended December 31, 1999 and 1998, the fund paid the Adviser fees
of $1,667,985 and $1,670,147, respectively. For the year ended December 31,
1997, the fund paid LMFA a fee of $1,582,075.
The Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Corporation's Board of
Directors, by vote of a majority of the fund's outstanding voting securities, or
by the Adviser, on not less than 60 days' notice to the fund and may be
terminated immediately upon the mutual written consent of the Adviser and the
fund.
Under the Advisory Agreement, the fund has the non-exclusive right to use
the name "Legg Mason" until that Agreement is terminated or until the right is
withdrawn in writing by the Adviser.
Pursuant to an agreement with the Adviser ("Administration Agreement"),
LMFA serves as the fund's administrator whereby it is obligated to (a) furnish
the fund with office space and executive and other personnel necessary for the
operations of the fund; (b) supervise all aspects of the fund's operations; (c)
bear the expense of certain informational and purchase and redemption services
to fund shareholders; (d) arrange, but not pay for, the periodic updating of
prospectuses, proxy material, tax returns and reports to shareholders and state
and federal regulatory agencies; and (e) report regularly to the Corporation's
officers and directors. The Adviser pays LMFA, pursuant to the Administration
Agreement, a fee equal to an annual rate of 0.05% of the fund's average daily
net assets.
Under the Advisory Agreement and the Administration Agreement, the Adviser
and LMFA will not be liable for any error of judgment or mistake of law or for
any loss suffered by the fund in connection with the performance of the Advisory
Agreement or the Administration Agreement, except that LMFA may be liable for a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligation or duties under the respective
Agreement.
<PAGE>
To mitigate the possibility that the fund will be affected by personal
trading of employees, the fund, the Adviser and LMFA have adopted policies that
restrict securities trading in the personal accounts of portfolio managers and
others who normally come into advance possession of information on portfolio
transactions. These policies comply, in all material respects, with the
recommendations of the Investment Company Institute.
THE FUND'S DISTRIBUTOR
Legg Mason, 100 Light Street, Baltimore, Maryland 21202, acts as
distributor of the fund's shares pursuant to a separate Underwriting Agreement
with the fund. The Underwriting Agreement obligates Legg Mason to promote the
sale of fund shares and to pay certain expenses in connection with its
distribution efforts, including expenses for the printing and distribution of
prospectuses and periodic reports used in connection with the offering to
prospective investors (after the prospectuses and reports have been prepared,
set in type and mailed to existing shareholders at the fund's expense), and for
supplementary sales literature and advertising costs.
The fund has adopted a Distribution Plan ("Plan") which among other things,
permits the fund to pay Legg Mason fees for its services related to sales and
distribution of fund shares and the provision of ongoing services to
shareholders. Under the Plan, the aggregate fees may not exceed 0.20% of the
fund's annual average daily net assets. However, Legg Mason has agreed that it
will waive 0.10% of the 12b-1 service fee indefinitely. Distribution activities
for which such payments may be made include, but are not limited to,
compensation to persons who engage in or support distribution and redemption of
shares, printing of prospectuses and reports for persons other than existing
shareholders, advertising, preparation and distribution of sales literature,
overhead, travel and telephone expenses. The fees received by Legg Mason during
any year may be more or less than its costs of providing distribution and
shareholder services for the fund. For the years ended December 31, 1999, 1998
and 1997, the fund paid Legg Mason $333,597, $334,029 and $309,363,
respectively, pursuant to the Plan.
The Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by a
vote of the Board of Directors, including a majority of the directors who are
not "interested persons" of the Corporation as that term is defined in the 1940
Act, and who have no direct or indirect financial interest in the operation of
the Plan or the Underwriting Agreement ("12b-1 Directors"). In approving the
establishment of the Plan, in accordance with the requirements of Rule 12b-1,
the directors determined that there was a reasonable likelihood that the Plan
would benefit the fund and its shareholders. The directors considered, among
other things, the extent to which the potential benefits of the Plan to the
fund's shareholders could offset the costs of the Plan; the likelihood that the
Plan would succeed in producing such potential benefits; the merits of certain
possible alternatives to the Plan; and the extent to which the retention of
assets and additional sales of the fund's shares would be likely to maintain or
increase the amount of compensation paid by the fund to LMFA.
In considering the costs of the Plan, the directors gave particular
attention to the fact that any payments made by the fund to Legg Mason under the
Plan would increase the fund's level of expenses in the amount of such payments.
Further, the directors recognized that LMFA would earn greater management fees
if the fund's assets were increased, because such fees are calculated as a
percentage of the fund's assets and thus would increase if net assets increase.
The directors further recognized that there can be no assurance that any of the
potential benefits described below would be achieved if the Plan was
implemented.
Among the potential benefits of the Plan, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
the fund's shares and to maintain and enhance the level of services they provide
to the fund's shareholders. These efforts, in turn, could lead to increased
sales and reduced redemptions, eventually enabling the fund to achieve economies
of scale and lower per share operating expenses. Any reduction in such expenses
would serve to offset, at least in part, the additional expenses incurred by the
fund in connection with its Plan. Furthermore, the investment management of the
fund could be enhanced, as net inflows of cash from new sales might enable its
portfolio manager to take advantage of attractive investment opportunities, and
<PAGE>
reduced redemptions could eliminate the potential need to liquidate attractive
securities positions in order to raise the funds necessary to meet the
redemption requests.
The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting shares. Any change in the Plan that would materially increase the
distribution cost to the fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the fund's Board of Directors, and the directors will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the Independent Directors will be
committed to the discretion of such Independent Directors.
During the year ended December 31, 1999, Legg Mason incurred the following
distribution and shareholder servicing expenses with respect to the fund:
Compensation to sales personnel $220,000
Retail Branch Distribution 524,000
Promotion and Advertising/Funds Marketing 95,000
Printing and mailing of prospectuses to prospective
shareholders 31,000
Other (Funds Marketing, Branch System Processing,
Executive and Sales Management, Funds Accounting
and Training) 38,000
---------------
Total expenses $908,000
The foregoing are estimated. Legg Mason receives payment under the plan
regardless of the actual expenses it incurs.
ADDITIONAL TAX INFORMATION
FEDERAL TAX
The fund intends to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended ("Code"). The fund
must distribute annually to its shareholders at least 90% of the sum of its net
interest income excludable from gross income under section 103(a) of the Code
plus its investment company taxable income (generally, taxable net investment
income plus net short-term capital gain, if any) and must meet several
additional requirements. These requirements include the following: (1) the fund
must derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities, or other income derived with respect to its
business of investing in securities; (2) at the close of each quarter of the
fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the fund's total assets;
and (3) at the close of each quarter of the fund's taxable year, not more than
25% of the value of its total assets may be invested in the securities (other
than U.S. Government securities) of any one issuer. If the fund failed to
qualify for treatment as a RIC for any taxable year, (i) it would be taxed at
corporate rates on the full amount of its taxable income for that year without
being able to deduct the distributions it makes to its shareholders and (ii) the
<PAGE>
shareholders would treat all those distributions, including distributions that
otherwise would be "exempt-interest dividends" as described in the Prospectus,
as taxable dividends (that is, ordinary income) to the extent of the fund's
earnings & profits. In addition, the fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying for RIC treatment.
If the fund receives tax-exempt interest attributable to certain "private
activity bonds," a proportionate part of the exempt-interest dividends paid by
the fund will be a TPI. Exempt-interest dividends received by a corporate
shareholder also may be indirectly subject to the alternative minimum tax,
without regard to whether the fund's tax-exempt interest was attributable to
those bonds. Private activity bonds are issued by or on behalf of public
authorities to finance various privately operated facilities.
If the fund invests in instruments that generate taxable income,
distributions of the interest earned thereon will be taxable to the fund's
shareholders as ordinary income to the extent of the fund's earnings and
profits. Moreover, if the fund realizes capital gains as a result of market
transactions, any distributions of those gains will be taxable to its
shareholders.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisers before purchasing fund
shares. For users of certain of these facilities, the interest on those bonds is
not exempt from federal income tax. For these purposes, a "substantial user"
generally includes a "non-exempt person" who regularly uses in trade or business
a part of a facility financed from the proceeds of industrial development bonds
or private activity bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the fund are still
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds certain established
amounts.
The fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute substantially all of its taxable ordinary income by the end
of the calendar year and capital gain net income for the one-year period ending
on October 31 of that year, plus certain other amounts.
STATE AND LOCAL INCOME TAX
The exemption of certain interest income for federal income tax purposes
does not necessarily result in exemption of such income under the income or
other tax laws of any state or local taxing authority. A shareholder may be
exempt from state and local taxes on distributions of interest income derived
from obligations of the state and/or localities of the state in which he or she
is a resident, but generally will be taxed on income derived from obligations of
other jurisdictions. Shareholders receive notification annually of the portion
of the fund's tax-exempt income attributable to each state. Shareholders should
consult their tax advisers about the tax status in their own states and
localities of distributions from the fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange ("Exchange") is open for business. The procedure for
purchasing shares of the fund is explained in the Prospectus under "How to
Invest".
CONVERSION TO FEDERAL FUNDS
It is the fund's policy to be as fully invested as possible so that
<PAGE>
maximum interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds. This conversion must be
made before shares are purchased. Legg Mason or Boston Financial Data Services
("BFDS") acts as the shareholders' agent in depositing checks and converting
them to federal funds, normally within two to ten business days of receipt of
checks.
A cash deposit made after the daily cashiering deadline of the Legg Mason
office in which the deposit is made will be credited to your Legg Mason
brokerage account ("Brokerage Account") on the next business day following the
day of deposit, and the resulting free credit balance will be invested on the
second business day following the day of receipt.
REDEMPTION BY WIRE
The fund redeems shares at the next computed net asset value after Legg
Mason receives the redemption request. Redemption procedures are explained in
the Prospectus under "How to Sell Your Shares". When payment for shares is in
the form of federal funds, the 10-day potential delay described in the
Prospectus does not apply.
REDEMPTION IN KIND
The fund reserves the right, under certain conditions, to honor any request
for a redemption, or combination of requests from the same shareholder in any
90-day period, totaling $250,000 or 1% of the net assets of the fund, whichever
is less, by making payment in whole or in part in securities valued in the same
way as they would be valued for purposes of computing the fund's net asset value
per share. If payment is made in securities, a shareholder should expect to
incur brokerage expenses in converting those securities into cash and the market
price of those securities will be subject to fluctuation until they are sold.
The fund does not redeem in kind under normal circumstances, but would do so
where the Adviser determines that it would be in the best interests of the
shareholders as a whole.
FUTURE FIRST SYSTEMATIC INVESTMENT PLAN AND
TRANSFER OF FUNDS FROM FINANCIAL INSTITUTIONS
When you purchase shares through the Future First Systematic Investment
Plan, BFDS, the fund's transfer agent, will transfer funds from your Legg Mason
account or from your checking account to be used to buy shares of the fund. Legg
Mason, the fund's distributor, will send an account statement quarterly. The
transfer also will be reflected on your Legg Mason account statement or your
regular checking account statement. You may terminate the Future First
Systematic Investment Plan at any time without charge or penalty.
You may also buy additional shares of the fund through a plan permitting
transfers of funds from a financial institution. Certain financial institutions
may allow you, on a pre-authorized basis, to have $50 or more automatically
transferred monthly for investment in shares of the fund to:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
Attn: Legg Mason Funds
If the investor's check is not honored by the institution on which it is
drawn, the investor may be subject to extra charges in order to cover collection
costs. These charges may be deducted from the investor's account.
SYSTEMATIC WITHDRAWAL PLAN
You may also elect to make systematic withdrawals from your fund account of
a minimum of $50 on a monthly basis if you own shares with a net asset value of
$5,000 or more. The amounts paid to you each month are obtained by redeeming
sufficient shares from your account to provide the withdrawal amount that you
have specified.
<PAGE>
You may change the monthly amount to be paid to you without charge not more
than once a year by notifying Legg Mason or the affiliate with which you have an
account. Redemptions will be made at the net asset value determined as of the
close of the Exchange on the first day of each month. If the Exchange is not
open for business on that day, the shares will be redeemed at the net asset
value determined as of the close of the Exchange on the preceding business day.
The check for the withdrawal payment will usually be mailed to you on the next
business day following redemption. If you elect to participate in the Systematic
Withdrawal Plan, dividends and distributions on all shares in your fund account
must be automatically reinvested in fund shares. You may terminate the
Systematic Withdrawal Plan at any time without charge or penalty. The fund, its
transfer agent, Legg Mason and its affiliates also reserve the right to modify
or terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend. If the periodic withdrawals exceed reinvested dividends and
distributions, the amount of your original investment will be correspondingly
reduced.
LEGG MASON PREMIER ASSET MANAGEMENT ACCOUNT/VISA ACCOUNT
Shareholders of the fund who have cash or negotiable securities (including
fund shares) valued at $10,000 or more in accounts with Legg Mason may subscribe
to Legg Mason's Premier Asset Management Account ("Premier"). This program
allows shareholders to link their fund account and their Brokerage Account.
Premier provides shareholders with a convenient method to invest in the fund
through their Brokerage Accounts, which includes automatic daily investment of
free credit balances of $100 or more and automatic weekly investment of free
credit balances of less than $100.
Premier is a comprehensive financial service which allows shareholders to
combine their fund account with a preferred customer VISA Gold debit card, a
Legg Mason Brokerage Account and unlimited checkwriting with no minimum check
amount.
The VISA Gold debit card may be used to purchase merchandise or
services from merchants honoring VISA or to obtain cash advances (which a bank
may limit to $5,000 or less, per account per day) from any bank honoring VISA.
Checks, VISA charges and cash advances are posted to the shareholder's
margin account and create automatic same day redemptions if shares are available
in the fund. If fund shares have been exhausted, the debits will be satisfied
with available cash or through the sale of securities in the Brokerage Account
or, if the Premier account has been established as a margin account, the debits
will remain in the margin account, reducing the cash available. The shareholder
will receive one consolidated monthly statement which details all fund
transactions, securities activity, check writing activity and VISA Gold
purchases and cash advances.
BancOne Columbus ("BancOne"), 757 Carolyn Avenue, Columbus, Ohio 43271, is
the fund's agent for processing payment of VISA Gold debit card charges and
clearance of checks written on the Premier Account. Shareholders are subject to
BancOne's rules and regulations governing VISA accounts, including the right of
BancOne not to honor VISA drafts in amounts exceeding the authorization limit of
the shareholder's account at the time the VISA draft is presented for payment.
The authorization limit is determined daily by taking the shareholder's fund
account balance and subtracting (1) all shares purchased within 15 days by other
than federal funds wired; (2) all shares for which certificates have been
issued; and (3) any previously authorized VISA transaction.
PREFERRED CUSTOMER CARD SERVICES
Unlike some other investment programs which offer the VISA card privilege,
Premier also includes travel/accident insurance at no added cost when
shareholders purchase travel tickets with their Premier VISA Gold debit card.
Coverage is provided through VISA and extends up to $250,000.
<PAGE>
If a VISA Gold debit card is lost or stolen, the shareholder should report
the loss immediately by contacting Legg Mason directly between the hours of 8:30
a.m. and 5:00 p.m., or BancOne after hours at 1-800-996-4324. Those shareholders
who subscribe to the Premier VISA account privilege may be liable for the
unauthorized use of their VISA Gold debit card in amounts up to $50.
Legg Mason is responsible for all Premier VISA Gold debit card inquiries as
well as billing and account resolutions. Simply call Legg Mason Premier Client
Services directly between 8:30 a.m. and 5:00 p.m., Eastern Time, at
1-800-253-0454 or 1-410-454-2066 with your account inquiries.
AUTOMATIC PURCHASES OF FUND SHARES
Shareholders participating in the Premier program who elect to establish a
fund account will have free credit balances resulting from the sale of
securities in their Brokerage Account automatically invested in shares of the
fund. Amounts of $100 or more will be invested on the same business day the
proceeds of sale are credited to the Brokerage Account. Free credit balances of
less than $100 will be invested in fund shares weekly.
Free credit balances arising from sales of Brokerage Account securities for
cash (i.e., same-day settlement), redemption of debt securities, dividend and
interest payments and cash deposits will be invested automatically in fund
shares on the next business day following the day the transaction is credited to
the Brokerage Account.
Fund shares will receive the next dividend declared following purchase
(normally 12:00 noon, Eastern Time, on the following business day). A purchase
order will not become effective until cash in the form of federal funds is
received by the fund.
HOW TO OPEN A PREMIER ACCOUNT
To subscribe to Premier services, clients must contact Legg Mason to
execute the necessary Premier agreements. Legg Mason charges a fee for the
Premier service, which is currently $85 per year for individuals and $100 per
year for businesses and corporations. Legg Mason reserves the right to alter or
waive the conditions upon which a Premier account may be opened. Both Legg Mason
and BancOne reserve the right to terminate or modify any shareholder's Premier
services at their discretion.
You may request Premier Account status by filling out the Premier Asset
Management Account Agreement and Check Application which can be obtained from
your financial advisor. You will receive your VISA Gold debit card (if
applicable) from BancOne. The Premier VISA Gold debit card may be used at over 8
million locations, including 23,000 ATMs, in 24 countries around the world.
Premier checks will be sent to you directly. There is no limit on the number of
checks you may write against your Premier account.
Shareholders should be aware that the various features of the Premier
program are intended to provide easy access to assets in their accounts and that
the Premier account is not a bank account. Additional information about the
Premier program is available by calling your financial advisor or Legg Mason's
Premier Client Services.
OTHER INFORMATION REGARDING REDEMPTION
The fund reserves the right to modify or terminate the check, wire,
telephone or VISA Gold card redemption services described in the Prospectus and
this Statement of Additional Information at any time.
You may request the fund's checkwriting service by sending a written
request to Legg Mason. State Street Bank and Trust Company ("State Street"), the
fund's custodian, will supply you with checks which can be drawn on an account
of the fund maintained with State Street. When honoring a check presented for
payment, the fund will cause State Street to redeem exactly enough full and
fractional shares from your account to cover the amount of the check. Canceled
checks will be returned to you.
<PAGE>
Check redemption is subject to State Street's rules and regulations
governing checking accounts. Checks should not be used to close a fund account
because when the check is written you will not know the exact total value of the
account, including accrued dividends, on the day the check clears. Persons who
obtained certificates for their shares may not use the checkwriting service.
The date of payment for a redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended except (1) for any
periods during which the Exchange is closed, (2) when trading in markets the
fund normally utilizes is restricted, or an emergency, as defined by rules and
regulations of the SEC, exists, making disposal of the fund's investments or
determination of its net asset value not reasonably practicable, or (3) for such
other periods as the SEC by regulation or order may permit for protection of the
fund's shareholders. In the case of any such suspension, you may either withdraw
your request for redemption or receive payment based upon the net asset value
next determined after the suspension is lifted.
Although the fund may elect to redeem any shareholder account with a
current value of less than $500, the fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
VALUATION OF FUND SHARES
The fund attempts to stabilize the value of a share at $1.00. Net asset
value will not be calculated on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
USE OF THE AMORTIZED COST METHOD
The Board of Directors has decided that the best method for determining the
value of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at acquisition cost, adjusted for amortization of premium
or accumulation of discount, rather than at current market value. The Board of
Directors periodically assesses the appropriateness of this method of valuation.
The fund's use of the amortized cost method depends on its compliance with
Rule 2a-7 under the 1940 Act. Under that Rule, the Board of Directors must
establish procedures reasonably designed to stabilize the net asset value at
$1.00 per share, as computed for purposes of distribution and redemption, taking
into account current market conditions and the fund's investment objective.
Under the Rule, the fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the fund to receive the principal amount of the
instrument from the issuer or a third party on no more than 30 days' notice. A
standby commitment entitles the fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The fund's procedures include monitoring the relationship between the
amortized cost value per share and net asset value per share based upon
available indications of market value. If there is a difference of more than
0.5% between the two, the Board of Directors will take any steps it considers
appropriate (such as shortening the dollar-weighted average portfolio maturity)
to minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
Rule 2a-7 requires the fund to limit its investments to instruments that,
in the opinion of the Board of Directors or its delegate, present minimal credit
<PAGE>
risk and are rated in one of the two highest short-term ratings categories by a
requisite number NRSROs or, if unrated (as defined in the Rule), are determined
to be of comparable quality. The Rule requires the fund to maintain a
dollar-weighted average portfolio maturity appropriate to the objective of
maintaining a stable net asset value of $1.00 per share and in any event not
more than 90 days. In addition, under the Rule, no instrument with a remaining
maturity (as defined in the Rule) of more than 397 days can be purchased by the
fund, except that the fund may hold securities with maturities greater than 397
days as collateral for repurchase agreements and other collateralized
transactions of short duration. However, the Rule permits the fund to treat
certain floating and variable rate demand notes as having maturities of 397 days
or less, even if the notes specify a final repayment date more than 397 days in
the future.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
The fund usually holds portfolio securities to maturity and realizes par,
unless the Adviser determines that sale or other disposition is appropriate in
light of the fund's investment objective. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the fund, which is computed by dividing the annualized daily income on the
fund's investment portfolio by the net asset value computed as above, may tend
to be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares of
the fund computed the same way may tend to be lower than a similar computation
made by using a method of calculation based upon market prices and estimates.
HOW THE FUND'S YIELD IS CALCULATED
The current annualized yield for the fund is based upon a seven-day period
and is computed by determining the net change in the value of a hypothetical
account in the fund. The net change in the value of the account includes the
value of dividends and of additional shares purchased with dividends, but does
not include realized gains and losses or unrealized appreciation and
depreciation. In addition, the fund may use a compound effective annualized
yield quotation which is calculated, as prescribed by SEC regulations, by adding
one to the base period return (calculated as described above), raising the sum
to a power equal to 365 divided by 7, and subtracting one.
The fund's yield may fluctuate daily depending upon such factors as the
average maturity of its securities, changes in investments, changes in interest
rates and variations in operating expenses. Therefore, current yield does not
provide a basis for determining future yields.
The fund from time to time also may advertise its tax-equivalent yield and
tax-equivalent effective yield, based on a recently ended seven-day period.
These quotations are calculated by dividing that portion of the fund's yield (or
effective yield, as the case may be) that is tax-exempt by 1 minus a stated
income tax rate and adding the product to that portion, if any, of the fund's
yield that is not tax-exempt. Assuming a maximum tax rate of 39.6%, the fund's
tax-equivalent yield and tax-equivalent effective yield for the seven-day period
ended December 31, 1999 were 6.31% and 6.45%, respectively.
<PAGE>
PERFORMANCE INFORMATION
The fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to predict or indicate future results. The return on an investment in
the fund will fluctuate. In Performance Advertisements, the fund may compare its
taxable yield with data published by Lipper Analytical Services, Inc. for money
market funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Morningstar Mutual Funds
("Morningstar") or Wiesenberger Investment Companies Service ("Wiesenberger") or
with the performance of recognized stock and other indexes, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"),
the Dow Jones Industrial Average ("Dow Jones") and the Consumer Price Index as
published by the U.S. Department of Commerce.
The types of securities in which the fund invests are different from those
included in the Standard & Poor's and Dow Jones indices which track the
performance of the equity markets. The S&P 500 and Dow Jones are accepted as
broad-based measures of the equity markets. Calculation of those indices assumes
reinvestment of dividends and ignores brokerage and other costs of investing.
The fund also may refer in such materials to mutual fund performance rankings
and other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA, Donoghue, Morningstar or Wiesenberger. Performance Advertisements
also may refer to discussions of the Trust and comparative mutual fund data and
ratings reported in independent periodicals, including (but not limited to) THE
WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD,
BARRON'S, THE NEW YORK TIMES and FORTUNE.
The fund may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing the fund's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or part by an agency of the U.S.
Government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Fund shares are not insured or guaranteed
by the U.S. Government or any agency thereof and returns thereon will fluctuate.
While the fund seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that it will be able to do so.
In advertising, the fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The fund may use other recognized
sources as they become available.
The fund may use data prepared by independent third parties such as
Ibbotson Associates and Frontier Analytics, Inc. to compare the returns of
various capital markets and to show the value of a hypothetical investment in a
capital market. Typically, different indices are used to calculate the
performance of common stocks, corporate and government bonds and Treasury bills.
The fund may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is represented by the
performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The fund may also include in advertising biographical information on key
investment and managerial personnel.
The fund may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is represented by the
performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
<PAGE>
The fund may discuss Legg Mason's tradition of service. Since 1899, Legg
Mason and its affiliated companies have helped investors meet their specific
investment goals and have provided a full spectrum of financial services. Legg
Mason affiliates serve as investment advisors for private accounts and mutual
funds with assets of more than $104.2 billion as of December 31, 1999.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreement authorizes the Adviser (subject to the overall
direction of the Corporation's Board of Directors) to select brokers and dealers
to execute purchases and sales of the fund's portfolio securities. It directs
the Adviser to use its best efforts to obtain the best available price and most
favorable execution with respect to all transactions for the fund. The Adviser
undertakes to execute each transaction at a price and commission that provides
the most favorable total cost or proceeds reasonably obtainable under the
circumstances. The fund's portfolio securities are generally purchased without a
stated commission, either directly from the issuer or from dealers who
specialize in municipal bonds and money market instruments. Prices paid to a
dealer generally include a "spread," which is the difference between the price
at which the dealer is willing to purchase and sell the specific security at the
time, and includes the dealer's normal profit. To the extent that the execution
and price offered by more than one dealer are comparable, the Adviser may, at
its discretion, effect transactions in portfolio securities with dealers who
provide the fund with research, advice or other services. Since the commencement
of operations on July 14, 1983, the fund has incurred no brokerage commissions.
Portfolio securities are not purchased from or sold to the Adviser or Legg
Mason or any "affiliated person" (as defined in the 1940 Act) thereof, except in
accordance with SEC rules or actions. The Corporation's Board of Directors has
adopted procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
fund may purchase securities that are offered in underwritings in which Legg
Mason or other affiliated persons are participants.
Investment decisions for the fund are made independently from those of
other funds and accounts advised by the Adviser. However, the same security may
be held in the portfolios of more than one fund or account. When two or more
accounts simultaneously engage in the purchase or sale of the same security, the
prices and amounts will be equitably allocated to each account. In some cases,
this procedure may adversely affect the price or quantity of the security
available to a particular account. In other cases, however, an account's ability
to participate in large-volume transactions may produce better executions and
prices.
THE FUND'S CUSTODIAN AND
TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105 serves
as custodian of the fund's assets. Boston Financial Data Services, P.O. Box 953,
Boston, MA 02103 (as agent for State Street Bank & Trust Company) serves as
transfer and dividend-disbursing agent for the fund and administrator of various
shareholder services. The transfer agent maintains shareholder account records
and handles the payment of dividends.
THE FUND'S LEGAL COUNSEl
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C., 20036-1800, serves as counsel to the Corporation.
THE FUND'S INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore, MD 21201,
serves as the fund's independent accountants.
<PAGE>
FINANCIAL STATEMENTS
The fund's Statement of Net Assets as of December 31, 1999; the Statement
of Operations for the year ended December 31, 1999; the Statement of Changes in
Net Assets for the years ended December 31, 1999 and 1998; the Financial
Highlights for the periods presented; the Notes to Financial Statements; and the
Report of Independent Accountants, each of which is included in the Annual
Report to Shareholders of the fund dated December 31, 1999, are hereby
incorporated by reference in this Statement of Additional Information.
<PAGE>
APPENDIX A
RATINGS OF SECURITIES
1. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") RATINGS
MUNICIPAL BONDS which are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make long-term
risks appear somewhat larger than in Aaa securities.
MUNICIPAL NOTES Moody's ratings for state and municipal short-term
obligations are designated Moody's Investment Grade ("MIG") and for variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). The rating MIG recognizes the differences between short-term credit
risk and long-term credit risk, while VMIG differentiates variable rate demand
obligations to reflect such characteristics as payment upon periodic demand
rather than fixed maturity dates and payment relying on external liquidity.
Notes bearing the designation MIG-1 or VMIG-1 are of the best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Notes bearing the
designation MIG-2 or VMIG-2 are judged to be of high quality, with margins of
protection ample although not so large as in the preceding group.
COMMERCIAL PAPER The ratings Prime-1 and Prime-2 are the two highest
commercial paper ratings assigned by Moody's. Among the factors considered in
assigning ratings are the following: (1) leading market positions in
well-established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structure with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well-established access to a
range of financial markets and assured sources of alternate liquidity. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1, -2, or -3.
2. DESCRIPTION OF STANDARD & POOR'S ("S&P") RATINGS
MUNICIPAL BONDS rated AAA by S&P are the highest grade obligations. This
rating indicates an extremely strong capacity to pay interest and repay
principal. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
MUNICIPAL NOTES Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2, or -3) by S&P to distinguish
more clearly the credit quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given the
designation SP-1+.
COMMERCIAL PAPER The highest commercial paper rating assigned by S&P, A-1,
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are given
the designation A-1+. Commercial paper rated A-2 has a satisfactory capacity for
timely payment. However, the relative degree of safety is not as high for issues
designated A-1.
<PAGE>
Legg Mason Tax Exempt Trust, Inc.
Part C. Other Information
-----------------
Item 23. Exhibits
(a) (i) Articles of Incorporation (1)
(ii) Articles of Amendment (1)
(b) (i) Amended By-Laws (1)
(ii) Amendment to By-Laws (effective May 10, 1991) (1)
(c) Specimen Security - not applicable
(d) Investment Advisory and Management Agreement (1)
(e) (i) Underwriting Agreement (1)
(ii) Amended Underwriting Agreement (1)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Contract (1)
(h) (i) Transfer Agency and Service Agreement (1)
(i) Opinion and Consent of Counsel -- filed herewith
(j) Consent of Independent Accountants -- filed herewith
(k) Financial statements omitted from Item 22 -- none
(l) Initial Capital Agreement (1)
(m) (i) Amended Distribution Plan pursuant to Rule 12b-1 (1)
(n) Financial Data Schedule - none
(o) Plan pursuant to Rule 18f-3 - none
(p) Code of Ethics for the fund, its investment advisers, and its principal
underwriter (2)
(1) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 20 to the Registration Statement filed on
April 30, 1997.
(2) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 2 to the Registration Statement of Legg
Mason Investment Trust, Inc. filed on March 28, 2000.
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None
<PAGE>
Item 25. Indemnification
---------------
Article Thirteenth of the Registrant's Articles of Incorporation provides:
"The Corporation shall indemnify its present and past directors, officers,
employees, and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or enterprise, to the maximum
extent permitted by applicable law, in such manner as may be provided in the
By-Laws; provided, that no director, officer, investment adviser or principal
underwriter of the Corporation shall be indemnified in violation of Section
17(i) of the 1940 Act. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability."
Article X of the Registrant's By-Laws provides: "The Corporation shall
indemnify its present and past directors, officers, employees, and agents, and
persons who are serving or have served at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, to the maximum extent provided and allowed by Md.
Corp. and Assns. Code ss.2-418, as amended from time to time, or any other
applicable provision of law. Notwithstanding anything herein to the contrary, no
director, officer, investment adviser or principal underwriter of the
Corporation shall be indemnified in violation of Section 17(i) of the Investment
Company Act of 1940, as amended. The directors of the Corporation may provide
such liability insurance to the persons named herein as is authorized by the
Corporation's Articles of Incorporation."
Pursuant to the Registrant's agreement with its principal underwriter, the
Registrant has agreed to indemnify the underwriter from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which it or any controlling person may incur, under the
Investment Company Act of 1940, or under common law or otherwise, arising out of
or based upon any alleged untrue statement of a material fact contained in the
Registrant's registration statement or prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading; provided, however, that the indemnity agreement, to the extent that
it might require indemnity of any person who is a controlling person and who is
also a director of the Registrant, may not inure to the benefit of such person
unless a court of competent jurisdiction shall determine, or its shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the Investment Company Act of 1940; and further
provided that in no event shall anything contained in the indemnity agreement be
so construed as to protect the underwriter against any liability to the
Registrant or its security holders to which the underwriter would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence, in the
performance of its duties, or by reason of its reckless disregard of any
obligations and duties under the underwriting agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
The Registrant intends to purchase on behalf of its directors and officers
insurance against any liability resulting from their service in these capacities
to the extent permissible under the Articles and By-Laws.
Item 26. Business and Connections of Manager and Investment Adviser
----------------------------------------------------------
Legg Mason Capital Management, Inc. ("LMCM"), the Registrant's investment
adviser, is a registered investment adviser incorporated on October 4, 1982.
LMCM is engaged primarily in the investment advisory business. Information as to
the officers and directors of LMCM is included in its Form ADV that was most
recently amended on July 28, 1999, and is on file with the Securities and
Exchange Commission (Registration No. 801-18115) and is incorporated herein by
reference.
Legg Mason Fund Adviser, Inc. ("LMFA"), the Registrant's administrator, is
a registered investment adviser incorporated on January 20, 1982. LMFA is
engaged primarily in the investment advisory business. Information as to the
officers and directors of LMFA is included in its Form ADV that was most
recently amended on November 9, 1999, and is on file with the Securities and
Exchange Commission (Registration No. 801-16958) and is incorporated herein by
reference.
Item 27. Principal Underwriters
----------------------
(a) Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Focus Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Light Street Trust, Inc.
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.
(b) The following table sets forth information concerning each director
and officer of the Registrant's principal underwriter, Legg Mason
Wood Walker, Incorporated ("LMWW").
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Raymond A. Mason Chairman of the None
Board and Director
James W. Brinkley President, Chief None
Operating Officer
and Director
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive None
Vice President and
Director
Edward A. Taber III Senior Executive Director
Vice President
Robert G. Donovan Executive Vice None
President
Robert A. Frank Executive Vice None
President
Robert G. Sabelhaus Executive Vice None
President
Timothy C. Scheve Executive Vice None
President and
Treasurer and
Director
Manoochehr Abbaei Senior Vice President None
Charles A. Bacigalupo Senior Vice President None
and Secretary
F. Barry Bilson Senior Vice President None
D. Stuart Bowers Senior Vice President None
W. William Brab Senior Vice President None
Deepak Chowdhury Senior Vice President None
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Thomas M. Daly, Jr. Senior Vice President None
Jeffrey W. Durkee Senior Vice President None
Harry M. Ford, Jr. Senior Vice President None
Dennis A. Green Senior Vice President None
Thomas E. Hill Senior Vice President None
218 N. Washington Street
Suite 31
Easton, MD 21601
Arnold S. Hoffman Senior Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl Hohnbaum Senior Vice President None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Ave NW
Washington, D.C. 20006
Theodore S. Kaplan Senior Vice President None
Laura L. Lange Senior Vice President None
Horace M. Lowman, Jr. Senior Vice President None
and Asst. Secretary
Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Ave NW
Washington, D.C. 20006
Thomas P. Mulroy Senior Vice President None
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Jonathan M. Pearl Senior Vice President None
Mark I. Preston Senior Vice President None
Robert F. Price Senior Vice President None
and General Counsel
Thomas L. Souders Senior Vice President None
and Chief Financial
Officer
Elisabeth N. Spector Senior Vice President None
Joseph A. Sullivan Senior Vice President None
Richard L. Baker Vice President None
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President and None
Deputy General Counsel
Edwin J. Bradley, Jr. Vice President None
Carol A. Brown Vice President None
Scott R. Cousino Vice President None
Thomas W. Cullen Vice President None
Charles J. Daley, Jr. Vice President and None
Controller
Norman C. Frost, Jr. Vice President None
James E. Furletti Vice President None
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
John R. Gilner Vice President None
Daniel R. Greller Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
56 West Main Street
Newark, DE 19702
Kurt A. Lalomia Vice President None
Edward W. Lister, Jr. Vice President None
Theresa McGuire Vice President None
Julia A. McNeal Vice President None
Gregory B. McShea Vice President None
Edward P. Meehan Vice President None
12021 Sunset Hills Road
Suite 100
Reston, VA 20190
Thomas C. Merchant Vice President and None
Assistant General
Counsel
Paul Metzger Vice President None
Mark C. Micklem Vice President None
1747 Pennsylvania Ave NW
Washington, DC 20006
John A. Moag, Jr. Vice President None
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Ann O'Shea Vice President None
Robert E. Patterson Vice President and None
Deputy General
Counsel
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
Judith L. Ritchie Vice President None
Thomas E. Robinson Vice President None
Theresa M. Romano Vice President None
James A. Rowan Vice President None
1747 Pennsylvania Ave NW
Washington, DC 20006
Douglas M. Schmidt Vice President None
B. Andrew Schmucker Vice President None
1735 Market Street
Philadelphia, PA 19103
Robert W. Schnakenberg Vice President None
Henry V. Sciortino Vice President None
1735 Market Street
Philadelphia, PA 19103
Chris A. Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Jane Soybelman Vice President None
Alexsander M. Stewart Vice President None
L. Kay Strohecker Vice President None
Joseph E. Timmins III Vice President None
Joyce Ulrich Vice President None
William A. Verch Vice President None
<PAGE>
Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - with Registrant
LMWW
------------------------------------------------------------------------------
Sheila M. Vidmar Vice President and None
Deputy General Counsel
Lewis T. Yeager Vice President None
Carol Converso-Burton Assistant Vice None
President
Diana L. Deems Assistant Vice None
President and
Assistant Controller
Ronald N. McKenna Assistant Vice None
President
Suzanne E. Peluso Assistant Vice None
President
Lauri F. Smith Assistant Vice None
President
Janet B. Straver Assistant Vice None
President
Leslee Stahl Assistant Secretary None
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter who is not an
affiliated person of the Registrant or an affiliated person of such an
affiliated person.
Item 28. Location of Accounts and Records
--------------------------------
State Street Bank and Trust Company Legg Mason Fund Adviser, Inc.
P. O. Box 1713 and 100 Light Street
Boston, Massachusetts 02105 Baltimore, Maryland 21202
Item 29. Management Services
-------------------
None
Item 30. Undertakings
------------
Not applicable.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Legg Mason Tax Exempt Trust, Inc.,
certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 24 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore and State of Maryland, on the 5th day of
April, 2000.
LEGG MASON TAX EXEMPT TRUST, INC.
By:/s/ Marie K. Karpinski
Marie K. Karpinski
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ John F. Curley* Chairman of the Board April 5, 2000
- ------------------- and Director
John F. Curley, Jr.
/s/ Edmund J. Cashman Jr.* President and Director April 5, 2000
- --------------------------
Edmund J. Cashman, Jr.
/s/ Richard G. Gilmore* Director April 5, 2000
- -----------------------
Richard G. Gilmore
/s/ Arnold L. Lehman* Director April 5, 2000
- ---------------------
Arnold L. Lehman
/s/ Jill E. McGovern* Director April 5, 2000
- ---------------------
Jill E. McGovern
/s/ T.A. Rodgers* Director April 5, 2000
- -----------------
T.A. Rodgers
/s/ Marie K. Karpinski Vice President April 5, 2000
- ---------------------- and Treasurer
Marie K. Karpinski
*Signatures affixed by Marc R. Duffy pursuant to Power of Attorney, dated
November 12, 1999, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' Registration Statements on form N-1A):
LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of MARIE K.
KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and ARTHUR C.
DELIBERT my true and lawful attorney-in-fact, with full power of substitution,
and with full power to sign for me and in my name in the appropriate capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration Statements on Form N-lA, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments in connection therewith, to file the same with the Securities and
Exchange Commission and the securities regulators of appropriate states and
territories, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, all related requirements of the Securities and Exchange
Commission and all requirements of appropriate states and territories. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
SIGNATURE DATE
- --------- ----
/s/ Edmund J. Cashman, Jr. November 12, 1999
- --------------------------
Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. November 12, 1999
- -----------------------
John F. Curley, Jr.
/s/ Richard G. Gilmore November 12, 1999
- ----------------------
Richard G. Gilmore
/s/ Arnold L. Lehman November 12, 1999
- --------------------
Arnold L. Lehman
/s/ Raymond A. Mason November 12, 1999
- --------------------
Raymond A. Mason
/s/ Jill E. McGovern November 12, 1999
- --------------------
Jill E. McGovern
/s/ Jennifer W. Murphy November 12, 1999
- ----------------------
Jennifer W. Murphy
/s/ G. Peter O'Brien November 12, 1999
- --------------------
G. Peter O'Brien
/s/ T. A. Rodgers November 12, 1999
- ------------------
T. A. Rodgers
/s/ Edward A. Taber, III November 12, 1999
- ------------------------
Edward A. Taber, III
<PAGE>
LEGG MASON TAX EXEMPT TRUST, INC.
EXHIBITS
(a) (i) Articles of Incorporation (1)
(ii) Articles of Amendment (1)
(b) (i) Amended By-Laws (1)
(ii) Amendment to By-Laws (effective May 10, 1991) (1)
(c) Specimen Security - not applicable
(d) Investment Advisory and Management Agreement (1)
(e) (i) Underwriting Agreement (1)
(ii) Amended Underwriting Agreement (1)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Contract (1)
(h) (i) Transfer Agency and Service Agreement (1)
(i) Opinion and Consent of Counsel -- filed herewith
(j) Consent of Independent Accountants -- filed herewith
(k) Financial statements omitted from Item 22 -- none
(l) Initial Capital Agreement (1)
(m) (i) Amended Distribution Plan pursuant to Rule 12b-1 (1)
(n) Financial Data Schedule - none
(o) Plan pursuant to Rule 18f-3 - none
(p) Code of Ethics for the fund, its investment advisers, and its principal
underwriter (2)
(1) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 20 to the Registration Statement filed on
April 30, 1997.
(2) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 2 to the Registration Statement of Legg
Mason Investment Trust, Inc. filed on March 28, 2000.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036-1800
ARTHUR C. DELIBERT
(202) 778-9042
[email protected]
April 4, 2000
Legg Mason Tax Exempt Trust, Inc.
100 Light Street
Baltimore, MD 21202
Dear Sir or Madam:
Legg Mason Tax Exempt Trust, Inc. (the "Corporation") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated July 26, 1982. You have requested our opinion as to certain matters
regarding the issuance of Shares of the Corporation. As used in this letter, the
term "Shares" means shares of the Money Market Portfolio Series of common stock
of the Corporation issued during the time that Post-Effective Amendment No. 24
to the Corporation's Registration Statement is effective and has not been
superceded by another post-effective amendment purporting to register the same
Shares covered in this opinion.
We have, as counsel, participated in various corporate and other matters
relating to the Corporation. We have examined certified copies of the Articles
of Incorporation and By-Laws, the minutes of meetings of the directors and other
documents relating to the organization and operation of the Corporation, and we
are generally familiar with its business affairs. Based upon the foregoing, it
is our opinion that the issuance of the Shares has been duly authorized by the
Corporation and that, when sold in accordance with the Corporation's Articles of
Incorporation, By-Laws and the terms described in Post-Effective Amendment No.
24 to the Corporation's Registration Statement, the Shares will have been
legally issued, fully paid and nonassessable by the Corporation.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 24 to the Corporation's Registration Statement on
Form N-1A (File No. 33-2-78562) being filed with the Securities and Exchange
Commission. We also consent to the reference to our firm in the Statement of
Additional Information filed as part of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
/s/ Arthur C. Delibert
Arthur C. Delibert
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 24 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 10, 2000, relating to the financial
statements and financial highlights which appear in the December, 31, 1999
Annual Report to Shareholders of Legg Mason Tax-Exempt Trust, Inc., also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "The Fund's Independent Accountants" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers
Baltimore, Maryland
April 3, 2000
