Investment Adviser
Legg Mason Fund Adviser, Inc. Report to Shareholders
Baltimore, MD For the Six Months Ended
June 30, 1996
Investment Sub-adviser
Western Asset Management Company
Pasadena, CA
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman The
Dr. Jill E. McGovern Legg Mason
T. A. Rodgers Global
Government
Transfer and Shareholder Servicing Agent Trust
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, DC
Independent Accountants
Coopers & Lybrand L.L.P.
Baltimore, MD Putting Your Future First
This report is not to be
distributed unless preceded
or accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
------------------------------------
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
[Legg Mason Funds Logo]
(recycled logo) Printed on Recycled Paper
LMF-042
<PAGE>
To Our Shareholders,
The Legg Mason Global GovernmentTrust's net asset value decreased from
$10.33 to $10.11 per share in the six months ended June 30, 1996. As of June 30,
1996, the weighted average maturity of the Fund's investment portfolio was 6.4
years and its annualized SEC yield for the past 30 days was 7.48%.
The Fund seeks to provide capital appreciation and income in order to
achieve a competitive total return by investing primarily in a global portfolio
of high quality debt securities of the U.S. and foreign governments. The Fund is
required to invest a minimum of 75% of its assets in government debt
obligations, as well as a minimum of 75% of its assets in investment grade
securities. As of June 30, 1996, the securities held in the portfolio were
categorized as follows:
Government 86.0%
Non-Government 14.0
Investment Grade 81.4%
Non-Investment Grade 18.6
On the following page, Keith J. Gardner, the Fund's portfolio manager,
reviews the portfolio's structure and performance, and comments on the
investment outlook for global bonds.
Investments in global bonds should be considered a core part of any
well-diversified investment portfolio. We hope you will consider using the
Global Government Trust for investments of additional funds as they become
available. Some shareholders regularly add to their investments in the Fund by
authorizing automatic, monthly transfers from their bank checking accounts or
Legg Mason money market funds. Your Investment Executive will be happy to help
you make these arrangements if you would like to purchase additional shares in
this convenient manner.
Sincerely,
/s/ Edward A. Taber, III
Edward A. Taber, III
President
August 15, 1996
<PAGE>
Portfolio Manager's Comments
Following a stellar 1995, the first half of 1996 proved decidedly
difficult for fixed income markets worldwide. Yields in most major
countries rose, following the example set by the U.S. bond market. For
U.S.-based investors, the going was made even tougher by the fact that the
dollar strengthened against most major currencies. Emerging and
high-yielding markets provided some welcome relief, as policies and
politics stabilized and yields fell significantly.
Against this roller-coaster backdrop, the Legg Mason Global
Government Trust produced a total return of 0.7%, exceeding that of its
benchmark, the Salomon Brothers World Government Bond Index, which
returned -1.5%. The fund placed near the middle of world bond funds
followed by Lipper Analytical Services, Inc. for the year ended June 30,
1996, ranking 93rd out of 158 funds. Over the past three years, the fund
continues to rank highly in the Lipper universe, placing 12th out of 79
funds. The fund's performance benefited from several factors, particularly
its emphasis on emerging market debt, its decision to hedge currency
exposure, and its underweighting to the Japanese bond market, which was
one of the worst performers of the year. Of course, historical results are
not intended to indicate future performance.
In the dollar bloc, the U.S. bond market suffered, as yields rose by
roughly one percentage point on the back of a surprising rebound in
economic activity. This, in turn, sparked fears that inflation would soon
reaccelerate, and that the Federal Reserve would be forced to initiate a
new round of tightening actions. The dollar benefited, however, as the
economy's strength relative to that of its major trading partners made the
U.S. more attractive to global investors.
Canada, on the other hand, has enjoyed strong fundamentals for some
time. Inflation has fallen to very low levels and the economy is
relatively weak; this has allowed short-term interest rates to fall below
those of the U.S. without undermining the currency. These improvements are
due in large part to major efforts to restore sound fiscal policy, and to
emerging stability on the political front. Australia has also improved,
with modest growth, falling inflation, stable politics and a strong
currency contributing to a narrowing in the yield spread to the U.S.
European bond markets generally fared better than their U.S.
counterparts, thanks to continuing low inflation and disappointingly slow
growth. As the promise of monetary union draws nearer, investors betting
on a convergence of interest rates have been rewarded, with yields falling
substantially.
Both the Japanese bond market and the yen have been weak as investors
continued to focus on the government's attempts to fuel an economic
recovery by relaxing monetary policy. Though inflation has so far shown
little sign of picking up, the economy has staged an impressive recovery
in the past two quarters.
Led by growing signs of stability in Mexico, and despite the weakness
in the U.S. bond market, emerging market debt posted strong gains during
the period. Fundamentals throughout the sector continued to improve, and
renewed capital inflows support an optimistic outlook for future growth
and stability.
Going forward, the outlook for global fixed income markets is
positive, since we anticipate that economic growth and inflation pressures
will remain relatively subdued. Although the data confirm that the U.S.
economy has strengthened this year, it is far from clear that it is on a
path to overheating, and sound monetary fundamentals still appear intact.
Recently, the growth rates of retail sales, consumer credit and the
monetary aggregates have slowed, apparently in response to higher interest
rates. To be sure, employment growth has picked up moderately, as have
wages. Yet capacity utilization is below critical levels, and worldwide
manufacturing activity is less than robust. For its part, fiscal policy
continues to be restrictive, since spending growth has been restrained and
tax burdens have reached post-war highs.
While we are somewhat more optimistic about the prospects for bonds
in the dollar bloc, the demands of monetary union--which require continued
fiscal and monetary discipline on the part of all countries--should lead
to further gains in the bonds of higher-yielding European markets.We
remain pessimistic about the prospects for Japanese bonds and the yen,
however, given the need for monetary policy to accommodate further growth
in the economy. The dollar is unlikely to appreciate at the same pace as
in the first half of the year, but its prospects are still generally
positive.
Keith J. Gardner
August 9, 1996
2
<PAGE>
Statement of Net Assets
Legg Mason Global Trust, Inc.
Global Government Trust
June 30, 1996 (Unaudited)
Principal
(Amounts in thousands) Amount Value
- --------------------------------------------------------------------------------
Long-Term Debt Securities(A) -- 88.7%
Australian Dollar -- 1.1%
Commonwealth of Australia
10% 2/15/06 AUD 2,000 $ 1,691
- --------------------------------------------------------------------------------
British Sterling -- 7.2%
United Kingdom Treasury Stock
7.25% 3/30/98 GBP 1,500 2,366
7.5% 12/7/06 3,500 5,287
Vnesheconombank Loan 3,500 2,930(D,E)
- --------------------------------------------------------------------------------
10,583
Canadian Dollar -- 2.7%
Government of Canada
7.5% 3/1/01 CAD 2,000 1,495
10.25% 2/1/04 1,000 849
6.5% 6/1/04 2,500 1,720
- --------------------------------------------------------------------------------
4,064
Czech Koruna -- 9.5%
ABN-Amro Bank N.V.
11% 12/15/97 CZK 205,000 7,391
Ceska Sporitelna A/S
14.375% 1/27/01 175,000 6,599
- --------------------------------------------------------------------------------
13,990
Danish Krone -- 7.8%
Kingdom of Denmark
8% 3/15/06 DKK 65,000 11,529
- --------------------------------------------------------------------------------
French Franc -- 3.5%
Bons du Tresor a Taux Fixe et
Interet Annuel
5.75% 11/12/98 FRF 20,000 3,969
Republic of Ivory Coast
Restructured Loan 23,304 905(D,E)
Unstructured Loan 9,200 357(D,E)
- --------------------------------------------------------------------------------
5,231
- --------------------------------------------------------------------------------
German Deutschmark -- 14.4%
Deutsche Bundesrepublik
8% 7/22/02 DEM 5,000 3,624
6.25% 4/26/06 5,000 3,223
German Unity Fund
8% 1/21/02 20,000 14,482
- --------------------------------------------------------------------------------
21,329
Principal
(Amounts in thousands) Amount Value
- --------------------------------------------------------------------------------
Greek Drachma -- 1.4%
Hellenic Republic Floating Rate
Bond(C)
15.3% 2/14/03 GRD 500,000 $ 2,047
- --------------------------------------------------------------------------------
Indexed to 12-month GTB
Italian Lira -- 4.0%
Buoni del Tesoro Poliennali
8.5% 8/1/99 ITL 9,000,000 5,885
- --------------------------------------------------------------------------------
Japanese Yen -- 4.1%
Government of Japan #155
4.6% 3/20/03 JPY 600,000 6,038
- --------------------------------------------------------------------------------
Spanish Peseta -- 2.3%
Bonos del Estado
11.45% 8/30/98 ESP 200,000 1,680
10.15% 1/31/06 200,000 1,688
- --------------------------------------------------------------------------------
3,368
Swedish Krona -- 1.7%
Kingdom of Sweden #1036
10.25% 5/5/00 SEK 15,000 2,497
- --------------------------------------------------------------------------------
United States Dollar -- 29.0%
Emerging Markets -- 11.5%
Argentina Bonos de Consolidacion
Previsionales(C)
5.422% 4/1/01 USD 5,000 4,342
Indexed to l-month LIBOR
Kingdom of Morocco(C)
6.438% 1/1/09 6,000 4,320
Indexed to 6-month LIBOR
Republic of Argentina Floating
Rate Bond(C)
6.313% 3/31/05 9,900 7,722
Indexed to 6-month LIBOR
United Mexican States
9.5% 7/16/01 595 585
- --------------------------------------------------------------------------------
16,969
3
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
Global Government Trust
June 30, 1996 (Unaudited)
Principal
(Amounts in thousands) Amount Value
- --------------------------------------------------------------------------------
U. S. Government Obligations -- 17.5%
United States Treasury
Bonds
7.625% 2/15/25 USD 3,000 $ 3,236
- --------------------------------------------------------------------------------
United States Treasury
Notes
5.125% 2/28/98 10,000 9,856(F)
6.5% 8/15/05 11,000 10,839
6.875% 5/15/06 2,000 2,023
- --------------------------------------------------------------------------------
25,954
Total Long-term Debt Securities
(Identified Cost-- $130,563) 131,175
- --------------------------------------------------------------------------------
Short Term Investments(A) -- 7.7%
Hungarian Forint -- 0.8%
Hungary Ministry of Finance
24.75%(G) 1/3/97 HUF 200,000 1,181
- --------------------------------------------------------------------------------
United States Dollar -- 4.5%
Currency Exchange-Linked
Securities(B) -- 4.5%
Bankers Trust International
Hungarian Forint-Linked
Note
16.5%(G) 9/5/96 USD 639 580
Bankers Trust International
Polish Zloty-Linked Note
24.1%(G) 9/25/96 3,000 2,567
Canadian Imperial Bank of
Commerce Hungarian
Forint-Linked CD
24.6% 2/26/97 2,000 1,964
Standard Chartered Bank
Indonesian Rupiah-Linked
Note
14.31%(G) 11/14/96 1,500 1,531
- --------------------------------------------------------------------------------
6,642
Repurchase Agreement -- 2.4%
Prudential Securities, Inc.
5.48% dated 6/28/96, to be
repurchased at $3,622 on 7/1/96
(Collateral:$3,863 Federal
National Mortgage Association
Mortgage-backed securities,
7% due 4/1/26,
value $3,732) USD 3,621 $ 3,621
- --------------------------------------------------------------------------------
Option Purchased -- N.M.
European Style USD Call/DEM
Put
July 96 Strike Price $1.5285 100(H) 20
- --------------------------------------------------------------------------------
Total Short-term Investments
(Identified Cost-- $11,930) 11,464
- --------------------------------------------------------------------------------
Total Investments -- 96.4%
(Identified Cost-- $142,493) 142,639
Other Assets Less Liabilities-- 3.6% 5,343
- --------------------------------------------------------------------------------
Net assets consisting of:
Accumulated paid-in capital
applicable to 14,643 shares
outstanding 147,925
Undistributed net investment
income 1,076
Accumulated net realized loss on
investments and currency
transactions (956)
Net unrealized depreciation of
investments and foreign
currency transactions (63)
Net assets-- 100.0% $147,982
- --------------------------------------------------------------------------------
Net asset value per share $10.11
Actual Net
Contracts Appreciation
Options written
European Style USD Put/DEM Call
July 96/$1.51 100 $38
European Style USD Put/DEM Call
July 96/$1.5515 100 24
- --------------------------------------------------------------------------------
$62
- --------------------------------------------------------------------------------
(A) Listed by currency denomination.
(B) Total maturity value is linked to the value of the indicated currency
at maturity.
(C) Indexed Security--The rate of interest earned on each security is tied
to either the London Interbank Offered Rate (LIBOR) index or the
Global Telecom Basket (GTB) index. The coupon rate for each is the rate
as of June 30, 1996.
(D) Illiquid Security--A security that cannot be disposed of within seven
days for approximately the price at which the Fund values it.
(E) Non-income producing--Issuer is in default of interest and
principal payments.
(F) Collateral to cover options written.
(G) Yield-to-maturity.
(H) Actual contracts.
N.M. Not meaningful.
See notes to financial statements.
4
<PAGE>
Statement of Operations
Legg Mason Global Trust, Inc.
Global Government Trust
For the Six Months Ended June 30, 1996 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 5,670
Expenses:
Investment advisory fee $ 566
Distribution and service fees 566
Custodian fee 118
Transfer agent and shareholder servicing expense 56
Legal and audit fees 39
Reports to shareholders 24
Registration fees 22
Organization expense 13
Directors' fees 3
Other expenses 4
- --------------------------------------------------------------------------------
Total expenses 1,411
- --------------------------------------------------------------------------------
Net Investment Income 4,259
Net Realized and Unrealized Gain (Loss):
Realized gain (loss) on:
Investments, options and futures 889
Foreign currency transactions (1,300)
Unrealized gain (loss) on:
Investments (2,851)
Assets and liabilities denominated in foreign
currencies 15
- --------------------------------------------------------------------------------
Net Realized and Unrealized Loss (3,247)
Increase in Net Assets Resulting from Operations $ 1,012
- --------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
Statement of Changes in Net Assets
Legg Mason Global Trust, Inc.
Global Government Trust
<TABLE>
<CAPTION>
For the For the Year
Six Months Ended Ended
(Amounts in Thousands) June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 4,259 $ 8,551
Net realized gain (loss) on investments, options,
futures and foreign currency transactions (411) 11,324
Change in net unrealized appreciation of investments
and assets and liabilities denominated in foreign currencies (2,836) 8,228
Increase in net assets resulting from operations 1,012 28,103
Distributions to shareholders from net investment income (4,350) (16,542)
Decrease in net assets from Fund share transactions (2,634) (3,022)
Change in net assets (5,972) 8,539
Net Assets:
Beginning of period 153,954 145,415
- -------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $1,076 and $1,167, respectively) $147,982 $153,954
</TABLE>
See notes to financial statements.
6
<PAGE>
Financial Highlights
Legg Mason Global Trust, Inc.
Global Government Trust
Contained below is per share operating performance data for a share
of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data. This information has been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended December 31,
June 30, 1996 1995 1994 1993(A)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $10.33 $ 9.54 $10.27 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income(B) 0.29 0.63 0.57 0.36
Net realized and unrealized gain (loss)
on investments, options, futures
and foreign currency transactions (0.22) 1.32 (0.71) 0.31
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.07 1.95 (0.14) 0.67
Distributions to shareholders from:
Net investment income (0.29) (1.16) (0.59) (0.36)
Net realized gain on investments -- -- -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.29) (1.16) (0.59) (0.40)
Net asset value, end of period $10.11 $10.33 $ 9.54 $10.27
- ---------------------------------------------------------------------------------------------------------------------------
Total return 0.73%(C) 20.80% (1.40)% 6.76%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(B) 1.87%(D) 1.81% 1.34% 0.27%(D)
Net investment income(B) 5.64%(D) 5.72% 5.71% 5.41%(D)
Portfolio turnover rate 149.94%(D) 169.48% 127.00% 127.80%(D)
Net assets, end of period (in thousands) $147,982 $153,954 $145,415 $161,072
</TABLE>
(A) For the period April 15, 1993 (commencement of operations) to December
31, 1993.
(B) Net of fees waived and reimbursements made by the manager for expenses
in excess of voluntary expense limitations of 0.2% until September
30, 1993; 0.35% until December 31, 1993; 0.5% until January 31, 1994;
0.7% until February 28, 1994; 0.9% until March 31, 1994; 1.1% until
April 30, 1994; 1.3% until May 31, 1994; 1.5% until June 30, 1994;
1.7% until July 31, 1994; and 1.9% indefinitely.
(C) Not annualized
(D) Annualized
See notes to financial statements.
7
<PAGE>
Notes to Financial Statements
Legg Mason Global Trust, Inc.
Global Government Trust
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Global Trust, Inc. ("Trust"), consisting of the Global
Government Trust ("Fund"), the International Equity Trust and the
Emerging Markets Trust, is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified investment company.
The financial statements of the other portfolios of the Trust are
included in separate reports to shareholders.
- --------------------------------------------------------------------------------
Security Valuation
Portfolio securities are valued based upon market quotations. When
market quotations are not readily available, securities are valued based
on prices received from recognized broker-dealers in the same or similar
securities. The amortized cost method of valuation is used for debt
obligations with 60 days or less remaining to maturity.
Currency Transactions
The books and records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, assets and liabilities at
the closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income
and expenses at the rate of exchange prevailing on the
respective date of such transactions.
The effect of changes in foreign exchange rates on realized security
gains or losses is segregated and reflected as a component of gains or
losses on foreign currency transactions.
Investment Income and Dividends to Shareholders
Income and expenses are recorded on the accrual basis. Bond premium
is amortized using the yield-to-maturity method for financial reporting
and tax purposes. Bond discount, other than original issue, is not
amortized. Dividends are declared and paid monthly. Dividends payable are
recorded on the dividend ex-date.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. At June 30, 1996, $180 was receivable for securities sold but not
yet delivered.
Deferred Organizational Expense
Deferred organizational expenses of $128 are being amortized on a
straight-line basis over 5 years beginning on the date operations began.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
2. Financial Instruments:
As part of the Fund's investment program, the Fund may utilize
forward currency exchange contracts and repurchase agreements. The nature
and risks of these financial instruments and the reasons for using them
are set forth more fully in the Trust's Prospectus and Statement of
Additional Information.
Emerging Markets
The Fund has investments in securities denominated in the currencies
of emerging market countries, as well as in securities issued by
governments of emerging market countries. Future economic or political
developments could adversely affect the liquidity or value, or both, of
such securities.
Options and Futures
The current market value of a traded option is the last sale price
or, in the absence of a sale, the mean between the closing bid and asked
price. Futures contracts are marked to market daily using the closing
price on the principal exchange where the contracts are traded. Payments
(called variation margin) are made or received daily in relation to market
fluctuations.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government
8
<PAGE>
or its agencies and such collateral is in the possession of the Fund's
custodian. The value of such collateral includes accrued interest. Risks
arise from the possible delay in recovery or potential loss of rights in
the collateral should the issuer of the repurchase agreement fail
financially.
Forward Currency Exchange Contracts
The Fund may enter into foreign forward currency exchange contracts
to hedge against adverse changes in the relationship of the U.S. dollar to
foreign currencies. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
currency values. Forward currency contracts are valued using the forward
exchange rate. At June 30, 1996, open forward currency exchange contracts
were as follows:
- --------------------------------------------------------------------------------
Settlement Contract to Unrealized
Date Receive Deliver Gain/(Loss)
- --------------------------------------------------------------------------------
7/2/96 JPY 1,300,000 DEM 18,242 $(128)
7/15/96 USD 15,000 DEM 22,800 7
- --------------------------------------------------------------------------------
$(121)
- --------------------------------------------------------------------------------
At June 30, 1996, $137 was payable for forward currency exchange
contracts closed.
3. Options and Futures:
As part of the Fund's investment program, the Fund may utilize
options and futures. The nature and risk of these financial instruments
and the reasons for using them are set forth more fully in the Fund's
Prospectus and Statement of Additional Information.
A written call option gives an option holder the right to purchase
the underlying security at a specified price until a specified date. A
written put option gives an option holder the right to sell the underlying
security at a specified price until a specified date. Risks arise from the
possible illiquidity of the options market and from movements in security
values. Call and put options written by the Fund and related premiums
received during the period were as follows:
Calls Puts
- --------------------------------------------------------------------------------
Actual Actual
Contracts Premiums Contracts Premiums
- --------------------------------------------------------------------------------
Options outstanding
December 31, 1995 -- $-- -- $--
Options written -- -- 200 84
Options closed -- -- -- --
- --------------------------------------------------------------------------------
Options outstanding
June 30, 1996 -- -- 200 84
- --------------------------------------------------------------------------------
The written options outstanding and related appreciation or
depreciation at June 30, 1996 are described at the end of the "Statement
of Net Assets," page 4.
The Fund enters into futures contracts as a hedge against anticipated
changes in foreign currency exchange rates. Risks arise from the possible
illiquidity of the futures market and from the possibility that a change
in the value of a contract may not correlate with changes in foreign
currency exchange rates. There were no open long or short futures
contracts at June 30, 1996.
4. Investment Transactions:
Investment transactions for the six months ended June 30, 1996,
(excluding short-term securities) were as follows:
- --------------------------------------------------------------------------------
Purchases $105,887
Proceeds from sales 107,009
At June 30, 1996, the cost of securities for federal income tax
purposes was $142,493. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $3,903
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $3,757.
5. Realized Gain/Loss:
The components of net realized gain on investments, options and
futures for the six months ended June 30, 1996 were as follows:
Amount
- --------------------------------------------------------------------------------
Investments $763
Futures 126
- --------------------------------------------------------------------------------
Net realized gain $889
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Global Trust, Inc.
Global Government Trust
Amounts in Thousands
- --------------------------------------------------------------------------------
The components of net realized loss on foreign currency transactions
for the six months ended June 30, 1996 were as follows:
Amount
- --------------------------------------------------------------------------------
Securities $(1,041)
Forward contracts (21)
Currency (238)
- --------------------------------------------------------------------------------
Net realized loss $(1,300)
- --------------------------------------------------------------------------------
6. Fund Share Transactions:
At June 30, 1996, there were 1,000,000 shares authorized at $.001 par
value for all portfolios of the Trust (including the Fund). Transactions
in Fund shares were as follows:
For the Six For the Year
Months Ended Ended
June 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sold 1,400 $ 14,261 2,328 $ 24,311
Reinvestment
of distributions 377 3,806 1,395 14,427
Repurchased (2,041) (20,701) (4,059) (41,760)
- --------------------------------------------------------------------------------
Net decrease (264) $ (2,634) (336) $ (3,022)
- --------------------------------------------------------------------------------
7. Transactions with Affiliates:
The Fund has an investment advisory and management agreement with
Legg Mason Fund Adviser, Inc. ("Adviser"), a corporate affiliate of Legg
Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New York
Stock Exchange and the distributor for the Fund. Under this agreement, the
Adviser provides the Fund with investment advisory, management and
administrative services for which the Fund pays a fee at an annual rate of
0.75% of average daily net assets of the Fund. At June 30, 1996, $91 was
due to the Adviser.
Western Asset Management Company ("Sub-adviser"), a corporate
affiliate of the Adviser and Legg Mason, serves as investment adviser to
the Fund. The Sub-adviser is responsible for the actual investment
activity of the Fund, for which the Adviser pays a fee at an annual rate
equal to 53 1/3% of the fee received by the Adviser.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.50% and an annual service fee of 0.25% of the Fund's
average daily net assets, calculated daily and payable monthly. Legg Mason
and the Adviser have voluntarily agreed to indefinitely waive their fees
and to reimburse the Fund for its expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) in excess of 1.90% of the Fund's
average net assets. No fees were waived or expenses reimbursed during the
six months ended June 30, 1996. At June 30, 1996, distribution and service
fees of $91 were due to the distributor.
Legg Mason also has an agreement with the Fund's transfer agent to
assist with certain of its duties. For this assistance, Legg Mason was
paid $16 by the transfer agent for the six months ended June 30, 1996.
10
