UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-2853
Name of Fund: Legg Mason Cash Reserve Trust
Fund Address: 100 Light Street
Baltimore, MD 21202
Name and address of agent for service:
Richard M. Wachterman, Esq.
Legg Mason Wood Walker, Incorporated
100 Light Street
Baltimore, MD 21202
Registrant's telephone number, including area code: (410) 539-0000
Date of fiscal year end: August 31, 2004
Date of reporting period: February 29, 2004
Item 1 - Report to Shareholders
SEMI-ANNUAL REPORT TO SHAREHOLDERS
TO OUR SHAREHOLDERS,
The Legg Mason Cash Reserve Trust now has $2.2 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written on March 29, 2004, the Trust's annualized yield for
the past 7 days is 0.39%(A). The average weighted maturity of our portfolio is
50 days.
A complete listing of the Trust's portfolio holdings at February 29, 2004,
appears in this report. Categorized by type, the holdings consist of:
<Table>
Asset-backed securities 0.6%
Bonds and medium-term notes 7.6%
Certificates of deposit 1.1%
Commercial paper 5.2%
Government agency obligations 75.9%
Repurchase agreements 7.5%
Other 2.1%
------
100.0%
======
</Table>
Note that 75.9% of the portfolio was invested in government agency securities
and an additional 7.5% in repurchase agreements fully secured by such
securities. Although most of these government agency securities are not backed
by the full faith and credit of the U.S. government, all carry the highest
quality ratings of the Standard & Poor's and Moody's rating services.
- ---------------
(A) The yields shown here are for past periods and are not intended to indicate
future performance. An investment in the Trust is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Trust seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Trust.
2 SEMI-ANNUAL REPORT TO SHAREHOLDERS
You may add to your Cash Reserve Trust account at any time by sending a check
for $500 or more (made payable to Legg Mason Cash Reserve Trust) to:
Legg Mason Cash Reserve Trust
P.O. Box 1476
Baltimore, Maryland 21203-1476
Please include your account number on any checks you send to us.
Sincerely,
<Table>
/s/ JOHN F. CURLEY, JR. /S/ MARK R. FETTING
John F. Curley, Jr. Mark R. Fetting
Chairman President
</Table>
March 29, 2004
SEMI-ANNUAL REPORT TO SHAREHOLDERS 3
STATEMENT OF NET ASSETS
LEGG MASON CASH RESERVE TRUST
February 29, 2004 (Unaudited)
(Amounts in Thousands)
<Table>
<Caption>
Rate Maturity Date Par Value
- ------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 3.6%
Abbey National First
Capital 8.20% 10/15/04 $ 5,500 $ 5,729(A)
Abbey National Treasury
Services plc 1.075% 11/19/04 10,592 10,591(A)
Abbott Laboratories 5.125% 7/1/04 11,690 11,842
Bank One NA Illinois 1.17% 3/14/05 10,000 10,007(B)
Caterpillar Financial
Services Corporation 1.305% 4/2/04 9,000 9,002(B)
Fleet Boston Corporation 8.00% 9/15/04 7,960 8,247
Wal-Mart Stores, Inc. 6.55% 8/10/04 10,000 10,234
Wells Fargo & Company 1.23% 10/1/04 3,150 3,152(B)
Wells Fargo Financial
Inc. 6.625% 7/15/04 10,750 10,966
----------
Total Corporate and Other
Bonds
(Identified
Cost -- $79,770) 79,770
- ------------------------------------------------------------------------------------------
Asset-Backed Securities(C) -- 0.6%
CarMax Auto Owner Trust
2003-2 1.13% 11/15/04 5,254 5,254
Regions Auto Receivable
Trust 2003-2 1.164% 11/15/04 7,943 7,943
----------
Total Asset-Backed
Securities
(Identified
Cost -- $13,197) 13,197
- ------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations -- 75.9%
Fannie Mae 0.896% to 3% 3/4/04 to 2/14/05 710,689 710,590
Federal Farm Credit Bank 0.93% to 1.1% 3/4/04 to 5/17/04 50,800 50,705
Federal Home Loan Bank 0.836% to 3.375% 3/3/04 to 6/15/04 546,535 546,606
Freddie Mac 0.9% to 5% 3/9/04 to 2/8/05 291,565 291,758
Inter-American
Development Bank 0.912% 3/15/04 50,000 49,981
Sallie Mae 1.007% 3/15/04 to 5/20/04 41,000 41,000
----------
Total U.S. Government and
Agency Obligations
(Identified
Cost -- $1,690,640) 1,690,640
- ------------------------------------------------------------------------------------------
Certificates of Deposit -- 1.1%
Danske Corporation 1.017% 4/14/04 13,300 13,283(A)
Royal Bank of Scotland 1.017% 4/15/04 12,000 11,985(A)
----------
Total Certificates of
Deposit
(Identified
Cost -- $25,268) 25,268
- ------------------------------------------------------------------------------------------
</Table>
STATEMENT OF NET ASSETS -- CONTINUED
LEGG MASON CASH RESERVE TRUST -- CONTINUED
SEMI-ANNUAL REPORT TO SHAREHOLDERS 4
<Table>
<Caption>
Rate Maturity Date Par Value
- ------------------------------------------------------------------------------------------
Commercial Paper -- 5.2%
Australia and New Zealand
Banking Group Limited 0.979% 4/15/04 $ 11,310 $ 11,296(A)
Bank of Ireland 0.987% 4/20/04 13,000 12,981(A)
BNP Paribas Finance 0.982% 3/24/04 21,500 21,486(A)
Citigroup Global Markets 0.995% 3/2/04 11,500 11,500
Credit Lyonnais North
America, Inc. 1.00% 4/6/04 12,000 11,988(A)
Credit Suisse First
Boston 1.019% 4/29/04 3,000 2,995
ING (US) Funding LLC 1.013% 4/23/04 12,000 11,982(A)
National Australia
Funding Delaware
Incorporated 0.99% 3/18/04 12,000 11,994
Quebec Province 1.067% 7/6/04 20,000 19,925(A)
----------
Total Commercial Paper
(Identified
Cost -- $116,147) 116,147
- ------------------------------------------------------------------------------------------
Medium-Term Notes -- 4.0%
American Honda Finance
Corporation 1.118% 9/16/04 17,150 17,150(D)
Bank of America
Corporation 1.38% 5/3/04 10,000 10,005(B)
CIT Group Inc. 1.253% 12/1/04 13,000 13,000(B)
Credit Suisse First
Boston 1.42% 9/7/04 10,000 10,016(B)
General Electric Capital
Corporation 1.22% 4/22/04 12,250 12,253(B)
Wal Mart Stores, Inc. 1.127% 2/22/05 2,850 2,851(B)
National Rural Utilities
Cooperative Finance
Corporation 2.12% 4/26/04 12,306 12,324(B)
VW Credit Inc. 1.30% 12/20/04 11,000 11,010(B,D)
----------
Total Medium-Term Notes
(Identified
Cost -- $88,609) 88,609
- ------------------------------------------------------------------------------------------
</Table>
SEMI-ANNUAL REPORT TO SHAREHOLDERS 5
<Table>
<Caption>
Par Value
- ------------------------------------------------------------------------------------------
Medium-Term Notes -- Continued
Repurchase Agreements -- 7.5%
Lehman Brothers, Inc.
1.01%, dated 2/27/04, to be repurchased at $38,200 on 3/1/04
(Collateral: $9,800 Fannie Mae stepped coupon bonds, 1.85% to
3.4%, due 8/17/06 to 11/19/18, value $9,951; $22,259 Agency
for International Development zero coupon bonds, due 11/15/07
to 8/15/18, value $14,972; $5,175 Agency for International
Development bonds, 5.5%, due 9/18/23, value $5,624; $5,000
Freddie Mac stepped coupon bonds, 2%, due 4/21/06, value
$5,069; $3,250 Fannie Mae notes, 3%, due 2/17/09, value
$3,297) $ 38,197 $ 38,197
Merrill Lynch Government Securities, Inc.
1.01%, dated 2/27/04, to be repurchased at $127,850 on 3/1/04
(Collateral: $130,395 Federal Home Loan Bank bonds, 1.5%, due
8/26/05, value $130,417) 127,839 127,839
----------
Total Repurchase Agreements
(Identified
Cost -- $166,036) 166,036
- ------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value -- 97.9% 2,179,667
Other Assets Less Liabilities -- 2.1% 46,741
----------
NET ASSETS APPLICABLE TO 2,226,400 SHARES OUTSTANDING -- 100.0% $2,226,408
==========
NET ASSET VALUE PER SHARE $1.00
==========
- ------------------------------------------------------------------------------------------
</Table>
(A) Yankee Bond or Certificate of Deposit -- A dollar-denominated bond or
certificate of deposit issued in the U.S. by foreign entities.
(B) Indexed security -- The rates of interest earned on these securities are
tied to the London Interbank Offered Rate ("LIBOR"). The coupon rates are
the rates as of February 29, 2004.
(C) Asset-backed securities -- A security secured by a pool of assets such as
property, mortgages or receivables.
(D) Rule 144a Security -- A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers. These securities represent 1.26% of net
assets.
See notes to financial statements.
6 SEMI-ANNUAL REPORT TO SHAREHOLDERS
STATEMENT OF OPERATIONS
LEGG MASON CASH RESERVE TRUST
For the Six Months Ended February 29, 2004
(Amounts in Thousands) (Unaudited)
<Table>
<Caption>
- ---------------------------------------------------------------------------
Investment Income:
Interest $12,512
Expenses:
Management fee $5,165
Distribution fee 1,704(A)
Audit and legal fees 46
Custodian fee 207
Registration fees 39
Reports to shareholders 51
Transfer agent and shareholder servicing expense 919
Trustees' fees and expenses 24
Other expenses 32
------
8,187
Less fees waived (568)
------
Total expenses 7,619
-------
NET INVESTMENT INCOME 4,893
NET REALIZED GAIN/(LOSS) ON INVESTMENTS 8
- ---------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,901
- ---------------------------------------------------------------------------
</Table>
(A) See Note 3 in the notes to financial statements.
See notes to financial statements.
SEMI-ANNUAL REPORT TO SHAREHOLDERS 7
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON CASH RESERVE TRUST
(Amounts in Thousands)
<Table>
<Caption>
For the For the
Six Months Ended Year Ended
February 29, 2004 August 31, 2003
- --------------------------------------------------------------------------------
(Unaudited)
Change in Net Assets:
Net investment income $ 4,893 $ 15,965
Net realized gain/(loss) on
investments 8 (18)
- --------------------------------------------------------------------------------
Change in net assets resulting from
operations 4,901 15,947
Distributions to shareholders from
net investment income (5,124) (16,227)
Change in net assets from Trust share
transactions (104,580) (107,338)
- --------------------------------------------------------------------------------
Change in net assets (104,803) (107,618)
Net Assets:
Beginning of period 2,331,211 2,438,829
- --------------------------------------------------------------------------------
End of period $2,226,408 $2,331,211
- --------------------------------------------------------------------------------
</Table>
See notes to financial statements.
8 SEMI-ANNUAL REPORT TO SHAREHOLDERS
FINANCIAL HIGHLIGHTS
LEGG MASON CASH RESERVE 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>
Years Ended August 31,
Six Months Ended --------------------------------------------------
February 29, 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------
(Unaudited)
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Net investment income .002(A) .01(A) .02(A) .05(A) .05(A) .04(A)
Distributions from net
investment income (.002) (.01) (.02) (.0 5) (.05) (.04)
---------------------------------------------------------------------
Net asset value, end
of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Ratios/supplemental
data:
Total return .45%(B) .69% 1.56% 4.89% 5.36% 4.46%
Expenses to average
net assets .67%(A,B) .70%(A) .69%(A) .67%(A) .68%(A) .75%(A)
Net investment
income to average
net assets .43%(A,B) .68%(A) 1.55%(A) 4.74%(A) 5.25%(A) 4.37%(A)
Net assets, end of
period (in millions) $2,226 $2,331 $2,439 $2,291 $1,950 $1,777
- ---------------------------------------------------------------------------------------------
</Table>
(A) Net of 12b-1 service fees waived by Legg Mason Wood Walker, Inc. of 0.05% of
average daily net assets. If no fees had been waived by Legg Mason, the
annualized ratio of expenses to average daily net assets would have been as
follows: for the six months ended February 29, 2004: 0.72%; for the years
ended August 31, 2003: 0.75%; 2002: 0.74%; 2001: 0.72%; 2000: 0.73%; and
1999: 0.80%.
(B) Annualized.
See notes to financial statements.
SEMI-ANNUAL REPORT TO SHAREHOLDERS 9
NOTES TO FINANCIAL STATEMENTS
LEGG MASON CASH RESERVE TRUST
(Amounts in Thousands) (Unaudited)
1. Organization and Significant Accounting Policies:
The Legg Mason Cash Reserve Trust ("Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, diversified management
investment company.
Preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies
followed by the Trust in the preparation of its financial statements:
Security Valuation
In accordance with Rule 2a-7, portfolio securities are valued on the basis of
amortized cost, so long as the Trust's Board of Trustees determines that this
method constitutes fair value. Under this method, securities are valued at cost
when purchased and, thereafter, a constant proportionate amortization of any
discount or premium is recorded until maturity of the security.
Security Transactions
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis for
both financial reporting and federal income tax purposes.
Investment Income and Dividends to Shareholders
Dividends are declared daily and paid monthly. Dividends payable are recorded
on the dividend record date. Net investment income for dividend purposes
consists of interest accrued, plus original issue and market discount earned,
less amortization of market premium and accrued expenses. At February 29, 2004,
dividends payable of $317 were accrued.
Federal Income Taxes
No provision for federal income or excise taxes is required since the Trust
intends to continue to qualify as a regulated investment company and distribute
substantially all of its taxable income and capital gains to its shareholders.
Because federal income tax regulations differ from accounting principles
generally accepted in the United States of America, income and capital gains
distributions determined in accordance with tax regulations may differ from net
investment income and realized gains recognized for financial reporting
purposes. Accordingly, the character of distributions and composition of net
assets for tax purposes may differ from those reflected in the accompanying
financial statements.
10 SEMI-ANNUAL REPORT TO SHAREHOLDERS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON CASH RESERVE TRUST -- CONTINUED
For the six-month period ended February 29, 2004, the Trust realized net gains
of $8, which the Trust intends to offset against available capital loss
carryforwards for federal income tax purposes as determined at the end of the
fiscal year. As of August 31, 2003, the Trust had a capital loss carryforward of
$18, which expires in 2011.
2. Repurchase Agreements:
The Trust may engage in repurchase agreement transactions. Under the terms of
a typical repurchase agreement, a fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and a fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during a fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the fund's holding
period. The value of the collateral is at all times at least equal to the total
amount of the repurchase obligation, including interest. In the event of
counterparty default, a fund has the right to use the collateral to satisfy the
terms of the repurchase agreement. However, there could be potential loss to the
fund in the event the fund is delayed or prevented from exercising its right to
dispose of the collateral securities, including the risk of a possible decline
in the value of the collateral securities during the period in which the fund
seeks to assert its rights. The Trust's investment adviser reviews the value of
the collateral and the creditworthiness of those banks and dealers with which
the Trust enters into repurchase agreements to evaluate potential risks.
3. Transactions With Affiliates:
The Trust has a management agreement with Legg Mason Fund Adviser, Inc.
("LMFA"). Pursuant to this agreement, LMFA provides the Trust with management
and administrative services, for which the Trust pays a fee at an annual rate
ranging from 0.50% of the first $500 million of average daily net assets to
0.40% of average daily net assets in excess of $2 billion. Management fees of
$812 were payable to LMFA at February 29, 2004.
Western Asset Management Company ("Adviser") serves as investment adviser to
the Trust. The Adviser is responsible for the actual investment activity of the
Trust. LMFA (not the Trust) pays the Adviser a fee at an annual rate equal to
30% of the management fee received by LMFA.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New York
Stock Exchange, serves as distributor of the Trust. Legg Mason may receive an
annual distribution fee of up to 0.15% of the Trust's average daily net assets.
However, Legg Mason has agreed to waive 0.05% of the fee indefinitely.
Distribution and service fees of $175 were payable to Legg Mason at February 29,
2004.
SEMI-ANNUAL REPORT TO SHAREHOLDERS 11
LM Fund Services, Inc. ("LMFS"), a registered transfer agent, has an agreement
with the Trust's transfer agent to assist it with some of its duties. For this
assistance, the transfer agent paid LMFS $356 for the six months ended February
29, 2004.
The Adviser, LMFA, Legg Mason and LMFS are wholly owned subsidiaries of Legg
Mason, Inc.
4. Trust Share Transactions:
The Trust is authorized to issue an unlimited number of full and fractional
shares of beneficial interest (without par value). At February 29, 2004, net
assets consisted of paid-in capital of $2,226,400 and accumulated net realized
gain of $8. Since the Trust has sold and redeemed shares at a constant net asset
value of $1.00 per share, the number of shares represented by such sales and
redemptions is the same as the amounts shown below for such transactions:
<Table>
<Caption>
Six Months
Ended Year Ended
2/29/04 8/31/03
- -----------------------------------------------------------------------------
Sold $ 3,231,510 $ 5,554,405
Reinvested 5,042 16,524
Repurchased (3,341,132) (5,678,267)
----------- -----------
Net Change $ (104,580) $ (107,338)
=========== ===========
</Table>
NOTES
FUND INFORMATION
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
Western Asset Management Company
Pasadena, CA
Board of Trustees
John F. Curley, Jr., Chairman
Mark R. Fetting, President
Arnold L. Lehman
Robin J.W. Masters
Dr. Jill E. McGovern
Arthur S. Mehlman
G. Peter O'Brien
S. Ford Rowan
Officers
Marie K. Karpinski, Vice President and Treasurer
Gregory T. Merz, Vice President, Secretary and Chief Legal Officer
Erin K. Morris, Assistant Treasurer
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Braintree, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, DC
Independent Auditors
Ernst & Young LLP
Philadelphia, PA
ABOUT THE LEGG MASON FUNDS
Legg Mason, Inc., based in Baltimore, Maryland, has built its reputation, at
least in part, on the success of the Legg Mason Funds, introduced in 1979. The
primary purpose of our funds is to enable investors to diversify their
portfolios across various asset classes and, consequently, enjoy the stability
and growth prospects generally associated with diversification.
The success of our funds is contingent on the experience, discipline, and acumen
of our fund managers. We believe the quality of our managers is crucial to
investment success. Unlike many firms, which focus on a particular asset class
or the fluctuations of the market, at Legg Mason we focus on providing a
collection of top-notch managers in all the major asset classes.
This report is not to be distributed unless preceded or accompanied by a
prospectus.
<Table>
LEGG MASON FUNDS LEGG MASON INSTITUTIONAL FUNDS
For Primary Class Shareholders For FI and I Class
800-822-5544 Shareholders
www.leggmasonfunds.com 888-425-6432
www.lminstitutionalfunds.com
</Table>
LEGG MASON WOOD WALKER, INCORPORATED
P.O. Box 1476, Baltimore, MD 21203-1476
410-539-0000
LMF-018 [LEGG MASON FUNDS LOGO]
Item 2 - Code of Ethics for the Principal Executive Officer and Principal
Financial Officer
Not applicable for semi-annual reports.
Item 3 - Audit Committee Financial Expert
Not applicable for semi-annual reports.
Item 4 - Principal Accounting Fees and Services
Not applicable for semi-annual reports.
Item 5 - Audit Committee of Listed Registrants
Not applicable.
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures
Not applicable.
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 9 - Submission of Matters to a Vote of Security Holders
The Nominating Committee will accept recommendations for nominations
from shareholders. Shareholders may forward recommendations to the
Trust Secretary at 100 Light Street, 23rd Floor, Baltimore, Maryland
21202, Attn: Trust Secretary.
Item 10 - Controls and Procedures
(a) The Registrant's principal executive and principal financial officers
have concluded, based on their evaluation of the Registrant's disclosure
controls and procedures as of a date within 90 days of the filing date
of this report, that the Registrant's disclosure controls and procedures
are reasonably designed to ensure that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the required time periods and that
information required to be disclosed by the Registrant in the reports
that it files or submits on Form N-CSR is accumulated and communicated
to the Registrant's management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting during the registrant's last half-year that have
materially affected, or are reasonably likely to materially affect, the
internal control over financial reporting.
Item 11 - Exhibits
(a) File the exhibits listed below as part of this Form.
(a)(1) Not applicable for semi-annual reports.
(a)(2) (Attached)
(b) (Attached)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Legg Mason Cash Reserve Trust
By: /s/ Mark R. Fetting
- ---------------------------------
Mark R. Fetting
President, Legg Mason Cash Reserve Trust
Date: 4/21/04
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Mark R. Fetting
- -------------------------------
Mark R. Fetting
President, Legg Mason Cash Reserve Trust
Date: 4/21/04
By: /s/ Marie K. Karpinski
- ----------------------------------
Marie K. Karpinski
Treasurer, Legg Mason Cash Reserve Trust
Date: 4/21/04