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Previous: WARBURG PINCUS SELECT ECONOMIC VALUE EQUITY FUND INC, 497, 1999-07-08 |
Next: INSILCO HOLDING CO, DEF 14A, 1999-07-08 |
[GRAPHIC APPEARS]
SEMI-ANNUAL REPORT
APRIL 30, 1999
LEGG MASON
LIGHT STREET TRUST, INC.
MARKET NEUTRAL TRUST
PRIMARY SHARES
[logo appears here]
HOW TO INVEST(SM)
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
Batterymarch Financial Management, Inc.
Boston, MA
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP Washington, D.C.
Independent Auditors
PricewaterhouseCoopers LLP
Baltimore, MD
This report is not to be distributed unless preceded or accompanied by a
prospectus.
LEGG MASON WOOD WALKER, INCORPORATED
----------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
LMF-233
6/99
<PAGE>
TO OUR SHAREHOLDERS,
Welcome to the Legg Mason Light Street Trust, Inc. The Trust's first fund,
Market Neutral Trust ("Fund"), was launched on February 16, 1999, and has grown
to almost $19 million in net assets. At April 30, 1999, the net asset value of
the Fund was $9.55, a 4.5% drop in value.
Batterymarch Financial Management, Inc., the portfolio manager for the Fund,
is responsible for the day-to-day management of the Fund. The Fund seeks
long-term capital appreciation while minimizing exposure to general U.S. equity
market volatility. We are very excited about the addition of this new fund to
the Legg Mason Family of Funds, and we welcome those of you who are shareholders
of the Fund.
On the following pages, the portfolio manager for the Fund reviews the
portfolio's structure and investment philosophy, and comments on the outlook for
the market neutral investment approach. As always, historical performance is not
indicative of future results, and the principal value of our holdings will
continue to fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
During 1998 and into 1999, the focus on the Year 2000 issue has increased
significantly. As you may know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Fund's Year 2000 project is well underway, and
is designed to ensure that the year 2000 date change will have no adverse impact
on our ability to service our shareholders. The Fund is committed to taking
those steps necessary to protect our investors, including efforts to determine
that the Year 2000 problem will not affect such vital service functions as
shareholder transaction processing and recordkeeping. In addition, we are
continuously monitoring the Year 2000 efforts of our vendors, and will perform
tests with our critical vendors throughout 1999. Although the Fund is taking
steps to ensure that all of its systems will function properly before, during,
and after the Year 2000, the Fund could be adversely affected by
computer-related problems associated with the Year 2000. Contingency plans are
in place to ensure that functions critical to the Fund's operations will
continue without interruption. We are on target to complete this important
project and look forward to continuing extensive testing (including
industry-wide testing) with our industry peers, regulators and vendors
throughout 1999.
Many of our shareholders regularly add to their Fund holdings by authorizing
automatic, monthly transfers from their bank checking or Legg Mason brokerage
accounts. Your Legg Mason Financial Advisor will be happy to help you make these
arrangements if you would like to purchase shares in this convenient way.
Once again, welcome to the Legg Mason Light Street Trust, Inc.
Sincerely,
/s/Edward A. Taber, III
------------------------
Edward A. Taber, III
President
June 11, 1999
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
Legg Mason Light Street Trust, Inc.
Market Neutral Trust
We believe that the key to added value in the U.S. equity market is a
disciplined investment process that incorporates rigorous stock selection and
effective risk control. The market neutral process is specifically designed to
consistently add value over the longer term regardless of market direction,
buying "long" the stocks ranked most highly by our stock selection model and
"shorting" those ranked least favorably. The longs and shorts are expected to be
held in equal dollar balance. This balance aims to neutralize market risk.
The goal of a market neutral manager is to pick the right stocks on both the
long and the short sides of the portfolio -- to make money on both the winners
and the losers. Portfolio returns result from the performance of the long plus
the short positions. The portfolio also earns interest from the invested
proceeds of the short sales. The key to market neutral investing is a manager's
ability to pick stocks.
Investment Process
Our bottom-up quantitative approach models the thought process and
disciplines of a "smart" fundamental investor. We screen a broad universe of
stocks for liquidity. The resulting universe is analyzed in detail using
Batterymarch Financial Management, Inc.'s proprietary, multi-factor stock
selection model. Designed to encompass the best of both quantitative and
fundamental approaches, the model incorporates the broad dimensions typically
used by fundamental analysts: cash flow, earnings growth, expectations, value,
technicals and corporate signals. Run daily, the model ranks each stock in the
universe on a sector-neutral basis and is designed so that no single dimension
or set of factors dominates, a distinguishing feature of our investment style.
In addition to rigorous stock selection, we seek to add value through a
disciplined investment process that incorporates risk control. We manage the
neutrality of the Fund through risk control procedures that include the
monitoring of forecast tracking error and the targeting of zero net sector
exposures. The portfolio is benchmarked against 90-day U.S. Treasury Bill
returns.
The Fund seeks to be both industry sector and market-capitalization neutral,
with the "longs" and "shorts" within each sector in near-equal proportions. The
portfolio is fully invested at all times -- with a beta of almost zero to the
U.S. equity market.
A market neutral portfolio is a high turnover portfolio by design, requiring
real-time position monitoring and careful and timely trade execution. Trades for
the Fund are executed through our performance-based basket-trading strategy,
which helps us to time trades to best advantage and to minimize trading costs.
2
<PAGE>
Market Overview
During the period following the start-up of the Fund, the market has been
driven by emotion rather than by fundamental factors, a difficult investment
environment for most market neutral managers. Large capitalization growth stocks
and Internet stocks surged, although stocks in general lagged. The Fund's return
was -4.5% on an NAV basis, compared with a return of 0.9% for the benchmark
(90-day U.S. Treasury Bills*) from inception on February 16, 1999, through April
30, 1999.
We can't predict the direction of the equity market, nor can we predict
which market conditions will prevail. While we constantly monitor each factor
within our model and search for new factors, we do not react to short-term
anomalies. If the anomaly persists, however, we will reevaluate the model and
"tune" it to changing economic conditions.
While we are disappointed with performance, we are confident that our stock
selection model is robust over the longer term. In addition, we continue to
believe that the Fund can provide important diversification for long-term
investors.
Batterymarch Financial Management, Inc.
June 11, 1999
- -----------------
*Although the Fund uses the T-bill as a benchmark, an investment in the Fund
differs because T-bills, unlike the Fund, are backed by the full faith and
credit of the United States Government, have a fixed rate of return and a short
duration, and have no risk of losing capital and little or no potential for
appreciation.
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
Legg Mason Light Street Trust, Inc.
April 30, 1999 (Unaudited)
(Amounts in Thousands)
Market Neutral Trust
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 95.1%
<S> <C> <C>
Capital Goods -- 9.3%
Arvin Industries, Inc. 4 $ 139
C&D Technologies, Inc. 4 101
Dura Automotive Systems, Inc. 2 69(A)
GenCorp Inc. 9 217
Kellstrom Industries, Inc. 4 81(A)
Magna International Inc. 2 137
Tecumseh Products Company 3 202
The B. F. Goodrich Company 4 155
TJ International, Inc. 4 108
Trinity Industries, Inc. 2 80
United Technologies Corporation 1 188
Varlen Corporation 5 140
YORK International Corporation 4 149
------------
1,766
------------
Commercial Services -- 3.2%
Consolidated Graphics, Inc. 1 55(A)
Handleman Company 9 120(A)
infoUSA Inc. 12 83(A)
On Assignment, Inc. 4 112(A)
SunGard Data Systems Inc. 3 93(A)
Valassis Communications, Inc. 3 151(A)
------------
614
------------
Consumer Durables -- 3.6%
Briggs & Stratton Corporation 1 86
Department 56, Inc. 4 111(A)
General Motors Corporation 2 169
National R.V. Holdings, Inc. 2 62(A)
NVR, Inc. 3 144(A)
The Ryland Group, Inc. 3 76
Winsloew Furniture, Inc. 1 31(A)
------------
679
------------
Consumer Non-Durables -- 6.5%
Adolph Coors Company 2 107
Anheuser-Busch Companies, Inc. 2 161
Brown-Forman Corporation 3 192
Church & Dwight Co., Inc. 5 197
Hormel Foods Corporation 3 118
Nike, Inc. 2 124
Pilgrim's Pride Corporation 6 115
4
<PAGE>
Consumer Non-Durables -- Continued
Tommy Hilfiger Corporation N.M. $ 21(A)
Tyson Foods, Inc. 2 46
Universal Foods Corporation 7 141
------------
1,222
------------
Consumer Services -- 5.1%
Bob Evans Farms, Inc. 8 139
Brinker International, Inc. 4 113(A)
Central Newspapers, Inc. 3 102
Education Management Corporation 3 56(A)
Houghton Mifflin Company 4 165
Pulitzer Inc. 3 152
Scholastic Corporation 1 42(A)
The McClatchy Company 5 190
------------
959
------------
Energy -- 5.5%
Amerada Hess Corporation 4 200
Ashland Inc. 4 173
Atlantic Richfield Company (ARCO) 2 193
Imperial Oil Ltd. 9 178
Sunoco, Inc. 3 114
Tosco Corporation 7 177
------------
1,035
------------
Finance -- 20.5%
Alexandria Real Estate Equities, Inc. 5 149
CBL & Associates Properties, Inc. 8 187
Charter One Financial, Inc. 6 197
Comerica Incorporated 3 169
Developers Diversified Realty Corporation 5 71
Dollar Thrifty Automotive Group, Inc. 5 86(A)
Entertainment Properties Trust 10 184
Federal Realty Investment Trust 5 119
Flagstar Bancorp, Inc. 3 66
Fleet Financial Group, Inc. 4 190
Franchise Mortgage Acceptance Company 1 8(A)
Freddie Mac 3 169
General Growth Properties, Inc. 5 177
Hospitality Properties Trust 4 124
Hudson United Bancorp 4 156(A)
J.P. Morgan & Co. Incorporated 1 94(A)
JP Realty, Inc. 4 70
LNR Property Corporation 5 96
5
<PAGE>
STATEMENT OF NET ASSETS-CONTINUED
Legg Mason Light Street Trust, Inc.
Market Neutral Trust-Continued
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Finance -- Continued
MeriStar Hospitality Corporation 7 $ 163
Morgan Stanley Dean Witter & Co. 1 129
New Plan Excel Realty Trust 4 74
Oriental Financial Group Inc. 4 107
Peoples Bancorp, Inc. 4 39
Providian Financial Corporation 1 181
Shurgard Storage Centers, Inc. 7 189
Tanger Factory Outlet Centers, Inc. 7 188
United Dominion Realty Trust, Inc. 11 123
Urban Shopping Centers, Inc. 6 195
Washington Mutual, Inc. 5 185
-----
3,885
-----
Health Care -- 2.9%
C. R. Bard, Inc. 3 123
K-V Pharmaceutical Company 6 90(A)
Medicis Pharmaceutical Corporation 2 51(A)
Mylan Laboratories Inc. 8 175
OEC Medical Systems, Inc. 5 107(A)
-----
546
-----
Industrial Services -- 1.2%
Seitel, Inc. 13 217(A)
-----
Insurance -- 6.7%
Arthur J. Gallagher & Co. 4 181
Chartwell Re Corporation 9 170
Conseco, Inc. 6 199
Enhance Financial Services Group Inc. 6 118
Everest Reinsurance Holdings, Inc. 6 173
Loews Corporation 2 176
ReliStar Financial Corp. 5 169
Travelers Property Casulty Corp. 3 90
-----
1,276
-----
Metals and Minerals -- 2.5%
Georgia-Pacific Group 2 176
Lone Star Industries, Inc. 5 189
Vulcan Materials Company 2 110
-----
475
-----
Process Industries -- 7.3%
Albany International Corp. 9 218(A)
MacDermid, Incorporated 1 38
Pittway Corporation 7 177
6
<PAGE>
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Process Industries -- Continued
RPM, Inc. 8 $ 113
Solutia Inc. 10 246
Springs Industries, Inc. 6 224
The Geon Company 5 147
W.R. Grace & Co. 14 217(A)
-----
1,380
-----
Retail -- 4.1%
Kmart Corporation 5 76(A)
Longs Drug Stores Corporation 3 89
Ross Stores, Inc. 2 83
The Gap, Inc. 2 140
The Talbots, Inc. 4 110
The TJX Companies 3 107
Weis Markets, Inc. 1 46
Zale Corporation 4 132(A)
-----
783
-----
Technology -- 4.2%
Adaptec, Inc. 6 154(A)
Aeroflex Incorporated 5 70(A)
Atmel Corporation 3 60(A)
Bel Fuse Inc. 1 53(A)
Cypress Semiconductor Corporation 10 97(A)
Lexmark International Group, Inc. 1 111(A)
Mentor Graphics Corporation 4 42(A)
Seagate Technology, Inc. 4 123(A)
Unisys Corporation 3 79(A)
-----
789
-----
Technology Services -- 1.7%
Microsoft Corporation 2 138(A)
QRS Corporation 2 121(A)
Structural Dynamics Research Corporation 4 68(A)
-----
327
-----
Transportation -- 2.5%
America West Holdings Corporation 2 48(A)
Landstar System, Inc. 1 55(A)
Roadway Express, Inc. 6 106
UAL Corporation 1 48(A)
Werner Enterprises, Inc. 7 125
Yellow Corporation 5 85(A)
-----
467
-----
7
<PAGE>
STATEMENT OF NET ASSETS-CONTINUED
Legg Mason Light Street Trust, Inc.
Market Neutral Trust-Continued
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Utilities -- 8.3%
Commonwealth Energy System 1 $ 49
Dominion Resources, Inc. 5 189
DTE Energy Company 3 110
Edison International 8 184
FirstEnergy Corp. 5 160
MDU Resources Group, Inc. 5 100
Northern States Power Company 5 123
PECO Energy Company 4 166
PP&L Resources, Inc. 7 190
TNP Enterprises, Inc. 5 153
Wisconsin Energy Corporation 5 142
-----
1,566
-----
Total Common Stocks and Equity Interests
(Identified Cost-- $16,847) 17,986
- ----------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 1.7%
State Street Bank & Trust Company
3.50%, dated 4/30/99, to be repurchased at $331 on 5/3/99
(Collateral: $335 Freddie Mac mortgage-backed securities,
5.29%, due 5/17/01, value $342)
(Identified Cost--$331) $331 331
- ----------------------------------------------------------------------------------------------------------------------
Total Investments-- 96.8% (Identified Cost-- $17,178) 18,317
Deposits With Brokers for Securities Sold Short-- 97.3% 18,418
Receivable FromBrokers for Securities Sold Short-- 1.9% 364
Securities Sold Short (Proceeds $16,634)-- (92.3%) (17,469)
Other Assets Less Liabilities-- (3.7)% (708)
-----
Net assets consisting of:
Accumulated paid-in capital applicable to
1,981 shares outstanding $19,660
Undistributed net investment income 40
Accumulated net realized loss on investments (1,082)
Unrealized appreciation of investments 304
----
Net assets-- 100.0% $18,922
=======
Net asset value per share $ 9.55
=======
- ----------------------------------------------------------------------------------------------------------------------
(A)Non-income producing.
N.M. -- Not meaningful.
See notes to financial statements.
8
<PAGE>
Schedule of Securities Sold Short
Legg Mason Light Street Trust, Inc.
April 30, 1999 (Unaudited)
(Amounts in Thousands)
Market Neutral Trust
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 92.3%
Capital Goods -- 7.1%
Astec Industries, Inc. 3 $ 132(A)
Caterpillar Inc. 1 77
Dover Corporation 5 177
Flowserve Corporation 8 143
IDEX Corporation 1 27
Kaydon Corporation 5 159
Minnesota Mining and Manufacturing Company (3M) 2 151
Orbital Sciences Corporation 3 63(A)
Raychem Corporation 3 69
The Boeing Company 5 187
Watts Industries, Inc. 11 161
-----
1,346
-----
Commercial Services -- 3.7%
Applied Industrial Technologies, Inc. 12 174
Daisytek International Corporation 5 85(A)
Franklin Covey Co. 7 69(A)
Getty Images, Inc. 2 42(A)
Hughes Supply, Inc. 5 105
Iron Mountain Incorporated 4 122(A)
Richfood Holdings, Inc. 7 91
-----
688
-----
Consumer Durables -- 3.9%
Bandag, Incorporated 6 177
Genuine Parts Company 3 78
Midway Games, Inc. 2 20(A)
Newell Rubbermaid, Inc. 3 128
Oakwood Homes Corporation 4 57
WD-40 Company 7 177
Whirlpool Corporation 1 93
-----
730
-----
Consumer Non-Durables -- 6.6%
Chiquita Brands International, Inc. 11 113
Hershey Foods Corporation 3 179
International Flavors & Fragrances Inc. 5 198
Lance, Inc. 2 22
Nautica Enterprises, Inc. 9 119(A)
PepsiCo, Inc. 2 77
St. John Knits, Inc. 1 27
The Coca-Cola Company 3 190
9
<PAGE>
Schedule of Securities Sold Short-Continued
Legg Mason Light Street Trust, Inc.
Market Neutral Trust -- Continued
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables -- Continued
The Gillette Company 2 $ 120
Whitman Corporation 5 77
Wolverine World Wide, Inc. 10 122
-----
1,244
-----
Consumer Services -- 5.6%
A. H. Belo Corporation 8 162
Carmike Cinemas, Inc. 6 132(A)
CBRL Group, Inc. 3 67
Chancellor Media Corporation 3 170(A)
Gaylord Entertainment Company 4 109
Hearst-Argyle Television, Inc. 5 122(A)
Lone Star Steakhouse & Saloon, Inc. 11 117(A)
SFX Entertainment, Inc. 1 50(A)
The Walt Disney Company 4 140
-----
1,069
-----
Energy -- 4.3%
Enron Oil & Gas Company 9 177
Evergreen Resources, Inc. 2 48(A)
Exxon Corporation 2 191
Nuevo Energy Company 6 100(A)
Ocean Energy Inc. 11 101(A)
Triton Energy Limited 11 125(A)
Vintage Petroleum, Inc. 7 73
-----
815
-----
Finance -- 20.5%
Affiliated Managers Group, Inc. 3 93(A)
AMB Property Corporation 7 143
Associated Banc-Corp 5 196
Avalonbay Communitites, Inc. 5 182
Cash America International, Inc. 5 61
Citizens Banking Corporation 4 134
Comdisco, Inc. 5 121
F&M National Corporation 5 150
F.N.B. Corporation 6 153
First American Corporation 3 113
First Midwest Bancorp, Inc. 4 148
Franklin Resources, Inc. 2 84
Fulton Financial Corporation 2 45
Hibernia Corporation 15 200
IndyMac Mortgage Holdings, Inc. 5 74
10
<PAGE>
Shares Value
- ----------------------------------------------------------------------------------------------------------------------
Finance -- Continued
Keystone Financial, Inc. 5 $ 145
Liberty Financial Companies, Inc. 6 144
Marshall & Ilsley Corporation 2 161
Mercantile Bankshares Corporation 2 89
National Health Investors, Inc. 3 68
Republic Banking Corporation of Florida 5 91
Ryder System, Inc. 7 177
Starwood Hotels & Resorts Worldwide, Inc. 4 150
Storage USA, Inc. 5 164
Susquehanna Bancshares, Inc. 7 129
The Pioneer Group, Inc. 9 166(A)
Thornburg Mortgage Asset Corporation 14 124
U.S. Bancorp 2 63
Western Bancorp 3 122
Whitney Holding Company 5 186
-----
3,876
-----
Health Care -- 3.1%
American Home Products Corporation 2 91
Genentech, Inc. 2 161(A)
Guilford Pharmaceuticals Inc. 7 72(A)
Human Genome Sciences, Inc. 4 137(A)
Incyte Pharmaceuticals, Inc. 1 13(A)
Novoste Corporation 2 51(A)
Perrigo Company 5 40
Vertex Pharmaceuticals Incorporated 1 15(A)
-----
580
-----
Industrial Services -- 0.9%
Schlumberger Limited 3 166
-----
Insurance -- 6.7%
AFLAC Incorporated 4 195
Capital Re Corporation 4 82
Cincinnati Financial Corporation 5 186
CNA Financial Corporation 4 180(A)
Markel Corporation 1 168(A)
MBIA, Inc. 1 40
Selective Insurance Group, Inc. 5 101
The Progressive Corporation 1 72
W. R. Berkley Corporation 5 129
XL Capital Ltd. 2 121
-----
1,274
-----
11
<PAGE>
SCHEDULE OF SECURITIES SOLD SHORT-CONTINUED
Legg Mason Light Street Trust, Inc.
Market Neutral Trust-Continued
Shares Value
- ----------------------------------------------------------------------------------------------------------------------------------
Metals and Minerals -- 1.8%
Brush Wellman Inc. 7 98
Carpenter Technology Corporation 6 188
Reynolds Metals Company 1 56
-----
342
-----
Process Industries -- 4.6%
Archer-Daniels-Midland Company 5 81
ChiRex, Inc. 2 55(A)
Eastman Chemical Company 2 134
Lyondell Chemical Company 1 23
Olin Corporation 12 168
Sealed Air Corporation 3 207(A)
Unifi, Inc. 7 99(A)
Witco Corporation 6 107
-----
874
-----
Retail -- 3.9%
Fred Meyer, Inc. 1 27(A)
General Nutrition Companies, Inc. 5 84(A)
J. C. Penney Company, Inc. 4 192
Just For Feet 3 43
Land's End, Inc. 1 42(A)
Rite Aid Corporation 6 135
The Dress Barn, Inc. 5 76(A)
The Maxim Group, Inc. 18 141
-----
740
-----
Technology -- 5.2%
Advanced Micro Devices, Inc. 3 51(A)
Compaq Computer Corporation 5 118
Esterline Technologies Corporation 6 85(A)
Harris Corporation 6 214
Loral Space & Communications Ltd. 10 189(A)
Motorola, Inc. 2 176
National Semiconductor Corporation 5 64(A)
Northern Telecom Limited (Nortel) 1 82
-----
979
-----
Technology Services -- 3.6%
Analysts International Corporation 8 104
Arrow Electronics, Inc. 5 96(A)
Aspen Technology, Inc. 4 33(A)
Avnet, Inc. 5 204
J.D. Edwards & Company 5 71(A)
12
<PAGE>
Shares Value
- ----------------------------------------------------------------------------------------------------------------------------------
Technology Services - Continued
PeopleSoft, Inc. 4 $ 48(A)
Tech Data Corporation 1 30(A)
Wang Laboratories, Inc. 4 103(A)
-----
689
-----
Transportation -- 2.4%
AMR Corporation 1 84(A)
Fritz Companies, Inc. 8 80(A)
Kansas City Southern Industries, Inc. 1 66
Norfolk Southern Corporation 2 52
Northwest Airlines Corporation 5 177(A)
-----
459
-----
Utilities -- 8.4%
Atmos Energy Corporation 7 177
Energen Corporation 11 195
Equitable Resources, Inc. 6 169
K N Energy, Inc. 3 58
LG&E Energy Corp. 8 170
MCN Energy Group Inc. 6 116
PacifiCorp 3 50
Pennsylvania Enterprises, Inc. 5 115
Questar Corporation 6 102
SCANA Corporation 7 172(A)
Southern Union Company 9 189
The Williams Companies, Inc 2 85
-----
1,598
-----
Total Common Stocks and Equity Interests
(Identified Cost-- $16,634) 17,469
- ----------------------------------------------------------------------------------------------------------------------------------
13
<PAGE>
Statement of Operations
Legg Mason Light Street Trust, Inc.
For the Period Ended April 30, 1999* (Unaudited)
(Amounts in Thousands)
Market Neutral Trust
- ----------------------------------------------------------------------------------------------------------------------
Investment Income:
Dividends $ 56
Interest 115
-------
Total Income 171
Expenses:
Investment advisory fee $ 51
Distribution and service fees 27
Dividend expense for securities sold short 50
Audit and legal fees 6
Custodian fee 17
Transfer agent and shareholder servicing expense 1
Other expenses 1
-------
153
Less fees waived (22)
-------
Total expenses, net of waivers 131
-------
NET INVESTMENT INCOME 40
Net Realized and Unrealized Gain (Loss) on:
Realized gain (loss) on:
Investments 510
Securities sold short (1,592)
-------
(1,082)
-------
Change in unrealized appreciation (depreciation) of:
Investments 1,139
Securities sold short (835)
-------
304
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND SECURITIES SOLD SHORT (778)
- ----------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(738)
- ----------------------------------------------------------------------------------------------------------------------
*Commencement of operations--February 16, 1999.
See notes to financial statements.
</TABLE>
14
<PAGE>
Statement of Changes in Net Assets
Legg Mason Light Street Trust, Inc.
(Amounts in Thousands)
Market Neutral Trust
<TABLE>
<CAPTION>
For the Period Ended
April 30, 1999(A)
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 40
Net realized loss on investments and securities sold short (1,082)
Change in unrealized appreciation (depreciation) of investments and securities sold short 304
-----------
Change in net assets resulting from operations (738)
Change in net assets from Fund share transactions 19,650
-----------
Change in net assets 18,912
Net Assets:
Beginning of period 10
-----------
End of period $18,922
-----------
Undistributed net investment income, end of period $ 40
----------------------------------------------------------------------------------------------------------------
(A)Commencement of operations--February 16, 1999.
</TABLE>
See notes to financial statements.
------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data. This information has been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Investment Operations Distributions
------------------------------------------------ --------------------------------
From
Net Asset Net Net Realized Total From Net Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Investment Gain on Total End of
of Period (Loss) Investments Operations Income Investments Distributions Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period Ended April 30,
1999(A)* $10.00 $0.02(B) $(0.47) $(0.45) $-- $-- $-- $9.55
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------
Net
Investment Net Assets,
Expenses Income (Loss) Portfolio End of
Total to Average to Average Turnover Period
Return Net Assets Net Assets Rate (in thousands)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Period Ended April 30
- ---------------------------------------------------------------------------------------
1999(A)* (4.50)%(B,C) 3.0%(B,D) 1.48%(B,D) 563.9%(D) $18,922
- ---------------------------------------------------------------------------------------
</TABLE>
(A)For the period February 16, 1999 (commencement of operations) to April
30, 1999 .
(B)Net of fees waived pursuant to a voluntary expense limitation of 3.00%
of average daily net assets through July 31, 1999. If no fees had been
waived by Legg Mason Fund Adviser, Inc., the annualized ratio of
expenses to average net assets for the period would have been 3.81%.
(C)Not annualized.
(D)Annualized.
* Unaudited.
See notes to financial statements.
15
<PAGE>
Notes to Financial Statements
Legg Mason Light Street Trust, Inc.
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Light Street Trust, Inc. ("Corporation"), consisting
of the Market Neutral Trust (a "Fund"), is registered under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment
company.
The Fund consists of two classes of shares: Primary Class, offered
since February 16, 1999; and Navigator Class, offered to certain
institutional investors. The Navigator Class has not yet commenced
operations.
Security Valuation
Securities owned and securities sold short by the Fund for which
market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by the Fund's Board of Directors.
Where a security is traded on more than one market, which may include
foreign markets, the securities are generally valued on the market
considered by the Fund's adviser to be the primary market. The Fund will
value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates. Securities with remaining maturities of 60
days or less are valued at amortized cost.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized. Dividend income and distributions to shareholders are
allocated at the class level and are recorded on the ex-dividend date.
Dividends from net investment income, if available, will be paid
quarterly. Net capital gain distributions, which are calculated at the
Fund level, are declared and paid after the end of the tax year in which
the gain is realized. Distributions are determined in accordance with
federal income tax regulations, which may differ from those determined in
accordance with generally accepted accounting principles; accordingly,
reclassifications are made within the Fund's capital accounts to reflect
income and gains available for distribution under federal income tax
regulations.
Security Transactions
Security transactions are 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. At
April 30, 1999, receivables for securities sold and payables for
securities purchased were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
--------------------------------------------------------
$2,669 $3,487
Short Sales
The Fund is authorized to engage in short-selling, which obligates
the Fund to replace the security borrowed by purchasing the security at
current market value sometime in the future. The Fund will incur a loss if
the price of the security increases between the date of the short sale and
the date on which the Fund
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replaces the borrowed security. The Fund will realize a gain if the
price of the security declines between those dates. Until the Fund
replaces the borrowed security, the Fund will maintain a segregated
account with cash and/or liquid securities sufficient to cover its short
position on a daily basis. At April 30, 1999, the value of securities sold
short amounted to $17,469, against which collateral of $36,735 was held.
The collateral includes the Morgan Stanley deposit account, State Street
Bank & Trust repurchase agreement and the securities held long, as shown
in the Statement of Net Assets. Dividends declared on securities sold
short are recorded on the ex-dividend date.
Deferred Offering and Organizational Costs
Deferred offering costs of $33 will be expensed over a 12-month
period commencing on the date the Fund's operations began. Organization
costs of the Fund have been expensed as incurred. At April 30, 1999,
organization costs of the Fund of $90 have been borne by LMFA.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to qualify as a regulated investment company and distribute
substantially all of its taxable income to its shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Investment Transactions:
For the period ended April 30, 1999, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds From Sales
- --------------------------------------------------------------------------------
$30,633 $14,296
At April 30, 1999, cost/proceeds, aggregate gross unrealized appreciation
and gross unrealized depreciation based on the cost of securities for
federal income tax purposes for the Fund were as follows:
<TABLE>
<CAPTION>
Net
Cost/ Appreciation/
Proceeds Appreciation (Depreciation) (Depreciation)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments $17,178 $1,431 $ (292) $1,139
Short Sales (16,634) 325 (1,160) (835)
</TABLE>
17
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Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
3. Repurchase Agreements:
All repurchase agreements are fully collateralized by obligations
issued by the U.S. Government 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. The Fund's investment adviser,
acting under the supervision of its Board of Directors, reviews the value
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements to evaluate potential
risks.
4. Transactions With Affiliates:
The Fund has a management agreement with Legg Mason Fund Adviser,
Inc. ("LMFA"). Pursuant to its agreement, LMFA provides the Fund with
investment management and administrative services for which the Fund pays
a fee of 1.90%, computed daily and payable monthly at an annual rate of
its average daily net assets. Under the terms of the investment management
agreement, LMFA is required to bear any expenses through July 31, 1999,
including organization costs, which would cause the Fund's ratio of
expenses to average net assets to exceed a certain set percentage as
described below (the "percentage"). Thereafter, through July 31, 2002, the
Fund is required to reimburse LMFA for the expenses, provided that average
net assets have grown or expenses have declined sufficiently to allow
reimbursement without causing the Fund's ratio of expenses to average net
assets to exceed the percentage. Through the period ended April 30, 1999,
LMFA had waived or reimbursed $110, which is subject to recapture.
LMFA has agreed to waive its fees in any month (exclusive of taxes,
interest, brokerage and extraordinary expenses) as shown in the following
chart:
Period Ended
April 30, 1999* At April 30, 1999
------------------ ------------------
Expense Expense Limitation Management Management
Limitation Expiration Date Fees Waived Fee Payable
--------------------------------------------------------------------------
3.00% July 31, 1999 $22 $15
*Commencement of operations--February 16, 1999.
Batterymarch Financial Management, Inc. ("Advisor") serves as
investment advisor to the Fund. The Advisor is responsible for the actual
investment activity of the Fund. LMFA pays the Advisor a fee, computed
daily and payable monthly at an annual rate of 78.9% of the fee received
by LMFA, or 1.5% of the Fund's average daily net assets, not to exceed the
fee received by LMFA.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor for the Fund. Legg Mason
receives an annual distribution fee and an annual service fee based on the
Fund's PrimaryClass's average daily net assets, computed daily and payable
monthly as follows:
At April 30, 1999
-----------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
-----------------------------------------------------------
0.75% 0.25% $15
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No brokerage commissions were paid to Legg Mason or its affiliates
during the period ended April 30, 1999.
Legg Mason also has an agreement with the Fund's transfer agent to
assist it with some of its duties. For this assistance, Legg Mason was
paid a nominal amount (less than $1) by the transfer agent for the period
ended April 30, 1999.
LMFA, Legg Mason and Batterymarch are corporate affiliates and wholly
owned subsidiaries of Legg Mason, Inc.
5. Line of Credit:
The Fund, along with certain other Legg Mason Funds, participates in
a $200 million line of credit ("Credit Agreement") to be utilized as an
emergency source of cash in the event of unanticipated, large redemption
requests by shareholders. Pursuant to the Credit Agreement, each
participating fund is liable only for principal and interest payments
related to borrowings made by that Fund. Borrowings under the line of
credit bear interest at prevailing short-term interest rates. For the
period ended April 30, 1999, the Fund had no borrowings under the line of
credit.
6. Fund Share Transactions:
At April 30, 1999, there were 450,000 shares authorized at $.001 par
value for the Fund. Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------ ------------------- ------------------ --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period Ended April 30, 1999 2,122 $21,037 -- $-- (142) $(1,387) 1,980 $19,650
</TABLE>
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