<PAGE> 1
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
For Market Neutral Trust:
Batterymarch Financial Management, Inc.
Boston, MA
For Classic Valuation Fund:
Brandywine Asset Management, Inc.
Wilmington, DE
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Nelson A. Diaz
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
G. Peter O'Brien
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Accountants
PricewaterhouseCoopers LLP
Baltimore, MD
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 - 539 - 0000
LMF-233
6/00
SEMI-ANNUAL REPORT
APRIL 30, 2000
LEGG MASON
LIGHT STREET
TRUST, INC.
MARKET NEUTRAL TRUST
CLASSIC VALUATION FUND
PRIMARY CLASS
[LEGG MASON LOGO]
<PAGE> 2
To Our Shareholders,
We are pleased to provide you with Legg Mason Light Street Trust's semi-annual
report covering the six months ended April 30, 2000, for the Market Neutral
Trust and the Classic Valuation Fund.
This is our first report to you for the Classic Valuation Fund, which began
operations November 8, 1999. As this letter is written, the Fund's assets are
approaching $5 million. Brandywine Asset Management is responsible for the
day-to-day management of the Fund. The Fund seeks long-term growth of capital by
investing in undervalued or out-of-favor companies that Brandywine believes are
likely to return to better valuations. We are excited about the addition of this
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 managers for the Funds review the
portfolios' structure and investment philosophies, and discuss the investment
outlook for the Funds.
Many of our shareholders regularly add to their Fund holdings by authorizing
automatic, monthly transfers from their bank checking or Legg Mason accounts.
Your Financial Advisor 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
May 24, 2000
<PAGE> 3
Portfolio Managers' Comments
Legg Mason Light Street Trust, Inc.
Market Neutral Trust
For the six months ended April 30, 2000, the Fund's return was -6.5%, net of
expenses, compared with +2.7% for 90-day U.S. Treasury Bills.
We are disappointed with the Fund's performance. The investment
environment, with unprecedented volatility, narrow leadership and dramatic
sector reversals, proved to be difficult for our quantitative, factor-based
investment style.
The S&P 500 return was +7.2% for the six months. This positive index return
masks the high volatility, the record swings in the U.S. market, particularly in
the NASDAQ, and the pockets of extreme style and sector rotation during the
period. The six months saw wide divergence between growth and value, with the
Russell 1000 Growth Index up +18.7% and the Russell 1000 Value Index down -0.9%.
The technology sector, up over 70% for the period, saw its peak in March and
declined significantly into April.
The main reason for the Fund's performance shortfall was negative stock
selection in the short equity positions. We are committed to improving every
detail of our market neutral process and have implemented several enhancements
to benefit the short portfolio.
We have determined that certain factors are more effective in identifying
short candidates and less effective in identifying long candidates. While we
initially applied identical factor analyses to both the long and short sides of
the portfolio, we now use a different set of factors to capture the short side
of the market. We apply additional screening factors to avoid shorting highly
volatile, speculative stocks.
Market neutral funds, as an asset class, have underperformed on an absolute
basis, and for the six months ended April 30, 2000, Market Neutral Trust has
underperformed relative to its market neutral peers. This relative return is a
consequence of our investment style, which blends both growth and value factors.
While the growth-biased managers had the most success over the past six months,
more recently the value managers had their day. We believe that remaining style
neutral is the best formula for long-term success.
Investment Process
For Batterymarch, the key to added value is a disciplined investment process
that incorporates rigorous stock selection and effective risk control. Our
market neutral process is 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 selling "short" those ranked least favorably. A
market neutral portfolio contains both long and short equity positions, with
each long position matched to a short position in the same industry sector, in
equal dollar amounts. This balance is intended to effectively neutralize market
risk.
The goal of a market neutral manager is to pick the right stocks on both the
long and short sides of the portfolio. Returns result from the performance of
the long plus the short positions, and the portfolio earns interest from the
invested proceeds of the short sales.
2
<PAGE> 4
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 a proprietary,
multi-factor stock selection model. Designed to encompass the best of both
quantitative and fundamental approaches, our stock selection incorporates the
broad dimensions typically used by fundamental analysts: cash flow, earnings
growth, expectations, value, technical factors and corporate signals. Run daily,
our 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 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.
A market neutral portfolio, with high turnover by design, requires 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.
In summary, while we are disappointed with the Fund's performance, we are
committed to improving every detail of our process and remain confident in our
ability to pick stocks over the long term. We continue to believe that the
Market Neutral Trust can provide important diversification for long-term
investors.
Batterymarch Financial Management, Inc.
June 1, 2000
DJIA 10652.20
3
<PAGE> 5
Portfolio Managers' Comments -- Continued
Legg Mason Light Street Trust, Inc.
Classic Valuation Fund
The introduction of the Legg Mason Classic Valuation Fund came just as a shift
in market direction was forming. After avoiding value stocks in favor of
perceived growth - at any price - some investors directed money flow into the
"old economy" names. From the Fund's start-up at November 8, 1999, we declined
modestly from our beginning net asset value ("NAV") of $10.00 to an NAV of $9.99
at April 30 (a total return of -0.10%). During May, our performance strengthened
significantly and we ended May with an NAV of $10.44 and a total return for the
period since inception of 4.40%.
During the past several months, the portfolio became more concentrated in the
energy sector, so that at the end of April the Fund's exposure was about three
times that of the S&P. Rising demand accompanied by low inventories drove
natural gas prices higher, which produced good stock performance in Union
Pacific Resources and Unocal. Better refining margins have been a good backdrop
for Tosco Corporation and Sunoco, two of our energy holdings. An improving
outlook for exploration and drilling prompted us to accumulate Transocean Sedco
and Tidewater Inc. Although, as suggested, we have enjoyed good performance in
this sector, the valuation levels are still attractive and we will maintain
positions until optimism propels valuations to higher levels.
During the winter and early spring, we expanded on a theme that we found
compelling. The defense and aerospace stocks which had been miserable performers
for the last two years were at extraordinarily low value levels. The fact that
these "giveaway" prices were coincidental with the beginning of an upcycle in
government spending (after 12 years of declines) heightened our conviction.
General Dynamics and Boeing joined Northrup Grumman and Raytheon, which we
already owned. The stocks have recently done well, but the potential for
appreciation from here is substantial.
Looking back on the last six months and the apparent change in market
direction that we have experienced, we cannot help but note that we have
witnessed a strong proof of why value works. When the crowd jumps aboard a
concept that has done well (gravity-defying technology) and propels stocks to
values that are priced for perfection, anything less than a perfect world
produces pain. Whether the Justice Department in its case against Microsoft
marred the setting or if it become a case of just too much supply hitting the
market or any of several other reasons we can point to, the simple fact is that
expectations and enthusiasm were too high. Value works because at the other end
of the spectrum expectations are too low and most surprises are positive ones.
Adhering strictly to our discipline of focusing only on stocks that are priced
low in relation to current measures of value - namely earnings, book value and
cash flow - we take advantage of low expectation opportunities. The recent past
has reminded many investors that voguishness can be dangerous, but the corollary
is embraced by few: greater opportunities exist in stocks that are out of favor.
Brandywine Asset Management, Inc.
June 1, 2000
DJIA 10652.20
4
<PAGE> 6
Performance Information
Legg Mason Light Street Trust, Inc.
Total Returns for One Year and Life of Class as of April 30, 2000
The returns shown are based on historical results and are not intended to
indicate future performance. Total return measures investment performance in
terms of appreciation or depreciation in net asset value per share plus
dividends and any capital gain distributions. The investment return and
principal value of an investment in each of these Funds will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Average annual returns tend to smooth out variations in a Fund's
return, so that they differ from actual year-to-year results. No adjustment has
been made for any income taxes payable by shareholders.
Each Fund has two classes of shares: Primary Class and Navigator Class. The
Navigator Classes have not commenced operations.
<TABLE>
<CAPTION>
Market Neutral Trust Classic Valuation Fund
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average Annual Total Return
Primary Class:
One Year (5.22)% N/A
Life of Class(A) (7.95)% N/A
Cumulative Total Return
Primary Class:
One Year (5.22)% N/A
Life of Class(A) (9.48)% (.10)%
------------------------------------------------------------------------------------------------------------------
</TABLE>
(A)Primary Class inception dates are:
Market Neutral Trust -- February 16, 1999
Classic Valuation Fund -- November 8, 1999
N/A -- Not applicable.
5
<PAGE> 7
Statement of Net Assets
Legg Mason Light Street Trust, Inc.
April 30, 2000 (Unaudited)
(Amounts in Thousands)
Market Neutral Trust
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 87.8%
Capital Goods -- 6.6%
Dover Corporation 2 $ 96
Emerson Electric Co. 3 159
Energizer Holdings, Inc. N.M. N.M.(A)
Graco Inc. N.M. 10
Harsco Corporation 1 27
Minnesota Mining & Manufacturing Company N.M. 9
Regal-Beloit Corporation N.M. 5
Tecumseh Products Company 2 107
The Timken Company 2 28
Tyco International Ltd. 1 60
United Technologies Corporation 2 99
-------
600
-------
Commercial Services -- 2.5%
John H. Harland Company 2 29
Sabre Holdings Corporation 2 77(A)
SUPERVALU INC. 5 101
Valassis Communications, Inc. 1 21(A)
-------
228
-------
Consumer Durables -- 1.2%
NVR, Inc. 2 106(A)
-------
Consumer Non-Durables -- 6.3%
Avon Products, Inc. 3 116
Liz Claiborne, Inc. 1 42
McCormick & Company, Incorporated 1 41
Michael Foods, Inc. 1 24
OshKosh B'Gosh, Inc. N.M. 6
PepsiCo, Inc. 2 77
Rexall Sundown, Inc. 1 25(A)
Suiza Foods Corporation 1 27(A)
The Coca-Cola Company 2 108
The Quaker Oats Company 1 78
The Timberland Company N.M. 28(A)
-------
572
-------
Consumer Services -- 4.2%
Aztar Corporation 4 43(A)
Career Education Corporation 3 106(A)
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Services -- Continued
Dow Jones & Company, Inc. 1 $ 52
Metro-Goldwyn-Mayer, Inc. 1 42(A)
Pixar, Inc. 1 19(A)
The New York Times Company 2 86
The Reader's Digest Association, Inc. 1 29
-------
377
-------
Energy -- 5.1%
Kerr-McGee Corporation 2 119
Occidental Petroleum Corporation 3 58
Patina Oil & Gas Corporation 2 32
Royal Dutch Petroleum Company 1 40
Santa Fe Snyder Corporation 4 40(A)
Talisman Energy Inc. 2 45(A)
USX Marathon Group 1 28
Vintage Petroleum, Inc. 5 103
-------
465
-------
Finance -- 9.2%
CBL & Associates Properties, Inc. 8 180
Commerce Bancorp, Inc. 2 71
Hibernia Corporation 7 77
J.P. Morgan & Co. Incorporated 1 90
Lehman Brothers Holdings Inc. 1 90
MeriStar Hospitality Corporation 2 42
Metris Companies Inc. 1 41
Morgan Stanley Dean Witter & Co. 1 69
Neuberger Berman Inc. 1 33
StanCorp Financial Group, Inc. 3 99
Waddell & Reed Financial, Inc. 1 36
-------
828
-------
Health Care -- 5.7%
Aurora Biosciences Corporation 1 47(A)
Candela Corporation 3 40(A)
IVAX Corporation 4 96(A)
King Pharmaceuticals, Inc. 2 74(A)
Mallinckrodt Inc. 4 116
MiniMed Inc. N.M. 49(A)
Varian Medical Systems, Inc. 2 92(A)
-------
514
-------
</TABLE>
7
<PAGE> 9
Statement of Net Assets -- Continued
Legg Mason Light Street Trust, Inc.
Market Neutral Trust -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance -- 5.3%
American National Insurance Company 1 $ 31
MGIC Investment Corporation 3 143
RenaissanceRe Holdings 5 184
The PMI Group, Inc. 3 126
-------
484
-------
Metals and Minerals -- 3.9%
Alcan Aluminum Ltd. 2 69
Centex Construction Products, Inc. 2 62
Georgia-Pacific Group 2 70
Nucor Corporation 2 90
Southdown, Inc. 1 58
-------
349
-------
Process Industries -- 3.8%
Longview Fibre Company 12 155
The Lubrizol Corporation 2 49
Willamette Industries, Inc. 4 141
-------
345
-------
Retail -- 5.3%
BJ's Wholesale Club, Inc. 2 85(A)
Charming Shoppes, Inc. N.M. 2(A)
Michael's Stores, Inc. 1 47(A)
Pacific Sunwear Of California, Inc. 1 31(A)
PETCO Animal Supplies, Inc. 2 28(A)
The Cato Corporation 6 67
The Gap, Inc. 3 121
The Limited, Inc. N.M. 18
Zale Corporation 2 78(A)
-------
477
-------
Technology -- 10.2%
Atmel Corporation 2 83(A)
Integrated Device Technology, Inc. 2 77(A)
Intel Corporation N.M. 51
International Rectifier Corporation 3 128(A)
KEMET Corporation 1 37(A)
Sun Microsystems, Inc. 1 101(A)
Taiwan Semiconductor Manufacturing Company Ltd. 1 53(A)
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- Continued
Texas Instruments Incorporated N.M. $ 49
Three-Five Systems, Inc. 1 78(A)
Varian Semiconductor Equipment Associates, Inc. 1 94(A)
Vishay Intertechnology, Inc. 2 174(A)
-------
925
-------
Technology Services -- 1.0%
AT&T Wireless Group 1 29(A)
Symantec Corporation 1 62(A)
-------
91
-------
Transportation -- 5.7%
Arkansas Best Corporation 11 146(A)
Roadway Express, Inc. 6 134
UAL Corporation 2 99(A)
USFreightways Corporation 2 84
Yellow Corporation 3 55(A)
-------
518
-------
Utilities -- 11.8%
Dynegy Inc. 2 151
Energen Corporation 3 51
Equitable Resources, Inc. 2 88
KeySpan Corporation 8 223
National Fuel Gas Company 4 185
NSTAR 4 172
ONEOK, Inc. N.M. 5
The Coastal Corporation 2 85
Unicom Corporation 3 104
-------
1,064
-------
Total Common Stock and Equity Interests (Identified
Cost -- $7,277) 7,943
--------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
Statement of Net Assets -- Continued
Legg Mason Light Street Trust, Inc.
Market Neutral Trust -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 13.4%
Goldman, Sachs & Company
5.80%, dated 4/28/00, to be repurchased at $1,217 on
5/1/00 (Collateral: $1,237 Fannie Mae mortgage-backed
securities, 8.50%, due 2/1/28, value $1,263) $ 1,216 $ 1,216
-------
Total Repurchase Agreements (Identified Cost -- $1,216) 1,216
--------------------------------------------------------------------------------------------------
Total Investments -- 101.2% (Identified Cost -- $8,493) 9,159
Deposits With Brokers for Securities Sold Short -- 88.9% 8,051
Receivable From Brokers for Securities Sold Short -- 0.8% 68
Securities Sold Short (Proceeds $7,875) -- (87.2)% (7,893)
Other Assets Less Liabilities -- (3.7)% (333)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
1,020 shares outstanding $10,718
Undistributed net investment income 56
Accumulated net realized loss on investments (2,370)
Unrealized appreciation of investments 648
-------
NET ASSETS -- 100.0% $ 9,052
-------
NET ASSET VALUE PER SHARE $ 8.88
-------
--------------------------------------------------------------------------------------------------
</TABLE>
(A)Non-income producing.
N.M. -- Not meaningful.
See notes to financial statements.
10
<PAGE> 12
Schedule of Securities Sold Short
Legg Mason Light Street Trust, Inc.
April 30, 2000 (Unaudited)
(Amounts in Thousands)
Market Neutral Trust
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests Sold Short -- 87.2%
Capital Goods -- 7.9%
Caterpillar Inc. 4 $ 169
Danaher Corporation 2 103
Gentex Corporation 5 171(A)
Kaydon Corporation 3 68
Orbital Sciences Corporation 9 112(A)
Thermo Electron Corporation 5 89(A)
------
712
------
Commercial Services -- 3.2%
Sylvan Learning Systems, Inc. 12 184(A)
Viad Corp 4 104
------
288
------
Consumer Durables -- 0.9%
Newell Rubbermaid, Inc. 3 83
------
Consumer Non-Durables -- 7.0%
Campbell Soup Company 4 91
Del Monte Foods Company 5 44(A)
Flowers Industries, Inc. 8 114
H.J. Heinz Company 2 51
Kellogg Company 3 68
The Clorox Company 2 85
The Gillette Company 4 141
Tootsie Roll Industries, Inc. 1 31
Whitman Corporation 1 11
------
636
------
Consumer Services -- 2.9%
Bob Evans Farms, Inc. N.M. 4
Premier Parks Inc. 1 22
Speedway Motorsports, Inc. 1 33(A)
The Walt Disney Company 2 104
Tribune Company 3 97
------
260
------
Energy -- 3.8%
Barrett Resources Corporation 1 29(A)
Evergreen Resources, Inc. 8 176(A)
Tom Brown, Inc. 4 67(A)
Unocal Corporation 2 71
------
343
------
</TABLE>
11
<PAGE> 13
Schedule of Securities Sold Short -- Continued
Legg Mason Light Street Trust, Inc.
Market Neutral Trust -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance -- 11.3%
Associates First Capital Corporation 2 $ 44
Bank of America Corporation 2 79
Bank One Corporation 3 76
First Union Corporation 6 179
First Virginia Banks, Inc. 2 73
Greater Bay Bancorp 1 47
Mellon Financial Corporation 3 96
People's Bank 6 128
Sovran Self Storage Incorporated 1 14
Sun Communities, Inc. 1 40
SunTrust Banks, Inc. 1 56
The South Financial Group, Inc. 1 18
Trizec Hahn Corporation 3 55
Vornado Realty Trust 1 35
Wells Fargo & Company 2 82
------
1,022
------
Health Care -- 5.4%
ALZA Corporation 2 92(A)
American Home Products Corporation 3 152
Barr Laboratories, Inc. 1 26(A)
Inhale Therapeutic Systems, Inc. 1 49
Invitrogen Corporation 1 50
Novoste Corporation 1 45
Ocular Sciences, Inc. 2 27(A)
ResMed Inc. 1 48
------
489
------
Insurance -- 5.4%
Markel Corporation 1 102(A)
Mutual Risk Management Ltd. 6 91
Reinsurance Group of America, Incorporated 4 107
The Progressive Corporation 2 137
UnumProvident Corporation 3 54
------
491
------
Metals and Minerals -- 3.6%
Georgia-Pacific Corporation (Timber Group) 4 95(A)
Martin Marietta Materials, Inc. 1 64
Placer Dome Inc. 15 120
Plum Creek Timber Company Inc. 2 49
------
328
------
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Process Industries -- 4.1%
Air Products and Chemicals, Inc. 3 $ 78
Chesapeake Corporation 1 22
Corn Products International, Inc. 2 43
Fort James Corporation 3 74
Wausau-Mosinee Paper Corporation 13 156
------
373
------
Retail -- 7.3%
Albertson's Inc. 6 209
Consolidated Stores Corporation 8 103(A)
99 Cents Only Stores N.M. N.M.(A)
O'Reilly Automotive, Inc. 6 78(A)
Venator Group, Inc. 7 78(A)
Walgreen Co. 5 127
Williams-Sonoma, Inc. 2 66(A)
------
661
------
Technology -- 7.8%
Alpha Industries, Inc. N.M. 21(A)
Compaq Computer Corporation 4 123
CTS Corporation 2 95
EMCORE Corporation 1 43(A)
Gateway, Inc. 2 99(A)
General Semiconductor, Inc. 4 74(A)
hi/fn, inc. 1 24(A)
Jabil Circuit, Inc. 1 53(A)
Micron Technology, Inc. 1 98(A)
Park Electrochemical Corp. 1 28
Solectron Corporation 1 37(A)
Supertex, Inc. N.M. 12(A)
------
707
------
Technology Services -- 1.6%
CIBER, Inc. 3 49(A)
DBT Online, Inc. N.M. 4(A)
go.com 4 47(A)
Infonet Services Corporation 3 45(A)
------
145
------
Transportation -- 4.3%
CSX Corporation 3 67
Knight Transportation, Inc. N.M. 4(A)
Northwest Airlines Corporation 4 101(A)
</TABLE>
13
<PAGE> 15
Schedule of Securities Sold Short -- Continued
Legg Mason Light Street Trust, Inc.
Market Neutral Trust -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation -- Continued
Swift Transportation Co., Inc. 4 $ 74(A)
US Airways Group, Inc. 3 75(A)
Werner Enterprises, Inc. 4 68
------
389
------
Utilities -- 10.7%
American Electric Power Company 5 183
American Water Works Company, Inc. 3 61
Cinergy Corp. 2 51
CMS Energy Corporation 10 181
El Paso Energy Corporation 3 106
Northern States Power Company 5 98
Potomac Electric Power Company 7 160
The Montana Power Company 2 93
Washington Gas Light Company 1 33
------
966
------
Total Common Stock and Equity Interests Sold Short
(Proceeds -- $7,875) $7,893
-------------------------------------------------------------------------------------------------
</TABLE>
(A)Non-income producing.
N.M. -- Not meaningful.
See notes to financial statements.
14
<PAGE> 16
Statement of Net Assets
Legg Mason Light Street Trust, Inc.
April 30, 2000 (Unaudited)
(Amounts in Thousands)
Classic Valuation Fund
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 98.4%
Business Services -- 3.0%
Reuters Group PLC - ADR 1 $ 135
------
Capital Goods -- 20.5%
Caterpillar Inc. 1 59
Deere & Company 2 71
Diebold, Incorporated 1 36
ECI Telecom Limited 2 64
General Dynamics Corporation 1 80
Koninklijke (Royal) Philips Electronics N.V. - ADR 3 152
Northrop Grumman Corporation 2 122
Raytheon Company - Class B 2 40
Synopsys Inc. 1 55(A)
Teleglobe Inc. 5 116
The Boeing Company 3 99
Xerox Corporation 1 34
------
928
------
Commercial/Industrial Services -- 0.6%
Service Corporation International 6 30
------
Consumer Durables -- 4.7%
Computer Associates International, Inc. 1 54
General Motors Corporation 1 108
Whirlpool Corporation 1 53
------
215
------
Consumer Non-Durables -- 13.6%
Eastman Kodak Company 1 72
Federated Department Stores, Inc. 2 69(A)
J.C. Penney Company, Inc. 3 42
Keane, Inc. 3 92(A)
Modis Professional Services, Inc. 6 42(A)
Novartis AG - ADR 1 87
Philip Morris Companies Inc. 2 42
Quintiles Transnational Corporation 3 48(A)
Sara Lee Corporation 3 44
Zale Corporation 2 77(A)
------
615
------
</TABLE>
15
<PAGE> 17
Statement of Net Assets -- Continued
Legg Mason Light Street Trust, Inc.
Classic Valuation Fund -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy -- 10.4%
BP Amoco Plc 1 $ 62
Conoco Inc. - Class B 2 59
Lyondell Chemical Company 2 43
Sunoco, Inc. 2 62
Tosco Corporation 1 45
Transocean Sedco Forex Inc. 1 44
Union Pacific Resources Group Inc. 5 89
Unocal Corporation 2 69
------
473
------
Financial Services -- 18.1%
Ambac Financial Group, Inc. 1 53
Bank of America Corporation 2 91
CIT Group, Inc. 5 79
Countrywide Credit Industries, Inc. 3 78
Everest Reinsurance Group Limited 2 53
FleetBoston Financial Corporation 2 71
MetLife, Inc. 3 41(A)
Nationwide Financial Services, Inc. 3 72
Paine Webber Group Inc. 1 41
SLM Holding Corporation 2 67
The Allstate Corporation 2 36
Washington Mutual, Inc. 3 66
XL Capital Ltd. 1 71
------
819
------
Intermediate Manufacturing -- 10.4%
Air Products and Chemicals, Inc. 2 48
Alcan Aluminum Ltd. 2 56
De Beers - ADR 2 46
Engelhard Corporation 3 51
FMC Corporation 1 47(A)
Georgia-Pacific Group 1 50
Phelps Dodge Corporation 2 73
PPG Industries, Inc. 1 55
Sappi Limited - ADR 6 44
------
470
------
Transportation -- 4.0%
CNF Transportation Inc. 2 51
CSX Corporation 1 25
Tidewater Inc. 4 106
------
182
------
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- 13.1%
Bell Canada 4 $ 106
Edison International 4 72
GTE Corporation 1 95
Kinder Morgan, Inc. 3 85
MCN Energy Group Inc. 3 86
Niagara Mohawk Holdings, Inc. 5 70(A)
Unicom Corporation 2 79
------
593
------
Total Common Stocks and Equity Interests (Identified
Cost -- $4,538) 4,460
-------------------------------------------------------------------------------------------------
Total Investments -- 98.4% (Identified Cost -- $4,538) 4,460
Other Assets Less Liabilities -- 1.6% 71
------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
453 shares outstanding $4,520
Undistributed net investment income 6
Accumulated net realized gain/(loss) on investments 83
Unrealized appreciation/(depreciation) of investments (78)
------
NET ASSETS -- 100.0% $4,531
======
NET ASSET VALUE PER SHARE $ 9.99
======
-------------------------------------------------------------------------------------------------
</TABLE>
(A)Non-income producing.
N.M. -- Not meaningful.
See notes to financial statements.
17
<PAGE> 19
Statements of Operations
Legg Mason Light Street Trust, Inc.
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 4/30/00
----------------------------------------
Market Neutral Classic Valuation
Trust Fund(A)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends(B) $ 355 $ 33
Interest 113 4
------- ----
Total income 468 37
------- ----
Expenses:
Investment advisory fee 128 12
Distribution and service fees 67 16
Transfer agent and shareholder servicing expense 6 2
Dividend expense for securities sold short 151 N/A
Audit and legal fees 21 8
Custodian fee 57 34
Offering expense -- 12
Registration expense 9 4
Reports to shareholders 9 1
Directors' fees 5 3
Other expenses 1 7
------- ----
454 99
Less fees waived and expenses reimbursed (101) (68)
------- ----
Total expenses, net of waivers and reimbursement 353 31
------- ----
NET INVESTMENT INCOME 115 6
------- ----
Net Realized and Unrealized Gain/(Loss) on:
Realized gain/(loss) on:
Investments 635 83
Securities sold short (1,402) N/A
Change in unrealized appreciation/(depreciation) of:
Investments 496 (78)
Securities sold short (735) N/A
------- ----
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND
SECURITIES SOLD SHORT (1,006) 5
------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ (891) $ 11
------------------------------------------------------------------------------------------------------
</TABLE>
(A)For the period November 8, 1999 (commencement of operations) to April 30,
2000.
(B)Net of $1 foreign tax expense for Classic Valuation.
N/A -- Not applicable.
See notes to financial statements.
18
<PAGE> 20
Statements of Changes in Net Assets
Legg Mason Light Street Trust, Inc.
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Market Classic
Neutral Valuation
Trust Fund
---------------------------- ---------
Six Months Period Period
Ended Ended Ended
4/30/00 10/31/99(A) 4/30/00(A)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in Net Assets:
Net investment income $ 115 $ 199 $ 6
Net realized gain/(loss) on investments and securities sold
short (767) (1,603) 83
Change in unrealized appreciation/(depreciation) of
investments and securities sold short (239) 887 (78)
-----------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (891) (517) 11
Distributions to shareholders from net investment income (145) (145) --
Change in net assets from Fund share transactions (7,425) 18,075 4,470
-----------------------------------------------------------------------------------------------------------
Change in net assets (8,461) 17,413 4,481
Net Assets:
Beginning of period 17,513 100 50
-----------------------------------------------------------------------------------------------------------
End of period $ 9,052 $17,513 $4,531
-----------------------------------------------------------------------------------------------------------
Undistributed net investment income $ 56 $ 86 $ 6
-----------------------------------------------------------------------------------------------------------
</TABLE>
(A)Commencement of operations:
Market Neutral Trust -- February 16, 1999
Classic Valuation Fund -- November 8, 1999
See notes to financial statements.
19
<PAGE> 21
Financial Highlights
Contained below is per share operating performance data for a Primary Class
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
Value, Investment and Unrealized From Net Realized
Beginning Income/ Gain/(Loss) on Investment Investment Gain on Total
of Period (Loss) Investments Operations Income Investments Distributions
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Neutral Trust
Six Months Ended
April 30, 2000(A) $ 9.60 $.10(B) $(.73) $(.63) $(.09) $ -- $(.09)
Period Ended Oct. 31,
1999(E) 10.00 .11(B) (.43) (.32) (.08) -- (.08)
Classic Valuation Fund
Period Ended
April 30, 2000(A,F) $10.00 .$01(G) $(.02) $(.01) $ -- $ -- $ --
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------
Net
Net Asset Investment Net Assets,
Value, Expenses Income/(Loss) Portfolio End of
End of Total to Average to Average Turnover Period
Period Return Net Assets Net Assets Rate (in thousands)
-------------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Market Neutral Trust
Six Months Ended
April 30, 2000(A) $8.88 (6.49)%(C) 3.00%(B,D) 1.71%(B,D) 485.6%(D) $ 9,052
Period Ended Oct. 31,
1999(E) 9.60 (3.20)%(C) 3.00%(B,D) 1.70%(B,D) 481.5%(D) 17,513
Classic Valuation Fund
Period Ended
April 30, 2000(A,F) $9.99 (1.0)%(C) 2.00%(D,G) .34%(D,G) 75.9%(D) $ 4,531
--------------------------
</TABLE>
(A)Unaudited.
(B)Net of fees waived pursuant to a contractual expense limitation of 3.00% of
average daily net assets through February 28, 2001. If no fees had been
waived by Legg Mason Fund Adviser, Inc., the annualized ratio of expenses to
average net assets for the period ended April 30, 2000, and for the year
ended October 31, 1999, including dividend expense for securities sold short,
would have been 6.76% and 6.70%, respectively.
(C)Not annualized.
(D)Annualized.
(E)For the period February 16, 1999 (commencement of operations) to October 31,
1999.
(F)For the period November 8, 1999 (commencement of operations) to April 30,
2000.
(G)Net of fees waived pursuant to a contractual expense limitation of 2.00% of
average daily net assets until December 31, 2000. If no fees had been waived
by Legg Mason Fund Adviser, Inc., the annualized ratio of expenses to average
net assets for the period ended April 30, 2000, would have been 6.36%.
See notes to financial statements.
20
<PAGE> 22
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 ("Market Neutral") and the Classic Valuation Fund ("Classic
Valuation") (each a "Fund"), is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified investment company.
Each Fund consists of two classes of shares: Primary Class, offered since
February 16, 1999, for Market Neutral; and since November 8, 1999, for Classic
Valuation; and Navigator Class, offered only to certain institutional investors.
The Navigator Classes have not commenced operations.
Security Valuation
Securities owned by the Funds and securities sold short by Market Neutral
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 in accordance with guidelines established by the Funds'
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 Funds' advisers to be the primary market. The Funds will value
their foreign securities in U.S. dollars on the basis of the then-prevailing
exchange rates. Fixed income 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 for Market Neutral and
annually for Classic Valuation. 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 accounting principles generally accepted in the United States;
accordingly, reclassifications are made within a 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, 2000,
receivables for securities sold and payables for securities purchased for each
Fund were as follows:
<TABLE>
<CAPTION>
Receivable for Payable for
Securities Sold Securities Purchased
---------------------------------------------------------
<S> <C> <C>
Market Neutral $1,482 $1,546
Classic Valuation 109 141
</TABLE>
Short Sales
Market Neutral 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
21
<PAGE> 23
Notes to Financial Statements -- Continued
--------------------------------------------------------------------------------
which the Fund 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, 2000, the value of securities sold short amounted to $7,893,
against which collateral of $17,210 was held. The collateral includes the Morgan
Stanley deposit account, Goldman, Sachs & Company 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 $32 for Market Neutral were fully expensed at
October 31, 1999. Deferred offering costs of $23 for Classic Valuation are being
expensed over the twelve-month period beginning November 8, 1999 (commencement
of operations). Organization costs of the Funds have been expensed as incurred,
and as of October 31, 1999, organization costs for Market Neutral of $90 were
borne by Legg Mason Fund Adviser ("LMFA"), the Funds' investment manager, and
are subject to reimbursement by the Fund through January 15, 2002.
Federal Income Taxes
No provision for federal income or excise taxes is required since the Funds
intend to qualify or continue to qualify as regulated investment companies and
distribute substantially all of their taxable income to their shareholders. At
April 30, 2000, Market Neutral had a capital loss carryforward for federal
income tax purposes of $1,542, expiring in 2007.
Use of Estimates
Preparation of the financial statements in accordance with accounting
principles generally accepted in the United States 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 six months ended April 30, 2000, investment transactions (excluding
short-term investments) were as follows:
<TABLE>
<CAPTION>
Proceeds From
Purchases Sales
--------------------------------------------
<S> <C> <C>
Market Neutral $16,635 $27,214
Classic Valuation 5,510 1,056
</TABLE>
At April 30, 2000, cost/proceeds, aggregate gross unrealized appreciation
and gross unrealized depreciation based on the cost of securities for federal
income tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Cost/ Net Appreciation/
Proceeds Appreciation Depreciation (Depreciation)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Neutral:
Investments $8,493 $962 $(296) $666
Short Sales 7,875 367 (385) (18)
Classic Valuation:
Investments 4,538 289 (367) (78)
</TABLE>
22
<PAGE> 24
--------------------------------------------------------------------------------
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 Funds' 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.
Each Fund's investment adviser 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:
Each Fund has a management agreement with LMFA. Pursuant to their
respective agreements, LMFA provides the Funds with investment management and
administrative services for which each Fund pays a fee, computed daily and
payable monthly, at an annual rate of each Fund's respective daily net assets.
Under the terms of each investment management agreement, LMFA is required to
bear any expenses through the respective expiration dates, including
organization costs, which would cause the Funds' ratio of expenses to average
net assets to exceed a certain set percentage as described below ("percentage").
Thereafter, 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 Funds' ratio of expenses to average net
assets to exceed the percentage.
LMFA has agreed to waive its fees in any month (exclusive of taxes,
interest, brokerage and extraordinary expenses) as shown in the following chart:
<TABLE>
<CAPTION>
Management Expense Expense Limitation Management Expenses
Fund Fee Limitation Expiration Date Fees Waived* Reimbursed
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Neutral 1.90% 3.00% February 28, 2001 $327 $--
Classic Valuation 0.75% 2.00% December 31, 2000 12 40
</TABLE>
Any amounts waived or reimbursed in a particular fiscal year will be
subject to repayment by a Fund to LMFA to the extent that, from time to time
during the next three fiscal years, the repayment will not cause a Fund's
expenses to exceed the limit, if any, imposed by LMFA at that time.
Batterymarch Financial Management, Inc. ("Batterymarch") serves as
investment advisor to Market Neutral. Batterymarch is responsible for the actual
investment activity of the Fund. LMFA pays Batterymarch 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. Fees paid to Batterymarch are net of any waivers.
Brandywine Asset Management, Inc. ("Brandywine") serves as investment
advisor to Classic Valuation. Brandywine is responsible for the daily management
of the Fund. LMFA pay Brandywine a fee, computed and payable monthly, at an
annual rate of 60% of the fee it receives from the Fund. Fees paid to Brandywine
are net of any waivers.
23
<PAGE> 25
Notes to Financial Statements -- Continued
--------------------------------------------------------------------------------
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New
York Stock Exchange, serves as distributor for the Funds. Legg Mason receives an
annual distribution fee and an annual service fee based on each Fund's Primary
Class's average daily net assets, computed daily and payable monthly as follows:
<TABLE>
<CAPTION>
Period Ended
April 30, 2000 At April 30, 2000
------------------------ ------------------------
Distribution Service Distribution and Service Distribution and Service
Fund Fee Fee Fees Waived Fees Payable
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Neutral 0.75% 0.25% $ -- $ 8
Classic Valuation 0.75% 0.25% 16 --
</TABLE>
---------------
*Subject to recapture.
No brokerage commissions were paid by the Funds to Legg Mason or its
affiliates during the period ended April 30, 2000.
Legg Mason also has an agreement with the Funds' transfer agent to assist
it with some of its duties. For this assistance, the transfer agent paid Legg
Mason $1 for both Market Neutral and Classic Valuation for the period ended
April 30, 2000.
LMFA, Legg Mason, Batterymarch and Brandywine are corporate affiliates and
wholly owned subsidiaries of Legg Mason, Inc.
5. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate 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 Credit Agreement bear interest at prevailing
short-term interest rates. For the period ended April 30, 2000, the Funds had no
borrowings under the Credit Agreement.
6. Fund Share Transactions:
At April 30, 2000, there were 450,000 and 200,000 shares authorized at
$.001 par value for Market Neutral and Classic Valuation, respectively. 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>
Market Neutral
Six Months Ended April 30, 2000 191 $ 1,796 14 $130 (1,009) $(9,351) (804) $(7,425)
Period Ended October 31, 1999(A) 2,499 24,632 14 137 (699) (6,694) 1,814 18,075
Classic Valuation
Period Ended April 30, 2000(B) 512 $ 5,086 -- $ -- (64) $ (616) 448 $ 4,470
</TABLE>
---------------
(A)For the period February 16, 1999 (commencement of operations) to October 31,
1999.
(B)For the period November 8, 1999 (commencement of operations) to April 30,
2000.
24
<PAGE> 26
(THIS PAGE INTENTIONALLY LEFT BLANK)
25
<PAGE> 27
(THIS PAGE INTENTIONALLY LEFT BLANK)
26
<PAGE> 28
[LEGG MASON LOGO]
Legg Mason offers a wide range of mutual funds to meet investors' varying
financial needs and investment goals. The funds are listed below:
<TABLE>
EQUITY FUNDS: SPECIALTY FUNDS:
<S> <C>
Value Trust, Inc. Market Neutral Trust
Special Investment Trust, Inc. Balanced Trust
Total Return Trust, Inc. Financial Services Fund
American Leading Companies Trust Opportunity Trust
Classic Valuation Fund
Focus Trust, Inc.
U.S. Small-Capitalization Value Trust
</TABLE>
<TABLE>
<CAPTION>
GLOBAL FUNDS: TAXABLE BOND FUNDS:
<S> <C>
Global Income Trust U.S. Government Intermediate-Term Portfolio
Europe Fund Investment Grade Income Portfolio
International Equity Trust High Yield Portfolio
Emerging Markets Trust
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE BOND FUNDS: MONEY MARKET FUNDS:
<S> <C>
Tax-Free Intermediate-Term Income Trust U.S. Government Money Market Portfolio
Maryland Tax-Free Income Trust Cash Reserve Trust
Pennsylvania Tax-Free Income Trust Tax Exempt Trust, Inc.
</TABLE>
For information on the specific risks, charges, and expenses associated with any
Legg Mason fund, please consult a Legg Mason Financial Advisor for a prospectus.
Read it carefully before investing or sending money.
