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Quarterly Report
March 31, 2000
Legg Mason
Investment
Trust, Inc.
Opportunity Trust
[LEGG MASON FUNDS LOGO]
The Art of Investing/SM/
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To Our Shareholders,
We are pleased to provide you with the first quarterly report for your Fund,
the Legg Mason Opportunity Trust. The Fund was launched on December 30, 1999,
and at this writing has more than $500 million in net assets. As of March 31,
2000, the net asset value of the Primary Class of shares was $10.67.
The following table summarizes key statistics for the Primary Class of shares
of your Fund, as of March 31, 2000:
Total Return/1/
-----------------------------
3 Months Since Inception/2/
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6.70% 6.70%
On the following pages, Opportunity Trust's portfolio manager, Bill Miller,
discusses the Fund, his portfolio strategy and the investment outlook.
We encourage you to visit our Web site at www.leggmasonfunds.com. This site
is (we hope) a good source of information about Opportunity Trust and other
Legg Mason Funds. Here you will find recent fund statistics, articles written
about Bill and other Legg Mason portfolio managers, fund shareholder reports,
and fund prospectuses. If you wish to use this site to view your account
online, please talk to your Legg Mason Financial Advisor or call Legg Mason
Funds Investor Services at 1-800-822-5544.
As always, we appreciate your support and welcome your comments.
Sincerely,
/s/ Jennifer W. Murphy
----------------------
Jennifer W. Murphy
President
April 17, 2000
/1/ Total return measures investment performance in terms of appreciation or
depreciation in net asset value per share plus dividends and any capital
gain distributions. It assumes that dividends and distributions were
reinvested at the time they were paid.
/2/ The Fund's inception date is December 30, 1999.
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Portfolio Manager's Comments
Legg Mason Investment Trust, Inc.
Opportunity Trust
"When we think about the future of the world, we always have in mind its
being at the place where it would be if it continued to move as we see it
moving now. We do not realize that it moves not in a straight line . . . and
that its direction changes constantly."
Wittgenstein
Welcome to the Legg Mason Opportunity Trust. I appreciate the confidence
you've shown by investing in a new fund with no record and a wide-open mandate.
As of this writing, shareholders have invested over $500 million in the Fund,
giving us ample capital to put to work on your behalf.
Your Fund differs from many others operating in the markets by not having any
a priori investment focus beyond that of acquiring assets at prices that we
believe will result in favorable returns for our owners. The Fund is also non-
diversified, which means that we have the ability to concentrate our investments
more than funds that are not so categorized. This can lead to greater volatility
and carries potentially more risk than if our investments were more spread out.
Our prospectus gives us broad investment discretion to invest in almost any
array of securities and other instruments as we see opportunities. This wide
latitude will make it difficult for you to know in advance how your money is
being invested. It will also make it difficult for you to know how to judge our
results, since finding an appropriate benchmark will be problematic.
For all of the above reasons, you may not want this to be your only fund, or
to be your primary investment vehicle. The Fund is an experiment in investment
management. I have made a substantial personal investment in the Fund so if
something goes awry, I will share in the consequences. For an exhausting but not
exhaustive list of the terrible things that might happen to you if you choose to
keep your money in the Fund, expressed in the finest legalese, please see the
prospectus.
We have gotten off to a solid start. The Fund as of this writing is up
(barely) for the year. As you know, the stock market is down, with the various
indices having suffered declines ranging from more than 7% for the S&P 500 to
over 18% for the NASDAQ. At the beginning of the year we decided to play defense
for a while, investing our cash slowly, electing to avoid most of the action in
the then exuberant technology sector.
Our holdings look much like what the Europeans call a recovery fund. We own a
variety of mostly damaged merchandise, companies that have missed earnings
estimates or whose growth has slowed or who are believed to be in some kind of
distress. In all cases, we believe the securities are mispriced. We have already
made one mistake: we bought bonds issued by Globalstar, a satellite phone
company, thinking that if the stock was worth remotely what the market thought
- -- it was over 50 in early January -- the bonds were a steal in the low 60's.
Unfortunately, our reasoning was flawless; the stock was not worth anything
close to where it was trading: it is now around 9. In April, we sold the bonds
at a loss, which we will use to offset some of the short-term gains from our
U.S. Foodservice holding. That investment was more successful.
2
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We bought U.S. Foodservice in the low teens, where it had collapsed after it
reported revenues that were modestly below expectations. Not long thereafter,
the Dutch grocer Ahold offered to acquire the company at almost twice what we
paid. Another of our holdings, WestPoint Stevens, is going private at a
substantial premium to our purchase price. Both will result in short-term
capital gains. We hope the Fund will be reasonably tax efficient, but how
reasonably is not forecastable at this early date.
Our holdings are listed elsewhere in this report. We own only about 20 or so
stocks; the average mutual fund owns over 100. Concentrating our holdings allows
us to devote more research effort to each name and does not dilute our returns
if we are right. It also does not dilute our losses if we are wrong.
We are agnostic about the direction of the market and have no idea what it
will do over any short to intermediate time frame, i.e., in the next year or so.
Over longer time periods the market tends to rise because corporate profits
rise, so generally the wind is at your back if you're an investor. We like to
say we believe the market is directionally efficient but cross-sectionally
inefficient. That means we think you can't earn an excess return trying to
forecast the market's moves, but you can sometimes find securities within the
market whose pricing is inconsistent with long-term fundamentals. That creates
an opportunity.
We think that even after its decline the technology sector remains richly
priced, though some pockets of value are beginning to emerge. Outside of
technology, the market is not expensive. The median stock with earnings trades
at about 13x earnings compared with a multiple of almost 20x in April of 1998.
Adjusted for interest rates and inflation, the average stock today is not much
more expensive than it was after the Crash in 1987. The overall market looks
expensive because its valuation is skewed by very large capitalization stocks
such as GE, Intel, Microsoft, Cisco, Dell and Sun that trade at high multiples.
There is plenty of value outside the mega-cap area, and maybe some within it.
This Fund intends to take a long-term view in its investments and we will
ignore short-term fluctuations. If you are not prepared to do the same, you
should not own this Fund. If you are a long-term investor, we welcome you as a
shareholder and appreciate your confidence and trust. If you see an outstanding
investment opportunity, please let us know. Our governing objective is to
maximize shareholder value.
Bill Miller, CFA
April 17, 2000
DJIA 10582.51
3
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Portfolio of Investments
Legg Mason Investment Trust, Inc.
March 31, 2000 (Unaudited)
(Amounts in Thousands)
Opportunity Trust
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks and Equity Interests -- 84.7%
Capital Goods -- 6.3%
Waste Management
Republic Services, Inc. 3,000 $ 32,812/A/
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Communication Services -- 0.3%
Telecommunications (Cellular/Wireless)
China Telecom (Hong Kong) Limited 10 1,773/A/
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Consumer Cyclicals -- 28.1%
Gaming, Lottery and Parimutuel Companies -- 2.8%
Mandalay Resort Group 875 14,766/A/
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Retail (Apparel) -- 4.7%
Abercrombie & Fitch Co. 1,500 24,000/A/
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Retail (Discounters) -- 4.8%
Ames Department Stores, Inc. 1,025 25,177/A/
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Retail (Home Shopping) -- 1.2%
Amazon.com, Inc. 90 6,030/A/
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Retail (Speciality) -- 4.5%
Toys "R" Us, Inc. 1,600 23,700/A/
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Services (Advertising/Marketing) -- 4.0%
Acxiom Corporation 632 21,004/A/
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Services (Commercial and Consumer) -- 3.1%
Viad Corp. 709 16,225
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Textiles (Home Furnishings) -- 3.0%
WestPoint Stevens Inc. 814 15,468
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Consumer Staples -- 13.9%
Distributors (Food and Health) -- 4.9%
U.S. Foodservice 1,000 25,750/A/
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Housewares -- 4.2%
Tupperware Corporation 1,375 21,742
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</TABLE>
4
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<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples -- (continued)
Restaurants -- 4.8%
Tricon Global Restaurants, Inc. 800 $ 24,850/A/
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Financials -- 26.8%
Banks (International) -- 2.2%
Lloyds TSB Group plc 1,100 11,629
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Banks (Major Regional) -- 9.1%
AmSouth Bancorporation 1,400 20,912
U.S. Bancorp 1,225 26,797
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47,709
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Financial (Diversified) -- 6.7%
The CIT Group, Inc. 725 14,137
The FINOVA Group Inc. 1,244 20,915
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35,052
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Insurance (Life/Health) -- 4.6%
UnumProvident Corporation 1,400 23,800
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Savings and Loan Companies -- 4.2%
Washington Mutual Inc. 825 21,862
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Technology -- 9.3%
Computers (Hardware) -- 5.8%
Gateway, Inc. 575 30,475/A/
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Computers (Software / Services) -- 3.5%
America Online, Inc. 275 18,494/A/
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Total Common Stocks and Equity Interests (Identified Cost -- $416,078) 442,318
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Corporate and Other Bonds -- 1.1%
Globalstar LP/Capital, 13.375%, due 2/15/04 $16,000 5,760
--------
Total Corporate and Other Bonds (Identified Cost -- $10,474) 5,760
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</TABLE>
5
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Portfolio of Investments -- Continued
Opportunity Trust -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
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<S> <C> <C>
Repurchase Agreements -- 16.3%
Bank of America
6.15%, dated 3/31/00, to be repurchased at $42,441 on 4/3/00
(Collateral: $47,375 Freddie Mac mortgage-backed securities,
6 - 7.50%, due 9/1/28 - 2/1/30, value $43,602) $42,419 $ 42,419
Goldman,Sachs & Company
6.15%, dated 3/31/00, to be repurchased at $42,441 on 4/3/00
(Collateral: $48,074 Fannie Mae mortgage-backed securities,
6%, due 10/1/29, value $43,973) 42,420 42,420
--------
Total Repurchase Agreements (Identified Cost-- $84,839) 84,839
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Total investments -- 102.1%(Identified Cost -- $511,391) 532,917
Other assets less liabilities -- (2.1)% (10,950)
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Net assets -- 100.0% $521,967
========
Net asset value per share $10.67
======
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</TABLE>
/A/ Non-income producing.
6
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[LEGG MASON FUNDS LOGO]
The Art of Investing/SM/
Legg Mason offers a wide range of mutual funds to meet investors' varying
financial needs and investment goals. The funds are listed below:
- --------------------------------------------------------------------------------
Equity Funds: Specialty Funds:
- --------------------------------------------------------------------------------
Value Trust, Inc. Market Neutral Trust
Special Investment Trust, Inc. Balanced Trust
Total Return Trust, Inc. Financial Services Fund
American Leading Companies Opportunity Trust
Trust
Classic Valuation Fund
Focus Trust, Inc.
U.S. Small-Capitalization
Value Trust
- --------------------------------------------------------------------------------
Global Funds: Taxable Bond Funds:
- --------------------------------------------------------------------------------
Global Income Trust U.S. Government Intermediate-Term
Europe Fund Portfolio
International Equity Trust Investment Grade Income Portfolio
Emerging Markets Trust High Yield Portfolio
- --------------------------------------------------------------------------------
Tax-Free Bond Funds: Money Market Funds:
- --------------------------------------------------------------------------------
Tax-Free Intermediate-Term U.S. Government Money Market
Income Trust Portfolio
Maryland Tax-Free Income Trust Cash Reserve Trust
Pennsylvania Tax-Free Income Trust Tax Exempt Trust, Inc.
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.
<PAGE>
Investment Adviser
LMM, LLC
Baltimore, MD
Board of Directors
John F. Curley, Jr., Chairman
Jennifer W. Murphy, 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, DC
Independent Auditors
Ernst & Young LLP
Philadelphia, PA
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-088
5/00
