<PAGE>
Semi-Annual Report
June 30, 2000
Legg Mason
Investment
Trust, Inc.
Opportunity Trust
Primary Class
[LEGG MASON LOGO]
The Art of Investing/SM/
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
8/00
<PAGE>
Portfolio Manager's Comments
Legg Mason Investment Trust, Inc.
Opportunity Trust
Total Returns, Periods Ending June 30, 2000
-------------------------------------------
First Second Since
Quarter Quarter Inception*
--------------------------------------------------------------------------
Opportunity Trust +6.70% -2.72% +3.80%
S&P 500 Composite Index +2.29% -2.66% -0.42%
Dow Jones Industrial Average -4.65% -3.98% -8.44%
Lipper Diversified Equity Funds +7.04% -3.15% +3.65%
-------------
* Inception: December 30, 1999.
With our first six months of existence completed, the Opportunity Trust
continues to be comfortably ahead of the market and to have strong growth in
assets.
Portfolio activity was moderate in the quarter, but it may give you some
insight into how your money is being managed. The acquisition of U.S.
Foodservice was completed in the quarter, an event I wrote about in the previous
letter. The Globalstar bonds were sold at a loss and the proceeds were
reinvested in the convertible bonds of Amazon.com, a position we have continued
to increase. CIT Group shares were sold in favor of the even more depressed
shares of FINOVA, a transaction that so far is working out nicely. China Telecom
was sold because we didn't want to be subject to the vagaries of how the Chinese
government was going to operate with its cellular licenses.
On the buy side, in addition to Amazon, we added unregistered shares of
Acxiom, a business services company with a very powerful new technology that we
think will significantly accelerate growth over the next five years. The shares
will be fully registered soon. We covered our short position in the QQQ's, the
NASDAQ 100 Trust, at a nice profit. We subsequently put that short back on
again, where it remains as of this writing. Young & Rubicam is an advertising
agency being bought by WPP Group. When the deal was announced the arbitrage
spread was unnaturally wide, so we bought Y&R. The spread has narrowed and we
have since taken our profits.
Unisys is a computer services and hardware company whose shares we were too
early on, since the stock has collapsed due to poor earnings. The shares were
already in half due to disappointing results; we wrongly thought the risk was
largely gone. But the company issued another warning and the shares went in half
again. Those of you familiar with Zeno of Elea will recognize that this process
has no theoretical end, though the non-infinite divisibility of the currency
provides some downside protection. We remain buyers.
Cott is the leading supplier of private label beverages in the U.S. and
Canada. We purchased our position from the Legg Mason Special Investment Trust,
where legal restrictions prevented that fund from buying additional shares. The
asset growth in Special, coupled with the stagnation in the share price of Cott,
led to its being a small stock in a big fund. It's now one of our biggest
positions. Led by Frank Weiss, formerly CFO of Campbell Soup, and controlled by
venture firm Thomas Lee, which funded Snapple, Cott is showing solid growth and
experiencing excellent free cash flow. Selling at 10x next year's estimated
earnings and 6x estimated free cash flow, we believe Cott is significantly
undervalued.
<PAGE>
Portfolio Manager's Comments - Continued
Legg Mason Investment Trust, Inc.
A word is in order on Amazon. The shares fell sharply because second quarter
revenues were below some analysts' expectations, and because of concerns about
the company's financial position. We were quite pleased with the improvements in
productivity evident in the quarter. I think the issues surrounding Amazon's
financial condition reflect either a poor understanding of the company's
financial model, or excessively pessimistic assumptions about the growth of
consumer online commerce.
The situation appears similar to that surrounding America Online when it was
feared they were going to run out of money in late 1996. Those fears were
somewhat misplaced, since the company has gone from $1 billion in revenues five
years ago to $1 billion in profits and $1 billion in free cash in the year just
ended. Amazon is not as undervalued now as AOL was then, but we do believe it is
undervalued, perhaps substantially. When the shares dropped, we sold our common
stock and bought more of the convertible bonds. We got a tax loss we can use to
offset gains, and increased our exposure to Amazon at what we believe are quite
favorable prices. Our position in the convertible bond just requires that they
be in business and solvent over the next eight years for us to make money. If it
turns out that the stock does well, we will participate through the
convertibility feature.
Some shareholders have taken the time to write and suggest that we look into
various investments, which we appreciate. We have not purchased any shareholder-
inspired ideas yet, but remain hopeful that an astute Fund owner will suggest
something that goes up 50 or 100 times (after we buy it). Short ideas are also
welcome, but since the maximum gain there is 100% and the maximum loss infinite,
the quantitative attractions are less than where the situation is reversed.
Bill Miller, CFA
July 24, 2000
DJIA 10684.77
2
<PAGE>
Performance Information
Legg Mason Investment Trust, Inc.
Total Returns for Life of Class as of June 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 the Fund's 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. The
investment return and principal value of an investment in this Fund 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.
The Fund has two classes of shares: Primary Class and Navigator Class.
Information about the Navigator Class, offered only to certain institutional
and other investors, is contained in a separate report to its shareholders.
The Fund's total return from its inception at December 30, 1999 through
June 30, 2000, was +3.80% for Primary Class Shares.
------------------------------
Selected Portfolio Performance
<TABLE>
<CAPTION>
Strong performers for the 2nd quarter 2000(dagger) Weak performers for the 2nd quarter 2000(dagger)
-------------------------------------------------- ------------------------------------------------
<S> <C>
1. Republic Services, Inc. +46.3% 1. Ames Department Stores, Inc. -68.4%
2. Tupperware Corporation +39.1% 2. WestPoint Stevens Inc. -41.4%
3. Viad Corp +19.1% 3. Abercrombie & Fitch Co. -23.8%
4. Mandalay Resort Group +18.5% 4. The FINOVA Group Inc. -22.7%
5. UnumProvident Corporation +18.0% 5. America Online, Inc. -21.6%
</TABLE>
(dagger) Securities held for the entire period.
Portfolio Changes
<TABLE>
<CAPTION>
Securities added during the 2nd quarter 2000 Securities sold during the 2nd quarter 2000
-------------------------------------------- -------------------------------------------
<S> <C>
Acxiom Corporation (private placement) Amazon.com, Inc.
Amazon.com, Inc., 4.75%, due 2/1/09 China Telecom (Hong Kong) Limited
Cott Corporation Globalstar LP/Capital, 13.375%, due 2/15/04
Unisys Corporation NASDAQ 100 Trust (security sold short)
Young & Rubicam Inc. The CIT Group, Inc.
U.S. Foodservice
</TABLE>
3
<PAGE>
Statement of Net Assets
Legg Mason Investment Trust, Inc.
June 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Opportunity Trust
Shares/Par Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 87.9%
Capital Goods -- 8.4%
Waste Management -- 8.4%
Republic Services, Inc. 3,750 $ 60,000/A/
--------
Consumer Cyclicals -- 28.4%
Gaming, Lottery and Parimutuel Companies -- 5.6%
Mandalay Resort Group 2,000 40,000/A/
--------
Retail (Discounters) -- 2.3%
Ames Department Stores, Inc. 2,100 16,273/A,B/
--------
Retail (Specialty-Apparel) -- 5.5%
Abercrombie & Fitch Co. 3,200 39,000/A/
--------
Retail (Specialty) -- 3.3%
Toys "R" Us, Inc. 1,600 23,300/A/
--------
Services (Advertising/Marketing) -- 4.6%
Acxiom Corporation 696 18,963/A/
Acxiom Corporation (private placement) 304 7,870/A,C/
Young & Rubicam Inc. 101 5,776
--------
32,609
--------
Services (Commercial and Consumer) -- 3.8%
Viad Corp 1,000 27,250
--------
Textiles (Home Furnishings) -- 3.3%
WestPoint Stevens Inc. 2,098 23,337
--------
Consumer Staples -- 13.8%
Beverages (Non-Alcoholic) -- 5.0%
Cott Corporation 6,000 36,000/A,B/
--------
Housewares -- 4.8%
Tupperware Corporation 1,550 34,100
--------
Restaurants -- 4.0%
Tricon Global Restaurants, Inc. 1,000 28,250/A/
--------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financials -- 23.1%
Banks (International) -- 2.0%
Lloyds TSB Group plc 1,500 $ 14,163
--------
Banks (Major Regional) -- 7.1%
AmSouth Bancorporation 1,500 23,625
U.S. Bancorp 1,400 26,950
--------
50,575
--------
Financial (Diversified) -- 5.1%
The FINOVA Group Inc. 2,800 36,400
--------
Insurance (Life/Health) -- 4.8%
UnumProvident Corporation 1,700 34,106
--------
Savings and Loan Companies -- 4.1%
Washington Mutual, Inc. 1,000 28,875
--------
Technology -- 14.2%
Computers (Hardware) -- 8.0%
Gateway, Inc. 1,000 56,750/A,D/
--------
Computers (Software/Services) -- 6.2%
America Online, Inc. 500 26,375/A/
Unisys Corporation 1,200 17,475/A/
--------
43,850
--------
Total Common Stock and Equity Interests (Identified Cost -- $627,044) 624,838
-----------------------------------------------------------------------------------------------------------
Common Stock and Equity Interests Sold Short -- (3.9)%
Nasdaq 100 Trust (300) (27,956)
--------
Total Common Stock and Equity Interests Sold Short (Proceeds -- $28,156) (27,956)
-----------------------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 3.5%
Amazon.com, Inc., 4.75%, due 2/1/09 $ 40,000 24,950
--------
Total Corporate and Other Bonds (Identified Cost -- $26,233) 24,950
-----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Statement of Net Assets - Continued
<TABLE>
<CAPTION>
Opportunity Trust - Continued
Shares/Par Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 6.5%
Bank of America
6.82%, dated 6/30/00, to be repurchased at $23,299 on 7/3/00
(Collateral: $25,935 Freddie Mac mortgage-backed securities,
6.00%, due 9/1/28, value $23,864) $ 23,286 $ 23,286
Goldman, Sachs & Company
6.82%, dated 6/30/00, to be repurchased at $23,299 on 7/3/00
(Collateral: $23,587 Fannie Mae mortgage-backed securities,
8.50%, due 10/1/28, value $24,169) 23,286 23,286
--------
Total Repurchase Agreements (Identified Cost -- $46,572) 46,572
-----------------------------------------------------------------------------------------------------------
Total Investments -- 94.0% (Identified Cost -- $671,693) 668,404
Deposits With/Receivables From Brokers for Securities Sold Short -- 4.0% 28,118
Other Assets Less Liabilities -- 2.0% 14,395
--------
Net assets consisting of:
Accumulated paid-in capital applicable to:
68,187 Primary Class shares outstanding $693,434
308 Navigator Class shares outstanding 3,216
Accumulated net investment income/(loss) 4,697
Accumulated net realized gain/(loss) on investments 12,859
Unrealized appreciation/(depreciation) of investments (3,289)
--------
Net assets -- 100.0% $710,917
========
Net asset value per share:
Primary Class $10.38
======
Navigator Class $10.38
======
-----------------------------------------------------------------------------------------------------------
</TABLE>
/A/Non-income producing.
/B/Affiliated Companies -- As defined in the Investment Company Act of 1940, an
"Affiliated Company" represents Fund ownership of at least 5% of the
outstanding voting securities of an issuer. At June 30, 2000, the total
market value of Affiliated Companies was $52,273 and the identified cost was
$67,077.
/C/Private placements and illiquid securities valued at fair value under
procedures adopted by the Board of Directors. These securities represent
1.1% of net assets.
/D/Pledged as collateral for securities sold short are 498 shares with a market
value of $28,233 as of June 30, 2000.
N.M. - Not meaningful.
See notes to financial statements.
6
<PAGE>
Statement of Operations
Legg Mason Investment Trust, Inc.
For the Six Months Ended June 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Opportunity Trust
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends $ 5,858
Interest 3,669
-------
Total income $ 9,527
Expenses:
Management fee 1,942
Distribution and service fees 2,423
Transfer agent and shareholder servicing expense 143
Audit and legal fees 89
Custodian fee 33
Directors' fees 4
Offering expense 15
Registration expense 154
Reports to shareholders 21
Other expenses 2
-------
4,826
Less fees waived (3)
-------
Total expenses, net of fees waived 4,823
-------
Net Investment Income 4,704
Net Realized and Unrealized Gain/(Loss) on:
Realized gain/(loss) on:
Investments sold 11,697
Securities sold short 1,162
Change in unrealized appreciation/(depreciation) of:
Investments (3,489)
Securities sold short 200
-------
Net Realized and Unrealized Gain/(Loss) on Investments
and Securities Sold Short 9,570
---------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $14,274
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
Statement of Changes in Net Assets
Legg Mason Investment Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
Opportunity Trust
For the
Six Months Ended For the Period Ended
June 30, 2000 December 31, 1999*
---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Change in Net Assets:
Net investment income/(loss) $ 4,704 $ (7)
Net realized gain/(loss) on investments sold and foreign
currency transactions 12,859 --
Change in unrealized appreciation/(depreciation) of investments
and foreign currency translations (3,289) --
---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 14,274 (7)
Change in net assets from Fund share transactions:
Primary Class 547,334 146,000
Navigator Class 3,216 --
---------------------------------------------------------------------------------------------------------------------------
Change in net assets 564,824 145,993
Net Assets:
Beginning of period 146,093 100
---------------------------------------------------------------------------------------------------------------------------
End of period $710,917 $146,093
---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(loss) $ 4,697 $ (7)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*December 30, 1999 (commencement of operations) to December 31, 1999.
See notes to financial statements.
8
<PAGE>
Financial Highlights
Legg Mason Investment Trust, Inc.
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.
<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>
Opportunity Trust
Six Months Ended
June 30, 2000* $10.00 $.07 $.31 $.38 $-- $-- $-- $10.38
Period Ended Dec. 31,
1999/A/ 10.00 -- -- -- -- -- -- 10.00
---------------------------------------------------------------------------------------------------------------------------------
<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>
Opportunity Trust
Six Months Ended
June 30, 2000* 3.80% 1.99%/B,C/ 1.94%/B,C/ 47.8%/C/ $710,917
Period Ended Dec. 31,
1999/A/ N.M. 1.99%/B,C/ N.M. -- 146,093
----------------------------------------------------------------------------------------
</TABLE>
/A/For the period December 30, 1999 (commencement of operations) to December
31, 1999.
/B/Net of fees waived pursuant to an expense limitation of 1.99% of average
daily net assets through December 31, 2000. If no fees had been waived by
LMM, the annualized ratio of expenses to average daily net assets for the
six months ended June 30, 2000, would have been 1.991%, and for the period
ended December 31, 1999, would have been 2.39%.
/C/Annualized.
*Unaudited.
N.M. - Not meaningful.
See notes to financial statements.
9
<PAGE>
Notes to Financial Statements
Legg Mason Investment Trust, Inc.
(Amounts in Thousands)(Unaudited)
-----------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Investment Trust, Inc. ("Corporation"), consisting of the
Legg Mason Opportunity Trust ("Fund"), was organized on October 8, 1999, and
is registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified investment company. The Fund had no substantive
operations prior to December 30, 1999, other than those matters related to
its organization and initial registration.
The Fund consists of two classes of shares: Primary Class, offered since
December 30, 1999, and Navigator Class, offered only to certain institutional
and other investors since June 26, 2000. Information about the Navigator
Class is contained in a separate report to its shareholders. The income and
expense of the Fund is allocated proportionately to the two classes of shares
based on daily net assets, except for Rule 12b-1 distribution fees, which are
charged only on Primary Class shares, and transfer agent and shareholder
servicing expenses, which are determined separately for each class.
Security Valuation
Securities owned 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 under
procedures established by and under the general supervision of the 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. Securities with
remaining maturities of 60 days or less are valued at amortized cost. The
Fund will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
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
recorded on the ex-dividend date. Dividends from net investment income, if
available, will be paid annually. Net capital gain distributions 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,
periodic 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 June 30, 2000, receivables for securities sold and payables for
securities purchased were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
-------------------------------------------
$9,077 $ --
10
<PAGE>
-----------------------------------------------------------------------------
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 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 June 30, 2000, the value of securities sold short amounted
to $27,956, against which collateral of $29,053 was held. The collateral
includes a Morgan Stanley deposit account and certain securities held long,
as shown in the statement of net assets. Dividends declared on securities
sold short are recorded as an expense on the ex-dividend date.
Organization Expense
Organization costs of approximately $100 were expensed by the Fund and
reimbursed by LMM, LLC ("LMM"), the Fund's investment manager, prior to
December 30, 1999. These costs are subject to reimbursement to LMM by the
Fund through December 2002, subject to the expense limitation discussed in
Note 4.
Deferred Offering Costs
Offering costs of $30 have been deferred and are being expensed over a
twelve-month period beginning the day operations commenced.
Federal Income Taxes
No provision for federal income or excise taxes is required since the Fund
intends to continue to qualify as a regulated investment company and
distribute substantially all of its taxable income to its shareholders.
Use of Estimates
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 six months ended June 30, 2000, investment transactions (excluding
short-term investments) were as follows:
Purchases Proceeds From Sales
--------------------------------------
$748,396 $106,828
11
<PAGE>
Notes to Financial Statements -- Continued
-----------------------------------------------------------------------------
At June 30, 2000, cost/proceeds, aggregate gross unrealized appreciation
and gross unrealized depreciation based on the cost of securities for federal
income tax purposes were as follows:
Net
Cost/ Appreciation/
Proceeds Appreciation Depreciation (Depreciation)
--------------------------------------------------------------------------
Investments $653,277 $46,345 $(49,834) $(3,489)
Short Sales 28,156 200 -- 200
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 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 an investment management agreement with LMM. For its services
to the Fund, LMM receives a management fee, calculated daily and payable
monthly, at an annual rate of 1.00% of the average daily net assets of the
Fund up to $100 million and 0.75% of its average daily net assets in excess
of $100 million. Under the terms of the agreement, LMM has agreed to waive
its fees to the extent the Fund's expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed 1.99% of average daily net
assets through December 31, 2000. Thereafter, through December 31, 2003, the
Fund is required to reimburse LMM for these 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 daily
net assets to exceed 1.99%.
As of June 30, 2000, $453 was payable to LMM and $104 (including
organization costs) is subject to reimbursement by the Fund to LMM.
Legg Mason Fund Adviser, Inc. ("LMFA") serves as sub-manager to the Fund
under a sub-management agreement with LMM. For LMFA's services to the Fund,
LMM(not the Fund)pays LMFA a fee, calculated daily and payable monthly, of
0.10% of the average daily net assets of the Fund up to $100 million and
0.05% of the average daily net assets of the Fund in excess of $100 million.
12
<PAGE>
-----------------------------------------------------------------------------
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New
York Stock Exchange, serves as distributor of the Fund. Legg Mason receives
an annual distribution fee and an annual service fee, based on the Fund's
Primary Class's average daily net assets, computed daily and payable monthly
as follows:
At June 30, 2000
------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
----------------------------------------------------------
0.75% 0.25% $566
The Fund paid $14 in brokerage commissions to Legg Mason for the six
months ended June 30, 2000.
Legg Mason also has an agreement with the Fund's transfer agent to assist
it with some of its duties. For this assistance, the transfer agent paid Legg
Mason $58 for the six months ended June 30, 2000.
LMM, LMFA and Legg Mason are corporate affiliates of Legg Mason, Inc.
5. Fund Share Transactions:
At June 30, 2000, there were 400,000 shares authorized at $0.001 par value
for the Primary Class of 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>
-- Primary Class
Six Months Ended
June 30, 2000 58,483 $597,054 -- $-- (4,906) $(49,720) 53,577 $547,334
Period Ended Dec. 31, 1999/A/ 14,600 146,000 -- -- -- -- 14,600 146,000
-- Navigator Class
Period Ended June 30, 2000/B/ 308 $ 3,216 -- $-- -- $ -- 308 $ 3,216
</TABLE>
-------------
/A/December 30, 1999 (commencement of operations of this class) to December
31, 1999.
/B/June 26, 2000 (commencement of operations of this class) to June 30, 2000.
13
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
[LEGG MASON 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.
