<PAGE>
Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
Raymond A. Mason, Chairman
John F. Curley, Jr., President
Nelson A. Diaz
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
G. Peter O'Brien
T. A. Rodgers
Edward A. Taber, III
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 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-002
8/00
Quarterly Report
June 30, 2000
Legg Mason
Value Trust, Inc.
Special Investment
Trust, Inc.
Total Return Trust, Inc.
Primary Class
[LEGG
MASON
FUNDS
LOGO]
The Art of Investing/SM/
<PAGE>
To Our Shareholders,
The following table summarizes key statistics for the Primary Class of shares
of the Legg Mason Value Trust, Special Investment Trust and Total Return Trust,
as of June 30, 2000:
<TABLE>
<CAPTION>
Total Returns/1/
-----------------------------------------
3 Months 6 Months 12 Months
-------- -------- ---------
<S> <C> <C> <C>
Value Trust -3.3% -3.3% +3.8%
Lipper Large-Cap Growth Funds/2/ -5.0% +2.9% +26.7%
Standard & Poor's 500 Composite Index -2.7% -0.4% +7.2%
Special Investment Trust -6.9% -6.6% +11.0%
Lipper Mid-Cap Core Funds/2/ -3.3% +11.1% +37.6%
Russell 2000 Index -3.8% +3.0% +14.3%
Total Return Trust +0.9% -1.8% -15.1%
Lipper Multi-Cap Value Funds/2/ -1.6% -0.5% -4.0%
</TABLE>
As the table indicates, total investment returns on mutual funds in each of
the Lipper categories against which our Funds are measured were negative during
the three months ended June 30, 2000. Returns on our Funds followed the same
pattern, although Total Return Trust had a small gain and, along with Value
Trust, performed somewhat better than the average of other funds in its Lipper
category.
Detailed comments on the performance of each Fund appear in the portfolio
managers' comments on the following pages. Long-term investment results of the
Funds are shown in the portfolio managers' comments and the performance
information section of this report.
Bill Miller, and members of his investment team, were featured in an article
in Smart Money magazine's July 2000 issue, beginning on page 126.
-----------
Sincerely,
/s/ John F. Curley
--------------------
John F. Curley, Jr.
President
July 27, 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/ Value Trust is now included in Lipper Analytical Services' "Large-Cap Growth
Fund" category (funds which normally invest in larger capitalization issues
with earnings expected to grow significantly faster than earnings of stocks
included in Standard & Poor's 500 Composite Index). Special Investment Trust
is included in the "Mid-Cap Core Fund" category (funds which normally invest
in mid-sized capitalization issues, with wide latitude in the companies in
which they invest). Total Return Trust is included in the "Multi-Cap Value
Fund" category (funds which normally invest in issues with a variety of
market capitalization sizes, which are considered to be undervalued relative
to stocks in the Standard & Poor's 500 Composite Index).
<PAGE>
Portfolio Managers' Comments
Second Quarter 2000
Market Commentary
During the first half, the market, like the worm Ourobouros, began and ended
in about the same place, but used the time to explore a lot of territory. The
tech-laden NASDAQ started the year at 4,186, soared to 5,132 on March 10, fell
to 3,042 on May 24, and at this writing is 4,093. The S&P displayed less
volatility, but likewise managed to make little progress.
Over the past year, the S&P has returned a little more than a passbook savings
account, but has generated considerably more angst. The NASDAQ, in contrast, has
compensated investors for its vicissitudes with a total return of almost 45% in
the last twelve months. This is terrific, but the momentum has clearly gone out
of that index, and is unlikely to return in anything like its former glory, in
our opinion. In early March, the NASDAQ was up over 24% year to date and 100% in
twelve months. In the last ninety days it fell 6%, and now stands below where it
started the year.
The problem for both markets has been interest rates, not earnings, or at
least not current earnings. The Fed has been tightening for about a year and its
attempt to slow the economy has begun to show some results. Earnings have been
fine and the current earnings season looks to be no exception. In the first
quarter of this year, S&P earnings rose 23% year over year. For all of 1999,
they rose 19%. For the quarter just ended, it looks like another 20% year over
year gain.
A different trend becomes evident when you slice the data this way: over the
past five years, S&P earnings have risen from $32.68 in 1994 to an estimated
$57.70 this year, an increase of 77%. The market has risen 254% with dividends
reinvested over the same period. Earnings grew a little over 10% per year and
the market went up over 20% per year. Valuations expanded sharply.
In 1999 the market's gain slowed to that of earnings, rising 19.6% while
earnings rose 19%. The market's multiple thus stayed the same as it had been in
1998. Now it has begun to decline.
In the first quarter, earnings were up 23%, and the S&P was up 2%. In the
second quarter, with earnings estimated to be up 20%, the market fell almost 3%.
Markets are discounting mechanisms; prices and the path of prices reflect
visible fundamentals and expectations about the future. In the mid to late 90's
the market correctly discerned that the U.S. economy was on a path of rising
earnings growth rates, from the 7% long-term post-war average to one that
exceeded 10%, fueled by rising productivity that permitted speedier growth
without an accompanying increase in inflation. The rising productivity of
capital coupled with an increasing growth rate of earnings led to a sharp rise
in the market's overall valuation. That rise was concentrated in technology
stocks, which began the second half of the decade at modest, and ended at
monstrous, valuations.
At the beginning of 1995, technology stocks represented 10% of the S&P 500;
today they total over 30% of the market's value. In 1995 they were demonstrably
undervalued; today valuations hover at all-time highs and require superior
growth in order to be maintained.
The inability of the market to make progress despite powerful current earnings
growth is not just the result of the drag of interest rates brought on by Fed
tightening, but of what those rates portend: slowing growth. As the rate of
earnings growth slows, so too does the justifiable valuation of the
2
<PAGE>
market. For the market to make much progress, I think investors will need to
believe they see the end of Fed tightening. Good earnings by themselves will
just be incorporated into the market via lower multiples, not via higher prices
(unless those earnings arrive at companies with suitably modest valuations).
Over time, market prices have tended to track fundamentals. The long-term
return of stocks has been a function of beginning dividend yields and long-term
earnings growth. During the past five years, prices have risen much faster than
earnings as positive fundamentals have been incorporated into prices on a
leveraged basis.
The combination of long-term evidence and short-term experience has led
investors to believe positive near-term fundamentals are highly correlated with
positive stock price behavior. Valuation seems to have been forgotten, due in
part to its apparent absence in the price/performance equation over the last
several years, and no doubt in part by the dismal record of value investors over
the same period.
The question for investors is always: where is the best value in the market?
Five years ago, growth was undervalued and technology was particularly
undervalued. After years of spectacular outperformance, we think growth is at
best fairly valued and that many (not all) of the largest, most visible
technology names are overpriced.
In contrast, outside of the growth indices, many stocks appear undervalued,
with the median price-earnings ratio of the 1,700 stocks in the Value Line index
at only 13.3x earnings. The re-appearance of dormant former corporate raiders
such as Carl Icahn and the formation of numerous buy-out funds testify to the
opportunities presented by modest valuations in many "old economy" companies.
We believe that in the next few years growth investors will become
reacquainted with valuation as high growth names underperform their
fundamentals, and that value investors will once again become reacquainted with
solid performance in their portfolios.
Bill Miller, CFA
July 21, 2000
DJIA 10733.56
3
<PAGE>
Portfolio Managers' Comments -- Continued
Value Trust
<TABLE>
<CAPTION>
Cumulative Total Return, Periods Ending June 30, 2000
---------------------------------------------------------------------------------------------------
First Second Year Since
Quarter Quarter to Date 1 Year 3 Years 5 Years 10 Years 15 Years Inception*
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Trust -0.01% -3.31% -3.33% +3.80% +103.62% +298.56% +582.52% +1,066.89% +3,021.95%
S&P 500 Composite Index +2.29% -2.66% -0.42% +7.24% +71.35% +190.84% +414.60% +1,043.64% +2,084.28%
Dow Jones Industrial Average -4.65% -3.98% -8.44% -3.27% +43.06% +152.16% +364.17% +1,110.57% +2,158.58%
Lipper Diversified
Equity Funds +7.04% -3.15% +3.65% +19.01% +67.88% +150.67% +336.57% +771.94% N/A
Lipper Large-Cap
Growth Funds +8.49% -5.01% +2.90% +26.73% +110.51% +216.97% +455.81% +1,053.32% N/A
</TABLE>
--------------
* Inception: April 16, 1982.
The results tabulated above show that for the first six months of this year,
the assets you've had in the Value Trust would have been more productively
employed under the mattress than in the securities in our portfolio. Stocks for
the past year have been on their version of Mr. Toad's Wild Ride: lots of
jerking, moving, and churning, all to end up about where you began, at least if
you were prudently diversified across a broad array of securities. The Value
Line index of about 1,700 stocks equally weighted fell 12.43%, in the past year,
while the NYSE composite declined 0.80% over the same period.
The strong returns of diversified funds for the year ended June 30 either
attest to the superior stock selection skills of professional money managers, or
are just one of the occasional good outcomes scattered randomly in a long, dull
period of mediocrity. As I wrote last quarter, when two-thirds of active
managers outperformed the index, money managers appear to have developed an
unwavering belief in the ability of the leading technology companies to beat the
market, regardless of valuation, mainly because that's what they have done for
the past five years. That five-year period has been so strong for large,
especially technology-oriented, growth funds that they now are ahead of the S&P
500 for all time periods longer than six months shown above. The
underperformance of all broadly diversified funds, and the worse performance of
large growth funds during the second quarter, are consistent with the
continuing, significant commitment to technology on the part of professional
investors.
In the past few weeks several high-profile technology companies, including
Lucent, Agilent, Lexmark, BMC, and Computer Associates, have expressed caution
about earnings growth, leading to large declines in their share prices. At
current levels of valuation, the shares of the so-far unaffected companies such
as Sun, EMC, Cisco, and Oracle, need continuing upside surprises to maintain
their present prices, in my opinion. Even the formerly impregnable semiconductor
index, up over 100% in the past year, has begun to wobble. Many leading
companies in this sector are down 30% in the past few months and the index
itself has just fallen below its 50-day moving average.
We have reduced our technology weighting to around 24% of the Fund, versus
over 30% for the S&P 500. We don't have any a priori view about what the right
relative position should be, but we are comfortable being underweighted.
4
<PAGE>
As weakness has been spreading in the formerly dominant technology space,
strength has slowly begun to appear in the broader market. The Value Line index
is now above its 50-week moving average for the first time in about a year.
Management buyout activity is strong among mostly smaller companies. The long-
lagging financials have begun to perk up and leading financials such as
Citigroup and Merrill Lynch have recently made new highs, often a precursor of
broadening performance in the overall market, as well as in that sector.
Our portfolio reflects the recovery underway in formerly lagging areas. Eight
of our ten best performing stocks in the quarter were companies whose shares had
performed very poorly last year. The results in our lagging names in the quarter
were trend-less: a mix of formerly strong names such as AOL, WPP, and Nextel,
and some formerly weak ones such as Bank One, Bank of America, and Storage
Technology.
We bought one stock in the quarter, Eastman Kodak, and sold one, Mandalay
Resort Group. Kodak has lagged the market for years as investors worried about
the effect of digital photography on their globally dominant conventional film
business. Digital is experiencing explosive growth, with camera units up 95%
last year; but conventional camera units also rose, growing 12%. In the second
quarter, conventional picture taking rose 8% in the U.S. We think Kodak,
currently selling around $56, is worth close to $100. We expect the company to
generate free cash equal to almost half of its current market capitalization
over the next five years.
We sold our Mandalay for mostly technical reasons: we owned a very large and
growing percentage of the company's outstanding stock due to its aggressive
share repurchase program. This bumped us up against regulatory constraints. Even
a large percentage of the stock represented a very small percentage of our
assets, making its impact on our performance minimal. We solved the problem by
selling several million shares back to the company, and the balance to other
funds in our complex whose asset size better fits Mandalay's market
capitalization.
If you took money from your mattress at the end of the quarter and put it in
the Value Trust, you may wish to consider a career as a market timer, as our
results have improved, at least as of this writing. Whatever the short-term
fluctuations, we believe your portfolio is well positioned for sound, long-term
returns.
As always, we appreciate your support and welcome your comments.
Bill Miller, CFA
July 21, 2000
DJIA 10733.56
5
<PAGE>
Portfolio Managers' Comment -- Continued
Special Investment Trust
The cumulative results for various periods ending June 30, 2000, are as
follows:
<TABLE>
<CAPTION>
Year
3 Months to Date 1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Special Investment Trust -6.86% -6.56% +10.96% +72.57% +166.18% +391.26%
Lipper Mid-Cap Core Funds -3.26% +11.14% +37.60% +78.93% +158.16% +360.66%
S&P 500 -2.66% -0.42% +7.24% +71.35% +190.84% +414.60%
Russell 2000 -3.78% +3.04% +14.32% +35.20% +94.84% +257.09%
</TABLE>
Special Investment Trust underperformed the relevant indices in the quarter
and for the year to date. Over the last twelve months, the Fund outperformed
the S&P 500 Index of large companies, but was behind the Russell 2000 Index of
smaller companies and Lipper's index of mid-cap core funds. For the longer
periods we posted very solid performance, ahead of both the S&P 500 and the
Russell 2000 for three years, but slightly below the mid-cap core funds, and
ahead of the mid-cap core funds and the Russell 2000 for five and ten years, but
behind the S&P 500 Index slightly.
Through early March, Special Investment Trust benefited from a heavy
technology weighting, close to 35% at its height. Including our 8.3% AOL
position, which we classify internally as media, our "official" technology
weighting reached 42%. This technology exposure was among the factors that
drove our one- and three-year results to beat the S&P 500, as well as our
market-beating performance in calendar 1999.
Throughout the first quarter and into the second, we sold some of our long-
time technology holdings outright or down to lower percentage positions.
However, we were caught in a time when we did not own the very highly valued
names that were up significantly prior to March 10th, and we were not completely
underweight in technology in the following period. So, even as we were
lightening our technology, the names we owned were being severely punished in
the NASDAQ correction.
We are long-term investors, and making a major change in our portfolio's
positioning is not something we believe should be done too quickly. We attempt
to scale into and out of positions without great market impact. We try to be
"liquidity providers" -- meaning we are the seller when the frenzy is to buy at
the height of a momentum-driven price movement, and we are often the buyer that
emerges when other investors are capitulating and selling at very low prices.
It was unfortunate that we did not get the portfolio repositioned in a shorter
period of time, but our goal is to have the portfolio weighted in the companies
we believe are undervalued on a multi-year basis, not to attempt to time the
market.
During the second quarter, we sold Hadco after Sanmina agreed to purchase the
company. We also sold several names that had not turned out as we expected,
such as Micron Electronics, Phycor and CKE Restaurants. Lastly, we sold Cott
Corporation simply because the position was too small to make a difference to
performance, and we were not permitted to buy any more stock by regulatory
ownership restrictions.
6
<PAGE>
The only security we added in the quarter was Acxiom Corporation. Acxiom is
the largest provider in the highly fragmented marketing services industry. Their
core business is using consumer data and sophisticated analysis to help
companies make better decisions about targeted marketing. The company has
recently begun to sell an internally developed software product called Abilitec
that helps to manage customer information, putting the company in the middle of
the exploding customer relationship management (CRM) industry. We believe that
this service will be very valuable as consumers' attention becomes harder to
capture. The company is investing heavily in this effort, and current earnings
growth rates are slightly depressed. If the company is successful with its new
Abilitec product, growth, profitability and returns should all improve
dramatically. We purchased the stock around $30 and believe it is substantially
undervalued.
Acxiom joins other new names added over the last six months that are outside
of the technology universe, have solid returns on capital, are out of favor
because of short-term events, and sport P/E's and other valuation measures that
are low compared to either history, the market or both. Additions discussed in
previous quarters were The TJX Companies, Republic Services, Ceridian, Equifax,
UnumProvident and Viad Corp.
The activity of the last few quarters has resulted in a portfolio that is
slightly different from our 1999 position. Our technology weighting is down to
28%. Our America Online position is down to 5.8%. Our overall concentration in
the top ten holdings is lower, giving us a portfolio with slightly more breadth.
Our overall positioning is a bit less tilted toward the NASDAQ than it was in
1999, and our risk profile is also likely lower.
As of this writing, we have seen some recovery in the technology names, but
the recovery has been fairly muted. We remain highly confident in our
technology holdings, and feel comfortable with our current 28% weighting. One
of the trends we believe may emerge during the second half of 2000 is that the
market will be far more valuation sensitive than it has been in the past. The
most highly valued names, in technology and elsewhere, are the most vulnerable,
where in the past they were often the best performers. Our holdings all reflect
companies that are, in our view, very undervalued. We look forward to the
second half of the year and, as always, welcome your comments and questions.
Lisa O. Rapuano, CFA
Bill Miller, CFA
July 21, 2000
DJIA 10733.56
7
<PAGE>
Portfolio Managers' Comments -- Continued
Total Return Trust
Our cumulative results for various periods ended June 30, 2000, are as follows:
<TABLE>
<CAPTION>
Year
3 Months to Date 1 Year 3 Years 5 Years
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Return Trust +0.86% -1.77% -15.06% +8.35% +84.52%
Lipper Multi-Cap Value Funds -1.56% -0.49% -3.99% +26.24% +96.25%
Lipper Diversified Equity Funds -3.15% +3.65% +19.01% +67.88% +150.67%
S&P 500 Composite Index -2.66% -0.42% +7.24% +71.35% +190.84%
Dow Jones Industrial Average -3.98% -8.44% -3.27% +43.06% +152.16%
</TABLE>
As you can see, the Total Return Trust outperformed its peer group and the
major market indices during the quarter. On a year-to-date basis, through the
second quarter, the Fund has outperformed the Dow and is in line with its peer
group and the S&P 500.
These performance numbers mask a great deal of volatility in the market during
the first half of the year. A recently completed study by Sanford C. Bernstein
shows the standard deviation of individual stocks to be almost 50% above its 30-
year average, while the standard deviation of the S&P 500 Index is 20% above its
average. Measuring return volatility across the market instead of over time
finds the dispersion of stock performance today to be the greatest since the
early 1930s.
Volatility has increased as a tug of war has erupted between company
fundamentals and valuation. Stock prices are determined by just two things:
earnings and the multiple investors are willing to pay for those earnings. The
S&P 500 is trading around 27x 2000 estimated operating earnings, a level we
believe is appropriate given the 3% rate of inflation (as measured by the
Consumer Price Index) in the U.S. economy.
If we're right in our assessment about the overall market being fairly valued,
the market's return from present levels should be in line with the growth rate
of earnings, currently estimated to be about 12% for the year. However, there is
a great deal of variation by industry sector around the 12% level of earnings
growth, with the energy and commodities sectors expected to post 60% earnings
growth (off very depressed levels a year ago), and the technology sector
expected to grow earnings 40% over last year's very strong level. All of the
other sectors within the S&P 500 are expected to grow earnings at very subdued
rates, with finance companies expected to post negative 1% earnings growth;
health care, staples, and consumer cyclicals expected to grow earnings at less
than 3%; telephone companies at 5% and capital goods companies at 6%.
Markets are discounting mechanisms, with prices reflecting current
fundamentals and expectations about the future (for more on this, please see the
Market Commentary section of this report). Technology investors, in aggregate,
are wrongly (in our opinion) extrapolating the very strong earnings growth rate
of the past five years into the future. To look at it another way: with non-
technology companies expected to grow earnings at rates less than the growth of
nominal GDP,/1/ how much
--------------
/1/ Nominal GDP (gross domestic product) is the sum of inflation and real GDP.
Real GDP is expected to grow about 4% this year with inflation around 3%,
resulting in nominal GDP of about 7%.
8
<PAGE>
longer can technology companies grow their earnings at almost 6x nominal GDP?
Our answer: not much longer. We believe a reversal of this strong divergence in
earnings growth will become evident as 2000 progresses.
A consequence of the greater volatility in the market has been increased
portfolio activity, as many individual stocks have gone from trading at
significant discounts of our assessment of intrinsic value to large premiums
within a relatively short period of time, and vice versa. As shown in the
biggest gainers/laggers chart found elsewhere in this report, a number of
pharmaceutical stocks were exceptional performers in the quarter, with Eli Lilly
leading the way, up 59%, as investors reassessed the potential revenue and
earnings impact of certain drugs coming off patent and the potential for a cap
on drug price increases. We used the recent strength in the pharmaceutical
stocks to cut back our position in several of the companies.
Many retail stocks, on the other hand, have dramatically underperformed the
market over the last six to twelve months, and are pricing in negative earnings
growth over the next ten years, an event we consider to be highly unlikely. May
Department Stores is a perfect example.
May, owner of eight department store chains, including Lord & Taylor, Hecht's
and Filene's, generates over 20% on equity, buys in their stock (fully diluted
shares outstanding have declined 8% over the last two years), and yields 3.4%.
Yet, the stock is trading at just 9x this year's estimated earnings, and has an
implied ten-year earnings growth rate of negative 5%, an event we consider to be
highly unlikely. We used the sell-off in the stock during the second quarter to
add to our position.
AT&T was our worst performing stock in the quarter, down almost 44%, as
investor sentiment shifted from the strength of their wireless operation to
heightened concern about the decline in the consumer long distance market,
coupled with a shortfall in their business services division. The stock in the
low $30s more than discounts the secular decline in the consumer long distance
business, in our opinion, and does not give the company credit for their growth
businesses, including their wireless operation, which is projected to grow
revenues over 25% per year for the next several years. Similar to May Department
Stores, we used the sell-off in the stock to add to our position.
As always, we greatly appreciate your support, and welcome your comments.
Nancy Dennin, CFA
July 21, 2000
DJIA 10733.56
9
<PAGE>
Performance Information
Total Returns for One, Five and Ten Years and Life of Class, as of June 30, 2000
The returns shown on these pages 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 a 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 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.
Information about the Navigator Class, offered only to certain institutional
investors, is contained in a separate report to its shareholders.
The Funds' total returns as of June 30, 2000, were as follows:
<TABLE>
<CAPTION>
Special S&P 500
Value Investment Total Return Composite
Trust Trust Trust Index
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return
Primary Class:
One Year +3.80% +10.96% -15.06% +7.24%
Five Years +31.86 +21.63 +13.03 +23.80
Ten Years +21.17 +17.25 +12.24 +17.80
Life of Class--Value Trust/A/ +20.79 +18.46
Life of Class--Special Investment Trust/A/ +15.38 +17.28
Life of Class--Total Return Trust/A/ +10.08 +17.61
Cumulative Total Return
Primary Class:
One Year +3.80% +10.96% -15.06% +7.24%
Five Years +298.56 +166.18 +84.52 +190.84
Ten Years +582.52 +391.26 +217.43 +414.60
Life of Class--Value Trust/A/ +3,021.95 +2,084.28
Life of Class--Special Investment Trust/A/ +697.05 +909.21
Life of Class--Total Return Trust/A/ +306.63 +969.06
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Primary Class inception dates are:
Value Trust--April 16, 1982
Special Investment Trust--December 30, 1985
Total Return Trust--November 21, 1985
10
<PAGE>
Value Trust
Illustration of an Assumed Investment of $10,000 made on April 16, 1982
(inception of the Value Trust Primary Class)
[GRAPH APPEARS BELOW]
<TABLE>
<CAPTION>
Value of original
shares purchased
plus shares acquired Value of shares
through reinvestment acquired through
of capital gain reinvestment of
distributions income dividends
-------------------- ----------------
<S> <C> <C>
4/16/82 10,000 10,000
6/30/82 10,250 10,250
11,680 11,680
13,940 14,091
16,160 16,401
18,199 18,490
18,781 19,144
19,632 20,108
18,870 19,425
6/30/84 18,742 19,333
20,468 21,233
21,755 22,679
23,583 24,683
25,530 26,754
24,948 26,239
28,332 29,910
32,556 34,510
6/30/86 33,210 35,225
30,797 32,816
30,745 32,737
35,503 37,924
36,279 38,753
37,583 40,308
28,175 30,324
32,267 34,729
6/30/88 34,660 37,411
34,766 37,659
34,925 38,134
37,650 41,109
39,817 43,646
43,919 48,463
41,282 45,834
39,891 44,290
6/30/90 40,927 45,741
31,981 36,006
33,362 38,063
37,702 43,014
37,800 43,365
41,928 48,373
44,238 51,282
44,210 51,414
6/30/92 44,041 51,377
44,830 52,396
48,804 57,149
50,184 59,003
49,648 58,545
51,113 60,411
53,674 63,584
52,621 62,337
6/30/94 51,844 61,392
54,953 65,142
54,297 64,465
57,634 68,427
66,254 78,331
73,242 86,742
76,635 90,742
82,111 97,226
6/30/96 85,219 100,767
92,605 109,666
106,456 125,617
110,069 129,881
130,086 153,325
151,543 178,615
147,182 172,156
172,492 201,761
6/30/98 182,113 212,323
160,908 187,600
218,882 254,865
259,794 302,502
259,792 300,753
234,590 271,578
278,952 322,934
278,915 322,891
6/30/00 273,559 312,195
</TABLE>
-----------------------------
Selected Portfolio Performance*
Strong performers for the 2nd quarter 2000
-----------------------------------------------
1. Foundation Health Systems, Inc. +62.5%
2. United HealthCare Corporation +43.8%
3. Waste Management Inc. +38.8%
4. MGM Grand, Inc. +33.9%
5. Mattel, Inc. +26.3%
6. The Kroger Co. +25.6%
7. Starwood Hotels & Resorts
Worldwide, Inc. +24.0%
8. Aetna Inc. +15.3%
9. Koninklijke (Royal) Philips
Electronics N.V. +10.9%
10. Washington Mutual, Inc. +9.0%
* Securities held for the entire quarter.
Weak performers for the 2nd quarter 2000
-----------------------------------------------
1. Amazon.com, Inc. -45.8%
2. Storage Technology Corporation -31.4%
3. General Motors Corporation -29.9%
4. Bank One Corporation -22.7%
5. America Online, Inc. -21.6%
6. The Chase Manhattan Corporation -20.8%
7. Bank of America Corporation -18.0%
8. Nextel Communications, Inc. -17.5%
9. WPP Group plc -15.9%
10. Telefonos de Mexico
SA de CV (Telmex) -14.7%
Portfolio Changes
Securities added during the 2nd quarter 2000
-----------------------------------------------
Eastman Kodak Company
Securities sold during the 2nd quarter 2000
-----------------------------------------------
Mandalay Resort Group
11
<PAGE>
Performance Information -- Continued
Special Investment Trust
Illustration of an Assumed Investment of $10,000 made on December 30, 1985
(inception of the Special Investment Trust Primary Class)
[GRAPH APPEARS BELOW]
<TABLE>
<CAPTION>
Value of original
shares purchased
plus shares acquired Value of shares
through reinvestment acquired through
of capital gain reinvestment of
distributions income dividends
-------------------- ----------------
<S> <C> <C>
12/30/85 10,000 10,000
11,530 11,530
6/30/86 12,070 12,070
10,359 10,377
10,716 10,735
13,051 13,074
12,878 12,900
13,321 13,343
9,517 9,614
11,107 11,220
6/30/88 12,006 12,128
11,633 11,762
11,381 11,507
12,982 13,126
14,462 14,623
16,535 16,816
14,945 15,199
14,890 15,143
6/30/90 15,953 16,225
13,807 14,191
14,767 15,278
17,777 18,392
17,935 18,556
19,686 20,403
20,653 21,406
21,249 22,154
6/30/92 20,034 20,846
20,074 20,887
23,620 24,577
23,529 24,482
25,144 26,206
27,889 29,067
29,278 30,507
28,511 29,708
6/30/94 26,412 27,508
27,737 28,888
25,463 26,519
26,707 27,815
28,759 29,944
31,251 32,539
31,175 32,486
34,291 35,733
6/30/96 36,227 37,696
37,107 38,611
40,193 41,793
38,345 39,871
44,498 46,186
51,228 53,171
49,183 51,038
54,899 56,969
6/30/98 54,587 56,481
43,405 44,911
60,825 62,934
64,338 66,569
69,822 71,831
67,604 69,549
82,990 85,298
83,259 85,574
6/30/00 77,634 79,705
</TABLE>
-----------------------------
Selected Portfolio Performance*
Strong performers for the 2nd quarter 2000
----------------------------------------------
1. Caremark Rx, Inc. +62.6%
2. Republic Services, Inc. +46.3%
3. United Asset Management
Corporation +35.0%
4. Cell Genesys, Inc. +31.4%
5. Ceridian Corporation +25.4%
6. Viad Corp +19.1%
7. Mandalay Resort Group +18.5%
8. UnumProvident Corporation +18.0%
9. Sybase, Inc. +13.2%
10. Radian Group Inc. +8.7%
* Securities held for the entire quarter.
Weak performers for the 2nd quarter 2000
----------------------------------------------
1. TALK.com, Inc. -63.7%
2. ICG Communications -38.9%
3. Modis Professional Services, Inc. -38.3%
4. Amazon.com, Inc., 4.75%,
due 2/1/09 -36.8%
5. Storage Technology Corporation -31.4%
6. Symantec Corporation -28.2%
7. Liz Claiborne, Inc. -23.1%
8. The FINOVA Group Inc. -22.7%
9. Bell & Howell Company -22.4%
10. America Online, Inc. -21.6%
Portfolio Changes
Securities added during the 2nd quarter 2000
----------------------------------------------
Acxiom Corporation
Securities sold during the 2nd quarter 2000
----------------------------------------------
CKE Restaurants, Inc.
Cott Corporation
Hadco Corp.
Micron Electronics, Inc.
PhyCor, Inc.
12
<PAGE>
Total Return Trust
Illustration of an Assumed Investment of $10,000 made on November 21, 1985
(inception of the Total Return Trust Primary Class)
[GRAPH APPEARS BELOW]
<TABLE>
<CAPTION>
Value of original
shares purchased
plus shares acquired Value of shares
through reinvestment acquired through
of capital gain reinvestment of
distributions income dividends
-------------------- ----------------
<S> <C> <C>
11/21/85 10,000 10,000
10,090 10,090
10,780 10,780
6/30/86 10,901 10,971
10,258 10,384
10,077 10,231
11,673 11,884
11,657 11,893
12,084 12,409
9,099 9,434
10,295 10,675
6/30/88 10,888 11,315
10,772 11,244
10,923 11,487
11,690 12,293
12,201 12,918
13,433 14,314
12,478 13,367
11,875 12,721
6/30/90 11,928 12,810
9,566 10,389
10,055 11,118
11,499 12,715
11,833 13,124
13,014 14,546
13,885 15,620
13,885 15,715
6/30/92 14,409 16,416
14,684 16,824
15,482 17,856
16,234 18,839
16,141 18,823
16,712 19,637
17,202 20,370
16,637 19,701
6/30/94 16,640 19,706
17,380 20,691
15,763 18,920
16,594 19,917
18,215 22,037
19,681 24,044
19,837 24,665
21,342 26,536
6/30/96 21,718 27,167
22,847 28,756
25,591 32,346
26,102 32,992
30,062 37,530
34,112 42,720
35,424 44,477
37,429 46,995
6/30/98 36,931 46,277
30,894 38,945
35,166 44,301
34,272 43,175
38,174 47,872
33,807 42,555
32,911 41,397
32,051 40,315
6/30/00 32,450 40,663
</TABLE>
-----------------------------
Selected Portfolio Performance*
Strong performers for the 2nd quarter 2000
----------------------------------------------
1. Eli Lilly & Company +58.5%
2. Johnson & Johnson +45.4%
3. Tupperware Corporation +39.1%
4. Waste Management Inc. +38.8%
5. Nationwide Health Properties, Inc. +33.5%
6. Abbott Laboratories +26.6%
7. Mattel, Inc. +26.3%
8. The Kroger Co. +25.6%
9. Northrop Grumman Corporation +25.1%
10. Edison International +23.8%
* Securities held for the entire quarter.
Weak performers for the 2nd quarter 2000
----------------------------------------------
1. AT&T Corp. -43.8%
2. Unisys Corporation -42.9%
3. General Motors Corporation -29.9%
4. Saks Incorporated -27.6%
5. Time Warner Inc. -24.0%
6. Bank One Corporation -22.7%
7. The Chase Manhattan Corporation -20.8%
8. Nordstrom Inc. -18.2%
9. The May Department Stores
Company -15.8%
10. The TJX Companies, Inc. -15.5%
Portfolio Changes
Securities added during the 2nd quarter 2000
----------------------------------------------
Aetna Inc.
Amazon.com, Inc., 4.75% due 2/1/09
America Online, Inc.
Equity Residential Properties Trust
Honeywell International Inc.
KeyCorp
Starwood Hotels & Resorts Worldwide, Inc.
The FINOVA Group Inc.
Securities sold during the 2nd quarter 2000
----------------------------------------------
American Financial Group, Inc.
Avon Products, Inc.
Bank of America Corporation
Brunswick Corporation
Hewlett-Packard Company
Household International, Inc.
IPC Holdings Limited
Mandalay Resort Group
The Bear Stearns Companies, Inc.
The Hartford Financial Services Group, Inc.
The Walt Disney Company
Tommy Hilfiger Corporation
XL Capital Ltd.
13
<PAGE>
Portfolio of Investments
June 30, 2000 (Unaudited)
(Amounts in Thousands)
Legg Mason Value Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 97.1%
Capital Goods -- 5.5%
Electrical Equipment -- 0.2%
Koninklijke (Royal) Philips Electronics N.V. 552 $ 26,220
-----------
Manufacturing (Diversified)-- 0.9%
Danaher Corporation 2,400 118,650
-----------
Waste Management -- 4.4%
Waste Management Inc. 29,700 564,300
-----------
Communications Services -- 9.7%
Telecommunications (Cellular/Wireless) -- 3.6%
Nextel Communications, Inc. 7,605 465,331/A/
-----------
Telephone -- 6.1%
Telefonos de Mexico SA de CV (Telmex) 3,200 182,800
WorldCom, Inc. 13,000 596,375/A/
-----------
779,175
-----------
Consumer Cyclicals -- 14.1%
Automobiles-- 1.4%
General Motors Corporation 3,000 174,188
-----------
Gaming, Lottery and Parimutuel Companies -- 1.5%
MGM Grand, Inc. 6,155 197,724/B/
-----------
Leisure Time (Products) -- 1.0%
Mattel, Inc. 9,925 130,886
-----------
Lodging/Hotels -- 2.3%
Starwood Hotels & Resorts Worldwide, Inc. 9,000 293,062
-----------
Retail (Home Shopping) -- 2.7%
Amazon.com, Inc. 9,500 344,969/A/
-----------
Retail (Specialty) -- 1.8%
Toys "R" Us, Inc. 15,700 228,631/A,B/
-----------
Services (Advertising/Marketing) -- 3.4%
WPP Group plc 29,948 437,278
-----------
Consumer Staples -- 6.6%
Distributors (Food and Health) -- 1.4%
McKesson HBOC, Inc. 8,520 178,388
-----------
Entertainment -- 0.7%
Metro-Goldwyn-Mayer, Inc. 3,705 96,780/A/
-----------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail (Food Chains) -- 4.5%
Albertson's, Inc. 11,000 $ 365,750
The Kroger Co. 9,500 209,594/A/
-----------
575,344
-----------
Financials -- 27.5%
Banks (International) -- 2.3%
Lloyds TSB Group plc 31,991 302,055
-----------
Banks (Major Regional) -- 4.7%
Bank One Corporation 11,500 305,469
FleetBoston Financial Corporation 9,000 306,000
-----------
611,469
-----------
Banks (Money Center) -- 3.8%
Bank of America Corporation 4,000 172,000
The Chase Manhattan Corporation 6,900 317,831
-----------
489,831
-----------
Consumer Finance -- 1.4%
MBNA Corporation 6,425 174,278
-----------
Financial (Diversified) -- 6.6%
Citigroup Inc. 7,000 421,750
Fannie Mae 6,200 323,562
Freddie Mac 2,600 105,300
-----------
850,612
-----------
Insurance (Property/Casualty) -- 4.6%
Berkshire Hathaway Inc. - Class A 4 225,960/A/
MGIC Investment Corporation 8,000 364,000/B/
-----------
589,960
-----------
Investment Banking/Brokerage -- 1.1%
The Bear Stearns Companies, Inc. 3,308 137,675
-----------
Savings and Loan Companies -- 3.0%
Washington Mutual, Inc. 13,200 381,150
-----------
Health Care -- 9.1%
Health Care (Managed Care) -- 9.1%
Aetna Inc. 6,463 414,825
Foundation Health Systems, Inc. 11,100 144,300/A,B/
United HealthCare Corporation 7,200 617,400
-----------
1,176,525
-----------
</TABLE>
15
<PAGE>
Portfolio of Investments -- Continued
Legg Mason Value Trust, Inc. -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- 24.6%
Communications Equipment -- 2.6%
Nokia Oyj 6,880 $ 343,570
-----------
Computers (Hardware) -- 10.6%
Dell Computer Corporation 3,700 182,456/A/
Gateway, Inc. 14,580 827,415/A/
International Business Machines Corporation 3,200 350,600
-----------
1,360,471
-----------
Computers (Peripherals) -- 0.7%
Storage Technology Corporation 8,000 87,500/A,B/
-----------
Computers (Software/Services) -- 7.3%
America Online, Inc. 17,755 936,555/A/
-----------
Photography/Imaging -- 3.4%
Eastman Kodak Company 7,400 440,300
-----------
Total Common Stock and Equity Interests (Identified Cost--$9,107,749) 12,492,877
-------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 2.5%
Bank of America
6.82%, dated 6/30/00, to be repurchased at $160,924 on 7/3/00
(Collateral: $137,848 Fannie Mae mortgage-backed securities,
6.00% - 7.00%, due 9/1/13 - 3/1/15, value $134,411; $32,193 Freddie Mac
mortgage-backed securities, 6.50%, due 7/1/29, value $30,540) $160,832 160,832
Goldman, Sachs & Company
6.82%, dated 6/30/00, to be repurchased at $160,924 on 7/3/00
(Collateral: $162,907 Fannie Mae mortgage-backed securities, 8.50%,
due 10/1/28, value $166,924) 160,833 160,833
-----------
Total Repurchase Agreements (Identified Cost -- $321,665) 321,665
-------------------------------------------------------------------------------------------------------------
Total Investments -- 99.6% (Identified Cost -- $9,429,414) 12,814,542
Other Assets Less Liabilities -- 0.4% 46,692
-----------
Net assets -- 100.0% $12,861,234
===========
Net asset value per share:
Primary Class $66.11
======
Navigator Class $68.49
======
-------------------------------------------------------------------------------------------------------------
</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 $1,022,155 and the
identified cost was $1,119,297.
16
<PAGE>
Portfolio of Investments
June 30, 2000 (Unaudited)
(Amounts in Thousands)
Legg Mason Special Investment Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 93.0%
Capital Goods -- 5.6%
Waste Management -- 5.6%
Republic Services, Inc. 9,000 $ 144,000/A,B/
----------
Communications Services -- 4.3%
Telecommunications (Long Distance) -- 4.3%
ICG Communications 3,550 78,322/A,B/
TALK.com, Inc. 5,725 33,276/A,B/
----------
111,598
----------
Consumer Cyclicals -- 22.1%
Gaming, Lottery and Parimutuel Companies -- 5.1%
Mandalay Resort Group 4,203 84,062/A/
Pinnacle Entertainment, Inc. 2,515 48,885/A,B/
----------
132,947
----------
Retail (Discounters) -- 1.6%
Consolidated Stores Corporation 3,486 41,828/A/
----------
Retail (Specialty-Apparel) -- 2.5%
The TJX Companies, Inc. 3,500 65,625
----------
Services (Advertising/Marketing) -- 8.5%
Acxiom Corporation 3,300 85,429/C/
WPP Group plc 9,187 134,136
----------
219,565
----------
Services (Commercial and Consumer) -- 2.6%
Viad Corp 2,438 66,436
----------
Textiles (Apparel) -- 1.8%
Liz Claiborne, Inc. 1,288 45,384
----------
Consumer Staples -- 7.3%
Entertainment -- 1.2%
Hollywood Entertainment Corp. 4,000 31,500/A,B/
----------
Retail (Drug Stores) -- 2.4%
Caremark Rx, Inc. 9,000 61,313/A/
----------
Sevices (Employment) -- 3.7%
Manpower Inc. 1,805 57,744
Modis Professional Services, Inc. 5,000 38,125/A,B/
----------
95,869
----------
</TABLE>
17
<PAGE>
Portfolio of Investments -- Continued
Legg Mason Special Investment Trust, Inc. -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financials -- 12.4%
Banks (Major Regional) -- 1.0%
Banknorth Group, Inc. 1,600 $ 24,500
----------
Financial (Diversified) -- 1.8%
The FINOVA Group Inc. 3,600 46,800/B/
----------
Insurance (Life/Health) -- 2.7%
UnumProvident Corporation 3,500 70,219
----------
Insurance (Property/Casualty) -- 5.1%
Enhance Financial Services Group, Inc. 3,000 43,125/B/
Radian Group Inc. 1,737 89,886
----------
133,011
----------
Investment Management -- 1.8%
United Asset Management Corporation 2,000 46,750
----------
Health Care -- 4.2%
Biotechnology -- 1.4%
Cell Genesys, Inc. 1,300 36,400/A/
----------
Health Care (Managed Care) -- 2.8%
Wellpoint Health Networks Inc. 1,000 72,438/A/
----------
Miscellaneous-- N.M.
Olsen & Associates AG 30 N.M./A,C/
----------
Technology -- 37.1%
Computers (Hardware) -- 7.9%
Gateway, Inc. 3,600 204,300/A/
----------
Computers (Networking) -- 3.4%
Cabletron Systems, Inc. 3,500 88,375/A/
----------
Computers (Peripherals) -- 0.9%
Storage Technology Corporation 2,200 24,063/A/
----------
Computers (Software/Services) -- 16.9%
America Online, Inc. 2,800 147,700/A/
Bell & Howell Company 1,300 31,525/A,B/
Cadence Design Systems, Inc. 2,800 57,050/A/
Sybase, Inc. 3,700 85,100/A/
Symantec Corporation 2,136 115,210/A/
----------
436,585
----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Services (Computer Systems)-- 2.8%
SunGard Data Systems Inc. 2,365 $ 73,315/A/
----------
Services (Data Processing)-- 5.2%
Ceridian Corporation 3,000 72,187/A/
Equifax Inc. 2,400 63,000
----------
135,187
----------
Total Common Stock and Equity Interests (Identified Cost-- $1,751,962) 2,408,008
---------------------------------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 2.4%
Amazon.com, Inc., 4.75%, due 2/1/09 $80,000 49,900
Amazon.com, Inc., 4.75%, due 2/1/09 20,000 12,475/D/
----------
Total Corporate and Other Bonds (Identified Cost-- $71,110) 62,375
---------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 4.5%
Bank of America
6.82%, dated 6/30/00, to be repurchased at $58,725 on 7/3/00
(Collateral: $65,369 Freddie Mac mortgage-backed securities,
6.00%, due 9/1/28, value $60,149) 58,692 58,692
Goldman, Sachs & Company
6.82%, dated 6/30/00, to be repurchased at $58,725 on 7/3/00
(Collateral: $59,449 Fannie Mae mortgage-backed securities,
8.50%, due 10/1/28, value $60,915) 58,692 58,692
----------
Total Repurchase Agreements (Identified Cost -- $117,384) 117,384
---------------------------------------------------------------------------------------------------------------------
Total Investments -- 99.9% (Identified Cost -- $1,940,456) 2,587,767
Other Assets Less Liabilities -- 0.1% 2,367
----------
Net assets -- 100.0% $2,590,134
==========
Net asset value per share:
Primary Class $36.04
======
Navigator Class $38.60
======
---------------------------------------------------------------------------------------------------------------------
</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 $495,558 and the
identified cost was $595,929.
/C/ Private placement and an illiquid security valued at fair value under
procedures adopted by the Board of Directors. This security represents
3.30% of net assets.
/D/ Rule 144a security -- A security purchased pursuant to Rule 144a under
the Securities Act of 1933 which may not be resold subject to that
rule except to qualified institutional buyers. This security
represents 0.5% of net assets.
N.M. - Not meaningful.
19
<PAGE>
Portfolio of Investments
June 30, 2000 (Unaudited)
(Amounts in Thousands)
Legg Mason Total Return Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests -- 91.7%
Capital Goods -- 5.9%
Aerospace/Defense -- 0.9%
Northrop Grumman Corporation 50 $ 3,312
--------
Electrical Equipment -- 1.8%
General Electric Company 125 6,625
--------
Manufacturing (Diversified) -- 0.7%
Honeywell International Inc. 75 2,527
--------
Waste Management -- 2.5%
Waste Management Inc. 480 9,120
--------
Communications Services -- 8.0%
Telecommunications (Long Distance) -- 2.5%
AT&T Corp. 290 9,171
--------
Telephone -- 5.5%
GTE Corporation 60 3,735
SBC Communications Inc. 115 4,974
WorldCom, Inc. 240 11,010/A/
--------
19,719
--------
Consumer Cyclicals -- 14.7%
Auto Parts and Equipment -- N.M.
Visteon Corporation 13 159/A/
--------
Automobiles -- 1.9%
Ford Motor Company 100 4,300
General Motors Corporation 45 2,613
--------
6,913
--------
Hardware and Tools -- 1.6%
The Black and Decker Corporation 150 5,897
--------
Household Furnishings and Appliances -- 1.2%
Maytag Corporation 120 4,425
--------
Leisure Time (Products) -- 1.2%
Mattel, Inc. 320 4,220
--------
Lodging/Hotels -- 0.9%
Starwood Hotels & Resorts Worldwide, Inc. 105 3,419
--------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail (Department Stores) -- 3.4%
Nordstrom Inc. 180 $ 4,342
Saks Incorporated 275 2,888/A/
The May Department Stores Company 205 4,920
--------
12,150
--------
Retail (Specialty-Apparel) -- 1.1%
The TJX Companies, Inc. 202 3,789
--------
Retail (Specialty) -- 3.4%
Toys "R" Us, Inc. 849 12,356/A/
--------
Consumer Staples -- 8.3%
Entertainment -- 1.3%
Time Warner Inc. 60 4,560
--------
Food -- 1.1%
Sara Lee Corporation 210 4,056
--------
Housewares -- 1.0%
Tupperware Corporation 171 3,757
--------
Retail (Food Chains) -- 4.9%
Albertson's, Inc. 230 7,648
Safeway Inc. 90 4,061/A/
The Kroger Co. 272 5,992/A/
--------
17,701
--------
Financials -- 28.7%
Banks (International) -- 5.2%
Lloyds TSB Group plc 2,009 18,967
--------
Banks (Major Regional) -- 3.7%
Bank One Corporation 195 5,180
FleetBoston Financial Corporation 130 4,420
KeyCorp 210 3,701
--------
13,301
--------
Banks (Money Center) -- 2.1%
The Chase Manhattan Corporation 165 7,600
--------
Consumer Finance -- 0.4%
Countrywide Credit Industries, Inc. 50 1,516
--------
</TABLE>
21
<PAGE>
Portfolio of Investments -- Continued
Legg Mason Total Return Trust, Inc. -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial (Diversified) -- 9.8%
Citigroup Inc. 98 $ 5,874
Equity Residential Properties Trust 130 5,994
Fannie Mae 70 3,653
Mid-America Apartment Communities, Inc. 236 5,669
National Golf Properties, Inc. 300 6,342
Nationwide Health Properties, Inc. 442 6,164
The FINOVA Group Inc. 129 1,677
--------
35,373
--------
Insurance (Life/Health) -- 2.0%
UnumProvident Corporation 360 7,222
--------
Insurance (Property/Casualty) -- 2.4%
Enhance Financial Services Group, Inc. 258 3,715
MGIC Investment Corporation 50 2,275
The Allstate Corporation 123 2,730
--------
8,720
--------
Savings and Loan Companies -- 3.1%
Washington Mutual, Inc. 390 11,261
--------
Health Care -- 7.9%
Health Care (Diversified) -- 4.2%
Abbott Laboratories 93 4,131
Bristol-Myers Squibb Company 105 6,116
Johnson & Johnson 50 5,094
--------
15,341
--------
Health Care (Drugs/Major Pharmaceuticals) -- 3.2%
Eli Lilly & Company 35 3,496
Merck & Co., Inc. 105 8,045
--------
11,541
--------
Health Care (Managed Care) -- 0.5%
Aetna Inc. 25 1,605
--------
Technology -- 17.4%
Computers (Hardware)-- 9.7%
Dell Computer Corporation 65 3,206/A/
Gateway, Inc. 155 8,796/A/
International Business Machines Corporation 210 23,008
--------
35,010
--------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computers (Software/Services) -- 2.2%
America Online, Inc. 70 $ 3,693/A/
Unisys Corporation 285 4,150/A/
--------
7,843
--------
Electronics (Semiconductors) -- 2.0%
Intel Corporation 55 7,353
--------
Photography/Imaging -- 3.5%
Eastman Kodak Company 215 12,792
--------
Utilities -- 0.8%
Electric Companies -- 0.8%
Edison International 138 2,819
--------
Total Common Stock and Equity Interests (Identified Cost-- $288,238) 332,140
---------------------------------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 2.4%
Amazon.com, Inc., 4.75%, due 2/1/09 $14,000 8,733
--------
Total Corporate and Other Bonds (Identified Cost--$11,185) 8,733
---------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 5.6%
Bank of America
6.82%, dated 6/30/00, to be repurchased at $10,172 on 7/3/00
(Collateral: $11,324 Freddie Mac mortgage-backed securities,
6.00%, due 9/1/28, value $10,419) 10,166 10,166
Goldman, Sachs & Company
6.82%, dated 6/30/00, to be repurchased at $10,172 on 7/3/00
(Collateral: $10,297 Fannie Mae mortgage-backed securities,
8.50%, due 10/1/28, value $10,551) 10,166 10,166
--------
Total Repurchase Agreements (Identified Cost -- $20,332) 20,332
---------------------------------------------------------------------------------------------------------------------
Total Investments -- 99.7% (Identified Cost -- $319,755) 361,205
Other Assets Less Liabilities -- 0.3% 1,220
--------
Net assets -- 100.0% $362,425
========
Net asset value per share:
Primary Class $17.96
======
Navigator Class $18.11
======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Non-income producing.
N.M. - Not meaningful.
23
