<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
10/00
Semi-Annual Report
September 30, 2000
Legg Mason
Value Trust, Inc.
Special Investment
Trust, Inc.
Total Return Trust, Inc.
Primary Class
[LOGO OF LEGG MASON FUNDS]
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 September 30, 2000:
<TABLE>
<CAPTION>
Total Returns/1/
---------------------------------------------------
3 Months 9 Months 12 Months
--------- --------- ---------
<S> <C> <C> <C>
Value Trust +1.8% -1.6% +17.0%
Lipper Large-Cap Growth Funds/2/ -0.5% +1.9% +30.3%
Standard & Poor's 500 Composite Index -1.0% -1.4% +13.3%
Special Investment Trust +2.8% -4.0% +17.8%
Lipper Mid-Cap Core Funds/2/ +7.3% +19.2% +51.0%
Russell 2000 Index +1.1% +4.2% +23.4%
Total Return Trust +0.2% -1.6% -4.3%
Lipper Multi-Cap Value Funds/2/ +5.5% +5.1% +11.9%
</TABLE>
As the table indicates, recent investment returns on the three Legg Mason
Funds have been mixed, with Value Trust and Special Investment Trust earning 17%
and 17.8%, respectively, on a 12-month basis, while Total Return Trust
experienced a loss of 4.3% over the same period.
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.
Sincerely,
/s/ John F. Curley, Jr
John F. Curley, Jr.
President
October 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/ Lipper Analytical Services, Inc. recently revised its methods of
categorizing mutual funds. Value Trust is now included in Lipper's "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 stock 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 Standard & Poor's 500
stock index).
<PAGE>
Portfolio Managers' Comments
Third Quarter 2000
Market Commentary
"It's not about calling market bottoms. It's about identifying levels of
---
attractive valuations."
Ed Kerschner
Chief Investment Strategist, Paine Webber
October 13, 2000
Economists have been able to develop greater understanding about how people
make financial decisions by importing insights from psychology, replacing some
of the assumptions of classical economics by descriptions of how people actually
behave. Maybe next the economists can round up some cognitive scientists and
have them investigate the subject of investors' memory, which seems to differ
significantly from the everyday variety.
Our memory provides continuity and context to our daily activities, enabling
us to recognize familiar situations, see their similarities and differences,
integrate experience into a broader context, draw lessons from the past, and so
on. Investment memory, though, seems considerably more short-term, selective,
and sub-optimal. Normal memory, though far from perfect, allows us to function
reasonably effectively; investment memory often fails just when it is most
needed. We don't remember that similar situations have occurred in the recent
past; we don't put current events in perspective. The result is sub-optimal
investment decisions.
When T.S. Eliot said April was the cruelest month, he wasn't thinking about
tech stocks, but during April those stocks collapsed, finally bottoming in early
May. Spring has often been a good time to sell technology, just as fall has
often been a good time to buy. Securities prices seem to have a habit of
dropping in September and October, and the fall has seen many important market
bottoms. The market crash in October 1929 provided a nice trade into the spring
of 1930. More recently, the bear market of 1973-74 ended in the fall, the
October 1987 crash was a low, the bear market of 1990 bottomed in the fall, and
the panic of 1998 saw an October bottom.
We have just finished six straight weeks of decline, beginning on the 1st of
September and carrying the market down over 12%. This is the second correction
of 10% or more this year; the only other years this decade with two 10% drops
were 1990 and 1998. In both years we had external and internal sources of market
angst. In 1990 it was war in the Middle East, high oil prices, recession, and
the impact of Fed tightening. In 1998 it was emerging markets, Russia's default,
Long Term Capital Management's collapse, and Fed tightening. Now it is tensions
in the Middle East, rising oil prices, earnings warnings, and Fed tightening.
There are the rudiments of pattern here. In each case, either the decline in the
market itself, or the causes of the decline, finally made the front page of The
New York Times and other newspapers. By the time market declines (or advances)
are front-page news, they usually have run their course.
In the summer of 1983 we had a technology-driven new issue boom that drove
the NASDAQ to a peak. Over the ensuing 12 months that index fell about 40%
before resuming its advance. In 1987, the S&P 500 peaked in August. It fell 40%
in 40 days, bottoming with the crash's 20%, one-day decline. This year the
NASDAQ peaked in the spring at 5,000. By the end of last week, its decline
reached 40% peak to trough.
2
<PAGE>
There are of course differences between this decline and the others. Previous
shifts from decline to advance have often been catalyzed by a change in Fed
policy toward risk. No such change is evident today.
October is also when Institutional Investor magazine releases the results of
its annual survey of Wall Street analysts, highlighting those voted best in
their respective categories. For the first time, Ed Kershner of Paine Webber was
named best strategist, outpolling Abby Joseph Cohen, the justly celebrated
Goldman Sachs strategist who has been correctly bullish on the market for the
past 10 years. I have long admired Ed's work, which is always quantitatively
sound, analytically rigorous, and conceptually interesting. During the tech
frenzy this March, he correctly called the top, just as he correctly called the
bottom in 1998. This past week, he said the stock market was the most attractive
it had been since October 1998. This, like his other market judgments, was not a
psychological assessment, nor was it based on his reading of the charts; it was
a valuation call. Declining stock prices, positive fundamentals, and a benign
macroeconomic environment have combined to produce the best opportunity for
excess returns since 1998.
Of course the market may continue lower, fundamentals may deteriorate, oil
may rise further, tensions may escalate, the macro-environment may darken. There
are always reasons why the market is down, and those reasons dominate investors'
consciousness; but current fears are reflected in current prices. Justice Holmes
once said people need to be reminded more than they need to be instructed. Once
reminded, we remember October has often been a time to be bullish.
Bill Miller, CFA
October 16, 2000
_______________
Value Trust
The table below gives your Fund's results for a variety of periods and
compared to a number of different benchmarks.
<TABLE>
<CAPTION>
Cumulative Total Returns, Periods Ended 9/30/00
---------------------------------------------------------------------------------------------------
First Second Third Year to Since
Quarter Quarter Quarter Date 1 Year 3 Years 5 Years 10 Years 15 Years Inception*
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Trust -0.01% -3.31% +1.78% -1.60% +17.01% +77.91% +266.34% +782.53% +1,111.07% +3,077.66%
S&P 500 Composite
Index +2.29% -2.66% -0.97% -1.39% +13.28% +57.88% +166.82% +490.81% +1,080.93% +2,068.80%
Dow Jones Industrial
Average** -4.65% -3.98% +2.36% -6.31% +4.57% +40.75% +143.27% +451.20% +1,131.30% +2,211.81%
Lipper Diversified
Equity Funds +7.04% -3.15% +2.67% +6.46% +28.17% +54.75% +135.57% +443.82% +829.98% N/A
Lipper Large-Cap
Growth Funds +8.49% -5.01% -0.50% +1.89% +30.28% +93.78% +187.32% +551.47% +1,090.71% N/A
</TABLE>
________________
* Inception: April 16, 1982.
** Dividends reinvested daily.
3
<PAGE>
Portfolio Managers' Comments -- Continued
In contrast to the first two quarters, in the third quarter we made a little
money, but are still down 1.6% for the nine months compared to a market that is
down 1.39%. Monthly and daily volatility remain high both for the Fund and for
the market. In August, the Fund rose 8.54%, in September we fell 5.86%. These
price changes were not the result of changing business values being reflected in
changed stock prices, they reflect changing emotions and attitudes of investors
in response to the flow of news into the market.
The decline that began in September continued into the first two weeks of
October, giving us six consecutive weeks of a falling stock market. As explained
more fully in the Market Commentary section of this report, we think the decline
has brought the market to an attractive level of valuation and we are optimistic
about returns from the levels reached in the second week of this month.
Our portfolio activity was characteristically muted during the quarter. We
sold two of our foreign holdings, Philips and Nokia. Both have performed well
for us over the years, and both were trading at valuations we believed fully
reflected the solid prospects of those two companies. We also sold Mattel, which
performed poorly for us. The company has new management and has finally disposed
of its money-losing subsidiary The Learning Company. That company, bought for
over $3 billion in Mattel stock, fetched exactly zero when it was finally
"sold," although Mattel stands to get some consideration if the business ever
improves. The stock represented a small position for us and we thought we could
more effectively deploy the cash in some companies we owned that we believe have
better long-term prospects.
During the quarter we added no new positions, but did add to existing
holdings such as Gateway, Albertson's, Kodak, WorldCom, Nextel, and Amazon.com.
Subsequent to the quarter's end, we added several hundred thousand shares to our
Dell Computer position, as the stock fell to the low 20's in reaction to
expectations of slower future growth. Trading at a market multiple for the first
time in years, Dell, we think, can grow at over twice the market's rate for the
next several years and once again represents good value. As you may recall, we
sold a large portion of our Dell holding earlier in the year at considerably
higher prices.
Our sales of Nokia and Philips, and the substantial reduction in our Dell and
America Online positions earlier this year, have resulted in large realized
capital gains. We know that a significant number of shareholders hold the Fund
in taxable accounts and that paying taxes in a year when the Fund has made no
money is particularly unpleasant. Long-time shareholders are aware that the
Value Trust has been among the most tax-efficient funds over the years, the
result of our low-turnover, long-term approach to investing. This year, though,
several of our large positions reached levels of valuation from which we
believed it would be difficult to earn above average long-term returns. We chose
to sell some or all of those holdings and reinvest the proceeds, despite the tax
bite that would ensue.
The best names in your portfolio this quarter were the financials, which
rebounded from the poor results of prior quarters. It appears as if the six
interest rate increases the Fed has imposed in the past year are having the
desired effect of slowing the economy. The market has begun to believe that
perhaps the Fed will begin lowering rates next year, especially if the effect of
rising oil prices is to further inhibit economic growth. Any hint of potential
Fed easing is, of course, bullish for financials. We are agnostic about the
direction of rates, but believe that financials continue to represent solid
value and will perform well for us over the next few years.
4
<PAGE>
Before this quarter is over, we will have elected a new President. Many
investors grow concerned around election time about the impact a new
administration may have on the market. We believe that the administration per se
has little market impact; it is the policies that are enacted that count. Those
policies, though, are themselves often shaped by the market. The tremendous
expansion of equity ownership through 401(k) and stock option plans has
democratized the stock market over the past 10 years. It is much harder to pass
legislation perceived to be market unfriendly than it was a generation ago. Now
when markets react strongly, politicians are often forced to respond. The felt
necessity to "do something" about oil prices is a current manifestation of the
sensitivity of government to changes in markets. There is, of course, the real
risk that governments overreact to normal market fluctuations, but that is
balanced by their being unlikely to actively pursue policies that would have a
substantial negative market impact. Legislation, no doubt, will continue to be
proposed and sometimes passed that could have significant effects on individual
industries.
It is always more pleasant to write quarterly letters saying how well the
market did and that we did even better than it is to write how the market has
spent nine months doing little except drive price-earnings ratios lower. After
five years where share prices rose faster than earnings, we are in a year where
earnings are rising and share prices aren't. High oil prices and international
tensions, higher short-term interest rates, upward pressure on inflation, and
the uncertainty of an election year have all taken their toll on the market. The
third quarter has also seen the highest level of pre-announced earnings warnings
in several years, solid evidence that the economy is slowing. The good news is
that the bad news is reflected in the market. At current prices, we believe the
market represents good value and your portfolio even better value.
As always, we appreciate your support and welcome your comments.
Bill Miller, CFA
October 16, 2000
DJIA 10238.8
________________
Special Investment Trust
The cumulative performance of your Fund for the various periods ended
September 30, 2000, was as follows:
<TABLE>
<CAPTION>
Three Year
Months to Date 1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Special Investment Trust +2.77% -3.96% +17.78% +54.06% +151.75% +477.23%
Lipper Mid-Cap Core
Funds +7.27% +19.20% +50.97% +55.35% +133.22% +518.80%
S&P 500 Composite Index -0.97% -1.39% +13.28% +57.88% +166.82% +490.81%
Russell 2000 +1.11% +4.18% +23.39% +18.98% +79.28% +377.97%
</TABLE>
5
<PAGE>
Portfolio Managers' Comments -- Continued
We recovered some ground in the quarter, beating the S&P 500 and Russell
2000, but trailing the Mid-Cap Core funds. Our longer-term relative performance
remains solid. Versus the S&P 500, which includes a broad representation of the
larger capitalization stocks in the market, our one-year performance is soundly
ahead, though we trail this index slightly for the year-to-date, three-, five-
and ten-year periods. Versus the Mid-Cap Core universe, which Lipper has
identified as our peer group, the Fund remains ahead in only the five-year
period. Versus the Russell 2000, an index of smaller companies, we
underperformed in the year-to-date and one-year periods, but remain considerably
ahead for the three-, five- and ten-year periods.
Looking at the benchmarks cited above, we see wildly divergent patterns of
performance. In times of great volatility, like now, the performance numbers are
even more difficult to interpret. It helps to remember the strategy and
philosophy behind our process when the evidence is so mixed. Special Investment
Trust continues to invest in small and medium-sized companies and special
situations, where the stock price is significantly below what we believe the
business is worth. This investment philosophy, applied long term, is how we
believe investors can expect to earn excess returns over long time horizons. It
also may mean, however, that in shorter measurement periods, our Fund is less
invested in hot areas, and thus will not look like its comparable funds and/or
"benchmarks."
For the past two quarters, we have discussed the change in our outlook and
how we were repositioning the Fund to reflect this change. This quarter, we
focused on fine-tuning rather than broad repositioning. We are happy with our
general positioning, with a slightly lower technology bent and a broader
representation of services, consumer and capital goods companies. So, our
movements within the portfolio this quarter have been much less geared to
thinking about the overall Fund's weightings and positioning, and much more
geared to shaving off parts of positions that are close to fair value in order
to buy or add to positions in companies where we see a much greater return
potential.
Since the end of the third quarter, the correction in the markets,
specifically in NASDAQ-type names, has led us to accelerate some of this buying
and selling. We look at names we already own, and see them once again selling at
prices that understate fair value by 50% or more, and we excitedly buy more. We
are also struck daily by the values that are emerging in the current
environment, and expect we will continue to use this opportunity to add
aggressively either to existing positions that have over-corrected, or to troll
the waters for new positions.
In the third quarter, we sold two positions, United Asset Management and ICG
Communications, and we added two new positions, Aetna and Lexmark.
United Asset Management was bought out by Old Mutual, plc. We sold our
position into the deal. We also sold our position in ICG Communications, as it
became evident that their capital position was deteriorating significantly. We
began selling the position when we figured out that in order to meet their
business plan, the company would need billions of dollars more in capital than
investors were assuming. The stock price was in the high teens at the time, and
we completely liquidated the position before the stock broke below $6. Though we
were not able to save shareholders from this unfortunate loss, our analysis got
us out before the situation became even worse. This is a rare case of converging
forces: the company changed its business model completely and the economics were
not
6
<PAGE>
completely clear at first; the telecom landscape became very grim; and the
capital markets closed their doors to these kinds of emergent telecommunications
providers. Even the "smart money" investors, Hicks Muse and Liberty Media, who
purchased the stock at $22, did not bail out until after we did. The
capitulation of these strategic investors cost the company their funding, and
the stock trades now below $1. We regret when we are this wrong about a holding,
but hope we can identify those that are unsalvageable early.
Aetna is a special situation. They recently sold their financial services
business, and shareholders will receive a $35 cash payment for this division. We
believe the remaining health insurance organization is undervalued. The company
faces a major restructuring, but we believe that, properly managed, they have
earnings potential that is not discounted by the adjusted stock price.
Lexmark is the second largest manufacturer of laser and ink-jet printers,
behind Hewlett-Packard. Unlike Hewlett, Lexmark manufactures their own printer
engines and owns their technology. Like Hewlett, they have a significant
opportunity to expand their installed base of printers and therefore sell a
stream of cartridges, or media, to their customers. These media sales have very
attractive economics - they are high-margin, recurring sales. The emergence of
digital cameras and rich-text Internet pages has increased the ink that
consumers are using to print what they need, and we believe that the number of
printed pages will continue to expand. In the last year, Lexmark has expanded
their manufacturing for increased ink-jet sales, and has experienced some
pitfalls in the process. They missed their third quarter earnings estimates,
driving the stock down, and were further beleaguered by investor worries about
PC demand. The management is very returns-focused, and has repurchased stock
with the majority of their discretionary free cash flow over the years. The
stock, which was as high as $135 in March, recently traded in the low $30's and
is at a very large discount to the valuation multiples at which it has
historically traded. We believe that Lexmark's attractive business model,
significant growth opportunity and great management will again become evident to
investors after we emerge from the short-term issues of the last quarter, and
will reflect the intrinsic value that we believe is far greater than today's
stock price.
We look forward to the last quarter of this volatile year with great optimism
for the prospects of the companies we own. The current environment presents many
opportunities, and we believe our patient, long-term approach will continue to
uncover them. As always, we welcome your questions and comments and appreciate
your support.
Lisa O. Rapuano, CFA
Bill Miller, CFA
October 16, 2000
DJIA 10238.8
7
<PAGE>
Portfolio Managers' Comments -- Continued
Total Return Trust
Our cumulative results for various periods ended September 30, 2000, are as
follows:
<TABLE>
<CAPTION>
Third Year
Quarter to Date 1 Year 3 Years 5 Years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Return Trust +0.21% -1.57% -4.25% -4.62% +69.47%
Lipper Multi-Cap Value Funds +5.53% +5.11% +11.94% +21.48% +92.88%
Lipper Diversified Equity Funds +2.67% +6.46% +28.17% +54.75% +135.57%
S&P 500 Composite Index -0.97% -1.39% +13.28% +57.88% +166.82%
Dow Jones Industrial Average* +2.36% -6.31% +4.57% +40.75% +143.27%
</TABLE>
______________
*Dividends reinvested daily.
As you can see, the Total Return Trust outperformed the S&P 500 but
underperformed its peer group in the third quarter. On a year-to-date basis, the
Fund is in line with the S&P 500, although behind its peer group.
Our results have clearly suffered over the one- and three-year periods, as
the market has focused almost exclusively on technology and high growth stocks.
Funds such as ours, oriented toward more traditional value names and higher
yielding stocks, have significantly underperformed.
As the character of the market has shifted since the NASDAQ (heavily weighted
in technology) peak in March, the Fund's performance relative to its benchmark
has greatly improved. For the seven months ended September 30, the Total Return
Trust is up 12.4%, compared to 5.8% for the S&P 500, and 14.7% for Lipper Multi-
Cap Value funds.
Similar to the results of the first half of the year, the third quarter
performance numbers continue to mask a great deal of volatility in the market,
as investors grapple with "the three E's": energy prices, the euro, and
earnings.
The surge in oil prices to ten-year highs has investors worried that the
spike in energy prices will slow the U.S. economy and lead to widespread
inflationary pressures. As Paine Webber's Chief Economist, Dr. Maury Harris,
points out, the U.S. imports about four billion barrels of oil annually, so a
$10 per barrel increase in the cost of oil would only represent 0.4% of U.S.
GDP. A modest slowing in the economy would likely be viewed favorably by the
Fed, which has been trying to slow the economy to its targeted noninflationary
estimated 3% - 4% real rate of growth.
Importantly, while the spot price of oil has shot up, it is the price of oil
in the futures market that deserves the most attention. While the spot price of
oil is currently in the mid $30s, the futures price is in the mid $20s, implying
that the current spot price of oil is not sustainable.
The European currency, the euro, has fallen sharply over the last twelve
months, which has negatively impacted the earnings of U.S. companies that do
business in European countries. The European commission has recently taken steps
to boost the value of the euro, namely raising interest rates and
8
<PAGE>
intervening in the currency market. Most economists believe the euro is close to
bottoming relative to the dollar and the negative impact of the currency
translation to U.S. multinational companies will reverse over the next year.
Importantly, the currencies of key U.S. trading partners, namely the Canadian
dollar, Mexican peso and Japanese yen, have remained relatively stable.
Consequently, the profit-weighted dollar should be up only about 7% in the third
quarter.
Many prominent companies preannounced third quarter profit shortfalls in
September and early October, causing investors to worry that the long period of
profit growth is coming to an end. We believe this is an incorrect assessment.
While a few sectors of the economy are being squeezed by rising energy costs
and loss robust demand, profit growth is still very solid. Demand both inside
and outside the U.S. is healthy, productivity growth is strong, and costs are
under control. Overall S&P 500 profits are expected to rise around 10% when
third quarter 2000 earnings reports are complete, and a respectable 8% in 2001.
Importantly, a tempering of economic growth is healthy for the longevity of the
economic expansion.
As companies disappoint, their stocks are being severely penalized, resulting
in attractive investment opportunities in many cases. As we've written
previously, our goal is to invest in securities that we believe offer the best
long-term returns within the confines of the objective of the Fund. When
periodic severe overdiscounting of negative news occurs, as we believe has
recently happened in a number of securities, we will aggressively establish or
add to a position.
Several stocks in the portfolio in which we had relatively small positions
sold off dramatically in the quarter, namely Eastman Kodak, May Department
Stores, Albertson's and WorldCom. We used their stock price weakness to
aggressively add to our positions, and we now have 4% - 5% of the portfolio
invested in each stock.
Eastman Kodak preannounced a third quarter earnings shortfall due to the euro
and a general sales slowdown in the U.S. and Europe, as retailers cut back on
their inventory levels. The company's preannouncement sent the stock reeling 25%
in one day, the largest one-day sell-off in the stock since October 1987. At
$40, the stock trades at only 7.5x and 6.6x 2000 and 2001 estimated earnings,
respectively; 1x enterprise value/1/ to sales (the lowest level at which the
stock has traded since the company spun off its chemicals business in late
1993); and yields 4.3%.
May Department Stores continued its slide that started about 18 months ago
when the stock was $45. Currently $20, the stock has not been this low since
1992, while over this time period earnings are up 69%, the share count is down
20%, and the company's return on capital is the same, at about 12.5%. May has
generated 25 consecutive years of record sales and earnings per share. For this
exemplary performance, the company is being rewarded with a P/E multiple of only
8.2x this year's estimated earnings, less than a third of the S&P 500's
multiple!
_______________
/1/ Defined as market capitalization plus total debt less cash and equivalents.
<PAGE>
Portfolio Managers' Comments -- Continued
Albertson's, Inc., the second largest grocery store operator in the country,
has struggled with the integration of American Stores since the deal was
consummated in June 1999. We believe the integration issues are largely over,
and the stock is very attractive in the low $20s, trading at only 10.5x this
year's estimated earnings.
The grocery store industry is a mature industry, where top line comparable
store sales growth should average 1-3% above inflation. We see no reason why
Albertson's can't sustain this growth rate. If achieved, EBITDA/2/ margins
should expand to 8%+ over time.
Management has recently cut back its capital expenditure program, and has
been buying back stock. We believe the stock should trade into the low $30s over
the next 12 to 18 months, providing an attractive total return.
WorldCom, as well as the entire telecommunications sector, has come under a
great deal of pressure in the last several months, as investor focus has shifted
from the revenue growth potential of the industry to the capital investment
required to achieve that growth.
The company's stock, down 34% in the third quarter alone, is now trading at
its lowest relative multiple in 5 years. We believe the telecom industry is, and
remains, a growth industry, and is, and remains, a capital-intensive industry.
Thus, companies in this industry will go through spending periods to develop
network infrastructure, which drives new products, which drives growth.
We believe the capital investments being made today will result in a return
on investment at least as high, if not higher, in the next five years than the
companies are generating today. We believe there are many attractive stocks in
the telecom universe, with WorldCom as a very good proxy.
As always, we appreciate your support and welcome your comments.
Nancy Dennin, CFA
October 16, 2000
DJIA 10238.8
_____________
/2/ Earnings before interest, taxes, depreciation and amortization.
10
<PAGE>
Performance Information
Total Returns for One, Five and Ten Years and Life of Class, as of September 30,
2000
The returns shown are based on historical results and are not intended to
indicate future performance. The investment return and principal value of an
investment in any 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 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.
Average annual total returns as of September 30, 2000, were as follows:
<TABLE>
<CAPTION>
Value Special Investment Total Return Composite
Trust Trust Trust Index
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Annual Total Return
Primary Class:
One Year +17.01% +17.78% -4.25% +13.28%
Five Years +29.65 +20.28 +11.13 +21.69
Ten Years +24.33 +19.16 +14.64 +19.44
Life of Class--Value Trust/A/ +20.59 +18.18
Life of Class--Special Investment Trust/A/ +15.31 +16.96
Life of Class--Total Return Trust/A/ +9.92 +17.23
Cumulative Total Return
Primary Class:
One Year +17.01% +17.78% -4.25% +13.28%
Five Years +266.34 +151.75 +69.47 +166.82
Ten Years +782.53 +477.23 +292.21 +490.81
Life of Class--Value Trust/A/ +3,077.66 +2,068.80
Life of Class--Special Investment Trust/A/ +719.16 +907.59
Life of Class--Total Return Trust/A/ +307.48 +956.33
--------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Primary Class inception dates are:
Value Trust--April 16, 1982
Special Investment Trust--December 30, 1985
Total Return Trust--November 21, 1985
11
<PAGE>
Performance Information--Continued
Value Trust--Primary Class
Illustration of an Assumed Investment of $10,000 made on April 16, 1982
(inception of the Value Trust Primary Class)
VT original shaded shares
4/16/82 $ 10,000 $ 10,000
6/30/82 $ 10,250 $ 10,250
9/30/82 $ 11,680 $ 11,680
12/31/82 $ 13,940 $ 14,091
3/31/83 $ 16,160 $ 16,401
6/30/83 $ 18,199 $ 18,490
9/30/83 $ 18,781 $ 19,144
12/31/83 $ 19,632 $ 20,108
3/31/84 $ 18,870 $ 19,425
6/30/84 $ 18,742 $ 19,333
9/30/84 $ 20,468 $ 21,233
12/31/84 $ 21,755 $ 22,679
3/31/85 $ 23,583 $ 24,683
6/30/85 $ 25,530 $ 26,754
9/30/85 $ 24,948 $ 26,239
12/31/85 $ 28,332 $ 29,910
3/31/86 $ 32,556 $ 34,510
6/30/86 $ 33,210 $ 35,225
9/30/86 $ 30,797 $ 32,816
12/31/86 $ 30,745 $ 32,737
3/31/87 $ 35,503 $ 37,924
6/30/87 $ 36,279 $ 38,753
9/30/87 $ 37,583 $ 40,308
12/31/87 $ 28,175 $ 30,324
3/31/88 $ 32,267 $ 34,729
6/30/88 $ 34,660 $ 37,411
9/30/88 $ 34,766 $ 37,659
12/31/88 $ 34,925 $ 38,134
3/31/89 $ 37,650 $ 41,109
6/30/89 $ 39,817 $ 43,646
9/30/89 $ 43,919 $ 48,463
12/31/89 $ 41,282 $ 45,834
3/31/90 $ 39,891 $ 44,290
6/30/90 $ 40,927 $ 45,741
9/30/90 $ 31,981 $ 36,006
12/31/90 $ 33,362 $ 38,063
3/31/91 $ 37,702 $ 43,014
6/30/91 $ 37,800 $ 43,365
9/30/91 $ 41,928 $ 48,373
12/31/91 $ 44,238 $ 51,282
3/31/92 $ 44,210 $ 51,414
6/30/92 $ 44,041 $ 51,377
9/30/92 $ 44,830 $ 52,396
12/31/92 $ 48,804 $ 57,149
3/31/93 $ 50,184 $ 59,003
6/30/93 $ 49,648 $ 58,545
9/30/93 $ 51,113 $ 60,411
12/31/93 $ 53,674 $ 63,584
3/31/94 $ 52,621 $ 62,337
6/30/94 $ 51,844 $ 61,392
9/30/94 $ 54,953 $ 65,142
12/31/94 $ 54,297 $ 64,465
3/31/95 $ 57,634 $ 68,427
6/30/95 $ 66,254 $ 78,331
9/30/95 $ 73,242 $ 86,742
12/31/95 $ 76,635 $ 90,742
3/31/96 $ 82,111 $ 97,226
6/30/96 $ 85,219 $100,767
9/30/96 $ 92,605 $109,666
12/31/96 $106,456 $125,617
3/31/97 $110,069 $129,881
6/30/97 $130,086 $153,325
9/30/97 $151,543 $178,615
12/31/97 $147,182 $172,156
3/31/98 $172,492 $201,761
6/30/98 $182,113 $212,323
9/30/98 $160,908 $187,600
12/31/98 $218,882 $254,865
3/31/99 $259,794 $302,502
6/30/99 $259,792 $300,753
9/30/99 $234,590 $271,578
12/31/99 $278,952 $322,934
3/31/99 $278,915 $322,891
6/30/00 $273,559 $312,195
9/30/00 $278,441 $317,766
_____________________
Selected Portfolio Performance*
Strong performers for the 3rd quarter 2000
----------------------------------------------------
1. The Bear Stearns Companies, Inc. +51.4%
2. McKesson HBOC, Inc. +46.0%
3. Bank One Corporation +45.4%
4. MBNA Corporation +41.9%
5. Washington Mutual, Inc. +37.9%
6. Fannie Mae +37.0%
7. MGIC Investment Corporation +34.3%
8. Freddie Mac +33.5%
9. Foundation Health Systems, Inc. +27.9%
10. Storage Technology Corporation +24.0%
* Securities held for the entire quarter.
Portfolio Changes
Securities added during the 3rd quarter 2000
--------------------------------------------
None
Weak performers for the 3rd quarter 2000
----------------------------------------------------
1. Dell Computer Corporation -37.5%
2. Albertson's, Inc. -36.8%
3. WorldCom, Inc. -33.8%
4. Eastman Kodak Company -31.3%
5. Nextel Communications, Inc. -23.6%
6. WPP Group plc -18.0%
7. Gateway, Inc. -17.6%
8. Aetna Inc. -9.5%
9. Waste Management Inc. -8.2%
10. Metro-Goldwyn-Mayer, Inc. -8.1%
Securities sold during the 3rd quarter 2000
-----------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
Mattel, Inc.
Nokia Oyj
12
<PAGE>
Special Investment Trust--Primary Class
Illustration of an Assumed Investment of $10,000 made on December 30, 1985
(inception of the Special Investment Trust Primary Class)
value of original value of shares
12/30/85 10,000 10,000
3/31/86 11,530 11,530
6/30/86 12,070 12,070
9/30/86 10,359 10,377
12/31/86 10,716 10,735
3/31/87 13,051 13,074
6/30/87 12,878 12,900
9/30/87 13,321 13,343
12/31/87 9,517 9,614
3/31/88 11,107 11,220
6/30/88 12,006 12,128
9/30/88 11,633 11,762
12/31/88 11,381 11,507
3/31/89 12,982 13,126
6/30/89 14,462 14,623
9/30/89 16,535 16,816
12/31/89 14,945 15,199
3/31/90 14,890 15,143
6/30/90 15,953 16,225
9/30/90 13,807 14,191
12/31/90 14,767 15,278
3/31/91 17,777 18,392
6/30/91 17,935 18,556
9/30/91 19,686 20,403
12/31/91 20,653 21,406
3/31/92 21,249 22,154
6/30/92 20,034 20,846
9/30/92 20,074 20,887
12/31/92 23,620 24,577
3/31/93 23,529 24,482
6/30/93 25,144 26,206
9/30/93 27,889 29,067
12/31/93 29,278 30,507
3/31/94 28,511 29,708
6/30/94 26,412 27,508
9/30/94 27,737 28,888
12/31/94 25,463 26,519
3/31/95 26,707 27,815
6/30/95 28,759 29,944
9/30/95 31,251 32,539
12/31/95 31,175 32,486
3/31/96 34,291 35,733
6/30/96 36,227 37,696
9/30/96 37,107 38,611
12/31/96 40,193 41,793
3/31/97 38,345 39,871
6/30/97 44,498 46,186
9/30/97 51,228 53,171
12/31/97 49,183 51,038
3/31/98 54,899 56,969
6/30/98 54,587 56,481
9/30/98 43,405 44,911
12/31/98 60,825 62,934
3/31/99 64,338 66,569
6/30/99 69,822 71,831
9/30/99 67,604 69,549
12/31/99 82,990 85,298
3/31/00 83,259 85,574
6/30/00 77,634 79,705
9/30/00 79,787 81,916
_________________
Selected Portfolio Performance*
Strong performers for the 3rd quarter 2000
---------------------------------------------------
1. Caremark Rx, Inc. +65.1%
2. SunGard Data Systems Inc. +38.1%
3. UnumProvident Corporation +35.8%
4. Wellpoint Health Networks Inc. +32.5%
5. Radian Group Inc. +30.4%
6. Mandalay Resort Group +28.1%
7. Cadence Design Systems, Inc. +26.1%
8. Storage Technology Corporation +24.0%
9. The TJX Companies, Inc. +20.0%
10. Banknorth Group, Inc. +16.7%
* Securities held for the entire quarter.
Portfolio Changes
Securities added during the 3rd quarter 2000
---------------------------------------------------
Aetna Inc.
Lexmark International, Inc.
Weak performers for the 3rd quarter 2000
----------------------------------------------------
1. The FINOVA Group Inc. -44.2%
2. Modis Professional Services, Inc. -32.0%
3. TALK.com, Inc. -24.2%
4. Symantec Corporation -18.4%
5. WPPGroup plc -18.0%
6. Republic Services, Inc. -18.0%
7. Gateway, Inc. -17.6%
8. Bell & Howell Company -9.8%
9. Enhance Financial Services
Group, Inc. -9.6%
10. Hollywood Entertainment Corp. -5.6%
Securities sold during the 3rd quarter 2000
----------------------------------------------------
ICG Communications
United Asset Management Corporation
13
<PAGE>
Performance Information -- Continued
Total Return Trust--Primary Class
Illustration of an Assumed Investment of $10,000 made on November 21, 1985
(inception of the Total Return Trust Primary Class)
Value of original Value of shares
11/21/85 10,000 10,000
12/31/85 10,090 10,090
3/31/86 10,780 10,780
6/30/86 10,901 10,971
9/30/86 10,258 10,384
12/31/86 10,077 10,231
3/31/87 11,673 11,884
6/30/87 11,657 11,893
9/30/87 12,084 12,409
12/31/87 9,099 9,434
3/31/88 10,295 10,675a
6/30/88 10,888 11,315
9/30/88 10,772 11,244
12/31/88 10,923 11,487
3/31/89 11,690 12,293
6/30/89 12,201 12,918
9/30/89 13,433 14,314
12/31/89 12,478 13,367
3/31/90 11,875 12,721
6/30/90 11,928 12,810
9/30/90 9,566 10,389
12/31/90 10,055 11,118
3/31/91 11,499 12,715
6/30/91 11,833 13,124
9/30/91 13,014 14,546
12/31/91 13,885 15,620
3/31/92 13,885 15,715
6/30/92 14,409 16,416
9/30/92 14,684 16,824
12/31/92 15,482 17,856
3/31/93 16,234 18,839
6/30/93 16,141 18,823
9/30/93 16,712 19,637
12/31/93 17,202 20,370
3/31/94 16,637 19,701
6/30/94 16,640 19,706
9/30/94 17,380 20,691
12/31/94 15,763 18,920
3/31/95 16,594 19,917
6/30/95 18,215 22,037
9/30/95 19,681 24,044
12/31/95 19,837 24,665
3/31/96 21,342 26,536
6/30/96 21,718 27,167
9/30/96 22,847 28,756
12/31/96 25,591 32,346
3/31/97 26,102 32,992
6/30/97 30,062 37,530
9/30/97 34,112 42,720
12/31/97 35,424 44,477
3/31/98 37,429 46,995
6/30/98 36,931 46,277
9/30/98 30,894 38,945
12/31/98 35,166 44,301
3/31/99 34,272 43,175
6/30/99 38,174 47,872
9/30/99 33,807 42,555
12/31/99 32,911 41,397
3/31/00 32,051 40,315
6/30/00 32,450 40,663
9/30/00 $32,467 $40,748
_________________
Selected Portfolio Performance*
Strong performers for the 3rd quarter 2000
---------------------------------------------------
1. The Allstate Corporation +56.2%
2. Bank One Corporation +45.4%
3. KeyCorp +43.6%
4. Washington Mutual, Inc. +37.9%
5. Northrop Grumman Corporation +37.2%
6. Fannie Mae +37.0%
7. UnumProvident Corporation +35.8%
8. The TJX Companies, Inc. +20.0%
9. Citigroup Inc. +19.6%
10. SBC Communcations Inc. +15.6%
* Securities held for the entire quarter.
Portfolio Changes
Securities added during the 3rd quarter 2000
---------------------------------------------------
Bank of America Corporation
Delhaize America, Inc.
E. I. du Pont de Nemours and Company
Finova Capital Corp, 7.25%, due 11/8/04
J. C. Penney Company, Inc.
McDonald's Corporation
Weak performers for the 3rd quarter 2000
---------------------------------------------------
1. Intel Corporation -37.8%
2. Dell Computer Corporation -37.5%
3. Albertson's, Inc. -36.8%
4. Nordstrom Inc. -35.5%
5. WorldCom, Inc. -33.8%
6. Eastman Kodak Company -31.3%
7. Unisys Corporation -22.7%
8. Tupperware Corporation -18.2%
9. Gateway, Inc. -17.6%
10. Maytag Corporation -15.8%
Securities sold during the 3rd quarter 2000
----------------------------------------------------
Abbott Laboratories
Aetna Inc.
Countrywide Credit Industries, Inc.
Edison International
Eli Lilly & Company
Equity Residential Properties Trust
Mattel, Inc.
MGIC Investment Corporation
Safeway Inc.
Saks Incorporated
Sara Lee Corporation
Starwood Hotels & Resorts Worldwide, Inc.
The FINOVA Group Inc.
Visteon Corporation
14
<PAGE>
Statement of Net Assets
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Legg Mason Value Trust, Inc.
Shares/Par Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock and Equity Interests-- 98.9%
Capital Goods-- 4.9%
Manufacturing (Diversified)-- 0.9%
Danaher Corporation 2,400 $ 119,400
---------
Waste Management-- 4.0%
Waste Management Inc. 29,700 517,894
---------
Communications Services-- 7.7%
Telecommunications (Cellular/Wireless)-- 2.5%
Nextel Communications, Inc. 7,000 327,250/A/
---------
Telephone-- 5.2%
Telefonos de Mexico SA de CV (Telmex) 3,800 202,113
WorldCom, Inc. 15,300 464,737/A/
---------
666,850
---------
Consumer Cyclicals-- 13.9%
Automobiles-- 1.6%
General Motors Corporation 3,300 214,500
---------
Gaming, Lottery and Parimutuel Companies-- 1.8%
MGM Mirage Inc. 6,155 235,038/B/
---------
Lodging/Hotels-- 2.2%
Starwood Hotels & Resorts Worldwide, Inc. 9,000 281,250
---------
Retail (Home Shopping)-- 3.5%
Amazon.com, Inc. 12,000 461,250/A/
---------
Retail (Specialty)-- 2.0%
Toys "R" Us, Inc. 15,700 255,125/A,B/
---------
Services (Advertising/Marketing)-- 2.8%
WPP Group plc 29,948 358,746
---------
Consumer Staples-- 7.3%
Distributors (Food and Health)-- 2.2%
McKesson HBOC, Inc. 9,500 290,344
---------
Entertainment-- 0.7%
Metro-Goldwyn-Mayer, Inc. 3,704 88,908/A/
---------
</TABLE>
15
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Value Trust, Inc. -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------
<S> <C> <C>
Retail (Food Chains)-- 4.4%
Albertson's, Inc. 16,500 $ 346,500
The Kroger Co. 9,900 223,369/A/
----------
569,869
----------
Financials-- 35.4%
Banks (International)-- 2.3%
Lloyds TSB Group plc 31,991 298,539
----------
Banks (Major Regional)-- 6.6%
Bank One Corporation 13,000 502,125
FleetBoston Financial Corporation 9,000 351,000
----------
853,125
----------
Banks (Money Center)-- 4.1%
Bank of America Corporation 4,000 209,500
The Chase Manhattan Corporation 7,000 323,312
----------
532,812
----------
Consumer Finance-- 1.8%
MBNA Corporation 6,000 231,000
----------
Financial (Diversified)-- 9.1%
Citigroup Inc. 9,333 504,583
Fannie Mae 7,500 536,250
Freddie Mac 2,600 140,563
----------
1,181,396
----------
Insurance (Property/Casualty)-- 5.9%
Berkshire Hathaway Inc. - Class A 4 270,480/A/
MGIC Investment Corporation 8,000 489,000/B/
----------
759,480
----------
Investment Banking/Brokerage-- 1.6%
The Bear Stearns Companies, Inc. 3,308 208,373
----------
Savings and Loan Companies-- 4.0%
Washington Mutual, Inc. 13,200 525,525
----------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care-- 9.7%
Health Care (Managed Care)-- 9.7%
Aetna Inc. 6,145 $ 356,765
Foundation Health Systems, Inc. 11,100 184,537A,B
United HealthCare Corporation 7,200 711,000
----------
1,252,302
----------
Technology-- 20.0%
Computers (Hardware)-- 9.0%
Dell Computer Corporation 3,700 114,006/A/
Gateway, Inc. 14,980 700,315/A/
International Business Machines Corporation 3,200 360,000
----------
1,174,321
----------
Computers (Peripherals)-- 0.8%
Storage Technology Corporation 8,000 108,500/A,B/
----------
Computers (Software/Services)-- 7.4%
America Online, Inc. 17,755 954,310/A/
----------
Photography/Imaging-- 2.8%
Eastman Kodak Company 8,750 357,656
----------
Total Common Stock and Equity Interests (Identified Cost-- $9,377,784) 12,823,763
------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 1.2%
Goldman, Sachs & Company
6.60%, dated 9/29/00, to be repurchased at $76,744 on 10/2/00
(Collateral: $84,571 Fannie Mae mortgage-backed securities,
6%, due 5/1/29, value $79,443) $76,702 76,702
Morgan Stanley Dean Witter
6.58%, dated 9/29/00, to be repurchased at $76,744 on 10/2/00
(Collateral: $77,221 Ginnie Mae mortgage-backed securities,
8%, due 8/20/30, value $78,739) 76,702 76,702
----------
Total Repurchase Agreements (Identified Cost-- $153,404) 153,404
--------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.1% (Identified Cost-- $9,531,188) 12,977,167
Other Assets Less Liabilities-- (0.1)% (9,639)
-----------
Net assets-- 100.0% $12,967,528
===========
</TABLE>
17
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Value Trust, Inc. -- Continued
<TABLE>
-------------------------------------------------------------------------------------------------------------
<S> <C>
Net assets consisting of:
Accumulated paid-in capital applicable to:
173,914 Primary Class shares outstanding $ 7,271,415
18,070 Navigator Class shares outstanding 1,000,089
Accumulated net investment income/(loss) (25,157)
Accumulated net realized gain/(loss) on investments 1,275,263
Unrealized appreciation/(depreciation) of investments and
foreign currency transactions 3,445,918
-----------
Net assets-- 100.0% $12,967,528
===========
Net asset value per share:
Primary Class $ 67.30
-----------
Navigator Class $ 69.88
-----------
------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Non-income producing.
/B/ Affiliated Company--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 September 30, 2000, the
total market value of Affiliated Companies was $1,272,200 and the
identified cost was $1,119,297.
See notes to financial statements.
18
<PAGE>
Statement of Net Assets
September 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-- 94.7%
Capital Goods-- 4.5%
Waste Management-- 4.5%
Republic Services, Inc. 9,000 $ 118,125/A,B/
---------
Communications Services-- 1.0%
Telecommunications (Long Distance)-- 1.0%
TALK.com, Inc. 5,763 25,395/A,B/
---------
Consumer Cyclicals-- 24.4%
Gaming, Lottery and Parimutuel Companies-- 6.2%
Mandalay Resort Group 4,203 107,704/A/
Pinnacle Entertainment, Inc. 2,515 54,701/B/
---------
162,405
---------
Retail (Discounters)-- 1.8%
Consolidated Stores Corporation 3,486 47,057/A/
---------
Retail (Specialty-Apparel)-- 3.7%
The TJX Companies, Inc. 4,345 97,763
---------
Services (Advertising/Marketing)-- 8.3%
Acxiom Corporation 701 22,244/A/
Acxiom Corporation (private placement) 3,300 99,536/A/
WPP Group plc 8,027 96,158
---------
217,938
---------
Services (Commercial and Consumer)-- 2.5%
Viad Corp 2,470 65,609
---------
Textiles (Apparel)-- 1.9%
Liz Claiborne, Inc. 1,288 49,569
---------
Consumer Staples-- 8.2%
Entertainment-- 1.1%
Hollywood Entertainment Corp. 4,000 29,750/A,B/
---------
Retail (Drug Stores)-- 3.9%
Caremark Rx, Inc. 9,000 101,250/A/
---------
</TABLE>
19
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Special Investment Trust, Inc. -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sevices (Employment)-- 3.2%
Manpower Inc. 1,805 $ 57,631
Modis Professional Services, Inc. 5,200 26,975/A,B/
--------
84,606
--------
Financials-- 11.3%
Banks (Major Regional)-- 1.1%
Banknorth Group, Inc. 1,600 28,600
--------
Financial (Diversified)-- 1.0%
The FINOVA Group Inc. 3,750 27,187/B/
--------
Insurance (Life/Health)-- 3.6%
UnumProvident Corporation 3,500 95,375
--------
Insurance (Property/Casualty)-- 5.6%
Enhance Financial Services Group, Inc. 3,000 39,000/B/
Radian Group Inc. 1,600 108,000
--------
147,000
--------
Health Care-- 7.7%
Biotechnology-- 1.5%
Cell Genesys, Inc. 1,300 39,000/A/
--------
Health Care (Managed Care)-- 6.2%
Aetna Inc. 1,000 58,063
Wellpoint Health Networks Inc. 1,100 105,600/A/
--------
163,663
--------
Miscellaneous-- N.M.
Olsen & Associates AG 30 N.M./A,C/
--------
Technology-- 37.6%
Computers (Hardware)-- 6.3%
Gateway, Inc. 3,550 165,962/A/
--------
Computers (Networking)-- 3.9%
Cabletron Systems, Inc. 3,500 102,813/A/
--------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computers (Peripherals) -- 1.7%
Lexmark International, Inc. 500 $ 18,750/A/
Storage Technology Corporation 1,950 26,447/A/
----------
45,197
----------
Computers (Software/Services) -- 16.1%
America Online, Inc. 2,600 139,750/A/
Bell & Howell Company 1,300 28,437/A/,/B/
Cadence Design Systems, Inc. 2,900 74,494/A/
Sybase, Inc. 3,500 80,500/A/
Symantec Corporation 2,300 101,200/A/
----------
424,381
----------
Services (Computer Systems) -- 3.9%
SunGard Data Systems Inc. 2,365 101,252/A/
----------
Services (Data Processing) -- 5.7%
Ceridian Corporation 3,000 84,187/A/
Equifax Inc. 2,400 64,650
----------
148,837
----------
Total Common Stock and Equity Interests (Identified Cost -- $1,772,258) 2,488,734
---------------------------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 3.0%
Amazon.com, Inc., 4.75%, 2/1/09 $ 20,000 13,325/D/
Amazon.com, Inc., 4.75%, 2/1/09 100,000 66,625
----------
Total Corporate and Other Bonds (Identified Cost -- $82,346) 79,950
---------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 2.2%
Goldman, Sachs & Company
6.60%, dated 9/29/00, to be repurchased at $29,123 on 10/2/00
(Collateral: $32,094 Fannie Mae mortgage-backed securities,
6%, due 1/1/29, value $30,147) 29,107 29,107
Morgan Stanley Dean Witter
6.58%, dated 9/29/00, to be repurchased at $29,123 on 10/2/00
(Collateral: $28,636 Ginnie Mae mortgage-backed securities,
9%, due 11/15/18, value $29,893) 29,107 29,107
----------
Total Repurchase Agreements (Identified Cost -- $58,214) 58,214
---------------------------------------------------------------------------------------------------------------
Total Investments -- 99.9% (Identified Cost -- $1,912,818) 2,626,898
Other Assets Less Liabilities -- 0.1% 2,196
----------
Net assets -- 100.0% $2,629,094
==========
</TABLE>
21
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Special Investment Trust, Inc. -- Continued
--------------------------------------------------------------------------------
Net assets consisting of:
Accumulated paid-in capital applicable to:
67,628 Primary Class shares outstanding $1,734,064
3,119 Navigator shares outstanding 87,567
Accumulated net investment income/(loss) (12,262)
Accumulated net realized gain/(loss) on investments 105,639
Unrealized appreciation/(depreciation) of investments 714,086
----------
Net assets -- 100.0% $2,629,094
==========
Net asset value per share:
Primary Class $ 37.04
==========
Navigator Class $ 39.78
==========
--------------------------------------------------------------------------------
/A/ Non-income producing.
/B/ Affiliated Company--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 September 30, 2000, the
total market value of Affiliated Companies was $349,570 and the identified
cost was $531,465.
/C/ Private placement and an illiquid security valued at fair value under
procedures adopted by the Board of Directors. This security represents 0%
of net assets.
/D/ Rule 144a security--A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be sold subject to that rule except to
qualified institutional buyers. This security represents 0.5% of net
assets.
N.M. - Not meaningful.
See notes to financial statements.
22
<PAGE>
Statement of Net Assets
September 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 -- 91.9%
Basic Materials -- 1.0%
Chemicals -- 1.0%
E.I. du Pont de Nemours and Company 85 $ 3,522
-------
Capital Goods -- 5.6%
Aerospace/Defense -- 1.3%
Northrop Grumman Corporation 50 4,544
-------
Electrical Equipment -- 1.1%
General Electric Company 65 3,750
-------
Manufacturing (Diversified) -- 0.8%
Honeywell International Inc. 75 2,672
-------
Waste Management -- 2.4%
Waste Management Inc. 490 8,544
-------
Communications Services -- 11.6%
Telecommunications (Long Distance) -- 2.0%
AT&T Corp. 235 6,903
-------
Telephone -- 9.6%
SBC Communications Inc. 115 5,750
Verizon Communications 188 9,116
WorldCom, Inc. 600 18,225/A/
-------
33,091
-------
Consumer Cyclicals -- 13.9%
Automobiles -- 2.4%
Ford Motor Company 175 4,425
General Motors Corporation 60 3,900
-------
8,325
-------
Hardware and Tools -- 1.5%
The Black & Decker Corporation 150 5,128
-------
Household Furnishings and Appliances -- 0.7%
Maytag Corporation 80 2,485
-------
</TABLE>
23
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Total Return Trust, Inc.-- Continued
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------
<S> <C> <C>
Retail (Department Stores) -- 4.5%
J.C. Penney Company, Inc. 220 $ 2,599
Nordstrom Inc. 65 1,011
The May Department Stores Company 580 11,890
-------
15,500
-------
Retail (Specialty) -- 2.4%
Toys "R" Us, Inc. 505 8,206/A/
-------
Retail (Specialty-Apparel) -- 2.4%
The TJX Companies, Inc. 375 8,438
-------
Consumer Staples -- 9.2%
Entertainment -- 1.4%
Time Warner Inc. 60 4,695
-------
Housewares -- 0.8%
Tupperware Corporation 156 2,804
-------
Restaurants -- 1.0%
McDonald's Corporation 110 3,321
-------
Retail (Food Chains) -- 6.0%
Albertson's, Inc. 554 11,642
Delhaize America, Inc. 189 3,166
The Kroger Co. 272 6,128/A/
-------
20,936
-------
Financials -- 28.4%
Banks (International) -- 5.4%
Lloyds TSB Group plc 2,009 18,746
-------
Banks (Major Regional) -- 5.5%
Bank One Corporation 195 7,532
FleetBoston Financial Corporation 140 5,460
KeyCorp 240 6,075
-------
19,067
-------
Banks (Money Center) -- 2.8%
Bank of America Corporation 51 2,671
The Chase Manhattan Corporation 155 7,159
-------
9,830
-------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------------------
<S> <C> <C>
Financial (Diversified) -- 7.8%
Citigroup Inc. 78 $ 4,235
Fannie Mae 145 10,367
Mid-America Apartment Communities, Inc. 236 5,654
National Golf Properties, Inc. 226 4,670
Nationwide Health Properties, Inc. 130 2,077
-------
27,003
-------
Insurance (Life/Health) -- 3.2%
UnumProvident Corporation 410 11,172
-------
Insurance (Property/Casualty) -- 1.5%
Enhance Financial Services Group, Inc. 208 2,709
The Allstate Corporation 68 2,353
-------
5,062
-------
Savings and Loan Companies -- 2.2%
Washington Mutual, Inc. 190 7,564
-------
Health Care -- 4.5%
Health Care (Diversified) -- 2.8%
Bristol-Myers Squibb Company 105 5,998
Johnson & Johnson 40 3,758
-------
9,756
-------
Health Care (Drugs/Major Pharmaceuticals) -- 1.7%
Merck & Co., Inc. 80 5,955
-------
Technology -- 17.7%
Computers (Hardware) -- 8.7%
Dell Computer Corporation 65 2,003/A/
Gateway, Inc. 180 8,415/A/
International Business Machines Corporation 175 19,687
-------
30,105
-------
Computers (Software/Services) -- 3.8%
America Online, Inc. 95 5,106/A/
Unisys Corporation 715 8,044/A/
-------
13,150
-------
Electronics (Semiconductors) -- 0.5%
Intel Corporation 40 1,663
-------
</TABLE>
25
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Total Return Trust, Inc.--Continued
<TABLE>
<CAPTION>
Shares/Par Value
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Photography/Imaging -- 4.7%
Eastman Kodak Company 400 $ 16,350
--------
Total Common Stock and Equity Interests (Identified Cost -- $279,569) 318,287
-------------------------------------------------------------------------------------------------------------
Corporate and Other Bonds -- 4.1%
Amazon.com, Inc., 4.75%, due 2/1/09 $ 14,000 9,328
Finova Capital Corp, 7.25%, due 11/8/04 6,475 4,856
--------
Total Corporate and Other Bonds (Identified Cost -- $15,752) 14,184
-------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 2.3%
Goldman, Sachs & Company
6.60%, dated 9/29/00, to be repurchased at $3,929 on 10/2/00
(Collateral: $4,330 Fannie Mae mortgage-backed securities,
6%, due 1/1/29, value $4,068) 3,927 3,927
--------
Morgan Stanley Dean Witter
6.58%, dated 9/29/00, to be repurchased at $3,929 on 10/2/00
(Collateral: $4,107 Ginnie Mae mortgage-backed securities,
7%, due 3/20/29, value $4,051) 3,927 3,927
--------
Total Repurchase Agreements (Identified Cost -- $7,854) 7,854
-------------------------------------------------------------------------------------------------------------
Total Investments -- 98.3% (Identified Cost -- $303,175) 340,325
Other Assets Less Liabilities -- 1.7% 5,879
--------
Net assets consisting of:
Accumulated paid-in capital applicable to:
18,590 Primary Class shares outstanding $284,116
672 Navigator Class shares outstanding 11,053
Undistributed net investment income/(loss) 720
Accumulated net realized gain/(loss) on investments 13,170
Unrealized appreciation/(depreciation) of investments and
foreign currency transactions 37,145
--------
Net assets -- 100.0% $346,204
========
Net asset value per share:
Primary Class $ 17.97
========
Navigator Class $ 18.12
========
-----------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Non-income producing.
See notes to financial statements.
26
<PAGE>
Statements of Operations
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 9/30/00
---------------------------------------------------------
Value Special Investment Total Return
Trust Trust Trust
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Dividends:
Affiliated companies $ 400 $ 1,575 $ --
Other securities/A/ 68,986 4,190 4,017
Interest 10,403 5,046 837
----------- ---------- -----------
Total income 79,789 10,811 4,854
----------- ---------- -----------
Expenses:
Investment advisory fee 43,605 9,234 1,383
Distribution and service fees 56,835 12,632 1,781
Transfer agent and shareholder servicing expense 1,975 618 162
Audit and legal fees 168 44 25
Custodian fee 1,117 322 102
Directors' fees 11 11 8
Registration fees 394 49 14
Reports to shareholders 597 151 46
Other expenses 163 39 9
----------- ---------- -----------
104,865 23,100 3,530
Less expenses reimbursed (43) (27) --
----------- ---------- -----------
Total expenses, net of reimbursement 104,822 23,073 3,530
----------- ---------- -----------
Net Investment Income/(Loss) (25,033) (12,262) 1,324
----------- ---------- -----------
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on investments
and foreign currency transactions 1,276,331 105,629 14,003
Change in unrealized appreciation/(depreciation)
of investments and foreign currency translations (1,450,355) (210,086) (10,919)
----------- ---------- -----------
Net Realized and Unrealized Gain/(Loss) on Investments (174,024) (104,457) 3,084
-----------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $ (199,057) $(116,719) $ 4,408
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Net of foreign taxes wi[CAPTION] $1,082, $49 and $31, respectively.
See notes to financial statements.
27
<PAGE>
Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
Value Special Investment Total Return
Trust Trust Trust
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
9/30/00 3/31/00 9/30/00 3/31/00 9/30/00 3/31/00
-----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Change in Net Assets:
Net investment income/(loss) $ (25,033) $ (67,878) $ (12,262) $ (26,881) $ 1,324 $ 5,997
Net realized gain/(loss) on investments
and foreign currency transactions 1,276,331 1,174,559 105,629 201,007 14,003 19,405
Change in unrealized appreciation/
(depreciation) of investments
and foreign currency translations (1,450,355) (260,951) (210,086) 406,280 (10,919) (60,980)
-----------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations (199,057) 845,730 (116,719) 580,406 4,408 (35,578)
Distributions to shareholders:
From net investment income:
Primary Class -- -- -- -- (1,342) (7,936)
Navigator Class -- -- -- -- (107) (421)
From net realized gain on investments:
Primary Class (1,062,922) (366,234) (99,878) (405,384) (8,273) (34,027)
Navigator Class (110,676) (30,950) (4,456) (15,735) (286) (944)
Change in net assets from Fund share
transactions:
Primary Class 838,582 1,626,765 67,385 651,428 (22,555) (126,787)
Navigator Class 174,057 340,303 10,824 39,442 710 (1,250)
-----------------------------------------------------------------------------------------------------------------------------
Change in net assets (360,016) 2,415,614 (142,844) 850,157 (27,445) (206,943)
Net Assets:
Beginning of period 13,327,544 10,911,930 2,771,938 1,921,781 373,649 580,592
-----------------------------------------------------------------------------------------------------------------------------
End of period $12,967,528 $13,327,544 $ 2,629,094 $ 2,771,938 $346,204 $ 373,649
-----------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(loss) $ (25,157) $ (124) $ (12,262) $ -- $ 720 $ 845
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
28
<PAGE>
Financial Highlights
Contained below is per share operating performance data for a Primary
Class share of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data. This information has been
derived from information provided in the financial statements.
<TABLE>
<CAPTION>
Investment Operations Distributions
--------------------------------------------- ----------------------------------------
From
Net Asset Net Net Realized Total From Net Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income/ Gain/ (Loss) Investment Investment Gain on Total End of
of Period (Loss) on Investments Operations Income Investments Distributions Period
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value Trust
Six Months Ended
Sept. 30, 2000* $75.25 $(.16) $(1.14) $(1.30) $ -- $(6.65) $(6.65) $67.30
Years Ended Mar. 31,
2000 73.09 (.44) 5.06 4.62 -- (2.46) (2.46) 75.25
1999 50.10 (.18) 24.58 24.40 -- (1.41) (1.41) 73.09
1998 34.11 (.02) 18.37 18.35 (.04) (2.32) (2.36) 50.10
1997 26.99 .13 8.68 8.81 (.16) (1.53) (1.69) 34.11
1996 20.21 .19 8.00 8.19 (.17) (1.24) (1.41) 26.99
Special Investment Trust
Six Months Ended
Sept. 30, 2000* $40.28 $(.18) $(1.54) $(1.72) $ -- $(1.52) $(1.52) $37.04
Years Ended Mar. 31,
2000 38.82 (.40) 9.90 9.50 -- (8.04) (8.04) 40.28
1999 36.02 (.32) 5.78 5.46 -- (2.66) (2.66) 38.82
1998 26.55 (.31) 11.28 10.97 -- (1.50) (1.50) 36.02
1997 25.09 (.23) 3.10 2.87 -- (1.41) (1.41) 26.55
1996 19.96 -- 5.60 5.60 -- (.47) (.47) 25.09
Total Return Trust
Six Months Ended
Sept. 30, 2000* $18.26 $ .06 $ .14 $ .20 $(.06) $ (.43) $ (.49) $17.97
Years Ended Mar. 31,
2000 21.08 .22 (1.43) (1.21) (.30) (1.31) (1.61) 18.26
1999 24.63 .38 (2.35) (1.97) (.38) (1.20) (1.58) 21.08
1998 19.39 .44 7.23 7.67 (.40) (2.03) (2.43) 24.63
1997 16.45 .46 3.47 3.93 (.43) (.56) (.99) 19.39
1996 12.79 .48 3.69 4.17 (.51) -- (.51) 16.45
---------------------------------------------------------------------------------------------------------------------------
<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)
-----------------------------------------------------------------------------------------------
Value Trust
Six Months Ended
Sept. 30, 2000* (1.59)%/A/ 1.68%/B/ (.5)%/B/ 29.8%/B/ $11,704,727
Years Ended Mar. 31,
2000 6.74% 1.68% (.6)% 19.7% 12,116,912
1999 49.93% 1.69% (.4)% 19.3% 10,097,527
1998 55.34% 1.73% (.1)% 12.9% 4,810,409
1997 33.59% 1.77% .4% 10.5% 2,236,400
1996 42.09% 1.82% .8% 19.6% 1,450,774
Special Investment Trust
Six Months Ended
Sept. 30, 2000* (4.27)%/A/ 1.79%/B/ (1.0)%/B/ 31.2%/B/ $ 2,505,019
Years Ended Mar. 31,
2000 28.55% 1.80% (1.2)% 29.3% 2,649,860
1999 16.85% 1.84% (1.0)% 47.8% 1,850,289
1998 42.88% 1.86% (1.1)% 29.8% 1,555,336
1997 11.58% 1.92% (.9)% 29.2% 947,684
1996 28.47% 1.96% -- 35.6% 792,240
Total Return Trust
Six Months Ended
Sept. 30, 2000* 1.07%/A/ 1.95%/B/ .7%/B/ 95.4%/B/ $ 334,033
Years Ended Mar. 31,
2000 (6.62)% 1.89% 1.1% 85.4% 362,006
1999 (8.13)% 1.87% 1.7% 44.2% 565,317
1998 42.44% 1.88% 2.1% 20.6% 700,535
1997 24.33% 1.93% 2.6% 38.4% 380,458
1996 33.23% 1.95% 3.2% 34.7% 267,010
------------------------------------------------------------------------------------------------
</TABLE>
/A/ Not annualized.
/B/ Annualized.
* Unaudited.
See notes to financial statements
29
<PAGE>
Notes to Financial Statements
Value Trust
Special Investment Trust
Total Return Trust
(Amounts in Thousands) (Unaudited)
--------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Value Trust, Inc. ("Value Trust"), the Legg Mason
Special Investment Trust, Inc. ("Special Investment Trust") and the Legg
Mason Total Return Trust, Inc. ("Total Return Trust") (each a "Fund") are
registered under the Investment Company Act of 1940, as amended, each as
an open-end, diversified investment company.
Each Fund consists of two classes of shares: Primary Class, offered
since April 16, 1982, for Value Trust, since December 30, 1985, for
Special Investment Trust, and since November 21, 1985, for Total Return
Trust; and Navigator Class, offered to certain institutional investors
since December 1, 1994, for each Fund. Information about the Navigator
Class is contained in a separate report to its shareholders. The income
and expenses of each of these Funds are 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 traded on national securities exchanges are valued at the
last quoted sales price, or if no sales price is available, at the mean
between the latest bid and asked prices. Over the counter securities are
valued at the mean between the latest bid and asked prices as furnished by
dealers who make markets in such securities or by an independent pricing
service. Securities for which market quotations are not readily available
are valued at fair value as determined by management and approved in good
faith by the Board of Directors. Fixed income securities with 60 days or
less remaining to maturity are valued using the amortized cost method,
which approximates current market value.
Foreign Currency Translation
The books and records of the Funds are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis:
(i) market value of investment securities, assets and liabilities at
the closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income
and expenses at the rate of exchange prevailing on the
respective dates of such transactions.
The effect of changes in foreign exchange rates on realized and
unrealized security gains or losses is reflected as a component of such
gains or losses.
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 for financial reporting and federal income tax purposes.
Dividend income and distributions to shareholders are allocated at the
class level and are recorded on the ex-dividend date. Dividends from net
investment income, if available, will be paid quarterly for Total Return
Trust, and annually for Value Trust and Special Investment Trust. Net
capital gain distributions, which are calculated at the Fund level, are
declared and paid after the end of the tax year in which the gain is
realized. Distributions are determined in accordance with federal income
tax regulations, which may differ from those determined in accordance with
generally accepted accounting principles; accordingly, periodic
reclassifications are made within the Fund's capital accounts to reflect
income and gains available for distribution under federal income tax
regulations.
30
<PAGE>
-------------------------------------------------------------------------
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 September 30, 2000, receivables for securities sold and payables for
securities purchased for each of the Funds were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
--------------------------------------------------------------------
Value Trust $37,414 $49,066
Special Investment Trust 7,055 3,075
Total Return Trust 11,457 5,988
Federal Income Taxes
No provision for federal income or excise taxes is required since
each 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 September 30, 2000, investment
transactions (excluding short-term investments) were as follows:
Purchases Proceeds From Sales
--------------------------------------------------------------------
Value Trust $2,040,939 $1,908,452
Special Investment Trust 397,689 413,652
Total Return Trust 164,631 178,997
At September 30, 2000, cost, gross unrealized appreciation and
gross unrealized depreciation based on the cost of securities for federal
income tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Net Appreciation
Cost Appreciation Depreciation (Depreciation)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Trust $9,531,188 $4,460,831 $(1,014,852) $3,445,979
Special Investment Trust 1,912,818 955,165 (241,085) 714,080
Total Return Trust 303,175 63,211 (26,061) 37,150
</TABLE>
3. Repurchase Agreements:
All repurchase agreements are fully collateralized by obligations
issued by the U.S. Government or its agencies, and such collateral is in
the possession of the Funds' custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in
recovery or potential loss of rights in the collateral should the issuer
of the repurchase agreement fail financially. The Funds' investment
adviser reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Funds enter into repurchase
agreements to evaluate potential risks.
31
<PAGE>
Notes to Financial Statements--Continued
--------------------------------------------------------------------------
4. Transactions With Affiliates:
Each Fund has an investment advisory and management agreement with
Legg Mason Funds Management, Inc. ("LMFM"). Pursuant to their respective
agreements, LMFM provides the Funds with investment advisory, management
and administrative services for which each Fund pays a fee, computed daily
and payable monthly, at annual rates of each Fund's average daily net
assets.
Prior to August 1, 2000, Legg Mason Fund Adviser, Inc. served as
investment adviser to the Funds, under compensation arrangements
substantially similar to those with the current adviser. For its services
during the fiscal years ended March 31, 1996 through 2000, and for the
four months ended August 1, 2000, the Funds paid the adviser fees as shown
in the table below, net of any waivers.
LMFM has agreed to waive indefinitely its fees in any month to the
extent Total Return Trust's expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during that month an annual
rate of 1.95% of average daily net assets for Primary Class shares. The
Funds' agreements with LMFM provide that expense reimbursements be made to
Value Trust and Special Investment Trust for audit fees and compensation
of the Funds' independent directors. The following chart shows the annual
rate of advisory fees and audit and director fee reimbursements for each
Fund:
<TABLE>
<CAPTION>
Six Months Ended At
September 30, 2000 September 30, 2000
------------------------------------------
Advisory Asset Expense Expenses Advisory
Fund Fee Breakpoint Limitation Reimbursed Fee Payable
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Value Trust 1.00% $0-$100 million NA $33 $7,282
0.75% $100 million-$1 billion
0.65% in excess of $1 billion
Special Investment Trust same as above same as above NA 27 1,556
Total Return Trust 0.75% all assets 1.95% NA 222
</TABLE>
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as distributor of the Funds. Legg Mason
receives an annual distribution fee and an annual service fee, based on
each Fund's Primary Class's average daily net assets, computed daily and
payable monthly as follows:
<TABLE>
<CAPTION>
At September 30, 2000
---------------------------------
Distribution Service Distribution and Service
Fund Fee Fee Fees Payable
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Trust 0.70% 0.25% $9,478
Special Investment Trust 0.75% 0.25% 2,129
Total Return Trust 0.75% 0.25% 285
</TABLE>
Special Investment Trust and Total Return Trust paid $10 and $2,
respectively, in brokerage commissions to Legg Mason for Fund security
transactions for the six months ended September 30, 2000. Value Trust paid
no brokerage commissions to Legg Mason for the six months ended September
30, 2000.
Legg Mason also has an agreement with the Funds' transfer agent to
assist it with some of its duties. For this assistance the transfer agent
paid Legg Mason the following amounts for the six months ended September
30, 2000: Value Trust, $623; Special Investment Trust, $171; and Total
Return Trust, $31.
LMFM and Legg Mason are corporate affiliates and wholly owned
subsidiaries of Legg Mason, Inc.
32
<PAGE>
--------------------------------------------------------------------------
5. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
a $200 million line of credit ("Credit Agreement") to be utilized as an
emergency source of cash in the event of unanticipated, large redemption
requests by shareholders. Pursuant to the Credit Agreement, each
participating fund is liable only for principal and interest payments
related to borrowings made by that Fund. Borrowings under the Credit
Agreement bear interest at prevailing short-term interest rates. For the
six months ended September 30, 2000, the Funds had no borrowings under the
Credit Agreement.
6. Fund Share Transactions:
At September 30, 2000, there were 400,000, 100,000 and 50,000 shares
authorized at $.001 par value for the Primary class of Value Trust,
Special Investment Trust and Total Return Trust, respectively. At
September 30, 2000, there were 100,000 shares authorized at $.001 par
value for the Navigator Class of Value Trust. The Navigator Classes of
Special Investment Trust and Total Return Trust each have 50,000 shares
authorized at $.001 par value.
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>
Value Trust
--Primary Class
Six Months Ended Sept. 30, 2000 10,977 $ 779,361 15,356 $1,015,884 (13,431)$ (956,663) 12,902 $ 838,582
Year Ended March 31, 2000 54,139 3,838,426 5,175 347,619 (36,445) (2,559,280) 22,869 1,626,765
--Navigator Class
Six Months Ended Sept. 30, 2000 2,274 $ 167,586 1,495 $ 102,414 (1,317) $ (95,943) 2,452 $ 174,057
Year Ended March 31, 2000 7,623 553,197 413 28,343 (3,351) (241,237) 4,685 340,303
Special Investment Trust
--Primary Class
Six Months Ended Sept. 30, 2000 3,609 $ 134,840 2,639 $ 97,660 (4,411)$ (165,115) 1,837 $ 67,385
Year Ended March 31, 2000 14,535 552,539 11,373 395,951 (7,775) (297,062) 18,133 651,428
--Navigator Class
Six Months Ended Sept. 30, 2000 285 $ 11,280 112 $ 4,429 (123) $ (4,885) 274 $ 10,824
Year Ended March 31, 2000 1,136 43,594 410 15,184 (466) (19,336) 1,080 39,442
Total Return Trust
--Primary Class
Six Months Ended Sept. 30, 2000 1,282 $ 23,749 496 $ 9,188 (3,017) $ (55,492) (1,239) $ (22,555)
Year Ended March 31, 2000 3,156 66,495 1,920 40,459 (12,059) (233,741) (6,983) (126,787)
--Navigator Class
Six Months Ended Sept. 30, 2000 120 $ 2,213 21 $ 387 (102) $ (1,890) 39 $ 710
Year Ended March 31, 2000 213 4,447 64 1,347 (362) (7,044) (85) (1,250)
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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. Balanced Trust
Special Investment Trust, Inc. Financial Services Fund
Total Return Trust, Inc. Opportunity Trust
American Leading Companies
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.
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