<PAGE>
--------------------------------------
Annual Report
December 31, 1999
Legg Mason
Financial
Services
Fund
Navigator Class
[Legg Mason Funds Logo]
The Art of Investing/SM/
--------------------------------------
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Financial Services Fund's
Navigator Class report for the year ended December 31, 1999. With this report,
we welcome the Financial Services Fund and its shareholders to the Legg Mason
Family of Funds. The Fund, formerly a series of the Bartlett Capital Trust,
reorganized as a Legg Mason Fund on October 5, 1999, following the approval
given by its shareholders at a special meeting held on September 23, 1999.
Amy LaGuardia and Miles Seifert, the Fund's portfolio managers, discuss the
investment outlook and the Fund's Navigator Class performance on the following
page. The Navigator Class commenced operations on October 7, 1999.
Ernst & Young LLP, Financial Services Fund's independent auditors, has
completed its annual examination, and audited financial statements for the
fiscal year ended December 31, 1999, are included in this report.
We are pleased to report that Legg Mason has made a seamless transition into
the new century. Our critical internal and external systems are operating free
of Y2K disruptions. Internal and external operations, including the Fund's
custodian and transfer agency, are running smoothly, and Fund shareholders are
receiving uninterrupted account maintenance and transaction support.
Sincerely,
/s/ Edward A. Taber, III
------------------------
Edward A. Taber, III
President
February 7, 2000
<PAGE>
Portfolio Manager's Comments
Financial Services Fund
As investors in financial stocks in 1999, we felt like the proverbial orphan
character in a Dickens novel with his nose pushed up against the glass of a
fancy restaurant watching the "others" eat. By "others," we mean tech stock
investors. The majority of stocks that did well last year were technology
related. For the quarter ended December 31, 1999, our benchmark, the Lipper
Financial Services Index, was up +4.78%. Since its inception on October 7, 1999,
the Legg Mason Financial Services Fund Navigator Class posted a return of
+2.37%. This was due to being heavily weighted in two of the poorest performing
subsectors of financial services--regional banks and insurance stocks.
A simple explanation for the poor performance of financial stocks is interest
rates. The Fed raised rates three times last year with the threat of more
increases in the New Year. In print, Mr. Greenspan is concerned about the strong
economy bringing on inflation, but according to rumors he is afraid of the stock
market "bubble." We don't know how he can accomplish a growing economy with an
orderly stock market and thus don't envy his job. Perhaps some people don't envy
our jobs either. We are glad for the New Year and feel the light, while not
precisely at the end of the tunnel, is at least visible. In other words, we
believe we are closer to the end of the interest rate increases than we were a
year ago. Our holdings continue to show strong earnings growth and good
fundamentals, which will be recognized by investors once the interest rate scare
is over.
The recent market performance of financial stocks has made mergers quite
scarce, despite the repeal of Glass-Steagall. This was the depression-era law
that prohibited banks, brokers and insurance companies from merging. When the
solid earnings growth begins to be reflected in better market performance, we
expect many mergers among financial companies. Insurance stocks should be the
prime take-out candidates from banks and/or other insurance companies, both
domestic and foreign. We remain committed to owning regional banks and insurance
stocks despite their poor performance in 1999 because we see good earnings
growth as well as merger activity.
Now that 1999 is over and all of the holdings in the Fund have reported solid
earnings, we are quite confident that 2000 will be an equally positive year for
earnings results. All of the managements of our financial companies share our
enthusiasm for 2000 earnings results. What we find so frustrating is the fact
the market will not acknowledge that financial companies are much better able to
withstand interest rate increases than in the past due to a combination of
technology and revenue diversification. As a consumer of financial services, one
can readily see this diversification in the form of fees as well as many more
products offered. Despite the increasing chance of higher interest rates this
year we still see the earnings of these companies showing double digit growth.
We believe for long-term investing, earnings are the key.
In keeping with our Dickensian theme, this is either the best of all times to
invest in financial stocks or the worst. We believe it is the best of times and
investors will be rewarded for their patience.
Gray, Seifert & Co., Inc.
February 1, 2000
2
<PAGE>
Statement of Net Assets
December 31, 1999
(Amounts in Thousands)
Legg Mason Financial Services Fund
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------
<S> <C> <C>
Common Stocks and Equity Interests -- 99.9%
Asset Management -- 2.4%
T. Rowe Price Associates, Inc. 14 $ 498
Waddell & Reed Financial, Inc. 15 407
-------
905
-------
Brokerage Firms -- 4.2%
A.G. Edwards, Inc. 10 321
Merrill Lynch & Co., Inc. 7 584
Paine Webber Group Inc. 10 369
Ragen Mackenzie Group Incorporated 18 324/A/
-------
1,598
-------
Finance -- 2.3%
Financial Federal Corporation 20 456/A/
SLM Holding Corporation 10 402
-------
858
-------
Financial Technology Companies -- 6.6%
DST Systems, Inc. 7 496/A/
Fiserv, Inc. 14 536/A/
Jack Henry & Associates, Inc. 10 537
The BISYS Group, Inc. 8 522/A/
Transaction Systems Architects, Inc. 14 392/A/
-------
2,483
-------
Insurance -- 12.4%
American General Corporation 7 516
American International Group, Inc. 4 473
Jefferson-Pilot Corporation 8 512
Lincoln National Corporation 11 456
Medical Assurance, Inc. 10 201/A/
Nationwide Financial Services, Inc. 13 363
Philadelphia Consolidated Holding Corp. 20 290/A/
Protective Life Corporation 14 445
ReliaStar Financial Corp. 12 455
StanCorp Financial Group, Inc. 15 378
The Progressive Corporation 4 278
UnumProvident Corporation 10 305
-------
4,672
-------
Miscellaneous -- 21.5%
Albertson's Inc. 10 306
CVS Corporation 10 399
Dayton Hudson Corporation 6 411
Eli Lilly and Company 7 432
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous -- Continued
Furniture Brands International, Inc. 14 $ 308/A/
Guidant Corporation 7 306/A/
Hershey Foods Corporation 8 356
Hooper Holmes, Inc. 21 541
Johnson & Johnson 4 410
Kohl's Corporation 7 523/A/
MCI WorldCom, Inc. 6 318/A/
Medtronic, Inc. 13 474
Pfizer Inc. 13 409
Riviana Foods, Inc. 13 237
Safeway Inc. 9 313/A/
The Home Depot, Inc. 10 669
The Kroger Co. 17 321/A/
Wal-Mart Stores, Inc. 8 574
Walgreen Co. 17 497
Wm. Wrigley Jr. Company 4 315
-------
8,119
-------
Regional Banks -- 33.4%
AmSouth Bancorporation 15 290
BancWest Corporation 15 288
BB&T Corporation 14 370
Cascade Bancorp 17 219
CCB Financial Corporation 7 283
Centennial Bancorp 33 350/A/
Centura Banks, Inc. 6 243
City National Corporation 13 428
Colorado Business Bankshares, Inc. 16 204
Commerce Bancshares, Inc. 12 409
Community First Bankshares, Inc. 13 205
Cullen/Frost Bankers, Inc. 13 335
Fifth Third Bancorp 7 514
First Security Corporation 20 511
First Tennessee National Corporation 13 370
Firstar Corporation 17 362
Frontier Financial Corporation 7 140
Greater Bay Bancorp 15 643
Marshall & Ilsley Corporation 7 458
Mid-State Bancshares 15 486
Mississippi Valley Bancshares, Inc. 10 270
National Bancorp of Alaska, Inc. 9 239
North Fork Bancorporation, Inc. 21 367
Old Kent Financial Corporation 10 336
</TABLE>
4
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Financial Services Fund -- Continued
<TABLE>
<CAPTION>
Shares/Par Value
---------------------------------------------------------------------------
<S> <C> <C>
Regional Banks -- Continued
Pacific Capital Bancorp 16 $ 489
Pacific Century Financial Corporation 21 383
Seacoast Banking Corporation of Florida 10 272
SouthTrust Corporation 9 321
Southwest Bancorporation of Texas, Inc. 12 238/A/
State Street Corporation 7 475
TCF Financial Corporation 14 348
Texas Regional Bancshares, Inc. 15 439
West Coast Bancorp 19 252
Westamerica Bancorporation 10 279
Wilmington Trust Corporation 8 362
Zions Bancorporation 8 444
-------
12,622
-------
Savings and Loan -- 3.5%
First Washington Bancorp, Inc. 10 148
FirstBank Corp. 16 215
Harbor Florida Bancshares, Inc. 30 388
Peoples Heritage Financial Group, Inc. 20 301
Washington Mutual, Inc. 10 260
-------
1,312
-------
Super-Regional Banks -- 10.1%
Bank One Corporation 10 321
BankAmerica Corporation 6 301
Comerica Incorporated 8 374
FleetBoston Financial Corporation 13 435
National City Corporation 12 284
Northern Trust Corporation 12 636
SunTrust Banks, Inc. 6 434
U.S. Bancorp 10 238
Wachovia Corporation 6 408
Wells Fargo Company 10 404
-------
3,835
-------
Technology -- 3.5%
Computer Sciences Corporation 5 473/A/
International Business Machines Corporation 5 486
Synopsys, Inc. 6 387/A/
-------
1,346
-------
Total Common Stocks and Equity Interests
(Identified Cost -- $39,092) 37,750
---------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Value
---------------------------------------------------------------------------
<S> <C> <C>
Total Investments -- 99.9%
(Identified Cost -- $39,092) $37,750
Other Assets Less Liabilities -- 0.1% 20
-------
Net assets consisting of:
Accumulated paid-in capital applicable to:
3,015 Primary Class shares outstanding $30,514
990 Class A shares outstanding 10,008
1 Navigator Class shares outstanding 5
Accumulated net realized gain/(loss) on
investments (1,415)
Unrealized appreciation/(depreciation) of
investments (1,342)
-------
Net assets -- 100.0% $37,770
=======
Net asset value per share:
Primary Class $9.41
=====
Class A $9.49
=====
Navigator Class $9.50
=====
Maximum offering price per share:
Class A $9.96
=====
---------------------------------------------------------------------------
</TABLE>
/A/Non-income producing.
See notes to financial statements.
6
<PAGE>
Statement of Operations
For the Year Ended December 31, 1999
(Amounts in Thousands)
Legg Mason Financial Services Fund
<TABLE>
---------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends $ 568
Interest 2
-------
Total income 570
Expenses:
Management fee $ 376
Distribution and service fees 301
Transfer agent and shareholder servicing expense 29
Audit and legal fees 55
Custodian fee 80
Directors' fees 37
Registration fees 52
Reports to shareholders 13
Other expenses 14
-------
957
Less fees waived (187)
-------
Total expenses, net of waivers 770
-------
Net Investment Income/(Loss) (200)
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on investments (1,415)
Change in unrealized appreciation/(depreciation)
of investments (2,359)
-------
Net Realized and Unrealized Gain/(Loss) on Investments (3,774)
---------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $(3,974)
---------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
<PAGE>
Statement of Changes in Net Assets
(Amounts in Thousands)
Legg Mason Financial Services Fund
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1999 December 31, 1998/A/
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income/(loss) $ (200) $ (5)
Net realized gain/(loss) on investments (1,415) --
Change in unrealized appreciation/(depreciation)
of investments (2,359) 1,017
--------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (3,974) 1,012
Change in net assets from Fund share transactions:
Primary Class 16,732 13,939
Class A 2,958 7,097
Navigator Class 5 --
--------------------------------------------------------------------------------------------------------
Change in net assets 15,721 22,048
Net Assets:
Beginning of period 22,049 1
--------------------------------------------------------------------------------------------------------
End of period $37,770 $22,049
--------------------------------------------------------------------------------------------------------
Undistributed net investment income/(loss) $ -- $ --
--------------------------------------------------------------------------------------------------------
</TABLE>
/A/For the period November 16, 1998 (commencement of operations) to
December 31, 1998.
----------------------------------------
Financial Highlights
Contained below is per share operating performance data for a Navigator 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
------------------------------------------- ---------------------
Net Asset Net Net Realized Total From From Net Asset
Value, Investment and Unrealized From Net Net Value,
Beginning Income/ Gain/(Loss) on Investment Investment Realized End of
of Period (Loss) Investments Operations Income Gains Period
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Navigator Class Shares
Period Ended Dec. 31, 1999/A/ $9.27 $.01/B/ $.22 $.23 $-- $-- $9.50
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------
Net
Investment Net Assets,
Expenses Income (Loss) Portfolio End of
Total to Average to Average Turnover Period
Return/A/ Net Assets Net Assets Rate (in thousands)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Navigator Class Shares
Period Ended Dec. 31, 1999/A/ 2.37%/C/ 1.25%/B,D/ .33%/B,D/ 27.1%/D/ $5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/A/For the period October 7, 1999 (inception date of Navigator Class) to
December 31, 1999.
/B/Net of fees waived pursuant to a voluntary expense limitation of 1.25%. If no
fees had been waived, the annualized ratio of expenses to average daily net
assets for the period October 7, 1999 to December 31, 1999 would have been
1.67%.
/C/Not annualized.
/D/Annualized.
See notes to financial statements
8
<PAGE>
Notes to Financial Statements
Legg Mason Financial Services Fund
(Amounts in Thousands)
-----------------------------------------------------------------------------
1. Significant Accounting Policies:
Financial Services Fund ("Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end, diversified investment
company.
The Fund consists of three classes of shares: Primary Class and Class A,
offered since November 16, 1998, and Navigator Class, offered to certain
institutional investors since October 7, 1999. The income and expenses of the
Fund are allocated proportionately to the three classes of shares based on
daily net assets, except for Rule 12b-1 distribution fees, which are charged
only on Primary Class and Class A shares, and transfer agent and shareholder
servicing expenses, which are determined separately for each class.
Information about the Primary Class and Class A is contained in a separate
report to the shareholders of those classes.
Security Valuation
Securities owned by the Fund for which market quotations are readily
available are valued at current market value. In the absence of readily
available market quotations, securities are valued at fair value under
procedures established by and under the general supervision of the Board of
Directors.
Equity securities and options listed on exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued. Listed securities not traded on a particular day and securities
traded in the over-the-counter market are valued at the mean between the
closing bid and ask prices quoted by brokers or dealers that make markets in
the securities. Portfolio securities which are traded both in the over-the-
counter market and on an exchange are valued according to the broadest and
most representative market.
Fixed income securities generally are valued by using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. Fixed income securities having a maturity of less
than 60 days are valued at amortized cost.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized 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 annually. Net capital gain distributions,
which are calculated at the composite 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.
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.
9
<PAGE>
-----------------------------------------------------------------------------
At December 31, 1999, receivables for securities sold and payables for
securities purchased for the Fund were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
----------------------------------------
$190 $0
Federal Income Taxes
No provision for federal income or excise taxes is required since the Fund
intends to qualify as a regulated investment company and distribute
substantially all of its taxable income to its shareholders.
At December 31, 1999, the Fund had capital loss carryforwards for federal
income tax purposes of $735 expiring in 2007.
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 year ended December 31, 1999, investment transactions (excluding
short-term securities) were as follows:
Purchases Proceeds From Sales
-----------------------------------
$29,608 $9,991
At December 31, 1999, cost, aggregate gross unrealized appreciation and
gross unrealized depreciation based on the cost of securities for federal
income tax purposes for the Fund were as follows:
Net
Appreciation/
Cost Appreciation Depreciation (Depreciation)
-----------------------------------------------------------
$39,092 $3,030 $(4,372) $(1,342)
3. Repurchase Agreements:
All repurchase agreements are fully collateralized by obligations issued
by the U.S. Government or its agencies, and such collateral is in the
possession of the Fund's custodian. The value of such collateral includes
accrued interest. Risks arise from the possible delay in recovery or
potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially. The Fund's investment adviser reviews
the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
10
<PAGE>
Notes to Financial Statements -- Continued
-----------------------------------------------------------------------------
4. Transactions With Affiliates:
The Fund has a management agreement with Legg Mason Fund Adviser, Inc.
("LMFA"). Pursuant to the agreement, LMFAprovides the Fund with management
and administrative services for which the Fund pays a fee, computed daily
and payable monthly, at an annual rate of the Fund's average daily net
assets. LMFA has agreed to waive its fees in any month (exclusive of taxes,
interest, brokerage and extraordinary expenses) as shown in the following
chart:
<TABLE>
<CAPTION>
At
December 31, 1999
-----------------
Management Expense Expense Limitation Advisory Fee
Fee Limitation Expiration Date Payable
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Class 1.00% 2.25% May 1, 2000 $(14)
Class A 1.00% 1.50% May 1, 2000 (5)
Navigator Class 1.00% 1.25% May 1, 2000 N.M.*
</TABLE>
-------------
*N.M. - Not meaningful.
Prior to October 5, 1999, Bartlett & Co. served as investment adviser to
the Fund, under compensation arrangements substantially similar to those with
the current adviser. For its services during the fiscal year ended December
31, 1998, and for the period January 1, 1999 through October 4, 1999, the
Fund paid the adviser a fee of 1.00% of its average daily net assets, net of
any waivers.
Gray, Seifert & Co., Inc. serves as investment sub-adviser to the Fund
pursuant to a Sub-Advisory Agreement which was approved by the Board of
Directors. For its services under the Sub-Advisory Agreement, Gray, Seifert
receives from LMFA (not from the Fund) a monthly fee at the rate of 60% of
the monthly fee actually paid to LMFA by the Fund under the Agreement, taking
into account any fee waiver arrangements in effect.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New
York Stock Exchange, serves as distributor of the Fund. Legg Mason receives
an annual distribution fee and an annual service fee based on the Primary
Class and Class A's average daily net assets, computed daily and payable
monthly as follows:
<TABLE>
<CAPTION>
At December 31, 1999
------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
-----------------------------------------------------------------------
<S> <C> <C> <C>
Primary Class 0.75% 0.25% $(23)
Class A --% 0.25% (1)
</TABLE>
No brokerage commissions were paid to Legg Mason or its affiliates by the
Fund during the year ended December 31, 1999. Legg Mason has an agreement
with the Fund's transfer agent to assist it with some of its duties. For this
assistance, the transfer agent paid Legg Mason $6 for the year ended December
31, 1999.
LMFA, Gray Seifert & Co., Inc. and Legg Mason are corporate affiliates and
wholly owned subsidiaries of Legg Mason, Inc.
11
<PAGE>
- -------------------------------------------------------------------------------
5. Line of Credit:
The Fund, along with certain other Legg Mason Funds, participates 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 line of credit bear
interest at prevailing short-term interest rates. For the year ended December
31, 1999, the Fund had no borrowings under the line of credit.
6. Acquisition of Bartlett Financial Services Fund:
Effective October 5, 1999, the Fund acquired all of the assets and assumed
all of the liabilities of the Bartlett Financial Services Fund ("Bartlett
Fund"), a series of Bartlett Capital Trust (an open-end management company),
pursuant to a plan of conversion and termination approved by Bartlett Fund's
shareholders on September 23, 1999. The shareholders of Bartlett Fund
received shares of the Fund equal to the number and aggregate net asset value
(and corresponding class) of their shares in the Bartlett Fund.
The acquisition was treated as a tax-free reorganization and accordingly
any unrealized appreciation or depreciation on the securities on the date of
the acquisition was treated as a non-taxable event by the Bartlett Fund. As
such, the Fund's basis in the securities acquired reflects their historical
cost basis as of the date of transfer. The net assets and net unrealized
depreciation of the Bartlett Fund as of October 5, 1999, were $37,391 and
$3,414, respectively.
The Bartlett Fund's investment objectives, policies and restrictions were
identical to those of the Fund, which had no operations prior to October 5,
1999. For financial reporting purposes, the Bartlett Fund's operating history
prior to the acquisition is reflected in the financial statements and
financial highlights of the Fund.
7. Fund Share Transactions:
At December 31, 1999, there were 375 million shares authorized at $.001
par value for the Fund. Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------ ---------------- ----------------- -----------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--Primary Class
Year Ended December 31, 1999 2,363 $23,769 -- $-- (729) $(7,037) 1,634 $16,732
Period Ended December 31, 1998/A/ 1,388 14,009 -- -- (7) (70) 1,381 13,939
--Class A
Year Ended December 31, 1999 492 $ 4,979 -- $-- (206) $(2,021) 286 $ 2,958
Period Ended December 31, 1998/A/ 706 7,112 -- -- (2) (15) 704 7,097
--Navigator Class
Period Ended December 31, 1999/B/ 1 $ 5 -- $-- -- $ -- 1 $ 5
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/For the period November 16, 1998 (commencement of operations of this
class) to December 31, 1998.
/B/For the period October 7, 1999 (commencement of operations of this class)
to December 31, 1999.
12
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
To the Shareholders and Directors of Legg Mason Financial Services Fund:
We have audited the accompanying statement of net assets of Legg Mason
Financial Services Fund (the "Fund") as of December 31, 1999, and the related
statement of operations, statement of changes in net assets, and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The financial statements and financial highlights of the
Fund for the period November 16, 1998 (commencement of operations) through
December 31, 1998, were audited by other auditors whose report dated February 5,
1999, expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the Fund's custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Legg
Mason Financial Services Fund at December 31, 1999, and the results of its
operations, the changes in its net assets, and its financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
---------------------
Philadelphia, Pennsylvania
January 26, 2000
13
<PAGE>
Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Sub-Adviser
Gray, Seifert & Co., Inc.
New York, NY
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
G. Peter O'Brien
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Auditors
Ernst & Young LLP
Philadelphia, PA
This report is not to be distributed unless preceded or
accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
-------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 . 539 . 0000
LMF-084
2/00
