To Our Shareholders,
We are pleased to provide you with Legg Mason Focus Trust's report for the
year ended December 31, 1998.
Since the Focus Trust joined the Legg Mason Family of Funds on June 30, 1998,
both its performance and recent growth have exceeded our expectations. Robert
Hagstrom, the Fund's portfolio manager, discusses the investment outlook and the
Fund's performance on the following pages. Long-term investment results for the
Fund are shown in the "Performance Information" section of this report.
PricewaterhouseCoopers LLP, Focus Trust's independent accountants, have
completed their annual examination, and audited financial statements for the
fiscal year ended December 31, 1998 are included in this report.
The Board of Directors approved a short-term capital gain distribution of
$.032 per share and a long-term capital gain distribution of $.91 per share
payable on December 11, 1998 to shareholders of record on December 9, 1998. Most
shareholders received this distribution in the form of additional shares
credited to their accounts.
During 1998, attention increasingly focused on the Year 2000 issue. As you
may know, the Year 2000 issue is a computer programming problem that affects the
ability of computers to correctly process dates of January 1, 2000, and beyond.
The Fund's Year 2000 project is well underway, and is designed to ensure that
the Year 2000 date change will have no adverse impact on our ability to service
our clients. The Fund is committed to taking those steps necessary to protect
Fund investors including efforts to determine that the Year 2000 problem will
not affect such vital service functions as shareholder transaction processing
and recordkeeping. In addition, we are continuously monitoring the Year 2000
efforts of our vendors, and will perform tests with our critical vendors
throughout 1999. Although the Fund is taking steps to ensure that all of its
systems will function properly before, during, and after the Year 2000, the Fund
could be adversely affected by computer related problems associated with the
Year 2000. Contingency plans to ensure that functions critical to the Fund's
operations will continue without interruption are under development. We are on
target to complete this important project and look forward to continuing
extensive testing (including industry-wide testing) with our industry peers,
regulators and vendors throughout 1999.
We hope you will consider using the Fund for investments of additional funds
as they become available. Some shareholders regularly add to their investment in
the Legg Mason Funds by authorizing automatic, monthly transfers from their bank
checking or Legg Mason accounts. Your Financial Advisor will be happy to help
you make these arrangements if you would like to purchase additional shares in
this convenient manner.
Sincerely,
/s/ Edward A. Taber, III
Edward A. Taber, III
President
February 9, 1999
February 9,
<PAGE>
Portfolio Manager's Comments
FOCUS TRUST
1998 WAS AN OUTSTANDING YEAR FOR SHAREHOLDERS OF FOCUS TRUST. BOTH THE
RISE IN NET ASSET VALUE FROM $16.32 ON DECEMBER 31, 1997 TO $22.00 ON
DECEMBER 31, 1998, AND ASSET GROWTH EXCEEDED OUR EXPECTATIONS BY A LARGE
MARGIN. THE SUCCESSFUL MERGER WITH LEGG MASON FUND ADVISER HAS RAISED
MEASURABLY BOTH OUR INTELLECTUAL AND FINANCIAL BENCHMARKS. WE ARE OFF TO A
GREAT START!
PERFORMANCE ANALYSIS
Legg Mason Focus Trust's 1998 quarterly and one, two, and three year
average annual performance statistics are shown below with the total
returns of two comparable benchmarks: the Standard & Poor's 500 Index and
the Lipper Growth Fund Index(1).
<TABLE>
<CAPTION>
Focus S&P 500 Lipper Growth
1998 Trust Index Fund Index
----------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter +16.8% +14.0% +12.4%
Second Quarter +5.2% +3.3% +2.9%
Third Quarter -15.9% -10.0% -11.4%
Fourth Quarter +36.9% +21.3% +22.8%
One Year +41.5% +28.6% +25.7%
Two Year +35.2% +31.0% +26.9%
Three Year +28.9% +28.3% +23.7%
</TABLE>
As you can see, Focus Trust's performance, both on an absolute and
relative basis, greatly improved in 1998. Over the past two and three
years, we outperformed our competitors (as measured by the Lipper Growth
Fund Index) and pulled slightly ahead of the S&P 500 Index.
The average annual return of Focus Trust since inception (April 17,
1995) is 26.7% compared to the 29.3% return of the S&P 500 Index and the
25.1% return of the Lipper Index2. Our relative underperformance vs the
S&P 500 Index since inception was caused by the unusually large cash
weighting in the portfolio during the fast rising 1995 market. Since then,
we have maintained cash reserves between 2% and 10% thus allowing our
returns from common stocks to dominate our return from cash holdings.
THE BUMPY RIDE
We have discussed, on many occasions, the price behavior of a focus
portfolio. As you now know, a portfolio of 15 stocks more often
experiences higher price volatility compared to a portfolio of 100 stocks
or 500 stocks that make up an index. The Focus Trust bumpy ride was
clearly evident in the third and fourth quarter of 1998. When the stock
market dropped sharply last year because of the economic turmoil in many
emerging markets, the share price of Focus Trust declined greater than the
S&P 500 Index and the average growth fund. Then, when the market snapped
back after hitting the bottom on October 8th, our share price outperformed
these two benchmarks.
Some individuals observed our greater price volatility and concluded we
must be a "risky" fund. Although relative price volatility is a customary
way of judging risk, we have always believed the academic explanation of
risk overlooks a critical variable - economic value. In some cases, higher
- ---------------
1 All growth funds as measured by Lipper Analytical Services, Inc.
2 Returns for the S&P 500 Index and the Lipper Index are for periods beginning
April 30, 1995.
2
<PAGE>
price volatility may indeed suggest greater than average risk if the
companies owned are economically weak. However, if the common stock of a
strong company, measured by competitive position, financial results, and
management guidance temporarily declines by a ratio greater than the
average market decline, we fail to see how owning or buying into these
companies, especially if we are long-term investors, suggests we are
taking greater risks.
During the third quarter of 1998, AMERICAN EXPRESS declined from $118
per share to $68 per share. BERKSHIRE HATHAWAY which reached a high of
$84,000 per share traded as low as $56,000 a share. We owned a significant
amount of stock in both companies prior to the market correction and
quickly bought more shares at depressed prices thus raising our percentage
holdings. The academic definition of risk would say that because AMERICAN
EXPRESS and BERKSHIRE both declined by a percentage amount greater than
the market decline, these companies were riskier bets. Of course, for
people who think in economic terms, such an idea is senseless.
We looked at the share prices of several outstanding companies that
meaningfully declined in the third quarter and saw only opportunity - not
risk. And as you would guess, we invested as much money as we could during
this price decline which allowed us to buy more shares of what we felt to
be great companies at unbelievably low prices. Then when the market
snapped back, the share price of Focus Trust moved ahead of the average
market rebound giving shareholders an excellent return for the year.
Never once did we feel that buying more shares of a great company at
lower prices was risking our shareholder's money. Although some market
pundits believed world financial chaos was on the brink, we judged the
probabilities of this scenario as being relatively low and acted
accordingly. So the next time you see the share price of Focus Trust
decline relative to the market's return (and it will definitely happen
again), consider buying more shares as we will always be anxious to buy
shares of outstanding companies at lower prices.
This time last year, I confessed to you that although I was very
pleased with the economic progress of our businesses and relatively
pleased by the rise in our share price, I was disappointed by the $8
million size of our Fund. Well, the economic progress of our businesses
has translated into outsized performance and our merger with Legg Mason
has helped Focus Trust grow (as of the date of this letter) to $67
million. In all measures, 1998 has been a great year for our Fund.
I believe 1999 will present more challenges and opportunities for Focus
Trust. We should expect, and prepare psychologically, for continued market
volatility. Although the stock market will be full of surprises, you
should rest comfortably knowing we will go about our business as we have
since inception. We will focus only on companies which we believe to be
outstanding businesses run by great managers who are able to generate
above-average economics for their owners. In short, although the market
will surely change, we promise our strategy will not change. I expect the
size of our Fund to continue to grow and that will allow us the periodic
opportunity to invest more dollars in great companies at attractive
prices.
I wish to thank the talented people at Legg Mason Fund Adviser for
their intellectual support and a special thanks to our Board of Directors
and Officers for their continued guidance.
To all the shareholders of Focus Trust, I appreciate your financial
support. Many of you have been shareholders since inception when there was
little to invest in but the belief we would dutifully exe-
3
<PAGE>
Portfolio Manager's Comments -- Continued
cute our investment strategy. We have kept our end of the bargain and I
am pleased to report many have been rewarded for that faith. A faith that
now finds you the owner of a mutual fund recently assigned Morningstar's
highest five star rating(3).
If you have any questions or concerns, please do not hesitate to
contact us.
ROBERT G. HAGSTROM, CFA
FEBRUARY 9, 1999
DJIA 9133.03
- --------------------------------------------------------------------------------
3 The three year Morningstar rating for the Focus Trust as of December 31, 1998,
in the domestic equity category (consisting of 2,802 funds) was 5 stars. The
rating is based on the Fund's investment category, ranked by risk-adjusted
performance based on the Fund's three year average annual total return in
excess of 90-day US Treasury bill returns, after considering all costs. Risk
is calculated by a factor that reflects Fund performance below three-month US
Treasury bill returns. Risk and return are combined to produce star ratings,
reflecting risk-adjusted performance relative to the average fund in the
fund's class. If the fund scores in the top 10% of its class it receives 5
stars. Ratings are based on past performance which is no guarantee of future
results and are subject to change monthly.
4
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON FOCUS TRUST, INC.
PERFORMANCE COMPARISON OF A $10,000 INVESTMENT AS OF DECEMBER 31, 1998
The returns shown are based on historical results and are not intended
to indicate future performance. Total return measures investment
performance in terms of appreciation or depreciation in a Fund's net asset
value per share, plus dividends and any capital gain distributions. It
assumes that dividends and distributions were reinvested at the time they
were paid. The investment return and principal value of an investment in
this Fund will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Average annual returns
tend to smooth out variations in a fund's return, so they differ from
actual year-to-year results. No adjustment has been made for any income
taxes payable by shareholders.
The following graph compares the Fund's total returns against that of a
closely matched broad-based securities market index. The lines illustrate
the cumulative total return of an initial $10,000 investment for the
periods indicated. The line for the Fund represents the total return after
deducting all Fund investment management and other administrative expenses
and the transaction costs of buying and selling securities. The line
representing the securities market index does not include any transaction
costs associated with buying and selling securities in the index or other
administrative expenses.
Cumulative Average Annual
Total Return Total Return
- ----------------------------------------------
One Year +41.47% +41.47%
Life of Fund+ +140.25 +26.72
- ----------------------------------------------
+ Inception Date -- April 17, 1995
[GRAPH APPEARS HERE]
5
<PAGE>
Performance Information -- Continued
FOCUS TRUST
Selected Portfolio Performance+
Strong performers for the year ended December 31, 1998*
-------------------------------------------------------
Harley-Davidson, Inc. +73.1%
International Speedway Corporation +71.4%
McDonald's Corporation +60.5%
Freddie Mac +53.7%
Berkshire Hathaway Inc. +52.2%
+ INDIVIDUAL STOCK PERFORMANCE IS MEASURED BY THE CHANGE IN THE STOCK'S
PRICE; REINVESTMENT OF DIVIDENDS IS NOT INCLUDED.
* SECURITIES HELD FOR THE ENTIRE YEAR.
Weak performers for the year ended December 31, 1998*
- -----------------------------------------------------
Action Performance Companies, Inc. -6.6%
PORTFOLIO CHANGES
Securities added since June 30, 1998
------------------------------------
Citigroup Inc.
Securities sold since June 30, 1998
- -----------------------------------
Sotheby's Holdings Inc.
Hasbro, Inc.
6
<PAGE>
Statement of Net Assets
Legg Mason Focus Trust, Inc.
December 31, 1998
(Amounts in Thousands)
Shares/Par Value
- ---------------------------------------------------------------------------
Common Stocks and Equity Interests -- 93.9%
Advertising -- 4.5%
WPP Group plc 34 $ 2,118
- ---------------------------------------------------------------------------
Banking --10.5%
Citigroup Inc. 60 2,978
Lloyds TSB Group plc 138 1,963
- ---------------------------------------------------------------------------
4,941
- ---------------------------------------------------------------------------
Collectibles --4.6%
Action Performance Companies, Inc. 61 2,168A
- ---------------------------------------------------------------------------
Financial Services --19.4%
American Express Company 30 3,037
Freddie Mac 60 3,886
United Asset Management Corporation 85 2,215
- ---------------------------------------------------------------------------
9,138
- ---------------------------------------------------------------------------
Healthcare --3.7%
Johnson & Johnson 21 1,745
- ---------------------------------------------------------------------------
Insurance --23.8%
Berkshire Hathaway Inc. .16 11,218A
- ---------------------------------------------------------------------------
Media --13.5%
America Online, Inc. 40 6,352A
- ---------------------------------------------------------------------------
Motorcycles/Bicycles --4.7%
Harley-Davidson, Inc. 47 2,210
- ---------------------------------------------------------------------------
Racetracks --4.7%
International Speedway Corporation 55 2,219A
- ---------------------------------------------------------------------------
Restaurants --4.5%
McDonald's Corporation 28 2,111
- ---------------------------------------------------------------------------
Total Common Stocks and Equity Interests
(Identified Cost--$33,033) 44,220
- ---------------------------------------------------------------------------
7
<PAGE>
Statement of Net Assets -- Continued
Legg Mason Focus Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 6.8%
State Street Bank & Trust Company
3.50%, dated 12/31/98, to be repurchased at $3,209 on 1/4/99
(Collateral: $3,280 Freddie Mac Mortgage-backed securities,
5.02% due 11/5/99, value $3,307)
(Identified Cost--$3,208) $ 3,208 $ 3,208
- -----------------------------------------------------------------------------------------------------
Total Investments-- 100.7% (Identified Cost-- $36,241) 47,428
Other Assets Less Liabilities-- (0.7)% (339)
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
2,140 shares outstanding $35,902
Unrealized appreciation of investments 11,187
- -----------------------------------------------------------------------------------------------------
Net assets-- 100.0% $47,089
- -----------------------------------------------------------------------------------------------------
Net asset value per share: $22.00
- -----------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing See notes to financial statements.
See notes to financial statements.
8
<PAGE>
Statement of Operations
Legg Mason Focus Trust, Inc.
December 31, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends(A) $ 111
Interest 50
- ----------------------------------------------------------------------------------------
Total income 161
Expenses:
Investment advisory fee $ 108
Distribution and service fees 96
Transfer agent and shareholder servicing expense 35
Audit and legal fees 28
Custodian fee 82
Directors' fees 12
Organization expense 13
Registration fees 17
Reports to shareholders 17
Other expenses 11
- ----------------------------------------------------------------------------------------
419
Less fees waived (121)
- ----------------------------------------------------------------------------------------
Total expenses, net of waivers 298
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (137)
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on investments 1,270
Change in unrealized appreciation (depreciation) of investments 8,298
- ----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 9,568
- ----------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $9,431
- ----------------------------------------------------------------------------------------
</TABLE>
(A) Net of foreign taxes withheld of $1.
See notes to financial statements.
9
<PAGE>
Statement of Changes in Net Assets
Legg Mason Focus Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income (loss) $ (137) $ (56)
Net realized gain (loss) on investments 1,270 504
Change in unrealized appreciation (depreciation) of investments 8,298 1,548
- -----------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 9,431 1,996
Distributions to shareholders from net realized gain on investments (1,557) (225)
Change in net assets from Fund share transactions 31,122 (1,005)
- -----------------------------------------------------------------------------------------------------------
Change in net assets 38,996 766
Net Assets:
Beginning of year 8,093 7,327
- -----------------------------------------------------------------------------------------------------------
End of year $47,089 $ 8,093
- -----------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss), end of year $ -- $ --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
10
<PAGE>
Financial Highlights
Legg Mason Focus Trust, Inc.
Contained below is per share operating performance data for a 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
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on Total
of Year (Loss) Investments Operations Income Investments Distributions
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended Dec. 31,
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $16.32 $(.06)(A) $6.68 $6.62 $-- $(.94) $(.94)
1997 13.01 (.11)(A) 3.89 3.78 -- (.47) (.47)
- -----------------------------------------------------------------------------------------------------------------------------
1996 11.17 (.05)(A) 1.96 1.91 -- (.07) (.07)
1995B 10.00 .06 (A) 1.17 1.23 (.06) -- (.06)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------
Net
Net Asset Investment Net Assets,
Value, Expenses Income (Loss) Portfolio End of
End of Total to Average to Average Turnover Year
Year Return Net Assets Net Assets Rate (in thousands)
- --------------------------------------------------------------------------------------------------
Years Ended Dec. 31,
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 $22.00 41.47% 1.93%(A) (.89)%(A) 21% $47,089
1997 16.32 29.10% 2.00%(A) (.74)%(A) 14% 8,093
- --------------------------------------------------------------------------------------------------
1996 13.01 17.14% 2.00%(A) (.40)%(A) 8% 7,327
1995B 11.17 12.29%(C) 1.92%(A,D) 1.19%(A,D) -- 5,061
- --------------------------------------------------------------------------------------------------
</TABLE>
(A) Net of fees waived pursuant to a voluntary expense limitation of
1.75% of average daily net assets through September 1, 1995, 2.00%
through June 30, 1998 and 1.90% through June 30, 2000. If no fees had
been waived, the annualized ratio of expenses to average net assets
for the years ended December 31, 1998, 1997 and 1996 and for the
period April 17, 1995 to December 31, 1995 would have been 2.71%,
4.04%, 4.96% and 7.89%, respectively.
(B) For the period April 17, 1995 (commencement of operations) to
December 31, 1995.
(C) Not annualized
(D) Annualized
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON FOCUS TRUST, INC.
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Focus Trust, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end,
non-diversified investment company.
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 as
determined by the Fund's Board of Directors. Where a security is traded on
more than one market, which may include foreign markets, the securities
are generally valued on the market considered by the Fund's adviser to be
the primary market. Securities with remaining maturities of 60 days or
less are valued at amortized cost. The Fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange
rates.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual basis. Bond
premiums are amortized for financial reporting and federal income tax
purposes. Bond discounts, other than original issue and zero-coupon bonds,
are not amortized. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income, if
available, will be paid annually. Net capital gain distributions are
declared and paid after the end of the tax year in which the gain is
realized. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles; accordingly, periodic reclassifications are made within the
Fund's capital accounts to reflect income and gains available for
distribution under income tax regulations.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes. At
December 31, 1998, receivables for securities sold but not yet settled and
payables for securities purchased but not yet settled for the Fund were as
follows:
Receivable for Payable for
Securities Sold Securities Purchased
---------------------------------------
$ -- $1,686
Deferred Organizational Expenses
Deferred organizational expenses of $65 are being amortized on a
straight line basis over 5 years commencing on the date the Fund's
operations began. LMFA has agreed that in the event it redeems any of its
shares during such period, it will reimburse the Fund for any unamortized
organization costs in the same proportion as the number of shares to be
redeemed bears to the number of shares that LMFA purchased from Focus
Capital Advisory, L.P. on June 30, 1998 and remain outstanding at the time
of redemption.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
12
<PAGE>
Use of Estimates
The 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, 1998, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds from Sales
---------------------------------
$30,545 $3,291
At December 31, 1998, 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)
---------------------------------------------------------------
$36,241 $11,275 $(88) $11,187
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,
acting under the supervision of its Board of Directors, reviews the value
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements to evaluate potential
risks.
4. TRANSACTIONS WITH AFFILIATES:
On June 30, 1998, Legg Mason Fund Adviser purchased the assets of
Focus Capital Advisory, L.P. ("Focus Capital"). For the period June 28,
1997 to June 30, 1998, Focus Capital served as the Fund's investment
adviser. Prior to June 28, 1997, Lloyd, Leith & Sawin, Inc. served as
investment adviser to the Fund.
Effective June 30, 1998, the Fund entered into an investment advisory
and management agreement with Legg Mason Fund Adviser, Inc. ("LMFA").
Pursuant to its agreement, LMFA provides the Fund with investment
advisory, management and administrative services for which the Fund pays a
fee, computed daily and payable monthly, at an annual rate of 0.70% of its
average daily net assets.
LMFA has agreed to waive its fees in any month to the extent the
Fund's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during that month an annual rate of 1.90% of average
daily net assets until June 30, 2000.
During the period January 1, 1997 through June 27, 1997, Lloyd, Leith
& Sawin, Inc. was entitled to receive advisory fees of $27, all of which
were waived by Lloyd, Leith & Sawin, Inc.; during the period June 28, 1997
through December 31, 1997, Focus Capital was entitled to receive advisory
fees of $27, all of which were waived by Focus Capital.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
During the period January 1, 1998 to June 30, 1998, management fee
expense was $34, all of which was waived by Focus Capital; during the
period July 1, 1998 to December 31, 1998, management fee expense was $74,
all of which was waived by LMFA.
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a member of the
New York Stock Exchange, serves as the Fund's distributor. Legg Mason
receives an annual distribution fee and an annual service fee, computed
daily and payable monthly, of 0.75% and 0.25%, respectively, of the Fund's
average daily net assets. At December 31, 1998, distribution and service
fees due to Legg Mason were $42. Distribution and service fees of $13 were
waived for the year.
No brokerage commissions were paid to Legg Mason or its affiliates
during the year ended December 31, 1998. Legg Mason also has an agreement
with the Fund's transfer agent to assist it with some of its duties. For
this assistance, Legg Mason was paid $3 by the transfer agent for the year
ended Decem- ber 31, 1998.
LMFA and Legg Mason are corporate affiliates and wholly owned
subsidiaries of Legg Mason, Inc.
5. FUND SHARE TRANSACTIONS:
At December 31, 1998, there were 100,000 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>
Year Ended Dec. 31, 1998 1,725 $32,537 79 $1,500 (159) $(2,915) 1,645 $31,122
Year Ended Dec. 31, 1997 97 1,422 14 218 (178) (2,645) (67) (1,005)
</TABLE>
Prior to June 30, 1998, redemptions were subject to a 1.00% fee if
redeemed within two years of purchase. Thus, the redemption price may have
differed from the net asset value per share. Effective June 30, 1998, the
Fund no longer imposes a redemption fee.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF LEGG MASON FOCUS TRUST, INC.:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Legg Mason Focus Trust, Inc. (hereafter referred to as the "Fund") at December
31, 1998, and the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998, by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 5, 1999
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
LEGG MASON
FOCUS
TRUST, INC.
[LEGG MASON FUNDS LOGO APPEARS HERE]
Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
John F. Curley, Jr., Chairman
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, DC
Independent Accountants
PricewaterhouseCoopers LLP
Baltimore, MD
This report is not to be distributed unless preceded or accompanied by a
prospectus.
LEGG MASON WOOD WALKER, INCORPORATED
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100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
LMF-091
2/99
