To Our Shareholders,
We are pleased to provide you with a semi-annual report for Legg Mason Focus
Trust, Inc. for the six months ended June 30, 1999.
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.
During 1998 and into 1999, the focus on the Year 2000 issue increased
significantly. As you 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 shareholders. The Fund is committed to taking
those steps necessary to protect our 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 are in place
to ensure that functions critical to the Fund's operations will continue without
interruption. 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
August 2, 1999
<PAGE>
Portfolio Manager's Comments
Focus Trust
Focus Trust's total return(1) for the first quarter, second quarter and year
to date are shown below with the total returns of the Fund's two comparable
benchmark indices: the Standard & Poor's 500 index, an unmanaged index of widely
held common stocks, and Lipper Analytical Services, Inc.'s ("Lipper") index of
growth stock funds.(2)
Focus S&P 500 Lipper Growth
1999 Trust Index Funds Index
----------------------------------------------------------------
First Quarter +11.36% +4.99% +5.07%
Second Quarter -0.90% +7.06% +6.49%
Year to Date +10.36% +12.39% +11.89%
The Fund's average annual total returns for one, two and three years and since
inception are shown below, as well as total return information for the same
periods for the S&P 500 index and Lipper's index of growth stock funds.
Focus S&P 500 Lipper Growth
June 30, 1999 Trust Index Funds Index
--------------------------------------------------------------
One Year +27.09% +22.77% +21.69%
Two Years +33.34% +26.41% +24.93%
Three Years +30.31% +29.12% +25.15%
Since Inception (4/17/95) +26.15% +28.94% +25.12%
As you can see, the Fund continued along its "bumpy" ride. After a strong
first quarter, the Fund lagged its benchmarks during the second quarter. We have
become used to this "bumpy" ride and have spent considerable time talking with
shareholders and our financial advisors about the inherent volatility of a
focused portfolio. The bounces we experience in the Fund, you may recall, have
much more to do with the underlying changes in the stock market than with the
economic changes of our underlying businesses.
During the second quarter of 1999, we witnessed profound shifts in market
sentiment and direction. The change in direction was caused by three separate
events: first was the resurgence in "value" stocks over "growth" stocks, second
came the Federal Reserve's increase in interest rates, and third was the
unexpected Federal Reserve shift back to a neutral bias regarding future
interest rate moves.
Over the past several years, up to and including the first quarter of 1999, the
stock market's impressive price return was largely based on the performance of a
narrow group of large capitalization stocks. These large capitalization stocks
included companies with rising revenues and earnings that
- --------------
(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. 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 the Fund will
fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
(2) The Lipper Growth Funds Index is composed of 30 funds whose primary
objective is to invest in companies with long-term earnings expected to grow
significantly faster than earnings of the stocks represented in the major
managed stock indices.
2
<PAGE>
sported high price/earnings ratios. During this time, the market was willing
to pay a fat premium for companies able to grow earnings in a low inflationary
environment while discounting companies unable to demonstrate any unit growth.
This unusually large disparity between high price/earnings ratio "growth" stocks
and low price/earnings ratio "value" stocks snapped in the first week of April
when the market suddenly reversed course and sold-off "growth" in favor of
"value." The deep cyclicals (basic materials and capital goods companies) staged
their largest one-month rally in over fifty years.
We do not favor "growth" stocks over "value" stocks, nor "value" stocks over
"growth" stocks. Rather, we look for great businesses that we believe to be
available at prices below their intrinsic value, calculated by discounting to
present value the future free cash flow that each business generates over its
life. Some of our companies in the portfolio have "growth" stock
characteristics, such as America Online, Avon Products, Harley Davidson, and
International Speedway, while others possess "value" stock characteristics, such
as Action Performance, American Express, Citigroup, Federal Home Loan Mortgage
(Freddie Mac), Lloyds TSB Group, and United Asset Management. But all of these
companies are valuable to us because they sell at or below their intrinsic
worth.
We have witnessed several group shifts before and we are of the opinion that
the best strategy is not to be seduced into chasing a fast-moving trend. Rather,
we feel it is more important to stick with our own great companies, anticipating
that their above-average economics will, over time, work through any short-term
cyclical shift. We believe we do not have to make the right short-term bet if we
have already made what we feel is the right long-term investment.
At its June meeting, the Federal Reserve hiked interest rates 25 basis
points(3) in what was described as the most anticipated rate increase in memory.
Since the fall of 1998, interest rates had slowly but steadily moved higher. The
30-year Treasury Bond, after dipping below 5%, finished the quarter at 6%. So
really, the Fed was merely following the bond market back up the yield curve.
What many investors did not know was whether the Fed would stop after one
increase, as it did in 1997, or was the expected rate increase to be soon
followed by several more, as happened in 1994 and 1995. The implication was
clear. Several rate increases, one after another, would unquestionably force
stock prices lower while a "one and done" increase would merely slow this
historic bull market.
Immediately after the rate increase, the Fed announced it was moving its
interest rate bias from "tightening" to "neutral." Almost no one expected the
Fed to shift back to a neutral stance so soon. After all, they could have easily
left the tightening bias in place and moved back to neutral at the next meeting
in August. What can investors conclude from this unexpected move?
The Federal Reserve claimed its neutral posture was based on an "uncertain
resolution of conflicting forces in the economy going forward." In other words,
the combination of strong GDP growth, slow labor growth, and low unemployment
has always been a presage to rising wage inflation. But instead of clinging to
an older and possibly outdated economic model, the Fed recognizes a new and
powerful variable, namely the huge gains in productivity made available from
technology and the Internet. Now, it is not certain the gains in productivity
have completely offset any inflation threat, but what is clear is the Federal
Reserve is forward-thinking. With no "predilection" about the
- --------------
(3) 100 basis points = 1%.
3
<PAGE>
Portfolio Manager's Comments -- Continued
near-term policy, it appears the Fed will let the markets explain what is
going on and then react accordingly. We believe this strategy, letting the
markets explain the current phenomena as opposed to fighting yesteryear's wars
with incomplete models, carries substantial benefits for investors.
We are confident in our portfolio and expect, going forward, our businesses to
generate above-average economics that should lead over time to above-average
price gains. Along the way, you can be assured there will be plenty of
surprises. Some we will be able to anticipate, most we will not. However, we
will always be anxious to invest more dollars in great companies at low prices.
As always, we appreciate your support and confidence. If you have any
questions about Focus Trust, please do not hesitate to contact us. Also, if you
know investors who think similarly to the way we do, send them our way. We want
to grow Focus Trust, but only with a core group of individuals who appreciate
our investment approach.
Robert G. Hagstrom, CFA
Portfolio Manager
August 2, 1999
DJIA 10645.96
4
<PAGE>
Performance Information
Legg Mason Focus Trust, Inc.
Total Returns for One, Two and Three Years and Life of Fund as of June 30, 1999
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 that they differ from actual year-to-year results. No
adjustment has been made for any income taxes payable by shareholders.
The Fund's total returns as of June 30, 1999, are as follows:
Average Annual Total Return:
One Year +27.09%
Two Years +33.34
Three Years +30.31
Life of Fund (Inception April 17, 1995) +26.15
Cumulative Total Return:
One Year +27.09%
Two Years +77.80
Three Years +121.28
Life of Fund (Inception April 17, 1995) +165.15
-----------------------------
SELECTED PORTFOLIO PERFORMANCE(dagger)
<TABLE>
<CAPTION>
Strong performers for the six months ended June 30, 1999* Weak performers for the six months ended June 30, 1999*
--------------------------------------------------------- -------------------------------------------------------
<S><C>
1. Citigroup, Inc. +43.4% 1. United Asset Management Corporation -12.5%
2. WPP Group plc +38.9% 2. Freddie Mac -10.0%
3. America Online, Inc. +38.1% 3. Action Performance Companies, Inc. -6.7%
4. American Express Company +27.3% 4. Lloyds TSB Group plc -4.6%
5. International Speedway Corporation +17.3% 5. Berkshire Hathaway, Inc.-Class A -1.6%
</TABLE>
(dagger) Individual stock performance is measured by the change in the
stock's price; reinvestment of dividends is not included.
* Securities held for the entire period.
PORTFOLIO CHANGES
<TABLE>
<CAPTION>
Securities added since December 31, 1998 Securities sold since December 31, 1998
---------------------------------------- ---------------------------------------
<S><C>
Waste Management, Inc. Johnson & Johnson
Avon Products, Inc.
Gateway, Inc.
</TABLE>
5
<PAGE>
Statement of Net Assets
Legg Mason Focus Trust, Inc.
June 30, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Shares/Par Value
----------------------------------------------------------------------------
<S><C>
Common Stocks and Equity Interests -- 90.2%
Advertising -- 4.5%
WPP Group plc 108 $ 9,218
--------
Banking -- 14.9%
Citigroup, Inc. 445 21,138
Lloyds TSB Group plc 676 9,166
--------
30,304
--------
Collectibles -- 3.2%
Action Performance Companies, Inc. 195 6,438(A)
--------
Computer Services and Systems -- 4.5%
Gateway, Inc. 155 9,145(A)
--------
Consumer Products -- 4.7%
Avon Products, Inc. 171 9,468
--------
Financial Services -- 24.9%
American Express Company 159 20,742
Freddie Mac 352 20,393
United Asset Management Corporation 418 9,500
--------
50,635
--------
Insurance -- 16.4%
Berkshire Hathaway, Inc.- Class A .49 33,416(A)
--------
Media -- 3.6%
America Online, Inc. 67 7,426(A)
--------
Motorcycles/Bicycles -- 2.3%
Harley-Davidson, Inc. 85 4,600
--------
Non-Hazardous Waste Disposal -- 4.1%
Waste Management, Inc. 154 8,278
--------
Racetracks -- 2.6%
International Speedway Corporation 110 5,206
--------
Restaurants -- 4.5%
McDonald's Corporation 219 9,060
--------
Total Common Stocks and Equity Interests
(Identified Cost -- $167,967) 183,194
----------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
----------------------------------------------------------------------------
<S><C>
Repurchase Agreements -- 12.3%
Goldman, Sachs & Company
5%, dated 6/30/99, to be repurchased at
$12,464 on 7/1/99 (Collateral: $13,783
Fannie Mae mortgage-backed securities,
6%, due 2/1/29, value $12,936) $ 12,463 $ 12,463
Merrill Lynch & Co., Inc.
4.80%, dated 6/30/99, to be repurchased at
$12,464 on 7/1/99 (Collateral: $13,377
Fannie Mae mortgage-backed securities,
6.50%, due 4/1/29, value $12,904) 12,462 12,462
--------
Total Repurchase Agreements
(Identified Cost-- $24,925) 24,925
----------------------------------------------------------------------------
Total Investments -- 102.5% (Identified Cost -- $192,892) 208,119
Other Assets Less Liabilities-- (2.5)% (4,991)
--------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
8,362 shares outstanding $187,440
Accumulated net operating loss (495)
Accumulated net realized gain/(loss) on
investments and currency transactions 956
Unrealized appreciation/(depreciation)
of investments 15,227
--------
NET ASSETS -- 100.0% $203,128
========
NET ASSET VALUE PER SHARE: $ 24.29
========
----------------------------------------------------------------------------
</TABLE>
(A) Non-income producing.
7
<PAGE>
Statement of Operations
Legg Mason Focus Trust, Inc.
For the Six Months Ended June 30, 1999 (Unaudited)
(Amounts in Thousands)
----------------------------------------------------------------------------
Investment Income:
Dividends(A) $ 428
Interest 230
-----
Total income 658
Expenses:
Investment advisory fee $ 424
Distribution and service fees 606
Transfer agent and shareholder servicing expense 36
Audit and legal fees 22
Custodian fee 38
Directors' fees 3
Organization expense 6
Registration fees 40
Reports to shareholders 8
Other expenses 7
------
1,190
Less fees waived (37)
------
Total expenses, net of waivers 1,153
-----
NET INVESTMENT INCOME (LOSS) (495)
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on investments 956
Change in unrealized appreciation (depreciation)
of investments 4,040
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 4,996
----------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $4,501
----------------------------------------------------------------------------
(A) Net of foreign taxes withheld of $3.
See notes to financial statements.
8
<PAGE>
Statement of Changes in Net Assets
Legg Mason Focus Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
6/30/99 12/31/98
--------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income (loss) $ (495) $ (137)
Net realized gain (loss) on investments 956 1,270
Change in unrealized appreciation (depreciation) of investments 4,040 8,298
--------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 4,501 9,431
Distributions to shareholders from net realized gain on investments --
(1,557)
Change in net assets from Fund share transactions 151,538 31,122
--------------------------------------------------------------------------------------------------
Change in net assets 156,039 38,996
Net Assets:
Beginning of period 47,089 8,093
--------------------------------------------------------------------------------------------------
End of period $203,128 $47,089
--------------------------------------------------------------------------------------------------
Undistributed net investment income (loss), end of period $ (495) $ --
--------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
9
<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 Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Investment Gain on Total End of
of Period (Loss) Investments Operations Income Investments Distributions Period
- ------------------------------------------------------------------------------------------------------------------------
<S><C>
Six Months Ended
June 30, 1999* $22.00 $(.06)(A) $2.35 $2.29 $ -- $ -- $ -- $24.29
Years Ended Dec. 31,
1998 16.32 (.06)(A) 6.68 6.62 -- (.94) (.94) 22.00
1997 13.01 (.11)(A) 3.89 3.78 -- (.47) (.47) 16.32
1996 11.17 (.05)(A) 1.96 1.91 -- (.07) (.07) 13.01
1995(B) 10.00 .06 (A) 1.17 1.23 (.06) -- (.06) 11.17
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------------------------
Net
Investment Net Assets,
Expenses Income (Loss) Portfolio End of
Total to Average to Average Turnover Period
Return Net Assets Net Assets Rate (in thousands)
- ------------------------------------------------------------------------------------
<S><C>
Six Months Ended
June 30, 1999* 10.36%(C) 1.90%(A,D) (.82)%(A,D) 4.7%(D) $203,128
Years Ended Dec. 31,
1998 41.47% 1.93%(A) (.89)%(A) 21.2% 47,089
1997 29.10% 2.00%(A) (.74)%(A) 14.5% 8,093
1996 17.14% 2.00%(A) (.40)%(A) 8.5% 7,327
1995(B) 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 six months ended
June 30, 1999, and the years ended December 31, 1998, 1997 and 1996, and for
the period April 17, 1995, to December 31, 1995, would have been 1.96%,
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.
* Unaudited.
See notes to financial statements.
10
<PAGE>
Notes to Financial Statements
Legg Mason Focus Trust, Inc.
(Amounts in Thousands) (Unaudited)
----------------------------------------------------------------------------
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 for financial reporting and federal income tax purposes.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Dividends from net investment income, if available, will
be paid annually. Net capital gain distributions are declared and paid after
the end of the tax year in which the gain is realized. Distributions are
determined in accordance with federal income tax regulations, which may
differ from those determined in accordance with 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. At June 30,
1999, receivables for securities sold and payables for securities purchased
for the Fund were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
---------------------------------------
$6-- $7,080
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.
Legg Mason Fund Adviser, Inc. ("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 which 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 substantially all of its taxable income to its shareholders.
11
<PAGE>
Notes to Financial Statements -- Continued
----------------------------------------------------------------------------
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 six months ended June 30, 1999, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds From Sales
---------------------------------
$136,602 $2,629
At June 30, 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)
-----------------------------------------------------
$167,967 $17,400 $(2,173) $15,227
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 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, as shown in the chart below:
Six Months Ended
June 30, 1999 At June 30, 1999
---------------- ----------------
Expense Expense Limitation Management Management
Limitation Expiration Date Fees Waived Fees Payable
------------------------------------------------------------------
1.90% June 30, 2000 $37 $173
12
<PAGE>
----------------------------------------------------------------------------
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 as follows:
At June 30, 1999
------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
-------------------------------------------------
0.75% 0.25% $156
No brokerage commissions were paid to Legg Mason or its affiliates during
the six months ended June 30, 1999. 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 $15 by the transfer agent for the six months
ended June 30, 1999.
LMFA and Legg Mason are corporate affiliates and wholly owned
subsidiaries of Legg Mason, Inc.
5. Fund Share Transactions:
At June 30, 1999, 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>
Six Months Ended June 30, 1999 6,796 $165,442 -- $ -- (574) $(13,904) 6,222 $151,538
Year Ended December 31, 1998 1,725 32,537 79 1,500 (159) (2,915) 1,645 31,122
</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.
13
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors Semi-Annual Report
John F. Curley, Jr., Chairman June 30, 1999
Richard G. Gilmore
Arnold L. Lehman Legg Mason
Dr. Jill E. McGovern Focus
T. A. Rodgers Trust, Inc.
Transfer and Shareholder Servicing Agent
Boston Financial Data Services (LEGG
Boston, MA MASON
FUNDS
Custodian LOGO)
State Street Bank & Trust Company HOW TO INVEST(SM)
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 o 539 o 0000
LMF-222
8/99
