Investment Adviser Report to Shareholders
Legg Mason Fund Adviser, Inc. For the Six Months Ended
Baltimore, MD September 30, 1996
Board of Directors
Raymond A. Mason, Chairman
John F. Curley, Jr., President The
Richard G. Gilmore Legg Mason
Charles F. Haugh Value
Arnold L. Lehman Trust,[Register Mark] Inc.
Dr. Jill E. McGovern Primary Class
T. A. Rodgers
Edward A. Taber, III
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP Putting Your Future First
Washington, DC
Independent Accountants
Coopers & Lybrand L.L.P. [Legg Mason Logo]
Baltimore, MD FUNDS
This report is not to be distributed unless preceded or
accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
- -----------------------------------------
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
[Recycle Logo] Printed on Recycled Paper
LMF-002
11/96
<PAGE>
To Our Shareholders,
The Value Trust's net asset value per share rose from $27.34 to $29.71
during the quarter ended September 30, 1996. Assuming reinvestment of the $.042
per share income dividend paid in August, the Trust's total return (appreciation
plus reinvested dividends) during the quarter was 8.8%. Total returns on the
Value Line index of 1700 stocks and Standard & Poor's 500 stock composite index
were 1.2% and 3.1%, respectively, during the same period. In the nine months
through September 30, the Value Trust's total return was 20.9%, compared to
returns of 9.7% and 13.5% on the Value Line and Standard & Poor's indices.
Page 2 and 3 of this report contain information on the Trust's long-term
investment results. You will note that $10,000 invested in the Trust at its
inception in April, 1982 would have grown to $109,666 by September 30, 1996,
producing an average annual return of 18% over the 141/2 year period. $10,000
invested in common stocks included in the Value Line and Standard & Poor's
indices would have grown to $43,573 and $97,602, respectively, over that same
period. All figures assume reinvestment of dividends and other distributions.
Beginning on page 4, Bill Miller, the Trust's portfolio manager, discusses
the investment outlook.
Your Board of Directors has approved an income dividend of $.033 per share,
payable on October 30 to shareholders of record on October 25. Most shareholders
will receive this dividend in the form of additional shares credited to their
accounts.
Sincerely,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
President
November 8, 1996
<PAGE>
Performance Information
Legg Mason Value Trust, Inc.
Total Return for One, Five, Ten Years and Life of Fund, as of
September 30, 1996
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. Average annual
returns tend to smooth out variations in the fund's return, so they differ from
actual year-to-year results. For comparison purposes, the fund's total return is
compared with total returns of the Value Line Geometric Average, an index of
approximately 1,700 stocks ("Value Line Index"), and Standard & Poor's 500 Stock
Composite Index ("S&P Stock Index"), two unmanaged indexes of widely held common
stocks. No adjustment has been made for any income taxes payable by
shareholders.
The fund has two classes of shares: Primary Class and Navigator Class. The
Navigator Class, offered only to certain institutional investors, pays fund
expenses similar to those paid by the Primary Class, except that transfer agency
fees and shareholder servicing expenses are determined separately for each class
and the Navigator Class does not incur Rule 12b-1 distribution fees.
Total returns as of September 30, 1996 were as follows:
Cumulative Total Return
------------------------------------
Legg Mason Value Line S&P
Value Trust Index Stock Index
- --------------------------------------------------------
Primary Class:
One Year +26.43% +10.41% +20.32%
Five Years +126.71 +69.02 +102.97
Ten Years +234.18 +113.53 +303.43
Life of Class+ +996.66 +335.73 +876.02
Navigator Class:
One Year +27.63% +10.41% +20.32%
Life of Class++ +75.88 +31.40 +56.09
Average Annual Total Return
------------------------------------
Legg Mason Value Line S&P
Value Trust Index Stock Index
- --------------------------------------------------------
Primary Class:
One Year +26.43% +10.41% +20.32%
Five Years +17.79 +11.07 +15.21
Ten Years +12.82 +7.88 +14.97
Life of Class+ +18.01 +10.71 +17.07
Navigator Class:
One Year +27.63% +10.41% +20.32%
Life of Class++ +36.02 +16.06 +27.49
- ----------
+ Primary Class inception -- April 16, 1982
++ Navigator Class inception -- December 1, 1994
2
<PAGE>
Illustration of an Assumed Investment of $10,000
Made on April 16, 1982 (inception of the Value Trust
Primary Class)
[Mountain Graph Here]
<TABLE>
<CAPTION>
4/16/82 3/31/83 3/31/84 3/31/85 3/31/86 3/31/87 3/31/88
<S><C>
Value of original 10,000 16,160 18,870 23,583 32,556 35,503 32,268
shares purchased
through reinvestment
of capital gain
distributions
Value of shares 10,000 16,400 19,425 24,682 34,510 37,924 34,729
acquired through
reinvestment of
income dividends
</TABLE>
<TABLE>
<CAPTION>
3/31/89 3/31/90 3/31/91 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 9/30/96
<S><C>
Value of original 37,650 39,891 37,701 44,210 50,184 52,789 57,817 82,356 92,875
shares purchased
through reinvestment
of capital gain
distributions
Value of shares 41,109 44,290 43,014 51,414 59,003 62,337 68,427 97,226 109,666
acquired through
reinvestment of
income dividends
</TABLE>
3
<PAGE>
Portfolio Manager's Comments
Your fund rose 8.83% in the third quarter, exceeding the results of general
equity funds, growth funds, the Dow Jones and the S&P 500. The comparisons are
as follows:
General
Value Growth Equity S&P Dow
Trust Funds+ Funds+ 500 Jones
- --------------------------------------------------------
3 months 8.83% 2.90% 2.61% 3.09% 4.64%
9 months 20.86% 13.42% 13.73% 13.49% 16.95%
1 year 26.43% 15.98% 16.90% 20.32% 25.72%
With the indices hovering at record round numbers, 6000 on the Dow and 700
on the S&P, the fears that engulfed the market during the correction in July
have become a distant memory. As we indicated in our last letter, we believed
that those fears--which related to incipient wage inflation--were misplaced and
that the Federal Reserve had no need to raise interest rates. When the Fed left
rates unchanged at its August and September meetings, those fears receded and
stocks rallied.
Most economists still appear to expect a rate increase, only now they
expect it after the election. They believe the economy is operating so close to
capacity that the risk of inflation remains high, and that the Fed should raise
rates to insure the economy does not overheat. We continue to disagree. We think
the economy is slowing, and that the risk to stocks is not an overheating
economy and rising inflation, but an economy that weakens unexpectedly. This is
not an outcome we expect, but we believe it more likely than the alternative.
The number and variety of quality companies having earnings difficulties,
such as AT&T, Motorola, Kellogg, Hewlett Packard, Whirlpool, Albertson's (the
list could be expanded but you get the drift), presages, we think, broader
difficulty in achieving profitable growth. Most companies have gone through the
downsizing and restructuring that has been so much in the news. Cost cutting,
coupled with solid economic growth, has resulted in strong profit increases,
high returns on equity, and record cash generation for the S&P 500.
Going forward, however, we think growth for many companies will be much
harder to achieve. It will have to be fueled by new products and volume growth,
not cost cutting and certainly not price increases. The consequences of a low
inflation, low nominal growth environment will become evident as the ability to
further wring out costs becomes more difficult.
Consumer spending makes up two thirds of GDP and is the primary driver of
economic growth. With unemployment low and consumer confidence high, many
economists think the consumer will continue to fuel above trend growth.
Demographics and debt augur otherwise. The number of people turning 25 years old
drops sharply next year and for several years thereafter. This demographic group
is closely correlated with household formations and spending on consumer
durables. Moreover, personal consumption expenditures' growth has outstripped
income growth for most of the past 4 years, leaving the average consumer with
near record debt. Reported bankruptcies are up sharply, and credit card
delinquencies were also rising before declining in the second quarter.
The 76 million baby boomers are now mostly in their 40s and have begun to
reduce their spending and increase their savings for retirement. We think these
factors will lead to subdued consumer spending, sluggish growth, and increasing
earnings difficulties over the next year or so. We do not expect an end to the
expansion, just a deceleration from above trend to below trend growth.
Earnings have been the elan vital of this bull market since the lows in
October 1990. Whenever earnings have flagged, interest rates have dropped,
simultaneously providing valuation support to the market and raising
expectations about future earnings. There is still considerable room for short
rates to decline if the economy begins to sag, and some room for long rates to
come down. But the bulk of the interest rate driven moves we have periodically
experienced since the secular peak in rates in 1981 have about run their course.
The slow growth, low inflation environment of the past 6 years has been
accompanied by a little noticed, but extremely important trend: decline in the
volatility of most economic data.
+As measured by Lipper Analytical Services, Inc.
4
<PAGE>
Volatility is important because it is associated with risk. Many academics
believe that it is the same thing as risk, at least insofar as stock prices are
concerned. (Risk is the subject of Peter Bernstein's wonderful new book,
Against the Gods: The Remarkable Story of Risk.)
The generation of investors who entered the markets after the late 1960s
grew up with volatility. Interest rates soared then crashed, inflation went from
3% to double digits and back to 3%. Stocks collapsed in the '70s, soared in the
'80s, crashed in '87 and now have moved back to record highs. Farmland prices,
oil, Latin debt and currencies, all have exhibited high volatility over the
years. That began to change this decade. One of the reasons we went 6 years
without a 10% correction in stocks was because the economy grew steadily with
low volatility. Stock price volatility in this decade has been among the lowest
on record.
Recent U.S. inflation volatility has been only one-quarter of that which
existed in the late 1980s and one-third that of the early 1990s. The volatility
of inflation is now at 30 year lows. Changes in commodity price volatility have
led to changes in inflation volatility consistently since 1971. Commodity price
volatility is at 27 year lows and remains in a downward trend. Inflation
volatility is thus not likely to reverse soon.
The low volatility of inflation has led to record low volatility in
short-term interest rates. We think it will soon extend to long rates, much to
the consternation of bond traders, for whom volatility provides a livelihood.
Most importantly for equity investors, the volatility of economic growth
has declined. For all the ink spilled about its direction and growth rate, the
U.S. economy has had only 8 months of recession since 1982. This is in sharp
contrast to the familiar boom and bust pattern usually coinciding with the
Presidential election cycle. The economy now appears to be on a path of
moderate, sustained growth. This has important implications for stock selection.
Many investors think about investing in relation to the economic cycle.
Retailers, apparel, and autos are so-called early cycle stocks, while paper,
chemicals, and steels are late cycle companies. Food, beverages, and drug stocks
are defensive names; you are supposed to own them when the economy is on the
brink of recession. If the economy is becoming much less cyclical, as we
believe, all this rotation from one stock group to another becomes much less
effective, even counterproductive.
We think the move to low economic volatility will be with us for some time.
Careful attention to valuation and stock selection will be the keys to above
average results.
With only 8 months of recession in 15 years, unemployment down, inflation
at 30 year lows, and the deficit half what it was 4 years ago, the population
should be basking in prosperity's glow. Growth has been the exception throughout
most of recorded human history, as the Nobel laureate Douglas North has pointed
out. One would think people would notice when the economy has been performing
unusually well. But not so.
In a fine article called "A Nation that Poor Mouths Its Own Boom," the
Washington Post (October 13, 1996) reported the following:
"The average American thinks the number of jobless is four times higher
than it actually is. Nearly 1 in 4 believes the current unemployment rate tops
25%--the proportion of Americans . . . out of work at the worst of the Great
Depression. They believe prices are rising four times faster than they really
are and that the federal budget deficit is higher, not lower, than it was five
years ago. And 7 in 10 say there are fewer jobs than there were five years ago."
It may be that this cognitive dissonance accounts for the pessimism that
habitually surrounds the stock market, at least among the pundits quoted so
often in the press. If people really have the beliefs the Post describes, they
must surely be surprised when the market does well. They would probably believe
that the market is significantly overvalued and that a bear market is imminent.
Bear markets happen when things go wrong in the economy: profits decline,
inflation increases, interest rates rise, etc. If these things happen, stocks
will undoubtedly come under pressure. There is little evidence that the economy
is on other than a moderate growth trajectory. If that is
5
<PAGE>
so, then stocks should continue to provide acceptable returns.
We think, though, that after nearly two years of dramatically above trend
results, stock returns will moderate over the next year or so. Profits look to
be up in the single digits next year and we think it likely stock returns will
track profits growth. Reasonable expectations for the market are for returns of
8-10%, including dividends. If this is right, we would hope to do somewhat
better, since the companies in our portfolio trade at large discounts to the
market, while having what we believe to be above average profit growth
potential.
Portfolio activity was light in the quarter. We continued to build our
position in Seagate Technology that we mentioned in last quarter's letter. The
shares were purchased at under 7x our estimate of 1997 earnings for the largest,
most profitable company in an industry experiencing strong demand. The stock has
already moved up nicely, but we continue to expect it to perform well over the
next few years. We sold duPont, which reached our target price, and Digital
Equipment, which has seen its business come under renewed pressure. We had a
nice gain in DEC and redeployed the funds into Seagate.
As always, we appreciate your support and welcome your comments.
Bill Miller, CFA
November 4, 1996
DJIA 6041.68
6
<PAGE>
Legg Mason Value Trust, Inc.
Selected Portfolio Performance
Biggest gainers for the 3rd quarter 1996*
- --------------------------------------------------------------
1. Dell Computer Corporation +52.8%
2. International Business Machines
Corporation +25.8%
3. MBNA Corporation +21.9%
4. Zions Bancorporation +21.6%
5. Lloyds TSB Group plc +20.9%
6. Warner-Lambert Company +20.0%
7. Nokia Corporation ADS +19.6%
8. Standard Federal Bancorporation +18.8%
9. Nike, Inc. +18.2%
10. Bank of Boston Corporation +16.9%
* Securities held for the entire quarter.
Biggest laggers for the 3rd quarter 1996*
- --------------------------------------------------------------
1. PepsiCo, Inc. -20.1%
2. RJR Nabisco Holdings Corp.
Series C Depositary Shares -17.3%
3. RJR Nabisco Holdings Corp. -16.1%
4. Circus Circus Enterprises, Inc. -13.7%
5. Philip Morris Companies Inc. -13.7%
6. General Motors Corporation -8.4%
7. Chrysler Corporation -7.7%
8. Danaher Corporation -4.9%
9. Telefonos de Mexico S.A. ADR -4.1%
10. The Bear Stearns Companies Inc. -1.6%
Portfolio Changes
Securities Added
- --------------------------------------------------------------
Seagate Technology, Inc.
Securities Sold
- --------------------------------------------------------------
duPont (E.I.) de Nemours
Digital Equipment Corporation
7
<PAGE>
Statement of Net Assets
Legg Mason Value Trust, Inc.
September 30, 1996 (Unaudited)
(Amounts in Thousands) Shares Value
- ----------------------------------------------------------
Common Stocks and Equity Interests -- 91.2%
Automotive -- 5.4%
Chrysler Corporation 1,600 $ 45,800
General Motors Corporation 600 48,000
--------
93,800
--------
Banking -- 22.1%
Bank of Boston Corporation 850 49,194
BankAmerica Corporation 400 32,850
Citicorp 800 72,500
Fleet Financial Group, Inc. 669 29,777
Lloyds TSB Group plc 7,716 45,649
Provident Bankshares Corporation 362 12,792
The Chase Manhattan Corporation 1,175 94,147
Zions Bancorporation 503 44,533
--------
381,442
--------
Computer Services and Systems -- 11.6%
Dell Computer Corporation 925 71,919(A)
International Business Machines
Corporation 650 80,925
Seagate Technology, Inc. 850 47,494(A)
--------
200,338
--------
Electrical Equipment -- 1.5%
Philips Electronics N.V. 725 26,009
--------
Entertainment -- 5.4%
Circus Circus Enterprises, Inc. 2,000 70,750(A)
MGM Grand, Inc. 550 23,238(A)
--------
93,988
--------
Finance -- 15.2%
Federal Home Loan Mortgage
Corporation 500 48,937
Federal National Mortgage
Association 3,200 111,600
MBNA Corporation 1,887 65,568
The Bear Stearns Companies Inc. 1,575 36,619
--------
262,724
--------
Food, Beverage and Tobacco -- 4.7%
PepsiCo, Inc. 850 24,013
Philip Morris Companies Inc. 450 40,388
RJR Nabisco Holdings Corp. 670 17,420
--------
81,821
(Amounts in Thousands) Shares Value
- ----------------------------------------------------------
Food Merchandising -- 3.1%
The Kroger Co. 1,200 $ 53,700(A)
---------
Footwear -- 1.8%
Nike, Inc. 80 9,720
Reebok International Ltd. 637 22,122
---------
31,842
---------
Health Care-- 0.9%
Humana Inc. 750 15,189(A)
---------
Hospital Management-- 1.4%
Columbia/HCA Healthcare
Corporation 415 23,592
---------
Insurance -- 2.5%
AMBAC Inc. 383 21,352
MBIA, Inc. 255 21,866
---------
43,218
---------
Manufacturing -- 2.9%
Danaher Corporation 1,200 49,650
---------
Multi-Industry -- 0.9%
Coltec Industries Inc. 967 15,466(A)
---------
Pharmaceuticals -- 3.2%
Amgen Inc. 400 25,250(A)
Warner-Lambert Company 450 29,700
---------
54,950
---------
Savings and Loan -- 3.2%
Standard Federal Bancorporation 1,200 54,900
---------
Telecommunications -- 5.4%
MCI Communications Corporation 800 20,500
Nokia Corporation ADS 700 30,975
Telefonos de Mexico S.A. ADR 1,283 41,200
---------
92,675
---------
Total Common Stocks and Equity
Interests
(Identified Cost-- $772,654) 1,575,304
- ----------------------------------------------------------
Preferred Shares -- 0.4%
RJR Nabisco Holdings Corp.
Series C Depositary Shares
(Identified Cost-- $9,003) 1,385 7,443
- ----------------------------------------------------------
8
<PAGE>
Principal
(Amounts in Thousands) Amount Value
- ----------------------------------------------------------
Sovereign Obligations -- 3.8%
Republic of Argentina
Floating Rate Bonds
6.625%(B) 3-31-05 $59,400 $ 49,821
Par Bonds
5.25%(C) 3-31-23 25,000 14,625
----------
Total Sovereign Obligations
(Identified Cost-- $37,429) 64,446
- ----------------------------------------------------------
U.S. Government Obligation -- N.M.
United States Treasury Note
8.125% 2-15-98
(Identified Cost-- $228) 230 235
- ----------------------------------------------------------
Repurchase Agreement -- 4.3%
Prudential Securities, Inc.
5.75% dated 9-30-96, to be
repurchased at $73,825 on
10-1-96 (Collateral: $80,300
Federal National Mortgage
Association Mortgage-backed
securities, 7.0% due 2-1-26,
value $75,792)
(Identified Cost-- $73,814) 73,814 73,814
- ----------------------------------------------------------
Total Investments -- 99.7%
(Identified Cost -- $893,128) 1,721,242
Other Assets Less Liabilities -- 0.3% 5,893
----------
Net assets-- 100.0% $1,727,135
----------
(Amounts in Thousands)
- ----------------------------------------------------------
Net Assets Consisting of:
Accumulated paid-in capital
applicable to:
56,082 Primary shares
outstanding $ 802,080
2,050 Navigator shares
outstanding 40,002
Undistributed net investment
income 2,072
Undistributed net realized gain
on investments 54,867
Unrealized appreciation of
investments 828,114
----------
Net assets-- 100.0% $1,727,135
==========
Net asset value per share:
Primary Class $29.71
======
Navigator Class $29.81
======
(A) Non-income producing
(B) The rate of interest earned is tied to the London Interbank Offered
Rate (LIBOR) and the coupon rate shown is the rate as of September 30,
1996.
(C) Coupon increases 0.25% annually until April 1, 1999, thereafter remains
fixed at 6.0% until maturity.
N.M. Not meaningful
See notes to financial statements.
9
<PAGE>
Statement of Operations
Legg Mason Value Trust, Inc.
For the Six Months Ended September 30, 1996 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign taxes withheld of $206) $ 14,136
Interest 4,159
--------
Total investment income $ 18,295
Expenses:
Investment advisory fee 5,727
Distribution and service fees 7,193
Transfer agent and shareholder servicing expense 434
Custodian fee 171
Reports to shareholders 107
Registration fees 77
Legal and audit fees 74
Directors' fees 8
Other expenses 43
--------
13,834
Less expenses reimbursed (40)
--------
Total expenses, net of reimbursement 13,794
--------
Net Investment Income 4,501
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 54,862
Increase in unrealized appreciation of investments 133,840
--------
Net Realized and Unrealized Gain on Investments 188,702
- --------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $193,203
========
See notes to financial statements.
10
<PAGE>
Statement of Changes in Net Assets
Legg Mason Value Trust, Inc.
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
(Amounts in Thousands) September 30, 1996 March 31, 1996
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income $ 4,501 $ 10,667
Net realized gain on investments 54,862 57,010
Increase in unrealized appreciation of investments 133,840 369,425
---------- ----------
Increase in net assets resulting from operations 193,203 437,102
Distributions to shareholders from:
Net investment income:
Primary Class (5,791) (8,750)
Navigator Class (480) (745)
Net realized gain on investments:
Primary Class (29,899) (62,321)
Navigator Class (1,093) (2,262)
Increase in net assets from Fund share transactions:
Primary Class 64,815 114,171
Navigator Class 3,274 3,067
---------- ----------
Increase in net assets 224,029 480,262
Net Assets:
Beginning of period 1,503,106 1,022,844
- ---------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $2,072 and $3,842, respectively) $1,727,135 $1,503,106
========== ==========
</TABLE>
See notes to financial statements.
11
<PAGE>
Financial Highlights+
Legg Mason Value 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>
Primary Class Navigator Class
For the Six For the Six For the Years
Months Ended For the Years Ended March 31, Months Ended Ended March 31,
Sept. 30, 1996 1996 1995 1994 1993 1992 Sept. 30, 1996 1996 1995(A)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S><C>
Per Share Operating Performance:
Net asset value, beginning
of period $26.99 $20.21 $18.50 $17.81 $15.69 $13.38 $27.08 $20.27 $18.76
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.07 0.19 0.10 0.08 0.18 0.25 0.21 0.43 0.12
Net realized and unrealized
gain on investments 3.32 8.00 1.70 0.92 2.12 2.34 3.32 8.02 1.40
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 3.39 8.19 1.80 1.00 2.30 2.59 3.53 8.45 1.52
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to share-
holders from:
Net investment income (0.11) (0.17) (0.05) (0.11) (0.18) (0.28) (0.24) (0.40) (0.01)
Net realized gain on
investments (0.56) (1.24) (0.04) (0.20) -- -- (0.56) (1.24) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.67) (1.41) (0.09) (0.31) (0.18) (0.28) (0.80) (1.64) (0.01)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $29.71 $26.99 $20.21 $18.50 $17.81 $15.69 $29.81 $27.08 $20.27
- ----------------------------------------------------------------------------------------------------------------------------
Total return 12.80%(B) 42.09% 9.77% 5.65% 14.76% 19.53% 13.35%(B) 43.53% 8.11%(B)
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 1.80%(C) 1.82% 1.81% 1.82% 1.86% 1.90% 0.80%(C) 0.82% 0.82%(C)
Net investment income 0.5%(C) 0.8% 0.5% 0.5% 1.1% 1.7% 1.5%(C) 1.8% 1.8%(C)
Portfolio turnover rate 17.0%(C) 19.6% 20.1% 25.5% 21.8% 39.4% 17.0%(C) 19.6% 20.1%
Average commission
rate paid(D) $0.0540 -- -- -- -- -- $0.0540 -- --
Net assets, end of
period (in thousands) $1,666,009 $1,450,774 $986,325 $912,418 $878,394 $745,833 $61,126 $52,332 $36,519
</TABLE>
+ All share and per share figures reflect the 2-for-1 stock split
effective July 29, 1991.
(A) For the period December 1, 1994 (commencement of Navigator Class) to
March 31, 1995.
(B) Not annualized
(C) Annualized
(D) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the average commission rate paid on securities
purchased and sold by the Fund.
See notes to financial statements.
12
<PAGE>
Notes to Financial Statements
Legg Mason Value Trust, Inc.
(Amounts in Thousands) (Unaudited)
- -------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Value Trust, Inc. ("Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
investment company.
The Fund consists of two classes of shares: Primary Class, offered
since 1982, and Navigator Class, offered to certain institutional
investors since December 1, 1994. Expenses of the Fund are allocated
proportionately to the two classes of shares except for 12b-1 distribution
fees, which are charged only on Primary shares, and transfer agent and
shareholder servicing expenses, which are determined separately for each
class.
Security Valuation
Securities traded on national securities exchanges are valued at the
last quoted sales price. Over-the-counter securities, and listed
securities for which no sales price is available, are valued at the mean
between the latest bid and asked prices. Short-term securities are valued
at cost which, when combined with accrued interest receivable,
approximates current value.
Dividends and Distributions to Shareholders
Net investment income for dividend purposes consists of dividends and
interest earned, less expenses. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis. Net capital gain distributions
are declared and paid after the end of the tax year in which the gains are
realized.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. At September 30, 1996, $525 was payable for investments purchased
but not yet received.
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.
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.
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:
Investment transactions for the six months ended September 30, 1996
(excluding short-term securities) were as follows:
Purchases $164,278
Proceeds from sales 147,626
At September 30, 1996, the cost of securities for federal income tax
purposes was $893,128. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$838,548 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value was $10,434.
13
<PAGE>
Notes to Financial Statements--Continued
Legg Mason Value Trust, Inc.
3. Fund Share Transactions:
At September 30, 1996, there were 100,000 shares authorized at $.001
par value for all classes of the Fund. Transactions in Fund shares were as
follows:
For the For the
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
---------------------------------------------
Primary Class Shares Amount Shares Amount
- ------------------------------------------------------------------
Sold 5,303 $146,758 15,216 $311,427
Reinvestment of
distributions 1,300 35,175 3,120 70,153
Repurchased (4,275) (117,118) (11,393) (267,409)
- ------------------------------------------------------------------
Net increase 2,328 $ 64,815 4,943 $114,171
==================================================================
For the For the
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
- ------------------------------------------------------------------
Navigator Class Shares Amount Shares Amount
- ------------------------------------------------------------------
Sold 188 $ 5,275 262 $ 6,350
Reinvestment of
distributions 58 1,566 133 3,006
Repurchased (128) (3,567) (265) (6,289)
- ------------------------------------------------------------------
Net increase 118 $ 3,274 130 $ 3,067
==================================================================
4. Transactions with Affiliates:
The Fund has an investment advisory and management agreement with
Legg Mason Fund Adviser, Inc. ("Adviser"), a corporate affiliate of Legg
Mason Wood Walker, Incorporated ("Legg Mason"), a member of the New York
Stock Exchange and the distributor for the Fund. Under this agreement, the
Adviser provides the Fund with investment advisory, management and
administrative services for which the Fund pays a fee at an annual rate of
1% of average daily net assets of the Fund for the first $100 million of
average daily net assets, 0.75% of such assets between $100 million and $1
billion and 0.65% of such assets in excess of $1 billion, calculated daily
and payable monthly. At September 30, 1996, $994 was due to the Adviser.
The agreement with the Adviser provides that an expense reimbursement be
made to the Fund for audit fees and compensation of the Fund's independent
directors.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.70% and an annual service fee of 0.25% of the
Primary Class' average daily net assets, calculated daily and payable
monthly. At September 30, 1996, $1,259 was due to the distributor. Legg
Mason also has an agreement with the Fund's transfer agent to assist with
certain of its duties. For this assistance, Legg Mason was paid $183 by
the transfer agent for the six months ended September 30, 1996. No
brokerage commissions were paid to Legg Mason or its affiliates during the
six months ended September 30, 1996.
In November 1995, the Fund, along with certain other Legg Mason
Funds, entered into a $75 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 six months ended September 30, 1996, the Fund had no
borrowings under the line of credit.
14
