<PAGE>
INVESTMENT ADVISER REPORT TO SHAREHOLDERS
Legg Mason Fund Adviser, Inc. FOR THE YEAR ENDED
Baltimore, MD MARCH 31, 1996
BOARD OF DIRECTORS
Raymond A. Mason, Chairman
John F. Curley, Jr., President
Richard G. Gilmore THE
Charles F. Haugh
Arnold L. Lehman LEGG MASON
Dr. Jill E. McGovern
T. A. Rodgers VALUE
Edward A. Taber, III
TRUST,(Trademark) INC.
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services
Boston, MA PRIMARY CLASS
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart LLP
Washington, DC
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Baltimore, MD
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
PUTTING YOUR FUTURE FIRST
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 (Legg Mason Funds Logo)
LMF-002
5/96
<PAGE>
To Our Shareholders,
The Value Trust's net asset value per share rose 7.2%, from $25.19 to $26.99,
during the quarter ended March 31, 1996. That gain compares to total returns
(appreciation plus reinvested dividends) of 5.4% and 4.9% on Standard & Poor's
500 stock composite index and the Value Line index of 1700 stocks. In the twelve
months ended March 31, the Value Trust's total return was 42.1% compared to
returns of 32.1% and 21.2% on the Standard & Poor's and Value Line indices.
The Trust's long-term investment results are shown in the table and graph on the
following pages. We are pleased that, during its fourteen year history, the
Trust has earned an average annual compounded return for shareholders of 17.7%.
Beginning on page 5, Bill Miller, the Trust's portfolio manager, discusses the
investment outlook.
Coopers & Lybrand L.L.P., the Value Trust's independent accountants, have
completed their annual examination, and audited financial statements for the
fiscal year ended March 31, 1996 are included in this report.
The Board of Directors has approved an ordinary income dividend of $0.065, a
short-term capital gain distribution of $0.037, and a long-term capital gain
distribution of $0.523 per share, payable on May 15 to shareholders of record on
May 10. Most shareholders will receive this distribution in the form of
additional shares credited to their accounts.
Sincerely,
/s/ John F. Curley, Jr.
John F. Curley, Jr.
President
May 10, 1996
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON VALUE TRUST, INC.
TOTAL RETURN FOR ONE, FIVE, TEN YEARS AND LIFE OF FUND, AS OF MARCH 31, 1996
The returns shown on this and the next page, 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 March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Cumulative Total Return
Legg Mason
Value Value Line S&P
Trust Index Stock Index
<S> <C> <C> <C>
Primary Class:
One Year +42.09% +21.19% +32.09%
Five Years +126.03 +67.41 +98.15
Ten Years +181.74 +90.46 +269.15
Life of Class(dagger) +872.26 +317.14 +806.32
Navigator Class:
One Year +43.53% +21.19% +32.09%
Life of
Class(doubledagger) +55.17 +29.97 +47.09
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Legg Mason
Value Value Line S&P
Trust Index Stock Index
<S> <C> <C> <C>
Primary Class:
One Year +42.09% +21.19% +32.09%
Five Years +17.72 +10.86 +14.66
Ten Years +10.91 +6.65 +13.95
Life of Class(dagger) +17.69 +10.77 +17.10
Navigator Class:
One Year +43.53% +21.19% +32.09%
Life of
Class(doubledagger) +39.00 +21.79 +33.66
</TABLE>
(dagger) Primary Class inception -- April 16, 1982
(double dagger) 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> <C> <C> <C> <C> <C> <C>
Value of original shares 10,000 16,160 18,870 23,583 32,556 35,503 32,268
purchased plus shares
acquired through reinvest-
ment of capital gain
distributions
Value of shares acquired 10,000 16,400 19,425 24,682 34,510 37,924 34,729
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value of original shares 37,650 39,891 37,701 44,210 50,184 52,789 57,817 82,356
purchased plus shares
acquired through reinvest-
ment of capital gain
distributions
Value of shares acquired 41,109 44,290 43,014 51,414 59,003 62,337 68,427 97,226
through reinvestment of
income dividends
</TABLE>
TEN-YEAR PERFORMANCE COMPARISON OF A $10,000 INVESTMENT
AS OF MARCH 31, 1996
[Performance Graph Here]
<TABLE>
<CAPTION>
Years Ended March 31 Value Trust Primary Class Standard & Poor's 500 Stock Composite(1) Value Line Geometric Average(2)
<S> <C> <C> <C>
1986 10,000 10,000 10,000
1987 10,989 12,620 11,428
1988 10,064 11,569 10,007
1989 11,912 13,668 11,078
1990 12,790 16,302 11,341
1991 12,421 18,652 11,376
1992 14,847 20,711 12,753
1993 17,039 23,865 14,298
1994 18,001 24,216 14,950
1995 19,763 27,986 15,716
1996 28,174 36,915 19,046
</TABLE>
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
The returns for the Indexes do not include any expenses or transaction costs.
The returns for the Fund include such expenses.
3
<PAGE>
LEGG MASON VALUE TRUST, INC.
SELECTED PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
Biggest gainers for the 1st quarter 1996*
<S> <C>
1. The Bear Stearns Companies Inc. +24.5%
2. The Chase Manhattan Corporation +21.2%
3. International Business Machines
Corporation +21.1%
4. MBNA Corporation +20.5%
5. Chemical Banking Corporation +20.0%
6. BankAmerica Corporation +19.7%
7. Citicorp +19.0%
8. duPont (E.I.) de Nemours +18.8%
9. Nike, Inc. +16.7%
10. Danaher Corporation +16.5%
</TABLE>
<TABLE>
<CAPTION>
Biggest laggers for the 1st quarter 1996*
<S> <C>
1. Digital Equipment Corporation -14.0%
2. Nokia Corporation ADS -11.9%
3. Zions Bancorporation -11.8%
4. Republic of Argentina Par Bonds
5.0% 3-31-23 -9.1%
5. Humana Inc. -8.2%
6. Lloyds TSB Group plc -6.8%
7. RJR Nabisco Holdings Corp.
Series C Depositary Shares -3.9%
8. Philip Morris Companies Inc. -3.0%
9. Reebok International Ltd. -2.2%
10. Amgen Inc. -2.1%
</TABLE>
* SECURITIES HELD FOR THE ENTIRE QUARTER.
PORTFOLIO CHANGES
Securities Added
Circus Circus Enterprises, Inc.
Dell Computer Corporation
The Walt Disney Company
Securities Sold
Apple Computer, Inc.
Capital Cities/ABC, Inc.
Grupo Financiero Bancomer S.A. de C.V. ADS
Sears, Roebuck and Co.
MANAGEMENT'S DISCUSSION AND ANALYSIS
In fiscal 1996 the fund performed well, outpacing both its peer group of
funds as well as the S&P 500. The fund benefited mainly from its extensive
holding of financial stocks -- banks, S&L's, and insurance companies -- which
were quite strong in fiscal 1996 due to declining short and long-term interest
rates. Our health care holdings, acquired during the sharp sell-off in that
sector two years earlier, also performed strongly.
The fund follows a value-driven approach that searches for securities that
are selling for well below our estimate of intrinsic value. This strategy often
involves buying companies that are out of favor, unpopular, or which are the
subject of controversy. Macroeconomic factors play a secondary role in portfolio
construction. The fund invests using a multi-year time horizon and does not
trade in and out of securities based on anticipated price fluctuations. Turnover
is low compared to other growth funds.
The fund's manager provides commentary quarterly on the fund's performance,
strategies, and outlook in the section following this, entitled: PORTFOLIO
MANAGER'S COMMENTS.
4
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
Your fund had an excellent first quarter, rising 7.15%. Our results for the
3 and 12 month periods ending March 31, 1996, as well as those of the major
equity fund comparative indices, were as follows:
<TABLE>
<CAPTION>
Lipper
Value Growth S&P Dow
Trust Funds 500 Jones
<S> <C> <C> <C> <C>
3 months 7.15% 5.37% 5.37% 9.80%
1 year 42.09% 28.31% 32.09% 37.70%
</TABLE>
All of the above figures include reinvested dividends. As you can see, the
Value Trust outperformed the average growth fund and the S&P 500 for the
quarter, but trailed the economically sensitive Dow. We outperformed all the
above indices by a fairly wide margin over the last twelve months.
It has not always been so, and you should not expect it always to be so, on
a quarterly or an annual basis. Although the Value Trust is one of the few funds
to have outperformed the S&P 500 since our inception in early 1982, and one of
only about two dozen to have outpaced that index in each of the past 5 calendar
years, we have had periods of underperformance.
In the late 1980s the fund underperformed in two separate two-year periods.
Those were years of greater economic volatility than we have experienced
recently, as the more cyclical parts of the economy swung from periods of
strength to weakness and investor behavior alternated between euphoria (1986 to
mid 1987) and panic (late 1987 and 1990). Contributing to this enantiodromia
were the collapse of oil prices in 1986, the dollar's weakness and the Fed's
raising of interest rates in 1987, the fall of communism in 1989, the S&L and
banking crisis in 1989 and 1990, and the invasion of Kuwait in 1990, which sent
oil prices soaring to the levels of the late 1970s.
Our style of value investing was not and is not oriented to rapid rotation
in response to the vicissitudes of investor psychology or to temporary political
or economic events. We are patient, long-term investors who try to invest in
solid businesses at bargain prices. This will often lead us to being out of
fashion with the market, investing where the press or public have near-term
worries. As Warren Buffett has noted, a cheery consensus is not the friend of
the value investor.
You might think that such a consensus exists in financial assets now, with
stocks rising smartly in the first quarter, following a strong 1995. The
proximate cause -- for a complete description of the taxonomy of causes, consult
your Aristotle -- of the market's ascent is often reported to be the public's
rush into mutual funds, and their childlike belief in high, consistent returns
by investing in stocks. The press is full of stories about the current "mania"
for mutual funds, about how it is reminiscent of the great manias of the past
such as the South Sea bubble, or the tulip-bulb mania in Holland in the 17th
century, and how it will all end badly, as such episodes do.
We think such stories are not just nonsense, but to use the great British
utilitarian Jeremy Bentham's phrase, nonsense on stilts. Valuations remain
moderate, despite press reports to the contrary. Your portfolio trades at about
10x next year's earnings. The equity mutual fund flows are a microeconomic
effect of changing demographics and the felt need to begin accumulating assets
for retirement on the part of the 76 million baby boomers whose oldest members
began to turn 50 in 1996.
For years we have been bombarded with stories of how Americans consume too
much and save too little. Our profligate ways have been contrasted with those of
the frugal Asians and Europeans, who have much higher national savings rates. We
have been told we must save and invest more if we are to create new jobs and
provide a reasonable prosperity for the future.
When we begin to do that, when consumption spending slows and savings
increase, we are then told how bad retail sales are, how people aren't spending
enough because they have lost faith in the future. When 30 million households
put their savings into long-term investments such as stocks via equity mutual
funds, this is regarded by the popular press, and by many on Wall Street, not as
prudent behavior, or as evidence of confidence in the future, but as a mania. It
is no wonder the public has such a low opinion of negative and cynical
commentators whose attitude is that of the
5
<PAGE>
observer who, upon seeing someone with flowers, asked where the funeral was.
During the bull market of the 1980s, less than $100 billion flowed into
stock funds in the entire decade. The powerful returns generated in stocks and
bonds did not induce an increase in the savings rate, which actually declined
over that period. The explanation for the savings decline then was that the big
returns earned in stocks and bonds substituted for savings, allowing people to
spend more. That the bulk of the population was in their high spending years
(ages 25-44) was little noted. This group peaked demographically in the late
1980s.
With the oldest baby boomers turning 50, and the youngest at 32, the bulk of
that generation is now hitting the front edge of the high savings years, which
begin around age 45 and extend to age 65 or so. It should be no surprise that
flows of funds into financial assets should be strong. So far this decade, those
flows are averaging more each year than was invested during the entire decade of
the 1980s. The '80s argument that high returns in stocks stimulate spending and
depress savings has been updated to now argue that high stock returns stimulate
savings and depress spending. The philosophically inclined would say this
argument has a rather "post hoc" feel to it.
Low economic volatility, low inflation, and low interest rates all
contribute to the willingness to invest in long-dated assets. It is a legitimate
question whether the high real returns earned in stocks and bonds over the past
15 years have affected the perception of risk that attends investing. The public
has rightly learned to buy the dips in stocks, which alarms the alarmists. They
worry about what will happen when a real bear market occurs, like 1973-1974. Why
they are worried about people acquiring assets when prices are depressed, is a
mystery yet to be solved.
If the financial press seems unusually cynical and too often negative, it is
not alone. The bond market has its own malady, a persistent case of opsophobia:
fear of prosperity. Bond holders fear that if the economy does too well, demand
will outstrip supply, and inflation will be the inevitable outcome. Each time
there is evidence that the economy is getting stronger, as we had in the first
quarter, investors sell bonds, pushing interest rates higher.
During the first quarter, 30-year Treasury bonds had their sharpest price
decline in history unaccompanied by Federal Reserve action to raise rates.
Stocks and bonds decoupled: equity investors did well while bond holders lost
money. We believe this decoupling has about run its course. If bonds continue to
decline, we think stocks will follow. We also think the fears of an overheating
economy are way overdue and that bond yields approaching 7% offer excellent
value. As the year unfolds, we expect the inflation worries plaguing bonds will
dissipate as it becomes clear the economy remains on a moderate growth path and
that inflation is unlikely to exceed 3% or so.
Feeding the fears of inflation has been first, the strong rise in gold
prices at the beginning of the year and, more recently, rising prices in oil and
grains. The broadening out of the price rise reflected in some commodity price
indices has raised the specter of persistent underlying inflation pressures
about to erupt. We think such worries are groundless.
Gold has already retreated back to the $390 level, from a peak of over $420
reached in January. Not only is the price in a short-term downtrend, it recently
broke below its two-year average price. Those who were most insistent that
rising gold prices signal rising inflation are now silent about the portent of
falling gold prices.
Oil prices have also rallied sharply this year, recently surpassing $25.00
per barrel on the nearby futures contract, the highest price in years. Wheat and
other feed grains have likewise risen, the result of low inventories and drier
than normal weather.
We have long held the view that oil bulls are a peculiar breed of
inflationist whose beliefs are generally impervious to facts. Many of the
arguments they offer as reasons prices are going to go up are reasons why either
prices have already gone up or reasons why prices are about to go down. Two of
these humbugs are particularly hearty: prices in real terms are the lowest in 40
years and inventories among oil companies and refiners are the lowest in 10
years. The argument is that prices are so low they must soon rise and
6
<PAGE>
that low inventories mean supply is tight and, since demand grows steadily,
prices will be forced higher sooner rather than later.
The short version of why these are wrong is as follows (there is a much
longer version): commodities prices tend to trade close to the marginal cost of
production, which for most commodities falls in real terms due mainly to
technological improvements in the ability to extract, produce, or grow the
products. The long-term trend in commodities prices has been down since the
industrial revolution began, save for short episodes, the most unusual of which
was the 1970s, a period commodity bulls constantly try to recreate. That prices
are at 40-year lows in real terms is not an aberration soon to be corrected; it
is the norm.
Inventories are low because a colder than normal winter led to a temporary
price spike in oil. Companies drew down inventories because they could sell oil
on the spot market at higher prices than were available in the forward market, a
condition known as backwardation. They have been reluctant to replenish
inventories today at high prices when they can lock in supplies in the futures
market at lower prices. The last time oil companies actively drew down
inventories was in late 1985, just before prices collapsed. We don't think
prices are going to collapse, but we do think they are headed 20% lower over the
course of the year, measured by the near-term futures contract.
If we are right that the recent inflation and growth scare will abate as the
year progresses, interest rates should gradually decline, allowing stocks to
continue to advance. Corporate profits growth so far appears solid, at least in
our portfolio companies, and we are optimistic that stocks will again be the
best performing asset class this year.
Portfolio purchases were modest in the quarter. We took advantage of the
panic surrounding a feared slowdown in personal computer demand to buy DELL
COMPUTER, whose direct sales model allows very high returns on capital relative
to its competition. We bought the stock at less than 10x this year's expected
earnings. CIRCUS CIRCUS is a superbly managed gaming company with exceptional
long-term prospects. WALT DISNEY shares made a brief stop in the portfolio. They
came to us via the merger with CAPITAL CITIES/ABC. DISNEY is justly regarded as
a wonderful company, yet it has no lines of business that are as profitable as
the basic business at CIRCUS.
We sold APPLE COMPUTER at higher than present prices when it became clear
their market share driven strategy was not working. Both BANCOMER and SEARS were
also sold in the quarter. They were quite small positions and we continue to
want to keep your portfolio tightly focused.
As always, we appreciate your support and welcome your comments.
Bill Miller, CFA
May 8, 1996
DJIA 5420.95
7
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON VALUE TRUST, INC.
MARCH 31, 1996
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
COMMON STOCKS AND EQUITY INTERESTS -- 91.6%
Automotive -- 5.4%
Chrysler Corporation 800 $ 49,800
General Motors Corporation 600 31,950
81,750
Banking -- 21.9%
Bank of Boston Corporation 850 42,181
BankAmerica Corporation 400 31,000
Chemical Banking Corporation 525 37,013
Citicorp 800 64,000
Fleet Financial Group, Inc. 669 27,101
Lloyds TSB Group plc 7,151 34,272
Provident Bankshares Corporation 344 11,451
The Chase Manhattan Corporation 625 45,937
Zions Bancorporation 503 35,601
328,556
Chemicals -- 1.7%
duPont (E.I.) de Nemours 300 24,900
Computer Services and Systems -- 6.9%
Dell Computer Corporation 800 26,800(A)
Digital Equipment Corporation 285 15,710(A)
International Business Machines
Corporation 550 61,119
103,629
Electrical Equipment -- 1.6%
Philips Electronics N.V. 650 23,644
Entertainment -- 2.9%
Circus Circus Enterprises, Inc. 1,125 37,828(A)
The Walt Disney Company 84 5,356
43,184
Finance -- 15.8%
Federal Home Loan Mortgage
Corporation 500 42,625
Federal National Mortgage
Association 3,200 102,000
MBNA Corporation 1,887 55,898
The Bear Stearns Companies Inc. 1,500 37,125
237,648
Food, Beverage and Tobacco -- 5.8%
PepsiCo, Inc. 425 26,881
Philip Morris Companies Inc. 450 39,487
RJR Nabisco Holdings Corp. 670 20,268
86,636
Food Merchandising -- 3.2%
The Kroger Co. 1,200 48,600(A)
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Footwear -- 5.5%
Nike, Inc. 585 $ 47,531
Reebok International Ltd. 1,279 35,324
82,855
Hospital Management -- 1.6%
Columbia/HCA Healthcare
Corporation 415 23,955
Insurance -- 3.7%
AMBAC Inc. 383 18,432
Humana Inc. 750 18,844
MBIA, Inc. 255 19,125
56,401
Manufacturing -- 2.9%
Danaher Corporation 1,200 44,400
Multi-Industry -- 0.7%
Coltec Industries Inc. 825 10,003(A)
Pharmaceuticals -- 3.1%
Amgen Inc. 400 23,250(A)
Warner-Lambert Company 225 23,231
46,481
Savings and Loan -- 3.2%
Standard Federal Bancorporation 1,150 48,875
Telecommunications -- 5.7%
MCI Communications Corporation 700 21,175
Nokia Corporation ADS 650 22,263
Telefonos de Mexico S.A. ADR 1,283 42,162
85,600
Total Common Stocks and Equity
Interests
(Identified Cost -- $700,900) 1,377,117
PREFERRED EQUITY REDEMPTION CUMULATIVE STOCK
-- 0.6%
RJR Nabisco Holdings Corp.
Series C Depositary Shares
(Identified Cost -- $9,003) 1,385 8,483
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal
(Amounts in Thousands) Amount Value
<S> <C> <C>
SOVEREIGN OBLIGATIONS -- 3.7%
Republic of Argentina
Floating Rate Bonds
6.31%(B) 3-31-05 $60,000 $43,275
Par Bonds
5.0%(C) 3-31-23 25,000 12,969
Total Sovereign Obligations
(Identified Cost -- $37,669) 56,244
U.S. GOVERNMENT OBLIGATION -- N.M.
United States Treasury Note
8.125% 2-15-98
(Identified Cost -- $228) 230 239
REPURCHASE AGREEMENT -- 3.8%
Prudential Securities, Inc.
5.5% dated 3-29-96, to be
repurchased at $56,509 on 4-1-96
(Collateral: Federal National
Mortgage Association Mortgage-
backed securities, $17,050 6.0%
due 7-1-24 and $45,726 6.0% due
4-1-24, value $58,263)
(Identified Cost -- $56,483) 56,483 56,483
Total Investments -- 99.7%
(Identified Cost -- $804,283) 1,498,566
Other Assets Less Liabilities -- 0.3% 4,540
NET ASSETS -- 100.0% $1,503,106
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
Net Assets Consisting of:
Accumulated paid-in-capital
applicable to:
53,754 Primary Class shares
outstanding $737,265
1,932 Navigator Class shares
outstanding 36,728
Undistributed net investment
income 3,842
Undistributed net realized gain
on investments 30,997
Unrealized appreciation of
investments 694,274
NET ASSETS -- 100.0% $1,503,106
NET ASSET VALUE PER SHARE:
PRIMARY CLASS $26.99
NAVIGATOR CLASS $27.08
</TABLE>
(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 March 31, 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 YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $394) $ 25,200
Interest 8,413
Total investment income $ 33,613
EXPENSES:
Investment advisory fee 9,589
Distribution and service fees 11,760
Transfer agent and shareholder servicing expense 846
Custodian fee 300
Reports to shareholders 241
Legal and audit fees 108
Registration fees 104
Directors' fees 18
Other expenses 61
23,027
Less expenses reimbursed (81)
Total expenses, net of reimbursement 22,946
NET INVESTMENT INCOME 10,667
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments 57,010
Increase in unrealized appreciation of investments 369,425
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 426,435
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $437,102
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON VALUE TRUST, INC.
<TABLE>
<CAPTION>
For the Years Ended March 31,
(Amounts in Thousands) 1996 1995
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 10,667 $ 5,162
Net realized gain on investments 57,010 38,687
Increase in unrealized appreciation of investments 369,425 47,164
Increase in net assets resulting from operations 437,102 91,013
Net equalization debits -- (313)
Distributions to shareholders from:
Net investment income:
Primary Class (8,750) (2,527)
Navigator Class (745) (18)
Net realized gain on investments:
Primary Class (62,321) (1,999)
Navigator Class (2,262) --
Change in net assets from Fund share transactions:
Primary Class 114,171 (9,509)
Navigator Class 3,067 33,779
Increase in net assets 480,262 110,426
NET ASSETS:
Beginning of year 1,022,844 912,418
End of year (including undistributed net investment income of $3,842
and $2,670, respectively) $1,503,106 $1,022,844
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL HIGHLIGHTS(dagger)
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 Years Ended March 31,
1996 1995 1994 1993 1992 1996 1995(A)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $20.21 $18.50 $17.81 $15.69 $13.38 $20.27 $18.76
Net investment income 0.19 0.10 0.08 0.18 0.25 0.43 0.12
Net realized and unrealized gain on
investments 8.00 1.70 0.92 2.12 2.34 8.02 1.40
Total from investment operations 8.19 1.80 1.00 2.30 2.59 8.45 1.52
Distributions to shareholders from:
Net investment income (0.17) (0.05) (0.11) (0.18) (0.28) (0.40) (0.01)
Net realized gain on investments (1.24) (0.04) (0.20) -- -- (1.24) --
Total distributions (1.41) (0.09) (0.31) (0.18) (0.28) (1.64) (0.01)
Net asset value, end of period $26.99 $20.21 $18.50 $17.81 $15.69 $27.08 $20.27
Total return 42.09% 9.77% 5.65% 14.76% 19.53% 43.53% 8.11%(B)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.82% 1.81% 1.82% 1.86% 1.90% 0.82% 0.82%(C)
Net investment income 0.8% 0.5% 0.5% 1.1% 1.7% 1.8% 1.8%(C)
Portfolio turnover rate 19.6% 20.1% 25.5% 21.8% 39.4% 19.6% 20.1%
Net assets, end of the period (in
thousands) $1,450,774 $986,325 $912,418 $878,394 $745,833 $52,332 $36,519
</TABLE>
(dagger) 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
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON VALUE TRUST, INC.
(Amounts in Thousands)
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 the 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.
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 share-
holders.
Equalization
In prior years, the Fund followed the practice of equalization by
which a portion of proceeds from sales and cost of redemptions of Fund
shares is credited or charged to undistributed net investment income. In
the current fiscal year ending March 31, 1996, the Fund discontinued the
practice of equalization, resulting in a reclassification from
undistributed net investment income of $15,358 to accumulated paid-in
capital -- Primary Class and $118 deduction from accumulated paid-in
capital to undistributed net investment income -- Navigator Class.
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 year ended March 31, 1996 (excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $298,599
Proceeds from sales 240,765
</TABLE>
At March 31, 1996, the cost of securities for federal income tax
purposes was $804,283. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$705,675 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value was $11,393.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON VALUE TRUST, INC.
(Amounts in Thousands)
3. FUND SHARE TRANSACTIONS:
At March 31, 1996, there were 100,000 shares authorized at $.001 par
value for all classes of the Fund. On December 1, 1994, when the Navigator
Class became effective, 1,828 shares held in Legg Mason Profit Sharing
Plan accounts, with a value of $34,288, were transferred from Primary
Class to Navigator Class. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995
Primary Class Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 13,216 $ 311,427 15,630 $ 293,717
Reinvestment of
distributions 3,120 70,153 240 4,423
Repurchased (11,393) (267,409) (16,377) (307,649)
Net change 4,943 $ 114,171 (507) $ (9,509)
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995(dagger)
Navigator Class Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 262 $ 6,350 1,896 $35,606
Reinvestment of
distributions 133 3,006 1 18
Repurchased (265) (6,289) (95) (1,845)
Net increase 130 $ 3,067 1,802 $33,779
</TABLE>
(dagger) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF
NAVIGATOR CLASS) TO MARCH 31, 1995.
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
Advisor 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 assets between $100 million and $1
billion and 0.65% of assets in excess of $1 billion, calculated daily and
payable monthly. At March 31, 1996, $928 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 March 31, 1996, $1,162 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 $228 by
the transfer agent for the year ended March 31, 1996. No brokerage
commissions were paid to Legg Mason or its affiliates during the year
ended March 31, 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 year ended March 31, 1996, the Fund had no borrowings under
the line of credit.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF LEGG MASON VALUE TRUST, INC.:
We have audited the accompanying statement of net assets of the Legg
Mason Value Trust, Inc., as of March 31, 1996, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at March 31, 1996, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Legg Mason Value Trust, Inc. as of March 31, 1996, and the
results of its operations, changes in its net assets, and financial
highlights for each of the respective periods stated in the first
paragraph, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
April 29, 1996
15
