<PAGE>
To Our Shareholders,
The following table summarizes key statistics for the Primary Class of
shares of the Legg Mason Value Trust, Special Investment Trust and Total Return
Trust, as of March 31, 1999:
3-Month 12-Month
Total Return(1) Total Return(1)
--------------- ---------------
Value Trust +18.7% +49.9%
Growth Funds(2) +4.4% +13.5%
Standard & Poor's 500 Composite Index +5.0% +18.5%
Special Investment Trust +5.8% +16.9%
Mid-Cap Funds(3) -.3% +.2%
Russell 2000 Index -5.4% -16.3%
Total Return Trust -2.5% -8.1%
Growth and Income Funds(4) +1.8% +5.5%
As the table indicates, the Value Trust and Special Investment Trust
substantially outperformed both comparable funds and relevant stock market
indices during the 3- and 12-month periods ended March 31. Total Return Trust
trailed the performance of comparable funds during those periods. However, since
March 31, that Fund has benefited from a broadening of market interest and a
rally in real estate investment trust securities - its total return as this
letter is written is +6.0% on a calendar year-to-date basis.
Long-term investment results for each of the Funds are shown in the
Performance Information section of this report. We are particularly pleased
that the Value Trust, our original equity fund, has earned an annual compounded
return for shareholders of 22.3% since its inception in 1982.
On the following pages, Bill Miller, portfolio manager for Value Trust and
Special Investment Trust; Nancy Dennin, portfolio manager for Total Return
Trust; and Lisa Rapuano, assistant portfolio manager for Special Investment
Trust, discuss the Funds and the investment outlook.
PricewaterhouseCoopers LLP, independent accountants for each of these
Funds, has completed its annual examination, and audited financial statements
for the fiscal year ended March 31, 1999, are included in this report.
During 1998 and into 1999, the focus on the Year 2000 issue has increased
significantly. As you may know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Funds' 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 Funds are 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
- --------------
(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.
(2) All growth funds as measured by Lipper Analytical Services, Inc.
(3) All funds investing principally in securities of companies with medium-sized
capitalizations as measured by Lipper Analytical Services, Inc.
(4) All growth and income funds as measured by Lipper Analytical Services, Inc.
<PAGE>
monitoring the Year 2000 efforts of our vendors, and will perform tests with our
critical vendors throughout 1999. Although the Funds are taking steps to ensure
that all of their systems will function properly before, during, and after the
Year 2000, the Funds 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 Funds' 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.
For several operational reasons, we are changing the ordinary income
dividend and capital gain distribution payment schedules for these Funds. Our
new schedule will be to make capital gain distributions, if any, in June and
December. We will pay ordinary income dividends, if any, in June, September and
December for Value Trust and Total Return Trust; we will pay ordinary income
dividends, if any, in June and December for Special Investment Trust.
Sincerely,
/s/ John F. Curley, Jr.
_______________________
John F. Curley, Jr.
President
May 17, 1999
2
<PAGE>
Portfolio Managers' Comments
The end of the first calendar quarter of 1999 is the end of the fiscal year
for our Funds. SEC regulations require that investment advisors discuss market
conditions and strategies that materially affected a Fund's results during its
fiscal year. The format of this letter, a departure from our usual random,
digressive style, is designed to facilitate covering the topics required by the
regulators.
Review of Fiscal Year 1999 Market Conditions
Large capitalization stocks performed exceptionally well in the year ending
March 31, 1999, returning 18.5% as measured by the S&P 500. Broader measures of
stock performance significantly lagged the S&P 500. The Value Line index, which
includes both large and small companies, declined 18% during that period. The
Russell 2000 index, which covers mostly smaller companies, also declined, down
16% for the 12 months. Such broad divergences in the returns of large and small
companies are quite unusual and we would be surprised to see them persist. We
believe they were due to the global financial crisis which erupted last summer
and which culminated in the panic lows of October 8, l998. Investors sought the
relative safety of large, well established companies during this period of
uncertainty. With the ebbing of the crisis and the beginning of economic
recovery in many of the hardest hit emerging economies, we think investors will
once again begin to invest on the basis of hope instead of fear. This bodes well
for the returns of small- and mid-size companies where valuations remain quite
attractive.
Strategies Affecting Fiscal Year 1999 Results
General:
The Value Trust and the Special Investment Trust follow a value investing
style. Value investors attempt to evaluate the intrinsic worth of a company and
purchase securities in that company at prices representing a substantial
discount to estimated value. Estimates of business value are subject to
substantial uncertainty arising from, but not limited to, the availability of
accurate information, economic growth and change, changes in competitive
conditions, technological change, changes in government policy or geo-political
dynamics, and so forth. We attempt to minimize the potentially unfavorable
consequences of errors in the estimation of business value by building in a
margin of safety between our estimates and the price we are willing to pay for a
security.
A variety of quantitative methods and qualitative assessments are used to
estimate business value. These include, but again are not limited to,
traditional valuation measures such as price earnings ratios, price to book
value and price to cash flow ratios, both prospective and historic. Comparative
valuation work is extensive, and includes historic, prospective, and
scenario-based methods, as well as volatility analyses. Theoretical valuation
frameworks are also employed. Discounted cash flow and free cash flow analyses
are extensively employed, as are private market and liquidation value analyses.
Qualitative assessment of business prospects involves studying companies'
products, competitive positioning, strategy, industry economics and dynamics,
regulatory frameworks, and more. We pay particularly close attention to
corporate capital allocation policies and the returns resulting therefrom. We
believe a management's commitment to shareholder value is often best
demonstrated by how they allocate capital.
3
<PAGE>
Portfolio Managers' Comments--Continued
The Funds' management also devotes considerable time to the study of
important academic work in financial theory and in experimental economics. We
have found recent work in behavioral finance and complex adaptive systems to be
particularly important in assessing and understanding markets, investor
behavior, and competitive strategy.
Value Trust: Strategies Affecting Results
The Value Trust has followed a consistent investment strategy for many
years. It is characterized by careful attention to value, a focused portfolio,
and low turnover. The Fund had an excellent year, significantly outperforming
all relevant indices of both the market and of comparable mutual funds.
The Fund's results benefited from a number of its technology holdings, an
area where valuation work is often complicated and difficult. Our six best
performing stocks in the fiscal year ending March 31, l999, were all technology
based. America Online led the way, rising over 750% in the 12-month period. Also
more than doubling in the year were cellular phone leader Nokia, biotechnology
giant Amgen, Dell Computer, and MCI WorldCom. Among our poorest performers were
PennCorp Financial, which ran into regulatory problems, Foundation Health, whose
results consistently missed estimates, and Starwood Lodging, whose stock fell
sharply for no fundamental business reason we could discern. It has since begun
to recover.
Our long-standing holdings in financial services stocks contributed
positively to our results relative to the market and to comparable funds. Most
of their contribution came in the past three months, as our financial services
holdings underperformed the market in calendar l998.
The returns of the S&P 500 sharply outpaced those of other market indices
in the past year, and the top 50 companies in the S&P outperformed the other 450
companies ranked by market capitalization. Our concentration in mostly large
capitalization companies also helped our relative results.
Our results were also enhanced by mostly avoiding shares whose prices
suffered heavy losses. We believe our focus on having a margin of safety in the
purchase price contributed to the relative lack of poor performers in the
portfolio. A more complete list of stocks affecting our results is included
elsewhere in this report.
Special Investment Trust: Strategies Affecting Results
The Special Investment Trust follows the same investment strategy as the
Value Trust, but mostly operates in a different market segment: small- and
mid-sized companies and special situations. The Fund produced strong results for
shareholders in the fiscal year ending March 31, sharply outperforming indices
of small- and mid-sized companies as well as those of measures of funds that
invest comparably.
The main contributor to the Fund's strong performance was its large holding
in America Online, which was the Fund's largest position and which rose over
750% in the fiscal year. The Fund has owned AOL for many years, including
periods when it performed poorly due to a myriad of concerns. Our strategy of
investing in businesses instead of trying to trade stocks to capture anticipated
price
4
<PAGE>
moves allowed us to benefit from the intense interest in Internet-related
stocks, which helped the performance of AOL. Among the other securities helping
our results were WPP Group, a large UK-based advertising and communications
company whose turnaround became more widely recognized in the last 12 months;
Gateway 2000, the direct marketer of computers, which benefited from a more
intense focus on balance sheet management; and Hollywood Entertainment, the
second largest retailer of videos, whose share price rose as business results
rebounded due to new revenue sharing arrangements with major movie studios.
Small- and mid-capitalization stocks performed poorly in the past year, and
the Fund's results, relative to the S&P 500, suffered from our focus on this
sector. Among our worst performers were Philip Services (sold during the second
quarter), whose acquisition strategy went awry and which fell into bankruptcy;
Magellan Health, whose deal to sell its psychiatric hospitals fell through and
whose financial results suffered; and Dynex Capital, a well managed mortgage
REIT (real estate investment trust) that had to eliminate its dividend as a
result of adverse developments brought on, in part, by the global financial
crisis. We remain optimistic about the future results we may earn from both
Magellan and Dynex.
Total Return Trust: Strategies Affecting Results
The Total Return Trust follows an investment strategy similar to that of
the Value Trust and the Special Investment Trust, while focusing on securities
with above market yields. The Fund underperformed its peer group and the S&P 500
for the fiscal year, primarily due to its exposure to REITs, and to select
higher yielding stocks, such as Northrop Grumman Corp., J.C. Penney, and
Tupperware.
Additionally, the Total Return Trust was underweight in technology names
compared to the S&P 500, since very few technology stocks provide current
income. The technology weighting in the S&P 500 is approximately 18%. In
contrast, the Fund's only technology holding is IBM, comprising 10% of the
portfolio at year end.
The S&P 500 has no exposure to REITs, in contrast to the Fund's 13%
weighting. We believe REITs are extremely attractive, especially for a growth
and income fund. REITs substantially underperformed the market over the 12
months ending March 31, 1999, declining an average 19% on a total return basis,
a whopping 38% behind the S&P 500's return. What was so remarkable about last
year's severe underperformance was that the REITs' earnings, as defined by Funds
From Operations (FFO), generally performed in line with expectations. This
extreme divergence has resulted in the REITs being substantially mispriced based
on every valuation method we use.
The undervaluation of REITs has not been lost on managements or value
investors. Since the beginning of calendar year 1999, several REITs have
announced management-led buyouts, and legendary value investor Warren Buffett
has disclosed holdings in a number of REITs, including a 5% position in one of
the Fund's holdings, Tanger Factory Outlet Centers.
Equity returns were extremely polarized over the last 12 months, as
evidenced by the substantial outperformance of the S&P 500 relative to the Value
Line index and the Russell 2000, as detailed in the Review of Fiscal Year 1999
Market Conditions section of this report. Even within the S&P 500, returns were
extremely disparate. The top twenty market cap names appreciated 44%, with the
remaining 480 advancing 9%.
5
<PAGE>
Portfolio Managers' Comments--Continued
The Fund has no market cap limitations. At March 31, 1999, the Fund had
about 58% invested in large-cap stocks, and the balance in mid- and small-caps.
The flexibility to invest in large-, mid- and small-capitalization stocks has
served the Fund well in the past, and I believe will in the future. We do not
manage the Fund to outperform every quarter or every year. Shareholders who
expect this will most likely be disappointed. Our goal is to outperform our peer
group and the major market indices over long periods of time by purchasing
securities that we believe are selling at discounts to their intrinsic value.
The result of last year's underperformance is that the Fund is trading at a
substantial discount to the overall market, as evidenced by the Fund's P/E
ratio. The holdings of the Fund are trading at only 14x 1999 and 12x 2000
estimated earnings compared to the S&P 500, trading at 27x and 25x,
respectively.
Market Outlook: Near Term
As usual, we are agnostic about the market's near-term direction. A variety
of valuation tools suggest that the S&P 500 and the DJIA approximate fair value,
a view with which we concur. However, the extreme divergence of equity returns
over the last twelve months, and a global economy that appears to be
strengthening, suggests that the market's returns should broaden, leading to
more balanced returns among the small-, mid- and large-capitalization segments
of the market.
Share prices have begun the calendar year with another strong advance,
fueled by continued low inflation, stable monetary policy, a growing budget
surplus, and high corporate profitability. Mergers and acquisition activity
remains extremely robust and is expected to remain so. The Financial Accounting
Standards Board (FASB) has reached a tentative conclusion to eliminate pooling
of interests accounting for mergers, thereby substituting one form of financial
obfuscation for another. We think that change will spur many companies to
accelerate acquisition activities before the deadline for poolings expires,
expected to be January 1, 2001.
As our new fiscal year gets underway, the market is experiencing a sharp
change in leadership, with cyclical companies coming to life. The rebound in
what are misleadingly referred to as value stocks (i.e., cyclicals) has been
sufficiently strong that Caterpillar, Deere, and Alcoa have collectively
outperformed Dell, Intel, and Cisco for the calendar year to date. We do not
expect that simple-minded security classifications such as "growth" or "value"
are likely to provide much guidance in stock selection or insight into the
sources of market leadership. We do believe, as noted, that the narrow
leadership of the last few years will give way to a more normal (Gaussian)
distribution of returns.
Market Outlook: Long Term
"When we think about the future of the world, we always have in mind its
being at the place where it would be if it continued to move as we see it moving
now. We do not realize that it moves not in a straight line...and that its
direction changes constantly."
Wittgenstein
One year ago we reflected in this space that the nearly 50% return of the
S&P 500 in the previous 12 months was surprising, and was driven by interest
rates dropping from 7% to 6% while profits continued to advance. We said then,
and still believe, that the era of extraordinary returns is over and that
investors should expect equity market returns to fluctuate around the 9% to 10%
area. Returns
6
<PAGE>
substantially above that would be driven by falling rates and rising profits,
and returns substantially below by rising rates and falling profits. Over the
past 12 months rates fell about 10% and profits rose, and the S&P 500 was up
18%, despite falling over 20% peak to trough in the July to early October
period.
The U.S. economy looks solid, and global growth is expected to pick up over
the next twelve months. Inflation is low, and although commodity prices have
stopped declining, capacity is ample in all commodities and sustained price
advances appear unlikely. The growing effect of the Internet is a powerful
disinflationary force. As a consequence, we expect interest rates to remain in
the 6% area or lower, and profits should work moderately higher. Valuations,
although high, are well underpinned by fundamentals.
The future is inherently unknowable, but it is bet-able. Our bet is that
the next year will provide solid returns to equity investors.
Bill Miller, CFA, Portfolio Manager
Value Trust and Special Investment Trust
Nancy Dennin, CFA, Portfolio Manager
Total Return Trust
Lisa O. Rapuano, CFA, Assistant
Portfolio Manager, Special Investment
Trust
May 14, 1999
DJIA 10913.32
7
<PAGE>
Performance Information
Total Return for One, Five, Ten Years and Life of Class, as of March 31, 1999
The returns shown on these pages are based on historical
results and are not intended to indicate future performance. The
investment return and principal value of an investment in any of
these Funds will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Average annual returns tend to smooth out variations in a Fund's
return, so they differ from actual year-to-year results. No
adjustment has been made for any income taxes payable by
shareholders. Total returns as of March 31, 1999, for the Value Line
Geometric Average ("Value Line") and S&P 500 Composite indices are
shown in the table below (additional individual Fund performance is
shown with its respective graph).
Each Fund has two classes of shares: Primary Class and
Navigator Class. Information about the Navigator Class, offered only
to certain institutional investors, is contained in a separate
report to its shareholders.
Average annual total returns as of March 31, 1999, were as
follows:
<TABLE>
<CAPTION>
S&P 500
Value Special Investment Total Return Value Line Composite
Trust Trust Trust Index Index
<S><C>
------------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Primary Class:
One Year +49.93% +16.85% -8.13% -18.13% +18.46%
Five Years +37.15 +17.51 +16.99 +7.52 +26.25
Ten Years +22.09 +17.63 +13.39 +5.23 +18.97
Life of Class--Value Trust(A) +22.27 +10.43 +18.98
Life of Class--Special Investment(B) +15.37 +7.92 +17.83
Life of Class--Total Return(C) +11.57 +8.12 +18.18
------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Inception of Value Trust--April 16, 1982.
(B) Inception of Special Investment Trust--December 30, 1985.
(C) Inception of Total Return Trust--November 21, 1985.
Performance Comparison of a $10,000 Investment as of March 31, 1999
The following graphs compare each Fund's total returns to the
Value Line and S&P 500 Stock indices. The graphs illustrate the
cumulative total return of an initial $10,000 investment for the
periods indicated. The line for each Fund represents the total
return after deducting all Fund investment management and other
administrative expenses and the transaction costs of buying and
selling portfolio securities. The line representing each securities
market index does not include any transaction costs associated with
buying and selling securities in the index or other administrative
expenses. Both the Legg Mason Funds' results and the indices'
results assume reinvestment of all dividends and distributions.
8
<PAGE>
Value Trust--Primary Class
Cumulative Average Annual
Total Return Total Return
------------ --------------
One Year +49.93% +49.93%
Five Years +385.27 +37.15
Ten Years +635.85 +22.09
[GRAPH APPEARS HERE]
Years Ended Value Trust Standard & Poor's Value Line
March 31, Primary Class 500 Stock Index(1) Index(2)
- ----------- -------------- ------------------ ----------
1989 $10,000 $10,000 $10,000
1990 10,774 11,927 9,923
1991 10,463 13,646 9,665
1992 12,507 15,152 10,468
1993 14,353 17,460 11,394
1994 15,164 17,717 11,590
1995 16,645 20,476 11,882
1996 23,651 27,048 14,035
1997 31,594 32,411 15,087
1998 49,079 47,968 20,341
1999 73,585 56,824 16,652
-------------------------------------------------
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
Selected Portfolio Performance*
Best performers for the year ended March 31, 1999
- --------------------------------------------------
1. America Online, Inc. +754.9%
2. Nokia Oyj +188.6%
3. Amgen Inc. +146.0%
4. Dell Computer Corporation +141.3%
5. MCI WorldCom, Inc. +105.7%
6. International Business
Machines Corporation +70.6%
7. Danaher Corporation +37.6%
8. The Kroger Co. +29.6%
9. General Motors Corporation +28.8%
10. Zions Bancorporation +26.4%
* Securities held for the entire year.
Weak performers for the year ended March 31, 1999
- -------------------------------------------------
1. Foundation Health Systems, Inc. -55.8%
2. Western Digital Corporation -54.8%
3. Starwood Hotels &
Resorts Worldwide, Inc. -46.5%
4. Conseco, Inc. -45.5%
5. Metro-Goldwyn-Mayer, Inc. -41.3%
6. Toys "R" Us, Inc. -37.4%
7. Hilton Hotels Corporation -33.8%
8. Storage Technology Corporation -26.7%
9. MBIA, Inc. -25.2%
10. BankBoston Corporation -21.4%
Portfolio Changes
Securities added during the 1st quarter 1999
- -------------------------------------------
Bank One Corporation
Gateway 2000, Inc.
The Learning Company, Inc.
Nextel Communications, Inc.
Securities sold during the 1st quarter 1999
- -------------------------------------------
Ford Motor Company
Fred Meyer, Inc.
PennCorp Financial Group, Inc.
Seagate Technology, Inc.
9
<PAGE>
Performance Information -- Continued
Special Investment Trust--Primary Class
Cumulative Average Annual
Total Return
------------ --------------
One Year +16.85% +16.85%
Five Years +124.08 +17.51
Ten Years +407.16 +17.63
[GRAPH APPEARS HERE]
Special
Years Ended Investment Standard & Poor's Value Line
March 31, Primary Class 500 Stock Index(1) Index(2)
- ----------- -------------- ------------------ ----------
1989 $10,000 $10,000 $10,000
1990 11,537 11,927 9,923
1991 14,012 13,646 9,665
1992 16,878 15,152 10,468
1993 18,651 17,460 11,394
1994 22,633 17,717 11,590
1995 21,191 20,476 11,882
1996 27,223 27,048 14,035
1997 30,375 32,411 15,087
1998 43,402 47,968 20,341
1999 50,808 56,824 16,652
-------------------------------------------------
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
Selected Portfolio Performance*
Best performers for the year ended March 31, 1999
- -----------------------------------------------------
1. America Online, Inc. +754.9%
2. WPP Group plc +52.3%
3. Gateway 2000, Inc. +46.1%
4. Hollywood Entertainment Corp. +33.0%
5. Players International, Inc. +26.6%
6. Bell & Howell Company +6.8%
7. Olsen & Associates AG +3.3%
8. MidAmerican Energy Holdings
Company** -0.9%
9. Northeast Utilities System -3.1%
10. Hollywood Park, Inc. -12.2%
* Securities held for the entire year.
** Formerly Calenergy Company, Inc.
Weak performers for the year ended March 31, 1999
- -------------------------------------------------
1. Mego Financial Corp. -85.0%
2. Magellan Health Services, Inc. -83.9%
3. Dynex Capital, Inc. -72.4%
4. InaCom Corp. -71.9%
5. Cott Corporation -68.0%
6. LASER Mortgage Management, Inc. -66.7%
7. Western Digital Corporation -54.8%
8. ICG Communications -46.3%
9. Cabletron Systems, Inc. -43.8%
10. Orion Capital Corporation -42.9%
Portfolio Changes
Securities added during the 1st quarter 1999
- --------------------------------------------
Amazon.com Inc., Cv. Bonds, 4.75% due 2/1/09
CKE Restaurants, Inc.
General Nutrition Companies, Inc.
MedPartners, Inc.
Micron Electronics, Inc.
Securities sold during the 1st quarter 1999
- --------------------------------------------
Patriot American Hospitality, Inc.
PennCorp Financial Group, Inc.
Quantum Corporation
10
<PAGE>
Total Return Trust--Primary Class
Cumulative Average Annual
Total Return Total Return
------------ --------------
One Year -8.13% -8.13%
Five Years +119.15 +16.99
Ten Years +251.22 +13.39
Total Return
Years Ended Trust Standard & Poor's Value Line
March 31, Primary Class 500 Stock Index(1) Index(2)
- ----------- -------------- ------------------ ----------
1989 $10,000 $10,000 $10,000
1990 10,348 11,927 9,923
1991 10,343 13,646 9,665
1992 12,783 15,152 10,468
1993 15,325 17,460 11,394
1994 16,026 17,717 11,590
1995 16,202 20,476 11,882
1996 21,586 27,048 14,035
1997 26,838 32,411 15,087
1998 38,229 47,968 20,341
1999 35,122 56,824 16,652
-------------------------------------------------
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
Selected Portfolio Performance*
Best performers for the year ended March 31, 1999
- -----------------------------------------------------
1. International Business
Machines Corporation +70.6%
2. Ford Motor Company +31.8%
3. General Motors Corporation +28.8%
4. The Chase Manhattan Corporation +20.6%
5. Lloyds TSB Group plc -2.7%
6. BankAmerica Corporation -3.3%
7. The Bear Stearns Companies, Inc. -8.4%
8. Fleet Financial Group, Inc. -11.5%
9. Washington Federal, Inc. -15.9%
10. American Financial Group Inc. -18.9%
* Securities held for the entire year.
Weak performers for the year ended March 31, 1999
- -------------------------------------------------
1. Olin Corporation -66.1%
2. LaSalle Re Holdings Limited -64.8%
3. J.C. Penney Company, Inc. -46.5%
4. Northrop Grumman Corporation -44.3%
5. IPC Holdings Limited -38.4%
6. Enhance Financial Services Group, Inc. -34.5%
7. Tanger Factory Outlet Centers, Inc. -34.3%
8. Tupperware Corporation -32.4%
9. National Golf Properties, Inc. -31.0%
10. Walden Residential Properties, Inc. -30.2%
Portfolio Changes
Securities added during the 1st quarter 1999
- -------------------------------------------
Washington Mutual, Inc.
Securities sold during the 1st quarter 1999
- -------------------------------------------
AK Steel Holding Corporation
Briggs & Stratton Corporation
British Steel plc
IndyMac Mortgage Holdings, Inc.
Telefonos de Mexico S.A. ADR
UST, Inc.
11
<PAGE>
Statement of Net Assets
March 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
Legg Mason Value Trust, Inc.
Shares/Par Value
<S><C>
- ------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 91.3%
Advertising --2.5%
WPP Group plc 30,890 $ 267,813
--------------------
Automotive--1.7%
General Motors Corporation 2,100 182,438
--------------------
Banking --13.2%
Bank One Corporation 1,379 75,942
BankAmerica Corporation 2,197 155,191
BankBoston Corporation 5,100 220,894
Citigroup Inc. 4,725 301,809
Fleet Financial Group, Inc. 1,338 50,354
Lloyds TSB Group plc 11,466 173,451
The Chase Manhattan Corporation 4,600 374,038
Zions Bancorporation 1,403 93,286
--------------------
1,444,965
--------------------
Computer Services and Systems --15.9%
Compaq Computer Corporation 5,790 183,470
Dell Computer Corporation 15,000 613,125(A)
First Data Corporation 1,736 74,210
Gateway 2000, Inc. 4,300 294,819(A)
International Business Machines Corporation 1,275 225,994
Storage Technology Corporation 6,600 183,975(A,B)
The Learning Company, Inc. 4,300 124,700(A)
Western Digital Corporation 4,000 31,750(A)
--------------------
1,732,043
--------------------
Electrical Equipment --1.9%
Koninklijke (Royal)Philips Electronics N.V. 2,525 208,155
--------------------
Entertainment --2.6%
Circus Circus Enterprises, Inc. 5,200 91,325(A,B)
MGM Grand, Inc. 2,570 86,416(A)
Mirage Resorts, Incorporated 5,110 108,590(A)
--------------------
286,331
--------------------
Finance --5.8%
Fannie Mae 3,200 221,600
Freddie Mac 2,000 114,250
MBNA Corporation 6,368 152,039
The Bear Stearns Companies, Inc. 3,150 140,765
--------------------
628,654
--------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
<S><C>
- ------------------------------------------------------------------------------------------------------
Food, Beverage and Tobacco --1.5%
PepsiCo, Inc. 1,700 $ 66,619
Philip Morris Companies, Inc. 2,636 92,754
--------------------
159,373
--------------------
Food Merchandising -- 1.4%
The Kroger Co. 2,500 149,688(A)
Health Care -- 3.1%
Foundation Health Systems, Inc. 8,805 107,311(A,B)
United HealthCare Corporation 4,400 231,550
--------------------
338,861
--------------------
Hotels and Motels -- 0.6%
Hilton Hotels Corporation 5,025 70,664
--------------------
Insurance -- 5.5%
Ambac Financial Group, Inc. 870 46,985
Berkshire Hathaway Inc. - Class A 4 292,669(A)
Conseco, Inc. 978 30,196
MBIA, Inc. 605 35,090
MGIC Investment Corporation 5,700 199,856(B)
--------------------
604,796
--------------------
Manufacturing -- 1.2%
Danaher Corporation 2,400 125,400
--------------------
Media -- 18.9%
America Online, Inc. 14,097 2,058,194(A)
--------------------
Motion Pictures and Services -- 0.3%
Metro-Goldwyn-Mayer, Inc. 2,747 36,052(A)
--------------------
Pharmaceuticals -- 2.1%
Amgen Inc. 3,000 224,625(A)
--------------------
Real Estate -- 2.1%
Starwood Hotels & Resorts Worldwide, Inc. 8,200 234,212
--------------------
Retail Sales -- 1.7%
Toys "R" Us, Inc. 10,000 188,125(A)
--------------------
Savings and Loan -- 2.0%
Washington Mutual, Inc. 5,400 220,728
--------------------
</TABLE>
13
<PAGE>
Statement of Net Assets -- Continued
<TABLE>
<CAPTION>
Legg Mason Value Trust, Inc. -- Continued
Shares/Par Value
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 7.3%
MCI WorldCom, Inc. 3,178 $ 281,466(A)
Nextel Communications, Inc. 4,800 175,800(A)
Nokia Oyj 1,500 233,625
Telefonos de Mexico S.A. ADR 1,600 104,800
-----------
795,691
-----------
Total Common Stocks and Equity Interests
(Identified Cost-- $4,799,565) 9,956,808
- ----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 9.5%
Goldman, Sachs & Company
4.93%, dated 3/31/99, to be repurchased at $345,801 on 4/1/99
(Collateral: $367,588 Fannie Mae mortgage-backed securities,
6% due 2/1/29, value $358,168) $345,754 345,754
J.P. Morgan Securities, Inc.
4.95%, dated 3/31/99, to be repurchased at $345,801 on 4/1/99
(Collateral: $366,244 Freddie Mac mortgage-backed securities,
6% due 1/1/29, value $357,202) 345,754 345,754
Merrill Lynch & Co., Inc.
4.95%, dated 3/31/99, to be repurchased at $345,801 on 4/1/99
(Collateral: $250,232 Fannie Mae mortgage-backed securities, 6-7.50%
due 2/1/19-3/1/28, value $252,919; $103,640 Freddie Mac
mortgage-backed securities, 6.50-7% due 11/1/18-6/1/28,
value $105,350) 345,754 345,754
-----------
Total Repurchase Agreements (Identified Cost-- $1,037,262) 1,037,262
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.8% (Identified Cost-- $5,836,827) 10,994,070
Other Assets Less Liabilities-- (0.8)% (82,140)
-----------
Net assets-- 100.0% $10,911,930
===========
</TABLE>
14
<PAGE>
<TABLE>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consisting of:
Accumulated paid-in capital applicable to:
138,143 Primary shares outstanding $4,867,973
10,933 Navigator shares outstanding 491,732
Accumulated net operating loss (75)
Undistributed net realized gain on investments
and foreign currency transactions 395,076
Unrealized appreciation of investments
and foreign currency translations 5,157,224
----------
Net assets-- 100.0% $10,911,930
===========
Net asset value per share:
Primary Class $73.09
======
Navigator Class $74.49
======
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing.
(B) Affiliated Companies--As defined in the Investment Company Act of
1940, an "Affiliated Company" represents fund ownership of at
least 5% of the outstanding voting securities of the issuer. At
March 31, 1999, the total market value of Affiliated Companies was
$582,467 and the identified cost was $670,938.
See notes to financial statements.
15
<PAGE>
Statement of Net Assets
March 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
Legg Mason Special Investment Trust, Inc.
Shares/Par Value
<S><C>
- -----------------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 92.7%
Advertising -- 6.0%
WPP Group plc 13,250 $ 114,876
----------
Banking -- 1.5%
Peoples Heritage Financial Group, Inc. 1,600 28,800
----------
Biotechnology -- 0.3%
Cell Genesys, Inc. 1,225 6,048(A)
----------
Business Services -- 2.0%
Modis Professional Services, Inc. 4,258 38,590(A)
----------
Computer Services and Systems -- 21.9%
Bell & Howell Company 1,000 29,313(A)
Gateway 2000, Inc. 1,800 123,412(A)
ICGCommunications 2,600 52,000(A,B)
InaCom Corp. 2,655 20,574(A,B)
Micron Electronics, Inc. 3,000 35,250(A)
Remedy Corporation 378 5,298(A)
Silicon Graphics, Inc. 2,700 45,056(A)
Storage Technology Corporation 2,000 55,750(A)
Symantec Corporation 2,800 47,425(A,B)
Western Digital Corporation 933 7,405(A)
----------
421,483
----------
Computer Software -- 1.5%
Sybase, Inc. 3,700 29,369(A)
----------
Electronics - Semiconductor -- 2.1%
Hadco Corp. 1,265 39,847(A,B)
----------
Energy -- 4.0%
MidAmerican Energy Holdings Company 1,550 43,400
Northeast Utilities System 2,405 33,368(A)
----------
76,768
----------
Entertainment -- 6.6%
Circus Circus Enterprises, Inc. 2,300 40,394(A)
Hollywood Entertainment Corp. 2,400 44,700(A,B)
Hollywood Park, Inc. 2,515 25,936(A,B)
Players International, Inc. 2,485 15,531(A,B)
----------
126,561
----------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
<S><C>
- -----------------------------------------------------------------------------------------------------------------
Finance -- 4.2%
Amerin Corporation 1,860 $ 37,781(A,B)
Mego Financial Corp. 300 234(A)
United Asset Management Corporation 1,927 43,599
----------
81,614
----------
Food, Beverage and Tobacco -- 0.8%
Cott Corporation 6,000 14,625(B)
----------
Health Care -- 4.3%
Magellan Health Services, Inc. 2,350 9,840(A,B)
MedPartners, Inc. 8,000 38,000(A)
PhyCor, Inc. 7,185 34,129(A,B)
----------
81,969
----------
Insurance -- 6.4%
CMAC Investment Corporation 700 27,300
Enhance Financial Services Group, Inc. 2,100 47,775(B)
Orion Capital Corporation 1,525 47,656(B)
----------
122,731
----------
Media -- 22.0%
America Online, Inc. 2,893 422,346(A)
----------
Miscellaneous -- 0.1%
Olsen & Associates AG 300 2,032(A,C)
----------
Networking Products -- 1.5%
Cabletron Systems, Inc. 3,600 29,475(A)
----------
Real Estate -- 0.8%
Dynex Capital, Inc. 1,857 6,151
LASER Mortgage Management, Inc. 1,795 9,761(B)
----------
15,912
----------
Restaurants -- 0.6%
CKE Restaurants, Inc. 593 11,716
----------
Specialty Retail -- 6.1%
Consolidated Stores Corporation 2,200 66,688(A)
General Nutrition Companies, Inc. 1,850 25,900(A)
Liz Claiborne, Inc. 735 23,966
----------
116,554
----------
Total Common Stocks and Equity Interests
(Identified Cost-- $1,268,899) 1,781,316
----------
</TABLE>
17
<PAGE>
Statement of Net Assets -- Continued
<TABLE>
<CAPTION>
Legg Mason Special Investment Trust, Inc. -- Continued
Shares/Par Value
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes -- 1.8%
Amazon.com Inc., Cv. Bonds, 4.75% due 2/1/09 $20,000 $ 25,175(D)
ICO Global Communications, 15% due 8/1/05 15,000 9,000
-----------
Total Corporate Bonds and Notes (Identified Cost-- $28,700) 34,175
- ----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 6.3%
Goldman, Sachs &Company
4.93%, dated 3/31/99, to be repurchased at $40,713 on 4/1/99
(Collateral: $43,279 Fannie Mae mortgage-backed securities,
6% due 2/1/29, value $42,170) 40,707 40,707
J.P. Morgan Securities, Inc.
4.95%, dated 3/31/99, to be repurchased at $40,713 on 4/1/99
(Collateral: $43,117 Freddie Mac mortgage-backed securities,
6% due 1/1/29, value $42,053) 40,708 40,708
Merrill Lynch & Co., Inc.
4.95%, dated 3/31/99, to be repurchased at $40,713 on 4/1/99
(Collateral: $41,076 Fannie Mae mortgage-backed securities,
7% due 4/1/13, value $42,162) 40,708 40,708
-----------
Total Repurchase Agreements (Identified Cost-- $122,123) 122,123
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.8% (Identified Cost-- $1,419,722) 1,937,614
Other Assets Less Liabilities-- (0.8)% (15,833)
-----------
Net assets consisting of:
Accumulated paid-in capital applicable to:
47,658 Primary shares outstanding $1,029,845
1,765 Navigator shares outstanding 37,933
Accumulated net operating loss (4)
Undistributed net realized gain on investments 336,115
Unrealized appreciation of investments 517,892
----------
Net assets-- 100.0% $1,921,781
==========
Net asset value per share:
Primary Class $38.82
======
Navigator Class $40.51
======
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing.
(B) Affiliated Companies--As defined in the Investment Company Act
of 1940, an "Affiliated Company" represents Fund ownership of
at least 5% of the outstanding voting securities of the issuer.
At March 31, 1999, the total market value of Affiliated
Companies was $447,580 and the identified cost was $552,431.
(C) Private placement and an illiquid security valued at fair value
under procedures adopted by the Board of Directors. This
security represents .11% of net assets.
(D) Rule 144a security--A security purchased pursuant to Rule 144a
under the Securities Act of 1933 which may not be resold
subject to that Rule except to qualified institutional buyers.
This security represents 1.3% of net assets.
See notes to financial statements.
18
<PAGE>
Statement of Net Assets
March 31, 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
Legg Mason Total Return Trust, Inc.
Shares/Par Value
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 93.0%
Aerospace/Defense -- 3.9%
Northrop Grumman Corporation 381 $ 22,824
----------
Automotive -- 6.6%
Ford Motor Company 200 11,350
General Motors Corporation 310 26,931
----------
38,281
----------
Banking -- 21.2%
Bank One Corporation 200 11,013
BankAmerica Corporation 227 16,049
Citigroup Inc. 300 19,162
Fleet Financial Group, Inc. 235 8,842
Lloyds TSB Group plc 2,544 38,488
The Chase Manhattan Corporation 360 29,272
----------
122,826
----------
Chemicals -- 2.0%
Millennium Chemicals Inc. 284 5,639
Olin Corporation 616 6,202
----------
11,841
----------
Computer Services and Systems -- 10.2%
International Business Machines Corporation 335 59,379
----------
Consumer Products -- 4.7%
Brunswick Corporation 679 12,934
Tupperware Corporation 796 14,328
----------
27,262
----------
Electric Utilities -- 5.5%
Edison International 785 17,466
Illinova Corporation 690 14,620
----------
32,086
----------
Finance -- 5.3%
The Bear Stearns Companies, Inc. 396 17,677
United Asset Management Corporation 583 13,195
----------
30,872
----------
</TABLE>
19
<PAGE>
Statement of Net Assets -- Continued
<TABLE>
<CAPTION>
Legg Mason Total Return Trust, Inc.--Continued
Shares/Par Value
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Food, Beverage and Tobacco -- 1.5%
Nabisco Holdings Corp. 209 $ 8,687
----------
Insurance -- 8.3%
American Financial Group Inc. 420 14,779
Enhance Financial Services Group, Inc. 786 17,872
IPC Holdings Limited 466 9,266
LaSalle Re Holdings Limited 416 6,135
----------
48,052
----------
Oil Refining andMarketing -- 2.0%
Unocal Corporation 315 11,596
----------
Real Estate -- 12.8%
Mid-America Apartment Communities, Inc. 655 14,001
National Golf Properties, Inc. 561 12,338
Nationwide Health Properties, Inc. 650 12,350
Patriot American Hospitality, Inc. 1,330 6,818
Regency Realty Corporation 578 10,834
Tanger Factory Outlet Centers, Inc. 524 10,029(B)
Walden Residential Properties, Inc. 450 7,931
----------
74,301
----------
Retail Sales -- 6.8%
J.C. Penney Company, Inc. 441 17,865
Toys "R"Us, Inc. 1,135 21,352(A)
----------
39,217
----------
Savings and Loan -- 2.2%
Washington Federal, Inc. 535 11,234
Washington Mutual, Inc. 40 1,635
----------
12,869
----------
Total Common Stocks and Equity Interests
(Identified Cost-- $431,045) 540,093
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 7.6%
Goldman, Sachs & Company
4.93%, dated 3/31/99, to be repurchased at $14,578 on 4/1/99
(Collateral: $14,567 Freddie Mac mortgage-backed securities,
7.50% due 9/1/10, value $15,109) $ 14,575 $ 14,575
J.P. Morgan Securities, Inc.
4.95%, dated 3/31/99, to be repurchased at $14,578 on 4/1/99
(Collateral: $15,438 Freddie Mac mortgage-backed securities,
6% due 1/1/29, value $15,057) 14,576 14,576
Merrill Lynch & Co., Inc.
4.95%, dated 3/31/99, to be repurchased at $14,578 on 4/1/99
(Collateral: $14,938 Freddie Mac mortgage-backed securities,
7% due 3/1/04, value $15,133) 14,576 14,576
--------
Total Repurchase Agreements (Identified Cost-- $43,727) 43,727
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.6% (Identified Cost-- $474,772) 583,820
Other Assets Less Liabilities-- (0.6)% (3,228)
--------
Net assets consisting of:
Accumulated paid-in capital applicable to:
26,812 Primary shares outstanding $433,458
718 Navigator shares outstanding 11,593
Undistributed net investment income 3,199
Undistributed net realized gain on investments
and foreign currency transactions 23,298
Unrealized appreciation of investments and
foreign currency translations 109,044
--------
Net assets --100.0% $580,592
========
Net asset value per share:
Primary Class $21.08
======
Navigator Class $21.27
======
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing.
(B) Affiliated Company--As defined in the Investment Company Act of
1940, an "Affiliated Company" represents Fund ownership of at
least 5% of the outstanding voting securities of the issuer. At
March 31, 1999, the total market value of Affiliated Companies was
$10,029 and the identified cost was $13,002.
See notes to financial statements.
21
<PAGE>
Statements of Operations
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended 3/31/99
------------------------------------------------------
Value Special Investment Total Return
Trust Trust Trust
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Dividends:
Affiliated companies $ 109 $ 4,649 $ 1,121
Other securities(A) 61,605 3,117 20,118
Interest 26,481 5,859 2,257
------------- -------- ---------
Total income 88,195 13,625 23,496
------------- -------- ---------
Expenses:
Investment advisory fee 44,995 11,609 4,953
Distribution and service fees 60,266 15,329 6,436
Transfer agent and shareholder servicing expense 2,405 900 382
Audit and legal fees 136 80 52
Custodian fee 976 356 199
Directors' fees 15 15 10
Registration fees 815 75 33
Reports to shareholders 543 236 95
Other expenses 176 52 21
------------- -------- ---------
110,327 28,652 12,181
Less expenses reimbursed (57) (46) --
------------- -------- ---------
Total expenses, net of reimbursement 110,270 28,606 12,181
------------- -------- ---------
Net Investment Income (Loss) (22,075) (14,981) 11,315
------------- -------- ---------
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on investments
and foreign currency transactions(B) 448,566 336,374 39,998
Change in unrealized appreciation (depreciation)
of investments and foreign currency translations 2,834,373 (48,661) (111,047)
------------- -------- ---------
Net Realized and Unrealized Gain (Loss) on Investments 3,282,939 287,713 (71,049)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting From Operations $3,260,864 $272,732 $ (59,734)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Net of foreign taxes withheld of $718, $58 and $212, respectively.
(B) Includes net realized gains of $6,931 for Special Investment Trust
on sale of shares of Affiliated Companies. Value Trust and Total
Return Trust did not sell any shares of Affiliated Companies
during the period.
See notes to financial statements.
22
<PAGE>
Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
Value Special Investment
Trust Trust
Years Ended Years Ended
3/31/99 3/31/98 3/31/99 3/31/98
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
Change in Net Assets:
Net investment income (loss) $ (22,075) $ (915) $ (14,981) $ (13,486)
Net realized gain (loss) on investments
and foreign currency transactions 448,566 265,457 336,374 141,560
Change in unrealized appreciation
(depreciation) of investments
and foreign currency translations 2,834,373 1,219,286 (48,661) 320,630
- -------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 3,260,864 1,483,828 272,732 448,704
Distributions to shareholders:
From net investment income:
Primary Class -- (1,871) -- --
Navigator Class -- (833) -- --
From net realized gain on investments:
Primary Class (150,596) (184,252) (116,290) (55,315)
Navigator Class (7,843) (6,674) (4,400) (2,378)
Change in net assets from Fund share transactions:
Primary Class 2,429,161 1,330,278 149,813 232,869
Navigator Class 390,271 49,445 1,291 5,656
- -------------------------------------------------------------------------------------------------------------------------
Change in net assets 5,921,857 2,669,921 303,146 629,536
Net Assets:
Beginning of year 4,990,073 2,320,152 1,618,635 989,099
- -------------------------------------------------------------------------------------------------------------------------
End of year $ 10,911,930 $ 4,990,073 $1,921,781 $1,618,635
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) $ (75) $ -- $ (4) $ --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total Return
Trust
Years Ended
3/31/99 3/31/98
- ----------------------------------------------------------------------------------------------
<S><C>
Change in Net Assets:
Net investment income (loss) $ 11,315 $ 11,268
Net realized gain (loss) on investments
and foreign currency transactions 39,998 35,393
Change in unrealized appreciation
(depreciation) of investments
and foreign currency translations (111,047) 134,822
- ----------------------------------------------------------------------------------------------
Change in net assets resulting
from operations (59,734) 181,483
Distributions to shareholders:
From net investment income:
Primary Class (11,139) (9,038)
Navigator Class (484) (356)
From net realized gain on investments:
Primary Class (34,968) (43,292)
Navigator Class (897) (1,205)
Change in net assets from Fund share transactions:
Primary Class (30,622) 195,828
Navigator Class 109 4,401
- ----------------------------------------------------------------------------------------------
Change in net assets (137,735) 327,821
Net Assets:
Beginning of year 718,327 390,506
- ----------------------------------------------------------------------------------------------
End of year $ 580,592 $718,327
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) $ 3,199 $ 3,525
- ----------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
23
<PAGE>
Financial Highlights
Contained below is per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data. This information has been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Investment Operations Distributions
---------------------------------------- -----------------------------
From
Net Asset Net Net Realized Total From Net
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on
of Year (Loss) Investments Operations Income Investments
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Value Trust
--Primary Class
Years Ended Mar. 31,
1999 $50.10 $(.18) $24.58 $24.40 $ -- $(1.41)
1998 34.11 (.02) 18.37 18.35 (.04) (2.32)
1997 26.99 .13 8.68 8.81 (.16) (1.53)
1996 20.21 .19 8.00 8.19 (.17) (1.24)
1995 18.50 .10 1.70 1.80 (.05) (.04)
Special Investment Trust
--Primary Class
Years Ended Mar. 31,
1999 $36.02 $(.32) $ 5.78 $ 5.46 $ -- $(2.66)
1998 26.55 (.31) 11.28 10.97 -- (1.50)
1997 25.09 (.23) 3.10 2.87 -- (1.41)
1996 19.96 -- 5.60 5.60 -- (.47)
1995 21.56 (.06) (1.31) (1.37) -- (.23)
Total Return Trust
--Primary Class
Years Ended Mar. 31,
1999 $24.63 $ .38 $(2.35) $(1.97) $(.38) $(1.20)
1998 19.39 .44 7.23 7.67 (.40) (2.03)
1997 16.45 .46 3.47 3.93 (.43) (.56)
1996 12.79 .48 3.69 4.17 (.51) --
1995 13.54 .33 (.19) .14 (.29) (.60)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Distributions Ratios/Supplemental Data
------------- ----------------------------------------------------------------
Net
Net Asset Investment Net Assets,
Value, Expenses Income (Loss) Portfolio End of
Total End of Total to Average to Average Turnover Year
Distributions Year Return Net Assets Net Assets Rate (in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
<S><C>
Value Trust
--Primary Class
Years Ended Mar. 31,
1999 $(1.41) $73.09 49.93% 1.69% (.4)% 19.3% $10,097,527
1998 (2.36) 50.10 55.34% 1.73% (.1)% 12.9% 4,810,409
1997 (1.69) 34.11 33.59% 1.77% .4% 10.5% 2,236,400
1996 (1.41) 26.99 42.09% 1.82% .8% 19.6% 1,450,774
1995 (.09) 20.21 9.77% 1.81% .5% 20.1% 986,325
Special Investment Trust
--Primary Class
Years Ended Mar. 31,
1999 $(2.66) $38.82 16.85% 1.84% (1.0)% 47.8% $ 1,850,289
1998 (1.50) 36.02 42.88% 1.86% (1.1)% 29.8% 1,555,336
1997 (1.41) 26.55 11.58% 1.92% (.9)% 29.2% 947,684
1996 (.47) 25.09 28.47% 1.96% -- 35.6% 792,240
1995 (.23) 19.96 (6.37)% 1.93% (.2)% 27.5% 612,093
Total Return Trust
--Primary Class
Years Ended Mar. 31,
1999 $(1.58) $21.08 (8.13)% 1.87% 1.7% 44.2% $ 565,317
1998 (2.43) 24.63 42.44% 1.88% 2.1% 20.6% 700,535
1997 (.99) 19.39 24.33% 1.93% 2.6% 38.4% 380,458
1996 (.51) 16.45 33.23% 1.95% 3.2% 34.7% 267,010
1995 (.89) 12.79 1.09% 1.93% 2.5% 61.9% 194,767
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
24
<PAGE>
Notes to Financial Statements
Value Trust
Special Investment Trust
Total Return Trust
(Amounts in Thousands)
- -------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Value Trust, Inc. ("Value Trust"), the Legg
Mason Special Investment Trust, Inc. ("Special Investment Trust")
and the Legg Mason Total Return Trust, Inc. ("Total Return Trust")
(each a "Fund") are registered under the Investment Company Act of
1940, as amended, each as an open-end, diversified investment
company.
Each Fund consists of two classes of shares: Primary Class,
offered since 1982 for Value Trust, and since 1985 for Special
Investment Trust and Total Return Trust; and Navigator Class,
offered to certain institutional investors since December 1, 1994,
for each Fund. Information about the Navigator Class is contained in
a separate report to its shareholders. The income and expenses of
each of these Funds are allocated proportionately to the two classes
of shares based on daily net assets, except for Rule 12b-1
distribution fees, which are charged only on Primary Class 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, or if no sales price is
available, at the mean between the latest bid and asked prices. Over
the counter securities are valued at the mean between the latest bid
and asked prices as furnished by dealers who make markets in such
securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair
value as determined by management and approved in good faith by the
Board of Directors. Fixed income securities with 60 days or less
remaining to maturity are valued using the amortized cost method,
which approximates current market value.
Foreign Currency Translation
The books and records of the Funds are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, assets and
liabilities at the closing daily rate of exchange,
and
(ii) purchases and sales of investment securities,
interest income and expenses at the rate of
exchange prevailing on the respective date of such
transactions.
The effect of changes in foreign exchange rates on realized
and unrealized security gains or losses is reflected as a component
of such gains or losses.
Investment Income and Distributions to Shareholders
Interest income and expenses are recorded on the accrual
basis. Bond premiums are amortized for financial reporting and
federal income tax purposes. Bond discounts, other than original
issue and zero-coupon bonds, are not amortized for financial
reporting and federal income tax purposes. Dividend income and
distributions to shareholders are allocated at the class level and
are recorded on the ex-dividend date. Dividends from net investment
income, if available, will be paid quarterly for Value Trust and
Total Return Trust, and annually for Special Investment Trust. Net
capital gain distributions, which are calculated at the Fund level,
are declared and paid after the end of the tax year in which the
gain is realized. Distributions are determined in accordance with
federal income tax regulations, which may differ from those
determined in accordance with generally accepted accounting
principles; accordingly, periodic reclassifications are made within
the Fund's capital accounts to reflect income and gains available
for distribution under federal income tax regulations.
25
<PAGE>
Notes to Financial Statements--Continued
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 March 31, 1999, receivables for securities
sold and payables for securities purchased for each of the Funds
were as follows:
Receivable for Payable for
Securities Sold Securities Purchased
- -----------------------------------------------------------------------------
Value Trust $13,180 $129,847
Special Investment Trust 8,530 22,789
Total Return Trust -- 3,539
Federal Income Taxes
No provision for federal income or excise taxes is required
since each Fund intends to continue to qualify as a regulated
investment company and distribute substantially 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:
For the year ended March 31, 1999, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds From Sales
- -------------------------------------------------------------------------
Value Trust $3,392,175 $1,226,334
Special Investment Trust 731,341 766,134
Total Return Trust 276,046 330,464
At March 31, 1999, cost, gross unrealized appreciation and
gross unrealized depreciation based on the cost of securities for
federal income tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Net Appreciation
Cost Appreciation (Depreciation) (Depreciation)
- ---------------------------------------------------------------------------------------------------------
<S><C>
Value Trust $5,836,827 $5,483,167 $(325,924) $5,157,243
Special Investment Trust 1,419,722 767,124 (249,232) 517,892
Total Return Trust 474,772 155,173 (46,125) 109,048
</TABLE>
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 Funds' 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 Funds' investment adviser, acting under the
supervision of their Board of Directors, reviews the value of the
collateral and the creditworthiness of those banks and dealers with
which the Funds enter into repurchase agreements to evaluate
potential risks.
26
<PAGE>
4. Transactions With Affiliates:
Each Fund has an investment advisory and management
agreement with Legg Mason Fund Adviser, Inc. ("LMFA"). Pursuant to
their respective agreements, LMFA provides the Funds with investment
advisory, management and administrative services for which each Fund
pays a fee, computed daily and payable monthly at annual rates of
each Fund's average daily net assets.
LMFA has agreed to waive indefinitely its fees in any month
to the extent Total Return Trust's expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) exceed during that
month an annual rate of 1.95% of average daily net assets for
Primary Shares. The Funds' agreements with LMFA provide that expense
reimbursements be made to Value Trust and Special Investment Trust
for audit fees and compensation of the Funds' independent directors.
The following chart shows the annual rate of advisory fees and audit
and director fee reimbursements for each Fund:
<TABLE>
<CAPTION>
Year Ended
March 31, 1999 At March 31, 1999
-------------- -----------------
Audit and
Advisory Asset Expense Director Fee Advisory
Fund Fee Breakpoint Limitation Reimbursement Fee Payable
- --------------------------------------------------------------------------------------------------------------------------------
<S><C>
Value Trust 1.00% $0-$100 million NA $57 $5,693
0.75% $100 million-$1 billion
0.65% in excess of $1 billion
Special Investment Trust same as above same as above NA 46 1,117
Total Return Trust 0.75% all assets 1.95% NA 384
</TABLE>
Legg Mason Wood Walker, Incorporated ("Legg Mason"), a
member of the New York Stock Exchange, serves as distributor of the
Funds. Legg Mason receives an annual distribution fee and an annual
service fee, based on each Fund's Primary Class's average daily net
assets, computed daily and payable monthly as follows:
<TABLE>
<CAPTION>
At March 31, 1999
- ---------------------------------------------------------------------------------------------
Distribution Service Distribution and Service
Fund Fee Fee Fees Payable
- ---------------------------------------------------------------------------------------------
<S><C>
Value Trust 0.70% 0.25% $7,537
Special Investment Trust 0.75% 0.25% 1,499
Total Return Trust 0.75% 0.25% 498
</TABLE>
Value Trust paid $5 in brokerage commissions to Legg Mason
for Fund security transactions for the year ended March 31, 1999.
Total Return Trust and Special Investment Trust paid no brokerage
commissions to Legg Mason for the year ended March 31, 1999.
Legg Mason also has an agreement with the Funds' transfer
agent to assist it with some of its duties. For this assistance,
Legg Mason was paid the following amounts by the transfer agent for
the year ended March 31, 1999: Value Trust, $750; Special Investment
Trust, $273; and Total Return Trust, $102.
LMFA and Legg Mason are corporate affiliates and wholly
owned subsidiaries of Legg Mason, Inc.
27
<PAGE>
Notes to Financial Statements--Continued
5. Line of Credit:
The Funds, along with certain other Legg Mason Funds,
participate in a $200 million line of credit ("Credit Agreement") to
be utilized as an emergency source of cash in the event of
unanticipated, large redemption requests by shareholders. Pursuant
to the Credit Agreement, each participating fund is liable only for
principal and interest payments related to borrowings made by that
Fund. Borrowings under the line of credit bear interest at
prevailing short-term interest rates. For the year ended March 31,
1999, the Funds had no borrowings under the line of credit.
6. Fund Share Transactions:
At March 31, 1999, there were 400,000, 100,000 and 50,000
shares authorized at $.001 par value for the Primary class of Value
Trust, Special Investment Trust and Total Return Trust,
respectively. Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------- ----------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S><C>
Value Trust
- --Primary Class
Year Ended March 31, 1999 64,387 $3,627,343 2,789 $143,657 (25,054) $(1,341,839) 42,122 $2,429,161
Year Ended March 31, 1998 42,311 1,841,372 4,360 179,702 (16,212) (690,796) 30,459 1,330,278
Special Investment Trust
- --Primary Class
Year Ended March 31, 1999 15,145 $ 485,457 3,628 $114,566 (14,290) $ (450,210) 4,483 $ 149,813
Year Ended March 31, 1998 13,850 441,297 1,933 54,702 (8,297) (263,130) 7,486 232,869
Total Return Trust
- --Primary Class
Year Ended March 31, 1999 5,844 $131,325 2,014 $ 44,666 (9,494) $ (206,613) (1,636) $ (30,622)
Year Ended March 31, 1998 9,633 216,730 2,451 50,878 (3,259) (71,780) 8,825 195,828
</TABLE>
28
<PAGE>
Report of Independent Accountants
<TABLE>
<S><C>
To the Board of Directors and Shareholders of Legg Mason Value Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Total Return Trust, Inc.:
</TABLE>
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Legg Mason Value Trust, Inc., Legg Mason Special Investment Trust, Inc., and
Legg Mason Total Return Trust, Inc. (hereafter referred to as the "Funds") at
March 31, 1999, and the results of each of their operations, the changes in each
of their net assets and the financial highlights for each of the fiscal periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
April 30, 1999
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Annual Report
March 31, 1999
Legg Mason
Value Trust, Inc.
Special Investment
Trust, Inc.
Total Return Trust, Inc.
Primary Class
[LEGG MASON LOGO HERE]
HOW TO INVEST(sm)
Investment Adviser
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
Raymond A. Mason, Chairman
John F. Curley, Jr., President
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
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
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-002
5/99
