<PAGE>
INVESTMENT ADVISER
Legg Mason Fund Adviser, Inc.
Baltimore, MD
BOARD OF DIRECTORS
Raymond A. Mason, Chairman
John F. Curley, Jr.
Richard G. Gilmore
Charles F. Haugh
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
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.
LEGG MASON WOOD WALKER, INCORPORATED
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
(recycle logo appears here) PRINTED ON RECYCLED PAPER
LMF-006
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
MARCH 31, 1995
THE
LEGG MASON
TOTAL
RETURN
TRUST, INC.
PRIMARY CLASS
PUTTING YOUR FUTURE FIRST
--Legg Mason logo appears here--<PAGE>
<PAGE>
TO OUR SHAREHOLDERS,
In the three months ended March 31, 1995, the Total Return Trust's net
asset value per share rose 5.3%, from $12.15 to $12.79. That gain compares
to total returns (appreciation plus reinvested dividends) of 9.7% and 5.9%
on Standard & Poor's 500 stock composite index and the Value Line index of
1700 stocks. In the twelve months ended March 31, the Trust's total return,
adversely affected by price declines in our holdings of several Mexican
stocks as discussed in our last report, was 1.1% compared to returns of
15.5% and 5.1% on the Standard & Poor and Value Line indices.
The Trust continues to invest primarily in dividend-paying common
stocks which we believe are undervalued. Our objective is to earn long-term
returns which preserve and increase the purchasing power of your investment
after taxes and inflation. While there are no certainties in investing, we
believe that ownership of a diversified portfolio of value stocks continues
to offer good prospects of achieving that objective on a long-term basis.
On the following pages, Bill Miller and Nancy T. Dennin, the Trust's
portfolio managers, comment on the investment outlook.
Coopers & Lybrand L.L.P., the Total Return Trust's independent
accountants, have completed their annual examination, and audited financial
statements for the fiscal year ended March 31, 1995 are included in this
report.
On June 1, 1995, federal regulations will change to require that
investors complete payment for purchases of mutual fund shares (as well as
other securities) within three business days, down from the current five
business days. Meeting the new payment deadline will be difficult (and in
many cases impossible) if an amount sufficient to cover purchases is not
already in your account when you decide to purchase additional shares.
Therefore, we encourage shareholders who have not already done so to
consider opening a Legg Mason money market fund account (or a "Credit
Interest Account" which pays interest on credit balances in your Legg Mason
brokerage account). Funds can then be moved easily from either account to
pay for future mutual fund purchases you may wish to make. Your Investment
Executive will be happy to make the necessary arrangements.
The Board of Directors has approved an ordinary income dividend of
$0.11 per share, payable on May 12 to shareholders of record on May 9. Most
shareholders will receive this dividend in the form of additional shares
credited to their accounts.
Sincerely,
(John F. Curley, Jr. signature appears here)
John F. Curley, Jr.
President
May 8, 1995
<PAGE>
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
Your fund's results for the three and twelve months are shown below with
comparable data for the leading market indices:
<TABLE>
<CAPTION>
Periods Ended March 31, 1995
Lipper
Total Growth &
Return Income S&P Dow
Trust Funds 500 Jones
<S> <C> <C> <C> <C>
3 Months 5.27 % 7.89% 9.73% 9.20%
1 Year 1.09 % 10.35% 15.54% 17.61%
Average Annual Return
1/1/91-3/31/95 14.70 % 13.57% 13.58% 14.70%
</TABLE>
Despite the difficult twelve month period, your fund's average annual return
since the beginning of 1991 has exceeded the return on the S&P 500 and the
Lipper Growth & Income Fund Index, and has matched the Dow Jones Industrial
Average results.
Successful investing requires a sound investment philosophy and the patience
and discipline to stay the course. We use a value-driven methodology in
selecting investments for your fund. Most of the time it delivers wonderful
results; occasionally, those results fall short of what is desirable or
expected, as happened in the last year. Despite periodic setbacks, we are
confident that assessing companies on the basis of value, not actual or
anticipated popularity, will deliver the best results for shareholders over the
longer term.
During the quarter, bonds continued their rally that started in November
1994. The 30-year bond ended the quarter at a 7.4% yield, compared to 7.9% on
December 31, 1994. Bonds have rallied because inflation remains remarkably well
controlled three years into the business expansion. The Consumer Price Index
rose at just a 3.2% annual rate in the first quarter. The Producer Price Index,
which measures inflationary pressures before they reach the consumer, was
unchanged in March, the latest sign that the economic expansion isn't producing
significantly higher levels of inflation. The Fed believes inflation is likely
to peak this year in the 3.5-4.0% range. If they are right, this would be the
twelfth year in the past fourteen years that inflation has been between two and
five percent.
The bond market's rise took valuation pressure off the equity market in the
quarter. However, the rise has been concentrated in large capitalization growth
names, principally Disney, McDonald's, Merck, Coca-Cola and PHILIP MORRIS.
In our opinion, the overall market is fairly valued after its sharp rise
from the lows reached last November. We continue to find companies with
attractive risk-adjusted return potential. As the economy slows we believe the
risk to the market is on the earnings side of the P/E equation. Companies that
disappoint will most likely see their stock come under pressure. We hope to take
advantage of any excessive price declines caused by the market's obsession with
near-term results.
A trend in the market that has gone generally unnoticed may be the most
important feature of the economic landscape. A broad array of U.S. corporations
has now entered a period of excess capital generation, estimated to approximate
$100 billion this year alone. There are four main uses for excess capital. A
company can grow internally, make an acquisition, raise its dividend or
repurchase securities.
Opportunities for internally generated growth appear to be limited. General
Electric recently announced a $5 billion share repurchase to take place over the
next two years. This suggests the company, one of the largest in the world, has
relatively limited opportunities to invest its excess cash generation in
projects that can generate returns above their cost of capital. The implications
of this are numerous.
First, companies generating excess capital will be increasingly interested,
and more aggressive, in making acquisitions. We are already seeing evidence of
this. Clark Equipment recently agreed to be acquired by Ingersoll-Rand for $1.5
billion, AT&T has offered to buy the 48% of Lin Broadcasting it doesn't already
own, and Fleet Financial is acquiring Shawmut Bank, to name a few. Foreign
corporations are also becoming more aggressive making acquisitions in the U.S.
because of the cheap dollar. The recently announced purchase of Kemper by Zurich
Insurance Group of Switzerland is only one example.
Second, managements that are reluctant to use their excess capital will come
under increasing
2
<PAGE>
<PAGE>
pressure to do so by their shareholders. Since the end of the quarter, two of
your fund's holdings have come under such pressure.
Michael Price, a well-known investor, announced that he controls 6.1% of
CHASE MANHATTAN BANK. Mr. Price has a reputation for forcing change to maximize
shareholder value, as evidenced most recently by his investment in Michigan
National, a bank in the process of being acquired by National Australia Bank.
Shortly after announcing his stake in CHASE, the bank raised its dividend 12.5%
and instituted a more aggressive cost cutting program.
On April 13th, CHRYSLER received a $55 per share takeover offer from its
biggest shareholder, Kirk Kerkorian. The offer represented a 40% premium over
the prior day's closing price. Proposed financing for the acquisition includes
the company's cash reserves, which Mr. Kerkorian considers to be excessive.
CHRYSLER has almost $20 per share of cash in excess of its total debt. We think
the chances of the takeover succeeding are slim, but we believe CHRYSLER will
become more aggressive in using its future free cash flow to the shareholders'
benefit.
Third, managements will be more aggressive in raising their dividends and
repurchasing stock. These two options are not mutually exclusive; managements
typically balance the two to optimize the return on the cash they expend. Many
market bears argue that the market is overvalued based on its dividend yield.
U.S. stocks are yielding less than 2.9% and have done so only two other
times -- in 1929 and in 1987. One thing missing from dividend valuation work is
that companies have been more aggressive buying in their stock than raising
their dividends. The simple dividend yield doesn't factor in share repurchases
as an alternative to, or complement of, dividend increases.
A major Wall Street firm recently concluded a study of 900 corporations and
found that over 200 had a significant reduction in shares outstanding in
1994 -- a total of over 30 billion versus 15 billion in 1993. That represents
about 25% of the level of cash dividends for these companies. In 1994 alone,
companies repurchased $100 billion of equities, net of all new equity issuance.
We sold our Mexican bank equities during the quarter and purchased one year
Mexican government notes, called cetes. These instruments were purchased at an
effective interest rate of 62% with the Mexican peso trading at 7.02 to the U.S.
dollar. We believed the risk/reward was attractive given the interest rate and
peso level. The peso has risen about 15% since our purchase. We continue to hold
TELEFONOS DE MEXICO as we believe the long-term prospects for the company are
quite favorable.
Our real estate investment trust (REIT) holdings continued to lag in the
quarter, not for fundamental reasons, but due to investor apathy. There is no
perceived near-term "catalyst" to move the stocks higher. As we have mentioned
in prior reports, there have been few periods since the 1950's when an investor
has had the opportunity to purchase stocks of quality companies with growing
dividends and higher current yields than the yield on the 30-year treasury bond.
This is one such period. The average yield on the fund's REIT holdings is 8.5%,
compared to 7.4% on the long bond. The yield difference between REITs and the
S&P 500 is the widest in history, another sign that REITs are cheap. We estimate
dividend growth to be about 5%, implying an attractive total return
near 14%.
As always, we appreciate your support and welcome your comments.
Nancy T. Dennin, CFA
Bill Miller, CFA
May 8, 1995
DJIA 4383.87
3
<PAGE>
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON TOTAL RETURN TRUST, INC.
TOTAL RETURN FOR ONE YEAR, FIVE YEARS AND LIFE OF FUND, AS OF MARCH 31, 1995
The returns shown below 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. 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.
The fund's total returns as of March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Cumulative Average Annual
Total Return Total Return
<S> <C> <C>
Primary Class:
One Year +1.09 % +1.09%
Five Years +56.57 +9.38
Life of Class(|) +99.17 +7.64
Navigator Class:
Life of Class(|)(|) +2.28 --
</TABLE>
(|) Primary Class inception-November 21, 1985.
(|)(|) Navigator Class inception-December 1, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS
While the fund had positive results, it underperformed the S&P 500
over the last twelve months. The fund's performance during this period
benefitted from its pharmaceutical holdings and several of its financial
equities. However, the fund's return compared to the S&P 500 was
negatively impacted by its real estate investment trust (REIT) holdings
and its Mexican equities. Mexican markets collapsed after the government
unexpectedly devalued the peso in December 1994. The S&P 500 does not
contain Mexican securities and was unaffected by this event.
The fund is primarily invested in securities with above-market
dividend yields and above-average dividend growth rates. As interest rates
moved higher over the last twelve months, many higher yielding securities,
such as REITs, underperformed. We remain quite constructive on the
long-term prospects for the REITs held in the fund.
The fund follows a value-driven approach emphasizing individual
securities analysis. Macroeconomic factors play a secondary role in the
analytical process and in portfolio construction. We believe assessing
companies on the basis of value, not actual or anticipated popularity,
will deliver the best results for shareholders over the longer term,
despite periodic setbacks.
4
<PAGE>
<PAGE>
SELECTED PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
Biggest gainers for the 1st quarter 1995*
<S> <C> <C>
1. Resource Mortgage Capital Inc. +41.9%
2. MBNA Corporation +24.1%
3. BankAmerica Corporation +22.2%
4. Williams Companies, Inc. +21.9%
5. The Bear Stearns Companies Inc. +20.3%
6. Torchmark Corporation +19.0%
7. Great Western Financial Corporation +17.2%
8. Baxter International Inc. +15.9%
Lloyds Bank P.L.C. +15.9%
10. Washington Federal Savings and Loan
Association +15.1%
Biggest laggers for the 1st quarter 1995*
<S> <C> <C>
1. The Leslie Fay Companies, Inc. -63.6%
2. Telefonos de Mexico S.A. ADR -30.5%
3. Chrysler Corporation -14.5%
4. Summit Properties, Inc. -14.3%
5. National Golf Properties, Inc. -10.7%
6. DeBartolo Realty Corporation -5.8%
7. Bankers Trust New York Corporation -5.6%
8. Chelsea GCA Realty, Inc. -5.0%
9. Irvine Apartment Communities, Inc. -4.6%
10. Regency Realty Corporation -4.5%
</TABLE>
* SECURITIES HELD FOR THE ENTIRE QUARTER.
PORTFOLIO CHANGES
<TABLE>
<CAPTION>
Securities Added
<S> <C>
Grupo Mexicano de Desarrollo S.A. ADR
8.25% 2-17-01
Masco Corporation
Mexican Cetes
6.0% 2-29-96
Sears, Roebuck and Co.
Stratosphere Corporation
Guaranteed 1st Mortgage Note
14.25% 5-15-02
Witco Corporation
Securities Sold
Grupo Financiero Bancomer S.A. de C.V. ADS
Grupo Financiero Serfin S.A. de C.V. ADR
Post Properties, Inc.
Property Trust of America
Schering-Plough Corporation
</TABLE>
Performance Comparison of a $10,000 Investment as of March 31, 1995
(graph appears here--plot points listed below)
<TABLE>
<CAPTION>
Years ended March 31,
11/21/85 1986* 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return Trust Primary Class 10,000 10,780 11,884 10,675 12,293 12,721 12,715 15,715 18,839 19,701 19,917
Standard & Poor's 500 Stock Composite
Index(1) 10,000 11,955 15,089 13,840 16,340 19,490 22,254 24,683 28,421 28,825 33,595
Value Line Geometric Average(2) 10,000 11,823 13,511 11,832 13,098 13,408 13,450 15,077 16,905 17,676 18,581
</TABLE>
(dagger) Class Inception--November 21, 1985.
* For the period November 21, 1985 through March 31, 1986.
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
5
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON TOTAL RETURN TRUST, INC.
MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
(Amounts in Thousands) Shares Value
<CAPTION>
COMMON STOCKS AND EQUITY INTERESTS -- 80.9%
Apparel -- 0.1%
The Leslie Fay Companies, Inc. 507 $ 127*
Automotive -- 3.3%
Chrysler Corporation 157 6,574
Banking -- 12.4%
BankAmerica Corporation 122 5,883
Bankers Trust New York
Corporation 108 5,643
Lloyds Bank P.L.C. 731 7,321
The Chase Manhattan Corporation 165 5,878
24,725
Chemicals -- 1.9%
Witco Corporation 131 3,863
Computer Services and Systems -- 3.1%
International Business Machines
Corporation 75 6,141
Construction Materials -- 2.8%
Masco Corporation 200 5,525
Finance -- 12.4%
Federal National Mortgage
Association 88 7,161
MBNA Corporation 229 6,641
Resource Mortgage Capital Inc. 272 4,148
The Bear Stearns Companies Inc. 366 6,764
24,714
Food, Beverage and Tobacco --6.5%
PepsiCo, Inc. 165 6,435
Philip Morris Companies Inc. 100 6,525
12,960
Gas and Pipeline Utilities --2.6%
Williams Companies, Inc. 170 5,206
Health Care -- 2.1%
Baxter International Inc. 130 4,257
Insurance -- 4.9%
Enhance Financial Services Group,
Inc. 283 4,813
Torchmark Corporation 119 4,955
9,768
Oil Services -- 1.5%
Ultramar Corporation 115 2,990
Pharmaceuticals -- 1.5%
American Home Products
Corporation 42 2,993
Real Estate -- 12.3%
Chelsea GCA Realty, Inc. 38 $ 970
Columbus Realty Trust 100 1,875
DeBartolo Realty Corporation 200 2,825
Irvine Apartment Communities,
Inc. 115 1,797
National Golf Properties, Inc. 344 6,788
Nationwide Health Properties,
Inc. 70 2,581
Regency Realty Corporation 122 1,960
Summit Properties, Inc. 180 2,970
Walden Residential Properties,
Inc. 150 2,831
24,597
Retail Sales -- 3.2%
Bradlees, Inc. 226 2,512
Kmart Corporation 205 2,819
Sears, Roebuck and Co. 20 1,067
6,398
Savings and Loan -- 8.0%
Great Western Financial
Corporation 180 3,375
Standard Federal Bank 247 6,638
Washington Federal Savings and
Loan Association 300 6,010
16,023
Telecommunications -- 2.3%
Telefonos de Mexico S.A. ADR 162 4,617
Total Common Stocks and Equity
Interests
(Identified Cost -- $152,493) 161,478
PREFERRED EQUITY REDEMPTION CUMULATIVE STOCK -- 3.1%
RJR Nabisco Holdings Corp.
Series C Depositary Shares
(Identified Cost -- $6,430) 975 6,216
Principal
Amount
CORPORATE BONDS -- 5.3%
Grupo Mexicano de Desarrollo
S.A. ADR
8.25% 2-17-01 $ 5,000 1,225
Harrah's Jazz Company
1st Mortgage Note
14.25% 11-15-01 3,925 4,200
6
<PAGE>
CORPORATE BONDS -- Continued
Stratosphere Corporation
Guaranteed 1st Mortgage Note
14.25% 5-15-02 $ 5,000 $ 5,100
Total Corporate Bonds
(Identified Cost -- $10,700) 10,525
U.S. GOVERNMENT OBLIGATION -- 3.2%
United States Treasury Bond
7.25% 5-15-16
(Identified Cost -- $6,165) 6,500 6,285
SHORT-TERM INVESTMENTS -- 6.7%
Sovereign Obligation -- 3.1%
Mexican Cetes
6.0% 2-29-96 mxp 65,000 6,129
Repurchase Agreement -- 3.6%
Prudential Securities, Inc.
6.3% dated 3-31-95, to be
repurchased at $7,319 on
4-3-95 (Collateral: $8,215
Federal National Mortgage
Association Mortgage-backed
securities, 7.5% due 3-1-22,
value $7,508) $ 7,315 7,315
Total Short-term Investments
(Identified Cost -- $13,283) 13,444
Total Investments -- 99.2%
(Identified Cost -- $189,071) 197,948
Other Assets Less Liabilities -- 0.8% 1,642
$199,590
(Amounts in Thousands)
Net Assets Consisting of:
Accumulated paid-in capital
applicable to:
15,230 Primary Class shares
outstanding $ 186,141
376 Navigator Class shares
outstanding 4,809
Undistributed net investment
income 4,419
Distributions in excess of net
realized gain on investments (4,662)
Unrealized appreciation of
investments 8,883
NET ASSETS -- 100.0% $199,590
NET ASSET VALUE PER SHARE:
PRIMARY CLASS $12.79
NAVIGATOR CLASS $12.83
</TABLE>
* NON-INCOME PRODUCING.
MXP MEXICAN PESO (NEW)
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON TOTAL RETURN TRUST, INC.
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $50) $ 7,161
Interest 1,706
Total investment income $ 8,867
EXPENSES:
Investment advisory fee 1,502
Distribution and service fees 1,964
Transfer agent and shareholder servicing expense 149
Custodian fee 86
Reports to shareholders 55
Legal and audit fees 37
Registration fees 27
Directors' fees 10
Other expenses 11
Total expenses 3,841
NET INVESTMENT INCOME 5,026
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Realized loss on investments (1,890)
Decrease in unrealized appreciation of investments (1,746)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (3,636)
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,390
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON TOTAL RETURN TRUST, INC.
<TABLE>
<CAPTION>
For the Years Ended March 31,
(Amounts in Thousands) 1995 1994
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 5,026 $ 4,371
Net realized gain (loss) on investments (1,890) 6,894
Decrease in unrealized appreciation of investments (1,746) (4,873)
Increase in net assets resulting from operations 1,390 6,392
Net equalization credits 428 732
Distributions to shareholders from:
Net investment income:
Primary Class (4,366) (3,772)
Navigator Class (22) --
Net realized gain on investments:
Primary Class (8,620) (3,829)
Navigator Class (61) --
Increase in net assets from Fund share transactions:
Primary Class 21,748 45,727
Navigator Class 4,809 --
Increase in net assets 15,306 45,250
NET ASSETS:
Beginning of year 184,284 139,034
End of year (including undistributed net investment income of $4,419 and
$3,381, respectively) $199,590 $184,284
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON TOTAL RETURN 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>
Navigator Primary Class
Class For the Years Ended March 31,
1995* 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.66 $13.54 $13.61 $11.64 $9.64 $10.03
Net investment income 0.15 0.33 0.36 0.39(1) 0.34 0.28
Net realized and unrealized gain (loss) on
investments and options 0.25 (0.19) 0.24 1.89 1.91 (0.31)
Total from investment operations 0.40 0.14 0.60 2.28 2.25 (0.03)
Distributions to shareholders from:
Net investment income (0.06) (0.29) (0.33) (0.31) (0.25) (0.29)
Net realized gain on investments (0.17) (0.60) (0.34) -- -- (0.07)
Net asset value, end of period $12.83 $12.79 $13.54 $13.61 $11.64 $9.64
Total return 2.28%(3) 1.09% 4.57% 19.88% 23.59% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.86%(2) 1.93% 1.94% 1.95%(1) 2.34% 2.50%
Net investment income 3.6%(2) 2.5% 2.7% 3.1%(1) 3.1% 3.1%
Portfolio turnover rate 61.9% 61.9% 46.6% 40.5% 38.4% 62.1%
Net assets, end of period (in thousands) $ 4,823 $194,767 $184,284 $139,034 $52,360 $22,822
</TABLE>
* FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF NAVIGATOR CLASS) TO
MARCH 31, 1995.
(1) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF A VOLUNTARY EXPENSE
LIMITATION OF 1.95% FROM NOVEMBER 1, 1992 UNTIL MARCH 31, 1995.
(2) ANNUALIZED.
(3) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON TOTAL RETURN TRUST, INC.
(Amounts in Thousands)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Total Return 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 1985, and Navigator Class, offered to certain institutional
investors since December 1, 1994. Expenses of the Fund are allocated
proportionately to the two classes of shares except for 12b-1 distribution
fees, which are charged only on Primary shares, and transfer agent and
shareholder servicing expenses, which are determined separately for each
class.
Security Valuation
Securities traded on national securities exchanges are valued at the
last quoted sales price. Over-the-counter securities, and listed
securities for which no sales price is available are valued at the mean
between the latest bid and asked prices. Short-term securities are valued
at cost which, when combined with accrued interest receivable,
approximates current value.
Dividends and Distributions to Shareholders
Net investment income for dividend purposes consists of dividends and
interest earned, less expenses. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis. Net capital gain distributions
are declared and paid after the end of the tax year in which the gains are
realized.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in
the possession of the Fund's custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders. The Fund has
designated $4,434 as long-term capital gain distributions paid for the
year ended March 31, 1995.
Equalization
The Fund follows the accounting 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 so that income
per share available for distribution is not affected by sales or
redemptions of shares.
2. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended March 31, 1995 (excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $ 133,218
Proceeds from sales 115,487
</TABLE>
At March 31, 1995, the cost of securities for federal income tax
purposes was $189,071. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $20,162
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $11,285.
11
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON TOTAL RETURN TRUST, INC.
(Amounts in Thousands)
3. FUND SHARE TRANSACTIONS:
At March 31, 1995 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, 367 shares held in Legg Mason Profit Sharing Plan
accounts, with a value of $4,686, were transferred from Primary Class to
Navigator Class. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1995 1994
Primary Class Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 3,969 $ 51,355 5,474 $ 74,228
Reinvestment of
distributions 961 12,173 526 6,955
Repurchased (3,306) (41,780) (2,612) (35,456)
Net increase 1,624 $ 21,748 3,388 $ 45,727
</TABLE>
<TABLE>
<CAPTION>
December 1, 1994(|)
to
March 31, 1995
Navigator Class Shares Amount
<S> <C> <C>
Sold 385 $4,921
Reinvestment of distributions 7 83
Repurchased ( 16) (195)
Net increase 376 $4,809
</TABLE>
(|) COMMENCEMENT OF NAVIGATOR CLASS.
4. TRANSACTIONS WITH AFFILIATES:
The Fund has an investment advisory and management agreement with Legg
Mason Fund Adviser, Inc. ("Adviser"), a corporate affiliate of Legg Mason
Wood Walker, Incorporated ("Legg Mason"), a member of the New York Stock
Exchange and the distributor for the Fund. Under this agreement, the
Adviser provides the Fund with investment advisory, management and
administrative services for which the Fund pays a fee at an annual rate of
0.75% of average daily net assets, calculated daily and payable monthly.
At March 31, 1995, $126 was due to the Adviser.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.75% and an annual service fee of 0.25% of the
Primary Class' average daily net assets, calculated daily and payable
monthly. At March 31, 1995, $164 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 $53 by the
transfer agent for the year ended March 31, 1995. No brokerage commissions
were paid to Legg Mason or its affiliates during the year ended March 31,
1995.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF LEGG MASON TOTAL RETURN TRUST, INC.:
We have audited the accompanying statement of net assets of the Legg
Mason Total Return Trust, Inc. as of March 31, 1995, 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, 1995, 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 Total Return Trust, Inc. as of March 31, 1995,
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 28, 1995
13
