Annual Report
March 31, 1999
Legg Mason
Value Trust, Inc.
Special Investment
Trust, Inc.
Total Return Trust, Inc.
Navigator Class
LEGG
MASON
LOGO
HOW TO INVEST (SM)
<PAGE>
To Our Shareholders,
The following table summarizes key statistics for the Navigator Class of
shares of the Legg Mason Value Trust, Special Investment Trust and Total Return
Trust, as of March 31, 1999:
<TABLE>
<CAPTION>
3-Month 12-Month
Total Return(1) Total Return(1)
-------------- --------------
<S> <C> <C>
Value Trust +19.0% +51.3%
Growth Funds(2) +4.4% +13.5%
Standard & Poor's 500 Composite Index +5.0% +18.5%
Special Investment Trust +6.1% +18.0%
Mid-Cap Funds(3) -.3% +.2%
Russell 2000 Index -5.4% -16.3%
Total Return Trust -2.3% -7.2%
Growth and Income Funds(4) +1.8% +5.5%
</TABLE>
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 +6.3% 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.
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 monitoring the Year 2000 efforts of our vendors, and will perform
tests with our critical vendors
- -----------
(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>
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 YEAR 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.
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. Information about the Primary Class, offered to
retail investors, is contained in a separate report to its shareholders.
Average annual total returns as of March 31, 1999, were as follows:
<TABLE>
<CAPTION>
Value Special Investment Total Return Value Line S&P 500 Stock
Trust Trust Trust Index Index
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Annual Total Return
Navigator Class:
One Year +51.3% +18.0% -7.2% -18.1% +18.5%
Life of Class(A) +44.8% +24.9% +21.3% +9.7% +29.8%
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Commencement of sale of Navigator Class for each Fund--December 1, 1994.
</FN>
</TABLE>
Performance Comparison of a $50,000 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 $50,000 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
administrative expenses or transaction costs associated with buying and
selling securities in the index. Both the Legg Mason Funds' results and
the indices' results assume reinvestment of all dividends and
distributions.
8
<PAGE>
Value Trust--Navigator Class
Cumulative Average Annual
Total Return Total Return
- --------------------------------------------------
One Year +51.33% +51.33%
Life of Class(dagger) +397.26 +44.78
- --------------------------------------------------
(dagger) Inception Date -- December 1, 1994
GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Value Trust Navigator Class Standard & Poor's 500 Stock Index(1) Value Line Index(2)
<S> <C> <C> <C>
12/1/94 $50,000 $50,000 $50,000
3/31/95 54,053 56,265 53,695
3/31/96 77,583 74,325 63,430
3/31/97 104,712 89,060 68,180
3/31/98 164,295 131,810 91,925
3/31/99 248,629 156,142 75,259
<FN>
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
</FN>
</TABLE>
---------------------------------------------------------
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--Navigator Class
Cumulative Average Annual
Total Return Total Return
- ------------------------------------------------------
One Year +18.01% +18.01%
Life of Class(dagger) +161.67 +24.85
- ------------------------------------------------------
(dagger) Inception Date -- December 1, 1994
GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Special Investment Trust Navigator Class Standard & Poor's 500 Stock Index(1) Value Line Index (2)
<S> <C> <C> <C>
12/1/94 $50,000 $50,000 $50,000
3/31/95 52,407 56,265 53,695
3/31/96 68,049 74,325 63,430
3/31/97 76,766 89,060 68,180
3/31/98 110,868 131,810 91,925
3/31/99 130,835 156,142 75,259
<FN>
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
</FN>
</TABLE>
------------------------------------------------------------
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--Navigator Class
Cumulative Average Annual
Total Return Total Return
- --------------------------------------------------
One Year -7.18% -7.18%
Life of Class(dagger) +131.29 +21.34
- --------------------------------------------------
(dagger) Inception Date -- December 1, 1994
GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Total Return Trust Navigator Class Standard & Poor's 500 Stock Index (1) Value Line Index (2)
<S> <C> <C> <C>
12/1/94 $50,000 $50,000 $50,000
3/31/95 51,261 56,265 53,695
3/31/96 68,870 74,325 63,430
3/31/97 86,551 89,060 68,180
3/31/98 124,583 131,810 91,925
3/31/99 115,638 156,142 75,259
<FN>
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
</FN>
</TABLE>
----------------------------------------------------
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)
Legg Mason Value Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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> <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 andServices -- 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
LEGG MASON VALUE TRUST, INC.--CONTINUED
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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> <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
======
- -------------------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
See notes to financial statements.
15
<PAGE>
Statement of Net Assets
March 31, 1999
(Amounts in Thousands)
Legg Mason Special Investment Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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> <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
LEGG MASON SPECIAL INVESTMENT TRUST, INC.--CONTINUED
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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
======
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
See notes to financial statements.
18
<PAGE>
Statement of Net Assets
March 31, 1999
(Amounts in Thousands)
Legg Mason Total Return Trust, Inc.
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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
LEGG MASON TOTAL RETURN TRUST, INC.--CONTINUED
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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> <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
======
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
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> <C> <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)
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
See notes to financial statements.
22
<PAGE>
Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
Value Special Investment Total Return
Trust Trust Trust
------------------- ------------------- --------------------
Years Ended Years Ended Years Ended
3/31/99 3/31/98 3/31/99 3/31/98 3/31/99 3/31/98
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in Net Assets:
Net investment income (loss) $ (22,075) $ (915) $(14,981) $(13,486) $ 11,315 $ 11,268
Net realized gain (loss) on investments
and foreign currency transactions 448,566 265,457 336,374 141,560 39,998 35,393
Change in unrealized appreciation
(depreciation) of investments
and foreign currency translations 2,834,373 1,219,286 (48,661) 320,630 (111,047) 134,822
- -------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 3,260,864 1,483,828 272,732 448,704 (59,734) 181,483
Distributions to shareholders:
From net investment income:
Primary Class -- (1,871) -- -- (11,139) (9,038)
Navigator Class -- (833) -- -- (484) (356)
From net realized gain on investments:
Primary Class (150,596) (184,252) (116,290) (55,315) (34,968) (43,292)
Navigator Class (7,843) (6,674) (4,400) (2,378) (897) (1,205)
Change in net assets from Fund share transactions
Primary Class 2,429,161 1,330,278 149,813 232,869 (30,622) 195,828
Navigator Class 390,271 49,445 1,291 5,656 109 4,401
- -------------------------------------------------------------------------------------------------------------------------
Change in net assets 5,921,857 2,669,921 303,146 629,536 (137,735) 327,821
Net Assets:
Beginning of year 4,990,073 2,320,152 1,618,635 989,099 718,327 390,506
- -------------------------------------------------------------------------------------------------------------------------
End of year $10,911,930 $4,990,073 $1,921,781 $1,618,635 $580,592 $718,327
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) $ (75) $ -- $ (4) $ -- $ 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 Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Investment Gain on Total End of
of Year (Loss) Investments Operations Income Investments Distributions Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Trust
--Navigator Class
Years Ended Mar. 31,
1999 $50.57 $ .20 $25.13 $25.33 $ -- $(1.41) $(1.41) $74.49
1998 34.30 .35 18.55 18.90 (.31) (2.32) (2.63) 50.57
1997 27.08 .41 8.75 9.16 (.41) (1.53) (1.94) 34.30
1996 20.27 .43 8.02 8.45 (.40) (1.24) (1.64) 27.08
1995(A) 18.76 .12 1.40 1.52 (.01) -- (.01) 20.27
Special Investment Trust
--Navigator Class
Years Ended Mar. 31,
1999 $37.12 $ .03 $ 6.02 $ 6.05 $ -- $(2.66) $(2.66) $40.51
1998 27.04 -- 11.58 11.58 -- (1.50) (1.50) 37.12
1997 25.26 .02 3.17 3.19 -- (1.41) (1.41) 27.04
1996 20.03 .09 5.78 5.87 (.17) (.47) (.64) 25.26
1995(A) 19.11 .07 .85 .92 -- -- -- 20.03
Total Return Trust
--Navigator Class
Years Ended Mar. 31,
1999 $24.87 $.61 $(2.36) $(1.75) $(.65) $(1.20) $(1.85) $21.27
1998 19.53 .66 7.29 7.95 (.58) (2.03) (2.61) 24.87
1997 16.52 .65 3.48 4.13 (.56) (.56) (1.12) 19.53
1996 12.83 .62 3.72 4.34 (.65) -- (.65) 16.52
1995(A) 12.66 .15 .25 .40 (.06) (.17) (.23) 12.83
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------
Net
Investment Net Assets,
Expenses Income (Loss) Portfolio End of
Total to Average to Average Turnover Year
Return Net Assets Net Assets Rate (in thousands)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Value Trust
--Navigator Class
Years Ended Mar. 31,
1999 51.33% .72% .6% 19.3% $ 814,403
1998 56.90% .73% .9% 12.9% 179,664
1997 34.97% .77% 1.4% 10.5% 83,752
1996 43.53% .82% 1.8% 19.6% 52,332
1995(A) 8.11%(B) .82%(C) 1.8%(C) 20.1%(C) 36,519
Special Investment Trust
--Navigator Class
Years Ended Mar. 31,
1999 18.01% .78% .1% 47.8% $ 71,492
1998 44.42% .80% -- 29.8% 63,299
1997 12.81% .85% .1% 29.2% 41,415
1996 29.85% .88% 1.0% 35.6% 35,731
1995(A) 4.81%(B) .90%(C) 1.0%(C) 27.5%(C) 26,123
Total Return Trust
--Navigator Class
Years Ended Mar. 31,
1999 (7.18)% .82% 2.7% 44.2% $ 15,275
1998 43.94% .83% 3.1% 20.6% 17,792
1997 25.67% .86% 3.7% 38.4% 10,048
1996 34.67% .94% 4.2% 34.7% 7,058
1995(A) 2.28%(B) .86%(C) 3.6%(C) 61.9%(C) 4,823
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(A) For the period December 1, 1994 (commencement of sale of Navigator Class
shares) to March 31, 1995.
(B) Not annualized.
(C) Annualized.
</FN>
</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 Primary Class, offered to retail investors, 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> <C> <C> <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 0.95% of average daily net assets for Navigator shares and 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 rates 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> <C> <C> <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 .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> <C> <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 100,000 shares authorized at $.001 par
value for the Navigator class of Value Trust. The Navigator class of
Special Investment Trust and Total Return Trust each have 50,000 shares
authorized at $.001 par value.
Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
------------------ ------------------ ------------------ ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value Trust
--Navigator Class
Year Ended March 31, 1999 8,759 $469,123 133 $7,050 (1,512) $(85,902) 7,380 $390,271
Year Ended March 31, 1998 1,680 74,966 150 6,238 (719) (31,759) 1,111 49,445
Special Investment Trust
--Navigator Class
Year Ended March 31, 1999 403 $13,258 133 $4,362 (476) $(16,329) 60 $1,291
Year Ended March 31, 1998 587 19,039 81 2,349 (494) (15,732) 174 5,656
Total Return Trust
--Navigator Class
Year Ended March 31, 1999 172 $3,717 61 $1,369 (230) $(4,977) 3 $109
Year Ended March 31, 1998 265 5,997 75 1,559 (140) (3,155) 200 4,401
</TABLE>
28
<PAGE>
Report of Independent Accountants
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.:
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
<PAGE>
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<PAGE>
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<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
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
