<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-009
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
MARCH 31, 1995
THE
LEGG MASON
SPECIAL
INVESTMENT
TRUST, INC.
PRIMARY CLASS
PUTTING YOUR FUTURE FIRST
--Legg Mason logo appears here--<PAGE>
<PAGE>
TO OUR SHAREHOLDERS,
The Special Investment Trust's net asset value per share rose 4.9%,
from $19.03 to $19.96, in the quarter ended March 31, 1995. 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 prior declines in our holdings of
several Mexican stocks as discussed in our last report, was -6.4% compared
to returns of 15.5% and 5.1% on the Standard & Poor and Value Line indices.
After outperforming the Standard & Poor's index in each of the six
calendar years through December 31, 1993, the Trust underperformed that
index in 1994 and in the first quarter of 1995. This reinforces a point
that Bill Miller, the Trust's portfolio manager, has made frequently in
past reports: while we are optimistic that our diversified portfolio of
value stocks will continue to earn attractive LONG-TERM returns for
shareholders, we are certain to experience market reversals and periods of
underperformance as we work toward that goal.
The Trust continues to invest primarily in common stocks of small and
medium-sized companies which, based on our research and analysis, appear to
be undervalued in relation to their earnings, book value and/or future
prospects. We believe that buying such stocks when they are out-of-favor,
having the patience to wait until their value is recognized by others, and
being willing to sell when others become enthusiastic buyers, should
continue to produce favorable LONG-TERM investment results.
Coopers & Lybrand L.L.P., the Special Investment 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 a long-term capital gain
distribution of $0.134 per share, payable on May 12 to shareholders of
record on May 9. Most shareholders will receive this distribution in the
form of additional shares credited to their accounts.
Sincerely,
(signature of John F. Curley, Jr. appears here)
John F. Curley, Jr.
President
May 8, 1995
<PAGE>
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
During the first quarter we began to climb out of the hole we dug for
ourselves last year. The fund rose 4.89%, well below the increases posted by the
Dow, up 9.2%, and the S&P 500, up 9.73%. Our results were moderately ahead of
the Russell 2000, the index most commonly used to track the performance of
smaller companies, which gained 4.69%.
As these numbers indicate, the quarter's winners were the large companies,
chiefly the visible growth stocks, along with a few restructuring candidates.
The Dow's growth winners included McDonald's (+17%), Disney (+16%), Philip
Morris (+14%), and Merck (+12%), while longtime Dow dogs Woolworth (+23%), and
Westinghouse (+15%) attracted some fans of their new managements.
We were punished again by our Mexican holdings, the source of so much misery
last year. Longtime shareholders will not be surprised to learn that we again
threw good money after bad, adding substantially to a couple of our positions at
prices not far from the lows. The situation in Mexico appears to be stabilizing.
Stocks have begun to rebound, interest rates are modestly off their highs, and
the currency is up about 15% in the past few weeks. The economy is still in
recession, but the balance of trade has moved into surplus and we expect things
to improve as the year progresses.
Our casino holdings, the other source of pain last year, came to life in the
quarter and helped our results significantly. CIRCUS CIRCUS and MIRAGE both
advanced strongly, as did our LADY LUCK bonds, which we bought when we sold LADY
LUCK common last year. HOLLYWOOD PARK also rebounded; we bought about 1 million
more shares of that company late last year and early in 1995. Its casino
operations are improving and we believe this well-capitalized, real estate-rich
company has fine long-term prospects.
Among the names dropping in the quarter were HOME SHOPPING NETWORK (-21%)
and JOHN ALDEN (-36%), both large positions. The latter fell on the last day of
the quarter, knocking over 1% off our quarterly return on that one day. We have
added to our holdings in both companies and consider them both excellent values.
HOME SHOPPING we estimate is worth well over double the current price, while
JOHN ALDEN, an insurance company with a solid long-term record, sells at 6x our
estimate of this year's earnings and only modestly above book value. The market
thought this $18 stock was worth $40 less than 12 months ago.
Some observers have categorized this as the surprise bull market of 1995,
since it arrived without any evident catalyst and followed a particularly
difficult fourth quarter of 1994. It would be churlish and perhaps too cynical
to note that the first half of 1987 constituted a strongly bullish period as
well, but that year is not characterized by those six months. It is the events
of October that now best describe the dominant features of 1987's investment
landscape. The felt need to characterize and assess the market, the economy,
stocks, company results or strategies in ever more frequent intervals is an
unfortunate by-product of our information saturated age.
The half-life of market commentary is inversely proportional to its
frequency. The accuracy of one's characterization of a landscape is likely to
grow the more time one has to peruse it and to shrink as the frequency of
requests for its interim description grows. Shorter time horizons, shorter
attention spans, greater demand for information, and less patience seem to be an
inevitable consequence of our increasing ability to collect, transmit, and
access data. Reporting, analyzing, and commenting on business and markets has
exploded in the past 20 years, both on Wall Street and on Main Street. In
addition to a plethora of new business programs on the networks and PBS, CNBC
provides real time commentary and analysis on markets all day long.
The number of analysts employed by brokerage firms, banks, insurance
companies, and money managers continues to grow. Almost as many people sit for
the CFA exam (the securities analysts' version of the CPA) each year as have
earned that designation over its entire history.
We have not materially added to the number of firms that supply us with
research in years, yet
2
<PAGE>
<PAGE>
the cascade of reports, faxes, and analytic detritus of all types now occupies
one of our staff almost full time just in opening, sorting, and distributing it.
This is not progress, and we are exploring ways to deal with this consequence of
the perceived need for instant and voluminous commentary on virtually every news
item on the Dow tape.
We write these letters every 90 days, and comment on our results and
expectations. The papers print our results every day, and many of them contain
ratings and rankings of mutual funds covering one week and four week periods. We
have lost count of the number of publications that write about, cover, assess,
and purport to analyze mutual funds, classifying them by ever finer gradations
of category, style, asset group, size, and geographic orientation and slicing
their results into about as many time periods as their database can muster.
It is far from clear that this information explosion has led to better
decisions about investing. It is quite clear it has led to more decisions, as
the turnover rate of stocks and bonds held in funds and the capital flows among
funds attests. There is evidence that the pressure to react to new information
may be harmful, quite apart from any transaction costs that might result from
changing one's mind about a stock, a fund, or the market.
Professor Richard Thaler, now at the University of Chicago, has studied what
the academics call the equity premium puzzle: a dollar invested in stocks has
returned, after inflation, about 7% per year on average for more than 68 years,
while a dollar invested in bonds has returned less than 1%. The puzzle is why do
any long-term investors own bonds? Not only do they own bonds, investors
typically have a greater percentage of their assets invested in bonds than in
stocks.
The answer, according to Thaler, is myopic loss aversion. People are
risk-averse. Psychological testing has established that for most of us the pain
of losing an amount of money is greater than the pleasure of winning that same
amount of money. Being risk averse, we are more likely to act to avoid the pain
of loss the more aware we are of potential losses. The more short-term-oriented
one is (the more "myopic"), the greater one's willingness to react to the risk
of loss. Because stocks go up and down more than bonds, they confront one with
more frequent, and greater, potential losses. The shorter one's time horizon, or
the more often you look at your portfolio, the more you will see losses, the
more psychological discomfort you will feel, and the riskier you will perceive
stocks. The more risk-averse you are, the more you will orient your investments
to bonds, or cash.
Since one's perception of the risk of stocks is a function of how often you
look at your portfolio, the more aware you are of what's going on, the more
likely you are to do the wrong thing. "Where ignorance is bliss, 'tis folly to
be wise" said the bard, who understood myopic loss aversion centuries before the
professors got hold of it.
Suppose you buy a stock on Monday, and on Tuesday, while you are engrossed
in the O. J. Simpson trial, it drops due to bad news. On Wednesday, though, it
recovers to close higher than your purchase price. If you had been glued to CNBC
on Tuesday when the news hit, and had observed the stock falling, you may have
been prompted to act on the news, especially if the stock was reacting to it. If
you missed the news until Wednesday, when the stock had recovered, you are much
less likely to sell it then, even though the fundamentals are the same as the
day before. That is myopic loss aversion at work. Put differently, you are not
worried that IBM dropped overnight in Tokyo while you slept, if it closed up two
points today in New York. You are worried if it drops today in New York, though
it's set to rise two points in Tokyo tonight while you sleep.
This does not do justice to Thaler's work on the subject (done with Shlomo
Benartzi), but you probably get the drift. Professor Thaler is so convinced that
the avalanche of information bombarding investors about how their stocks or
funds are doing is harmful, that he has proposed that universities not give
faculty and employees reports on how their retirement funds are performing. For
most investors, Thaler thinks the appropriate advice is "don't just do
something, sit there."
It should not be a surprise that his advice has been ignored. The situation
is similar to that of the
3
<PAGE>
<PAGE>
now forgotten Earnshaw Cook, who applied probability theory to baseball strategy
in his book PERCENTAGE BASEBALL. After exhaustively studying the statistical
history of various baseball strategies -- the sacrifice bunt, when to bring in
relief pitchers, etc. -- he concluded that teams were not maximizing their
chances of winning, they were following conventional wisdom that was not well
suited to their professed objectives. He advocated numerous changes to the
manager's portfolio, such as having your best hitter hit lead off instead of the
usual third or fourth, since the lead off hitter gets the most at bats and thus
hitting lead off will maximize the offensive statistics of the best hitter. All
of his recommendations were statistically sound, well documented, and completely
ignored.
Earnshaw Cook was unaware of myopic loss aversion, but its influence extends
well beyond the equity premium puzzle. Warren Buffett captured its essence when
he remarked that in investing it is usually better to fail conventionally than
to succeed unconventionally. Or as one fund manager put it recently when asked
why he wasn't thinking of investing in Mexico, since undoubtedly there were
bargains to be had with many stocks down 70% in the past 6 months, "nobody ever
got fired for not investing in Mexico."
Our investment approach in the Special Investment Trust has been to use the
myopic loss aversion exhibited by others to our shareholders' long-term benefit.
We try to buy companies whose shares trade at large discounts to our assessment
of their economic value. Bargain prices do not occur when the consensus is
cheery, the news is good, and investors are optimistic. Our research efforts are
usually directed at precisely the area of the market that the news media tells
you has the least promising outlook (right now that includes retailers, autos,
Latin America and anything else on the "New Lows" list) and we are typically
selling those stocks that you are reading have the greatest opportunity for
near-term gain.
This approach does not link up well with the results of the major indices,
and we often diverge from them in direction and magnitude. For most of our
history our calendar year results have consistently exceeded those of the S&P
500. In a few years we have trailed the averages, sometimes by a lot, as we did
last year. Our portfolio does not look like the S&P 500 and thus it should not
act like the S&P 500.
It should provide solid returns over the long term, which it has done and we
are confident will continue to do. As always, we appreciate your support and
welcome your comments.
Bill Miller, CFA
May 8, 1995
DJIA 4383.87
MANAGEMENT'S DISCUSSION AND ANALYSIS
The fund had a difficult fiscal 1995, underperforming its benchmark index.
The fund's results were negatively impacted by its casino, health care, and
Mexican holdings.
Mexican markets collapsed after the government unexpectedly devalued the
peso in December 1994. Major U.S. indices do not contain Mexican securities and
were unaffected by this event.
The fund continues to hold major positions in gaming and health care issues,
including many of those that performed poorly last year. The fund follows a
long-term investment strategy that usually involves holding portfolio securities
for several years. It does not seek to trade in and out of companies based on
anticipated near-term price movements.
The fund's strategy consists of searching for mispriced securities, those
whose present price does not accurately reflect intrinsic value. 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>
PERFORMANCE INFORMATION
LEGG MASON SPECIAL INVESTMENT 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.
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 -6.37% -6.37%
Five Years +83.68 +12.93
Life of Class(|) +178.15 +11.69
Navigator Class:
Life of Class(|)(|) +4.81 --
</TABLE>
(|) Primary Class inception-December 30, 1985
(|)(|) Navigator Class inception-December 1, 1994
Performance Comparison of a $10,000 Investment as of March 31, 1995(dagger)
(graph appears here--plot points listed below)
<TABLE>
<CAPTION>
Years ended March 31,
1986* 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Special Investment Trust
Primary Class 11,530 13,074 11,220 13,126 15,143 18,392 22,154 24,482 29,708 27,815
Standard & Poor's 500 Stock
Composite Index(1) 11,405 14,395 13,204 15,558 18,594 21,231 23,548 27,114 27,499 31,994
Value Line Geometric
Average(2) 11,372 12,996 11,381 12,598 12,897 12,937 14,502 16,260 17,001 17,872
</TABLE>
(dagger) Class Inception--December 30, 1995.
* For the period December 30, 1985 to March 31, 1986.
(1) An unmanaged index of widely held common stocks.
(2) An unmanaged index of approximately 1,700 common stocks.
5
<PAGE>
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
SELECTED PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
Biggest gainers for the 1st quarter 1995*
<S> <C> <C>
1. Shawmut National Corporation +61.1%
2. Lady Luck Gaming Finance
Corporation
Guaranteed 1st Mortgage Series B
10.50% 3-1-01 +54.1%
3. BankAmerica Corporation Warrants +39.8%
4. Circus Circus Enterprises, Inc. +38.7%
5. Mirage Resorts, Incorporated +36.6%
6. The Samuel Goldwyn Company +36.5%
7. PennCorp Financial Group, Inc. +34.3%
8. America Online, Inc. +32.6%
9. CMAC Investment Corporation +30.7%
10. Showbiz Pizza Time, Inc. +29.5%
</TABLE>
<TABLE>
<CAPTION>
Biggest laggers for the 1st quarter 1995*
<S> <C> <C>
1. Salant Corporation Class B Warrants -75.0%
2. Grupo Mexicano de Desarrollo S.A. ADR -67.6%
3. Grupo Financiero Bancomer S.A. de C.V.
ADS -65.7%
4. The Leslie Fay Companies, Inc. -63.6%
5. Consorcio G Grupo Dina S.A. de C.V. ADS -63.2%
6. Grupo Televisa S.A. de C.V. Global ADS -47.6%
7. Salant Corporation -39.1%
8. Grupo Financiero Serfin S.A. de C.V. ADR -36.7%
9. John Alden Financial Corp. -36.1%
10. Storage Technology Corporation -34.1%
</TABLE>
* SECURITIES HELD FOR THE ENTIRE QUARTER.
PORTFOLIO CHANGES
<TABLE>
<CAPTION>
Securities Added
<S> <C>
Argentina Par Bonds
5.00% 3-31-23
California Energy Company, Inc.
Grupo Mexicano de Desarrollo S.A. ADR
8.25% 2-17-01
Resource Mortgage Capital Corporation
Stratosphere Corporation
Guaranteed 1st Mortgage Note
14.25% 5-15-02
</TABLE>
<TABLE>
<CAPTION>
Securities Sold
<S> <C>
Caesars World, Inc.
Dr. Pepper/Seven-Up Companies, Inc.
The Musicland Group, Inc.
RJR Nabisco Holdings Corp.
</TABLE>
6
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
MARCH 31, 1995
<TABLE>
<S> <C> <C>
(Amounts in Thousands) Shares Value
</TABLE>
COMMON STOCKS AND EQUITY INTERESTS -- 90.8%
<TABLE>
<S> <C> <C>
Advertising -- 2.9%
WPP Group P.L.C. 10,200 $16,863
WPP Group P.L.C. ADR 445 1,418
18,281
Apparel -- 2.0%
Chic By H.I.S, Inc. 955 10,509*(|)
Salant Corporation 443 1,549*
Salant Corporation Class B
Warrants 285 9*
The Leslie Fay Companies, Inc. 1,714 428*(|)
12,495
Automotive -- 0.1%
Consorcio G Grupo Dina S.A. de
C.V. ADS 245 858
Banking -- 8.6%
BankAmerica Corporation 304 14,655
BankAmerica Corporation Warrants 156 4,797*
Grupo Financiero Bancomer S.A. de
C.V. ADS 525 1,936
Grupo Financiero Serfin S.A. de
C.V. ADR 914 4,340
Peoples Heritage Financial Group,
Inc. 720 9,090
Shawmut National Corporation 750 19,781
54,599
Broadcast Media -- 1.1%
Graff Pay-Per-View Inc. 450 4,613*
Grupo Televisa, S.A. de C.V.
Global ADS 130 2,161
6,774
Chemicals -- 0.2%
Chemi-Trol Chemical Co. 145 1,379(|)
Computer Services and Systems -- 9.1%
America Online, Inc. 295 21,904*
Exabyte Corporation 300 5,175*
InaCom Corp. 785 6,672*(|)
Lotus Development Corporation 300 11,475*
Spectrum Holobyte, Inc. 575 9,236*
Storage Technology Corporation 179 3,431*
57,893
Construction -- 0.2%
Grupo Mexicano de Desarrollo
S.A. ADR 540 1,553*
Energy -- 1.5%
California Energy Company, Inc. 600 9,600*
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Entertainment -- 11.1%
Boomtown Inc. 864 $ 11,445*(|)
Circus Circus Enterprises, Inc. 769 24,800*
Hollywood Park, Inc. 1,400 17,850*(|)
Mirage Resorts, Incorporated 400 11,200*
Showboat, Inc. 290 4,350
The Samuel Goldwyn Company 100 887*
70,532
Finance -- 7.8%
Federal National Mortgage
Association 100 8,137
Pioneer Group, Inc. 750 15,562
Piper Jaffray Incorporated 319 3,706
The Bear Stearns Companies Inc. 368 6,799
United Asset Management
Corporation 409 15,692
49,896
Health Care -- 5.1%
Charter Medical Corporation 975 18,159*
Physician Corporation of America 650 14,625*
32,784
Hotels and Restaurants -- 1.2%
Showbiz Pizza Time, Inc. 763 7,539*(|)
Insurance -- 7.0%
CMAC Investment Corporation 490 18,497
Enhance Financial Services Group
Inc. 481 8,172
John Alden Financial Corp. 575 10,566
PennCorp Financial Group, Inc. 404 7,124
44,359
Manufacturing -- 1.9%
Danaher Corporation 236 6,756
Johnstown America Industries, Inc. 400 5,400*
12,156
Medical Products and
Supplies -- 1.4%
Sunrise Medical, Inc. 250 8,938*
Miscellaneous -- 2.7%
Playtex Products, Inc. 1,187 9,494*
Stewart Enterprises, Inc. 285 7,695
17,189
Multi-Industry -- 0.4%
UNR Industries, Inc. 530 2,849
</TABLE>
7
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS -- CONTINUED
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Pharmaceuticals -- 5.9%
Biogen, Inc. 175 $ 6,956*
Diagnostek, Inc. 1,125 22,922*
Somatix Therapy Corporation 1,515 5,492*(|)
Targeted Genetics Corporation 400 2,350*
37,720
Real Estate -- 3.0%
Regency Realty Corporation 250 4,000
Resource Mortgage Capital
Corporation 315 4,804
Summit Properties, Inc. 200 3,300
Walden Residential Properties, Inc. 380 7,172
19,276
Savings and Loan -- 6.7%
California Federal Bank, F.S.B. 900 9,562*
Standard Federal Bank 650 17,469
Washington Mutual Incorporated 795 15,950
42,981
Services -- 2.8%
Safecard Services, Inc. 950 18,169
Specialty Retail -- 4.3%
Home Shopping Network, Inc. 2,663 20,968*
Mac Frugal's
Bargains(Bullet)Close-outs Inc. 450 6,469*
27,437
Telecommunications -- 3.8%
ALC Communications Corporation 350 11,944*
LDDS Communications Inc. 365 8,532*
Telefonos de Mexico S.A. ADR 133 3,776
24,252
Total Common Stocks and Equity
Interests
(Identified Cost - $509,950) 579,509
</TABLE>
PREFERRED STOCK -- 0.5%
<TABLE>
<S> <C> <C>
Mego Financial Corporation
Series A 12% Cum.
(Identified Cost - $3,000) 300 3,000(|)(||)
</TABLE>
<TABLE>
<CAPTION>
Principal
(Amounts in Thousands) Amount Value
<S> <C> <C>
</TABLE>
CORPORATE BONDS -- 4.2%
<TABLE>
<S> <C> <C>
Grupo Mexicano de Desarrollo S.A.
ADR
8.25% 2-17-01 $11,000 $ 2,695**
Lady Luck Gaming Finance
Corporation
Guaranteed 1st Mortgage Series B
10.50% 3-1-01 10,000 6,050
Harrah's Jazz Company
1st Mortgage Note
14.25% 11-15-01 7,425 7,945
Stratosphere Corporation
Guaranteed 1st Mortgage Note
14.25% 5-15-02 10,000 10,200
Total Corporate Bonds
(Identified Cost - $25,284) 26,890
</TABLE>
SOVEREIGN OBLIGATION -- 2.3%
<TABLE>
<S> <C> <C>
Argentina Par Bonds
5.00%(|)(|) 3-31-23
(Identified Cost - $13,460) 35,000 14,350
<CAPTION>
</TABLE>
REPURCHASE AGREEMENT -- 2.0%
<TABLE>
<S> <C> <C>
Prudential Securities, Inc.
6.30% dated 3-31-95, to be
repurchased at $13,021 on 4-3-95
(Collateral: Federal National
Mortgage Association Mortgage-
backed securities, 7.5% due
12-1-08, value $13,348)
(Identified Cost - $13,014) 13,014 13,014
<CAPTION>
<S> <C> <C>
Total Investments -- 99.8%
(Identified Cost - $564,708) $636,763
</TABLE>
* NON-INCOME PRODUCING.
** RULE 144A SECURITY -- A SECURITY PURCHASED PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE RESOLD SUBJECT TO THAT RULE
EXCEPT TO QUALIFIED INSTITUTIONAL BUYERS.
(|) 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.
(||) PRIVATE PLACEMENT.
(|)(|) COUPON INCREASES 0.25% ANNUALLY UNTIL MARCH 31, 1999, THEREAFTER
REMAINS FIXED AT 6.0% UNTIL MATURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
MARCH 31, 1995
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
ASSETS:
Investments at value:
Affiliated companies (Identified Cost - $91,954) $ 64,314
Other securities (Identified Cost - $472,754) 572,449
$636,763
Receivable for:
Investments sold 2,332
Fund shares sold 2,642
Dividends and interest receivable 1,833
Other assets 29
Total assets 643,599
LIABILITIES:
Payable for Fund shares repurchased 4,239
Accrued expenses 231
Due to adviser and distributor 913
Total liabilities 5,383
<CAPTION>
<S> <C> <C>
Net assets $638,216
ANALYSIS OF NET ASSETS:
Accumulated paid-in capital applicable to:
30,671 Primary Class shares outstanding $535,778
1,304 Navigator Class shares outstanding 24,922
Undistributed net investment income 1,488
Undistributed net realized gain on investments and options 3,973
Unrealized appreciation of investments 72,055
<CAPTION>
<S> <C> <C>
Net assets $638,216
NET ASSET VALUE PER SHARE:
PRIMARY CLASS $ 19.96
NAVIGATOR CLASS $ 20.03
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Dividends:
Affiliated companies $ 408
Other securities (net of foreign taxes withheld of $44) 6,614
Interest 3,283
Total investment income $ 10,305
EXPENSES:
Investment advisory fee 4,849
Distribution and service fees 5,918
Transfer agent and shareholder servicing expense 477
Custodian fee 163
Registration fees 132
Reports to shareholders 126
Legal and audit fees 62
Directors' fees 10
Other expenses 31
11,768
Less expenses reimbursed (32)
Total expenses, net of reimbursement 11,736
NET INVESTMENT LOSS (1,431)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on investments and options 5,583
Decrease in unrealized appreciation of investments (44,299)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (38,716)
<CAPTION>
<S> <C> <C>
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(40,147)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
<TABLE>
<CAPTION>
For the Years Ended March 31,
<S> <C> <C>
(Amounts in Thousands) 1995 1994
<CAPTION>
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment loss $ (1,431) $ (2,625)
Net realized gain on investments 5,583 16,166
Change in unrealized appreciation of investments (44,299) 58,266
Change in net assets resulting from operations (40,147) 71,807
Net equalization credits -- 196
Distributions to shareholders from:
Net investment income:
Primary Class -- (563)
Net realized gain on investments:
Primary Class (6,356) (3,167)
Increase in net assets from Fund share transactions:
Primary Class 94,311 174,641
Navigator Class 24,922 --
Increase in net assets 72,730 242,914
NET ASSETS:
Beginning of year 565,486 322,572
End of year (including undistributed net investment income of $1,488 and $1,487,
respectively) $ 638,216 $ 565,486
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON SPECIAL INVESTMENT 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 $19.11 $21.56 $17.91 $17.00 $14.59 $13.58
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) 0.07 (0.06) (0.11) 0.03 0.12 0.18
Net realized and unrealized gain (loss) on
investments and options 0.85 (1.31) 3.93 1.66 2.83 2.42
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total from investment operations 0.92 (1.37) 3.82 1.69 2.95 2.60
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Distributions to shareholders from:
Net investment income -- -- (0.03) -- (0.14) (0.27)
Net realized gain on investments -- (0.23) (0.14) (0.78) (0.40) (1.32)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net asset value, end of period $20.03 $19.96 $21.56 $17.91 $17.00 $14.59
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total return 4.81%(2) (6.37)% 21.35% 10.50% 20.46% 21.46%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.90%(1) 1.93% 1.94% 2.00% 2.10% 2.30%
Net investment income (loss) 1.0%(1) (0.2)% (0.6)% 0.2% 0.8% 1.4%
Portfolio turnover rate 27.5% 27.5% 16.7% 32.5% 56.9% 75.6%
Net assets, end of period (in thousands) $26,123 $612,093 $565,486 $322,572 $201,772 $106,770
</TABLE>
* FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF NAVIGATOR CLASS) TO
MARCH 31, 1995.
(1) ANNUALIZED.
(2) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
(Amounts in Thousands)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Special Investment 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 the Primary shares, and transfer agent and
shareholder servicing expenses, which are determined separately for each
class.
Security Valuation
Securities traded on national securities exchanges are valued at the
last quoted sales price. Over-the-counter 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.
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.
Dividends and Distribution 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.
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.
13
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
(Amounts in Thousands)
2. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended March 31, 1995 (excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $ 298,310
Proceeds from sales 158,592
</TABLE>
At March 31, 1995, the cost of securities for federal income tax
purposes was $565,033. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$139,218 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value was $67,488.
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, 1,287 shares held in Legg Mason Profit Sharing
Plan accounts, with a value of $24,601, were transferred from Primary
Class to Navigator Class. Transactions in Fund shares were as follows:
<TABLE>
<S> <C> <C> <C> <C>
For the Years Ended March 31,
1995 1994
Primary Class Shares Amount Shares Amount
Sold 22,874 $ 464,052 15,629 $ 329,116
Reinvestment of
distributions 310 6,299 173 3,685
Repurchased (18,741) (376,040) (7,580) (158,160)
Net increase 4,443 $ 94,311 8,222 $ 174,641
</TABLE>
<TABLE>
<S> <C> <C>
December 1, 1994(|)
to
March 31, 1995
Navigator Class Shares Amount
Sold 1,375 $26,290
Repurchased (71) (1,368)
Net increase 1,304 $24,922
</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
1% of average daily net assets of the Fund for the first $100 million of
such assets and 0.75% of such assets exceeding $100 million, calculated
daily and payable monthly. The agreement with the Adviser provides that an
expense reimbursement be made to the Fund for auditing fees, compensation
of the Fund's independent directors and expenses in excess of statutory
limitations.
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. 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 $178 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.
14
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF LEGG MASON SPECIAL INVESTMENT TRUST,
INC.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Legg Mason Special
Investment 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 Special Investment 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
15
