Investment Advisers
For Global Government:
Western Asset Management Company
Pasadena, CA
For International Equity and
Emerging Markets Trusts:
Batterymarch Financial Management, Inc.
Boston, MA
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
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
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100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000
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ANNUAL REPORT
DECEMBER 31, 1998
LEGG MASON
GLOBAL
TRUST, INC.
GLOBAL GOVERNMENT TRUST
INTERNATIONAL EQUITY TRUST
EMERGING MARKETS TRUST
- --------------------------------------------------------------------------------
[LEGG MASON FUNDS HOW TO INVEST GRAPHIC HERE]
<PAGE>
To Our Shareholders,
We are pleased to provide you with the annual report for the Legg Mason
Global Trust, comprised of the Global Government Trust, International Equity
Trust and Emerging Markets Trust.
Beginning on the next page, the portfolio managers responsible for the Global
Trust portfolios discuss results for 1998 and the investment outlook. The Funds'
total returns in various periods since their inceptions are shown later in this
report. For each of our Funds, we remind you that historical performance is not
indicative of future results, and the principal value of our holdings will
continue to fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
PricewaterhouseCoopers LLP, Global Trust's independent accountants, have
completed their annual examination, and audited financial statements for the
fiscal year ended December 31, 1998 are included in this report.
The Board of Directors approved an ordinary income dividend of $0.136 per
share to Primary Class Shareholders of International Equity Trust and a
long-term capital gain of $0.063 to shareholders of Global Government Trust
payable on December 11, 1998 to shareholders of record on December 9, 1998.
During 1998, attention increasingly focused on the Year 2000 issue. 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 record keeping. In addition, we are continuously monitoring the
Year 2000 efforts of our vendors, and will perform tests with our critical
vendors throughout 1999. Although the Funds are taking steps to ensure that all
of their systems will function properly before, during, and after the Year 2000,
the Funds could be adversely affected by computer related problems associated
with the Year 2000. Contingency plans to ensure that functions critical to the
Funds' operations will continue without interruption are under development. 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.
We hope you will consider using the Trust for investments of additional funds
as they become available. Some shareholders have chosen to regularly add to
their investment in the Funds by authorizing automatic monthly transfers from
their bank checking or Legg Mason accounts. Your Financial Advisor will be happy
to help you make these arrangements if you would like to purchase additional
shares in this convenient manner.
Sincerely,
/S/ EDWARD A. TABER III
-------------------------
Edward A. Taber, III
President
February 19, 1999
<PAGE>
Portfolio Managers' Comments
Global Government Trust
Market Overview
Fixed-income markets were roiled in the second half of the year by both the
devaluation of the Russian ruble and Russia's decision to default on some of its
loan obligations. Leveraged hedge funds were severely impacted, and their
unwinding operations contributed to produce a severe shortage of liquidity and a
flight to quality. By the time the dust settled, non-Treasury sectors had
experienced the sharpest and most dramatic widening of spreads in the history of
the US bond market, and emerging market debt spreads surged, reflecting a high
probability of widespread defaults. Following the Federal Reserve's move to ease
monetary policy three times in quick succession, some calm was restored to the
markets by year end, particularly in the corporate and emerging market sector.
Long-term Treasury yields fell about 50 basis points(1) for the period, with
shorter-term yields falling almost 90 basis points, thus continuing the rally
that began in the first half of the year. The dollar weakened against most
currencies as concerns over the health of Latin American economies increased in
the wake of the Russian debacle, and especially against the yen, apparently as
the result of large-scale unwinding of short yen positions which had played an
important role in the leveraged plays gone sour. On balance, most non-dollar
sovereign debt securities substantially outperformed their US counterparts as
yields fell globally, with the notable exception being a sharp rise in yields in
Japan toward the end of the period.
Fund Performance
Although most sovereign debt markets performed quite well in the second half
of the year, the Fund's emphasis on generating additional yield through exposure
to nongovernment sectors, in particular through holdings of emerging market debt
securities, caused results to be somewhat disappointing overall. As in the first
half of the year, the Fund was again well positioned to benefit from declining
yields with an emphasis on longer maturity bonds. It also benefited from a
substantial underweighting to Japanese bonds throughout the period, as well as
benefiting from an underweighting to the yen in the third quarter as the yen
experienced substantial weakness against the dollar, a position which was
subsequently reversed in time to avoid exposure to a strengthening yen in the
fourth quarter of the year. Among the Fund's best performing assets were its
overweight exposure to UK and Swedish bonds, since they generally outperformed
their other non-dollar counterparts. On the negative side, however, emerging
market debt exposure proved to be a significant drag on performance as spreads
experienced a sudden and significant widening in the wake of the Russian
default. By the end of the period, Global Government Trust had generated a total
return of 9.4% for the six months ended December 31, 1998, reflecting a
combination of income, capital gains and losses, and currency gains. The gap
between this return and the 12.2% total return of the Fund's benchmark, the
Salomon Brothers World Government Bond Index, was largely accounted for by
holdings of emerging market debt.
Market Commentary and Outlook
Following numerous moves by the world's central banks to reduce interest
rates in the past several months, the key question today is whether monetary
policy has eased sufficiently to ensure trouble-free economic growth going
forward. The willingness of central banks to relax monetary policy in the face
of serious threats to global financial stability is encouraging, and has clearly
reduced the risk of a
- -------------------------------
(1)100 basis points = 1%
2
<PAGE>
serious financial meltdown, deflation or recession. However, in our view the
moves to date do not appear to have eliminated extant deflationary risks, and
they do not rule out the risk of a slowdown in the US economy.
Despite three Fed moves to lower nominal rates, the US yield curve is still
relatively flat, commodity prices are uniformly weak, and credit spreads remain
at distressed levels -- all classic signs of tight money. The tight money
squeeze has been felt the most by emerging market and Asian economies, being
heavily dependent on commodity exports and indebted in dollars. The current
level of emerging market spreads is punishingly high, bringing inexorable
pressure on those economies to slow. This has already caused a slowdown in US
exports, which in turn helps explain the sharp drop in US manufacturing
activity.
Since tight money means firms on balance cannot pass along higher labor costs
to consumers, an earnings squeeze is the inevitable result. This explains a
noticeable slowdown in the growth of payroll employment over the course of the
past year, just as a significant erosion of corporate profitability and cash
flows is working to slow the pace of capital investment. Moreover, tighter
fiscal policy in the US is slowly eroding the underpinnings of consumer demand.
Prosperity has pushed consumers into higher marginal tax brackets, leading to a
significant increase in tax burdens and a decline in discretionary income. We
believe these factors will combine to result in a noticeable slowdown in GDP
growth in the next 6-9 months, while at the same time inflation pressures remain
very low, nonexistent or even negative.
European economies, having weathered the initial shock waves from the
emerging markets turmoil, have recently begun to display signs of more
significant weakness. As well as suffering from falling export orders,
exacerbated by firm currencies, uncertainty over the policies of the new
center-left German government and slower inventory building have affected
domestic demand and, more recently, unemployment. To date, this has not had an
impact on consumer sentiment which remains underpinned by higher real disposable
incomes. While private consumption is vulnerable to a deeper manufacturing
retrenchment, large pent-up demand and less tight fiscal policies should ensure
consumers provide a positive contribution to demand. Inflation will remain very
low, facilitating further official rate cuts.
The UK economy is slowing in lagged response to the monetary tightening and
currency appreciation seen in 1998. Manufacturing has been hardest hit but the
service sector is now also being affected. With labor markets less tight and
commodity prices low, inflation is set to decline to below the Bank of England's
2.5% target, allowing rates to be cut further. The Gilt yield curve should
remain inverted despite these rate cuts as longer dated bonds benefit from
strong institutional demand.
Japan continues to be mired in recession despite the government continuing to
boost the public sector through various economic stimulus packages. The only
sector that continues to hold up reasonably well is the export sector, but
recent yen strength will temper this. As monetary policy is largely inept the
focus will continue to be on continued easing on the fiscal front and micro
economic reforms. Problems within the financial sector persist but we have
probably seen the worst. Consolidation and mergers within the banking and
insurance sectors will accelerate but any recovery near term will be muted and
unlikely to last in the absence of significant monetary ease. Bonds thus remain
unattractive at current yields.
3
<PAGE>
PORTFOLIO MANAGER'S COMMENTS--CONTINUED
GLOBAL GOVERNMENT TRUST--CONTINUED
Although emerging market economies are under pressure to slow significantly
under the burden of exceptionally high interest rate burdens, structural reforms
have been impressive and the macroeconomic and political fundamentals are much
improved in most countries compared to their status following the Mexican
devaluation in 1994. Since their problems are in large part the result of tight
monetary policies in major industrialized countries, the monetary ease which we
expect will accompany the global slowdown that is developing should provide
direct relief for most, if not all of the emerging market economies.
The near-term outlook for currencies will be clouded by divergent growth
trends in the US and Europe and lower Japanese appetite for US assets ahead of
Japan's March year end. The recent sharp rise in Japanese bond yields and
decline in European yields could also cap Japanese demand for euro assets.
Longer term, as the European economy resumes its recovery, the euro should
benefit at the expense of both the US dollar and the yen from a positive current
account surplus and increased institutional demand.
Strategy
Whether the slowdown affecting most countries in the American and European
continents is mild or recessionary is the critical question, as is the degree to
which deflation persists in world commodity and hard goods markets. If
accompanied by further central bank easing, mild deflation and a mild slowdown
likely would be fertile ground for all financial assets. If central banks, and
in particular the US Federal Reserve, is slow to ease, however, a more
pronounced deflation or recession is not out of the question. Since either
scenario would imply lower yields, with short-term rates likely leading the way,
we will continue to emphasize longer maturity bonds, with a bulleted exposure to
the US yield curve in anticipation of lower short-term rates over time.
Industrialized country bond exposure will remain concentrated in the US
dollar bloc, focusing on corporate and mortgage issues in the US and New Zealand
and Australian bonds, as well as overweighting European bonds as a counterpart
to a continued underweighting of Japan. In Europe, we will be targeting a
diversified exposure to longer dated euro-zone bonds with a particular focus on
non-euro zone bonds in the UK and Scandinavia. We are currently targeting a
broadly neutral currency exposure with a bias to overweight the euro as growth
differentials to the US narrow.
Since the current level of emerging market bond yields already reflects a
high degree of pessimism about those countries' future prospects, we continue to
see them as very attractive additions to the Fund's portfolio. At the same time,
however, we are cognizant of the risks of a further slowdown in global growth
and the attendant deflation risks which are particularly difficult for the
commodity-dependent emerging markets. On balance, we think the Fed's willingness
and ability to ease policy make a doomsday scenario unlikely. Consequently, we
continue to emphasize emerging market debt in the Fund, but cautiously so, with
our caution taking the form of an emphasis on shorter maturities and major
sovereign issuers to minimize systemic risk.
Western Asset Management Company
February 18, 1999
4
<PAGE>
Portfolio Managers' Comments
International Equity Trust
Performance
Ahead of the MSCI EAFE index for the first half of 1998, the Legg Mason
International Equity Trust lost ground in the second half due to stock selection
in Europe and an underweighted position in Japan relative to the index.
International markets saw increased volatility as investors responded
emotionally to short-term shocks rather than long-term fundamentals. This was
evident as our short-term measures, earnings expectations and technical factors,
worked well while the longer-term measures, earnings growth and traditional
value, did not.
In the third quarter, global investors were shaken by the Asian crisis,
near-meltdown in Russia, risks in global financial institutions and fears of
contagion into Latin America, and staged an emotional retreat into defensive
issues such as utilities and pharmaceuticals. Throughout Europe, investors
favored large-cap stocks regardless of value, a frenzy termed "europhoria" in
the press. Our stock selection process, oriented toward long-term measures of
value and growth, favored European financials and cyclicals for the Fund.
Investor confidence recovered in the fourth quarter. The Japanese market
rallied dramatically following the unexpected interest rate cut in the US in
mid-October, triggering a fall in the dollar. (The Japanese market was up 26.9%
in dollars and 5.2% in local currency for the fourth quarter.) The strong yen
hurt Japanese export companies and sparked a rally in financials. The Fund's
underweight in Japan hurt performance for the quarter (although the underweight
helped performance for the year as Japan underperformed the MSCI EAFE Index for
1998).
The Fund ended the year 1998 with a return of 8.5%, trailing the MSCI EAFE
index return of 20.0%. This was a difficult year for many managers; according to
Lipper Analytical Services, Inc. the average International fund underperformed
the MSCI EAFE index for 1998.
Over the longer-term, the Fund's performance is in line with the MSCI EAFE
index. The Fund's average annual total return for the three years ended December
31, 1998, was 8.8% compared with 9.0% for the MSCI EAFE index.
Market Overview
The outlook for Europe is positive. The investment implications of the euro
should be twofold: 1) higher fund flows into the large capitalization
Pan-European stocks as investors restructure their portfolios from a national to
a regional focus; and 2) a gradual change in analyst coverage from countries to
sectors.
Corporate restructuring continues as EMU forces European corporations to
become more competitive. This will eventually lead to higher returns to equity
holders as Europe moves away from a government-protected environment. In the
fourth quarter, the pace of high-profile mergers accelerated.
Lower interest rates and pension requirements have led to increased
investment in equities. As the combination of lower inflation and monetary
convergence forced down interest rates in European countries, investors have
been faced with "sticker shock" in rolling over their interest-bearing
instruments and have moved into equities. Moreover, the combination of aging
demographics and the
5
<PAGE>
Portfolio Managers' Comments -- Continued
International Equity Trust -- Continued
inadequacies of state-sponsored pension systems are forcing Europeans to save
more and put savings into equities.
In Japan, the stock market has shown recent significant positive returns in
dollars. This may signal a recovery in this market, but there are still many
barriers to significant improvements. The positives for Japan begin with the
recent Government stimuli: public funds to support banks and tax cuts may have
halted the downward trend of GDP, encouraged consumer spending and increased
confidence in banking. Growth expectations for the next two years have improved
and earnings revisions show signs of reaching bottom. The negatives: the recent
emergency package is not enough to turn around bank company failures and it
supports some companies that would naturally fail. The yen continues to
strengthen which would continue to hurt export companies.
Strategy
We emphasize stock selection with a secondary focus on country selection. Our
stock selection process ranks stocks daily across earnings growth, cash flow,
expectations, traditional value and technical measures. We customize stock
selection by market, based on which attributes are most predictive of excess
return within each country. For portfolio construction, we systematically
balance the expected returns of stocks with risk and country constraints. We
combine expectations with our proprietary country ratings to determine optimal
stock and country target weights.
Our disciplined investment process remains oriented toward long-term measures
of value and growth. The Fund is overweight in Europe and underweight in the
Pacific. Earnings expectation revisions are more favorable in Europe than in the
Pacific, and valuations remain more attractive.
Looking ahead, we feel the Fund is well-positioned with better value than its
benchmark and better growth opportunity. The Fund has a forward P/E of 12.6x
compared with 21.8x for the Index, a two-year growth rate of 13.9% compared with
12.7% and a growth-to-P/E ratio of 1.1x compared with 0.6x for the Index. We
feel the Fund is well diversified across countries and industries.
Batterymarch Financial Management, Inc.
February 18, 1999
6
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
Emerging Markets Trust
Performance
For the year 1998, emerging markets continued to live up to their reputation
for volatility due to concerns over the Asian crisis, the near-meltdown in
Russia, risks in global financial institutions and fears of contagion into Latin
America. Returns were more than disappointing. The Fund trailed the benchmark
for the year, as did the average fund.
The return for the Legg Mason Emerging Markets Trust was -29.3% for the year
ended December 31, 1998, compared with -25.3% for the Morgan Stanley Capital
International Emerging Markets Free ("MSCI EMF") Index. The Lipper average for
emerging markets funds for the year was -26.8%.
Returns for 1998 were particularly disappointing in light of a year-end
turnaround in emerging markets. Led by Asia, which was up 33.8%, the MSCI EMF
rose 18.0% in the fourth quarter. The Fund recovered 16.2%(1), outpacing the
average fund return of 13.3%, as measured by Lipper.
For the year, Asian markets outperformed the MSCI EMF. Country returns ranged
from Korea, which was up 114.1%, to Pakistan, which declined 56.6%. The Fund,
while underweighted in the region, had positive stock selection, especially in
China, Hong Kong, Taiwan and Thailand. The Fund underperformed in Latin America
due to negative stock selection in Brazil and Mexico. Within the MSCI Europe,
Middle East and Africa region, stock selection was positive, especially in
Russia and Turkey, but the underweight in Greece hurt performance as that market
rose 78.1% for the year.
Over the longer-term, the Fund's average annual total return since inception
in May 1996 to December 31, 1998, was -12.9% compared with -15.9% for the MSCI
EMF.
Market Commentary
Asia looks attractive with stock markets only 30% off their ten-year lows in
some cases, earnings growth picking up and the region under-owned by
institutions. In addition, the pool of investable companies has shrunk. The
region has withstood the ultimate test of the structure of its economy: the
early 1990s pumped up economic growth as the weak dollar and quasi-fixed
exchange rates led to a boom on the back of incorrectly-priced capital. The
crisis was a catastrophic correction -- as the Thai devaluation caused shock
waves throughout Asia and emerging markets. Recent evidence indicates that the
nadir of the recession in Asia is past and, while there may be a couple of
quarters of negative growth, 1999 will probably show small positive GDP growth.
Latin America has not recovered as much ground as some Asian markets due to
current fiscal problems. Despite the devaluation of the Brazilian Real which
occurred after year-end, we remain reasonably comfortable with Brazilian
equities. Debt levels are generally quite low. Very few companies have unhedged
foreign exposure and valuations had already discounted a great deal. Mexico
remains attractive given its fairly-priced, free-floating currency and
relatively strong domestic economy, despite an anticipated slowdown associated
with low oil prices.
- ---------------------
(1) Excluding the 2% redemption fee assessed on shares redeemed within one year
of purchase.
7
<PAGE>
Portfolio Managers' Comments -- Continued
Emerging Markets Trust -- Continued
Among the markets in the Europe, Middle East and Africa region, Greece
appears to be one of the best positioned markets for 1999. The government acted
resolutely to prepare the country for the earliest possible entry into the
European Monetary Union which should be accomplished in 2001. Until then,
investors should experience a major decline in inflation and interest rates.
Strategy
Our investment strategy is to seek well-managed, high quality companies which
are expected to participate in the eventual economic growth of emerging markets,
at reasonable prices.
In selecting stocks, we research our universe of stocks for attractive growth
opportunities at reasonable valuations and use proprietary measures of growth
and valuation that we tailor to each market. We use both fundamental analysis
(review of management, competitive resources, market position and financial
condition to develop qualitative stock opinions) and quantitative valuation
(earnings expectations, growth, valuation and technical factors).
In Latin America, we continue to favor the largest, more liquid markets, such
as Mexico, and blue chip names. We currently have Brazil neutrally weighted in
the Fund and will likely stay neutral as we expect continued volatility. We
believe Argentina is less risky than Brazil but the latter offers more
opportunity.
We view the environment for Asia and the region of Europe, Middle East and
Africa as one of decreased liquidity and a resulting shortage of high quality
stocks. We continue to be selective in these markets. One result going forward
could be more concentrated individual stock positions than in the past.
We feel emerging markets stocks are at very attractive valuations. With few
buyers, and fewer offerings, we believe out-of-favor stocks are currently cheap
with a favorable outlook.
The Fund has a forward P/E of 6.7x compared with 10.8x for the benchmark. The
MSCI EMF Index has a high growth-to-P/E ratio of 1.9x compared with other
investment alternatives. The Fund's growth-to P/E ratio is even more attractive
at 2.9x. We feel the Fund is well diversified across industry sectors and
invested in 26 markets.
Batterymarch Financial Management, Inc.
February 18, 1999
8
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON GLOBAL TRUST, INC.
PERFORMANCE COMPARISON OF A $10,000 INVESTMENT AS OF DECEMBER 31, 1998
The returns shown are based on historical results and are not intended
to indicate future performance. Total return measures investment
performance in terms of appreciation or depreciation in a Fund's 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. The investment return and principal value of an investment in
each 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.
The following graphs compare each Fund's total returns against that of
the most closely matched broad-based securities market index (except for
Navigator Class which requires a minimum initial investment of $50,000).
The lines illustrate the cumulative total return of an initial $10,000
investment for the periods indicated. The line for each Fund represents
the total return after deducting all Fund investment management and other
administrative expenses and the transaction costs of buying and selling
securities. The line representing the securities market index does not
include any transaction costs associated with buying and selling
securities in the index or other administrative expenses.
The International Equity Trust 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.
Global Government Trust -- Primary Class
Cumulative Average Annual
Total Return Total Return
One Year 11.50% 11.50%
Five Years 41.30 7.16
Life of Class(1) 50.85 7.45
+ Inception Date -- April 15, 1993
GLOBAL GOVERNMENT TRUST SALOMON BROTHERS WORLD GOVERNMENT
-- PRIMARY CLASS BOND INDEX (1)
4/15/93 $ 10,000 $ 10,000
12/93 10,676 10,577
12/94 10,526 10,825
12/95 12,716 12,884
12/96 13,762 13,350
12/97 13,529 13,389
12/98 15,085 15,429
<PAGE>
PERFORMANCE INFORMATION -- CONTINUED
INTERNATIONAL EQUITY TRUST -- PRIMARY CLASS
Cumulative Average Annual
Total Return Total Return
One Year 8.49% 8.49%
Life of Class+ 39.03 8.88
+ Inception Date --February 17, 1995
INTERNATIONAL EQUITY MORGAN STANLEY CAPITAL INTERNATIONAL
TRUST -- PRIMARY CLASS EUROPE, AUSTRALIA AND THE FAR EAST INDEX(2)
2/17/95 $ 10,000 $ 10,000
6/95 10,400 10,712
12/95 10,811 11,628
6/96 12,054 12,171
12/96 12,594 12,368
6/97 14,313 13,773
12/97 12,816 12,623
6/98 15,133 14,653
12/98 13,903 15,148
EMERGING MARKETS TRUST--PRIMARY CLASS
Cumulative Average Annual
Total Return Total Return
One Year -29.34% -29.34%
Life of Class+ -30.13 -12.89
+ Inception Date --May 28, 1996
EMERGING MARKETS TRUST -- MORGAN STANLEY CAPITAL INTERNATINAL
PRIMARY CLASS EMERGING MARKETS FREE INDEX(3)
5/28/96 $ 10,000 $ 10,000
6/96 10,020 10,062
12/96 10,540 9,641
6/97 12,767 11,352
12/97 9,889 8,524
6/98 8,372 6,916
12/98 6,987 6,364
10
<PAGE>
INTERNATIONAL EQUITY TRUST -- NAVIGATOR CLASS
Cumulative Average Annual
Total Return Total Return
Life of Class+ -9.42% N/A
+ Inception Date --May 5, 1998
INTERNATIONAL EQUITY TRUST MORGAN STANLEY CAPITAL INTERNATIONAL
-- NAVIGATOR CLASS EUROPE, AUSTRALIA, AND THE FAR
EAST INDEX(2)
5/5/98 $ 50,000 $ 50,000
6/98 49,015 50,135
9/98 39,268 43,260
12/98 45,291 51,895
- --------------------------------------------------------------------------------
(1) The Salomon Brothers World Government Bond Index measures the total return,
in U.S. dollar terms, of a portfolio of the most liquid and highest quality
bonds of each of fourteen countries. Index returns are for the periods
beginning March 31, 1993.
(2) The Morgan Stanley Capital International Europe, Australia and the Far East
Index is an unmanaged index based on share prices of approximately 1,100
companies listed on stock exchanges around the world. Twenty countries are
included in the index's portfolio. Index returns are for the periods
beginning February 28, 1995 for the Primary Class and April 30, 1998 for
Navigator Class.
(3) The Morgan Stanley Capital International Emerging Markets Free Index is a
market weighted aggregate of 26 individual emerging country indices and
takes into account local and market restrictions on share ownership by
foreigners. Index returns are for the periods beginning May 31, 1996.
11
<PAGE>
Industry Diversification
Legg Mason Global Trust, Inc.
December 31, 1998
International Equity Trust
% of Net
Assets Value
- --------------------------------------------------------------
(000)
Aerospace 1.7% $ 4,292
Agriculture/Food 1.0 2,667
Air Transport 0.4 1,181
Aluminum 0.1 361
Banks 11.2 28,881
Business Machines 1.6 4,277
Chemicals 1.7 4,345
Construction 6.6 16,971
Consumer Durables 0.2 465
Containers 0.5 1,268
Drugs/Medicine N.M. 3
Electric Utilities 1.5 3,996
Electronics 6.5 16,813
Entertainment and Leisure 0.9 2,350
Finance 18.5 47,855
Food, Beverage and Tobacco 2.5 6,491
Forest Products N.M. 75
Gas Utilities 1.5 3,781
Health (Non-Drug) N.M. 17
Insurance 9.8 25,245
Miscellaneous 0.6 1,660
Motor Vehicles 5.0 12,936
Non-Ferrous Metals 2.6 6,652
Oil Refining/Distribution 1.3 3,440
Oil Service 1.0 2,502
Paper 1.1 2,895
Photo/Optical 0.5 1,182
Producer Goods 1.2 3,119
Publishing 0.9 2,372
Railroads/Transit N.M. 11
Real Property 0.2 426
Retail (Non-Food) 1.3 3,298
Services 5.0 12,965
Telecommunications 7.7 19,901
Tire and Rubber 2.4 6,103
Trucking/Freight 0.5 1,309
Water Transport 0.7 1,888
Short-term Investments 1.7 4,325
---- -------
Total Investment Portfolio 99.9 258,318
Other Assets Less Liabilities 0.1 248
----- --------
NET ASSETS 100.0% $258,566
===== ========
N.M. Not meaningful
Emerging Markets Trust
% of Net
Assets Value
- --------------------------------------------------------------
(000)
Aerospace 0.7% $ 316
Agriculture/Food 2.4 1,007
Air Transport 0.3 118
Apparel/Textiles 0.7 317
Banks 8.1 3,446
Business Machines 5.8 2,470
Chemicals 1.3 536
Coal and Uranium 1.8 785
Construction 4.6 1,939
Consumer Durables 3.2 1,355
Domestic Oil Reserves 2.0 850
Drugs/Medicine 1.8 772
Electric Utilities 3.9 1,670
Electronics 3.3 1,392
Entertainment and Leisure 0.6 267
Finance 5.7 2,414
Food, Beverage and Tobacco 7.0 2,949
Forest Products 5.5 2,320
Gas Utilities 0.9 365
Hotel/Restaurant 0.6 240
Insurance 2.8 1,167
Iron and Steel 3.4 1,454
Media 1.2 493
Miscellaneous 6.8 2,867
Motor Vehicles 5.6 2,379
Oil Service 1.5 643
Producer Goods 0.8 326
Retail (Non-Food) 0.4 162
Services 0.8 335
Telecommunications 16.8 7,112
Water Transport 0.6 246
----- ------
Total Investment Portfolio 100.9 42,712
Other Assets Less Liabilities (0.9) (371)
----- -------
NET ASSETS 100.0% $42,341
====== =======
12
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Global Trust, Inc.
December 31, 1998
(Amounts in Thousands)
Global Government Trust
Maturity
Rate Date Currency Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term Debt Securities -- 96.4%
British Sterling -- 12.0%
Bayerische Hypotheken Bank 7% 2/25/00 GBP 880 $ 1,481
Daimler-Benz UK, PLC 7% 2/25/00 500 841
NTL, Inc. 0% 4/1/08 1,500 1,400B,C
Powergen (East Midlands) 8.125% 6/6/07 700 1,324
United Kingdom Treasury Stock 7% 6/7/02 1,500 2,680
United Kingdom Treasury Stock 6% 12/7/28 2,400 5,144
Welcome Break Financial PLC 8.284% 9/1/17 800 1,644
- ------------------------------------------------------------------------------------------------------------------------
14,514
- ------------------------------------------------------------------------------------------------------------------------
Canadian Dollar -- 1.5%
Shaw Communications, Inc. 8.54% 9/30/27 CAD 3,000 1,838
- ------------------------------------------------------------------------------------------------------------------------
Danish Krone -- 7.3%
Kingdom of Denmark 6% 11/15/02 DKK 30,000 5,063
Kingdom of Denmark 7% 11/15/07 19,750 3,726
- ------------------------------------------------------------------------------------------------------------------------
8,789
- ------------------------------------------------------------------------------------------------------------------------
European Currency Unit -- 1.3%
Cellular Communications
International, Inc. 6% 4/1/05 ECU 1,600 1,539B,C
- ------------------------------------------------------------------------------------------------------------------------
German Deutschmark -- 11.6%
Colt Telecom Group 7.625% 7/31/08 DEM 750 443
Deutsche Bundesrepublik 5.125% 11/21/00 5,800 3,603
Deutsche Bundesrepublik 6.75% 7/15/04 5,400 3,761
Deutsche Bundesrepublik 5.625% 1/4/28 6,500 4,395
Esprit Telecom Group plc 11.50% 12/15/07 1,000 612
Geberit International SA 10.125% 4/15/07 1,000 690
Netia Holdings, B.V. 11% 11/1/07 1,650 559B,C
- ------------------------------------------------------------------------------------------------------------------------
14,063
- ------------------------------------------------------------------------------------------------------------------------
Greek Drachma -- 3.6%
Republic of Greece 8.90% 3/21/04 GRD 140,000 534
Republic of Greece 8.60% 3/26/08 970,000 3,849
- ------------------------------------------------------------------------------------------------------------------------
4,383
- ------------------------------------------------------------------------------------------------------------------------
Hungarian Forint -- 1.1%
Government of Hungary 16% 4/12/00 HUF 274,000 1,282
- ------------------------------------------------------------------------------------------------------------------------
Italian Lira -- 6.9%
Buoni del Tesoro Poliennali 4.75% 5/1/03 ITL 13,000,000 8,303
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
Global Government Trust -- Continued
Maturity
Rate Date Currency Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Netherlands Guilder -- 6.6%
Netherlands Government 5.25% 7/15/08 NLG 13,500 $ 7,912
- ------------------------------------------------------------------------------------------------------------------------
New Zealand Dollar -- 3.8%
New Zealand Government 7% 7/15/09 NZD 7,850 4,625
- ------------------------------------------------------------------------------------------------------------------------
Polish Zloty -- 1.2%
Government of Poland 14% 6/12/00 PLN 5,000 1,457
- ------------------------------------------------------------------------------------------------------------------------
South African Rand -- 1.0%
Republic of South Africa 13% 8/31/10 ZAR 8,000 1,151
- ------------------------------------------------------------------------------------------------------------------------
Swedish Krona -- 3.5%
Kingdom of Sweden 5% 1/28/09 SEK 32,500 4,228
- ------------------------------------------------------------------------------------------------------------------------
United States Dollar -- 35.0%
Foreign Corporate -- 3.6%
Cathay International Ltd. 13% 4/15/08 USD 750 276E
Globo Communicacoes e Participacoes S.A. 10.625% 12/5/08 650 424E
IBJ Preferred Capital Corp. LLC 8.79% 12/29/49 500 439B,C,E
Interamericas Communications 14% 10/27/07 500 260B,E
Petroleos Mexicanos 8.85% 9/15/07 2,750 2,447E
SBTreasury Company LLC 9.40% 12/29/49 500 492B,C,E
- ------------------------------------------------------------------------------------------------------------------------
4,338
- ------------------------------------------------------------------------------------------------------------------------
Foreign Government -- 11.4%
Kingdom of Morocco 6.063% 1/1/09 6,000 4,740E,F
Republic of Argentina 11% 12/4/05 1,000 1,001E
Republic of Brazil 6.125% 4/15/06 1,109 711A,E
Republic of Brazil 8% 4/15/14 3,533 2,089D,E
Republic of South Korea 8.875% 4/15/08 2,000 2,055A,E
United Mexican States 11.375% 9/15/16 3,000 3,090E
Vnesheconombank 5.969% 12/15/20 1,500 90A,E
- ------------------------------------------------------------------------------------------------------------------------
13,776
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations -- 20.0%
United States Treasury Bonds 6.375% 8/15/27 14,690 16,884
United States Treasury Bonds 3.625% 4/15/28 507 492G
United States Treasury Notes 3.625% 7/15/02 4 4G
United States Treasury Notes 5.75% 4/30/03 4,400 4,580
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Maturity
Rate Date Currency Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States Dollar -- Continued
United States Treasury Notes 6.125% 8/15/07 USD 50 $ 55
United States Treasury Notes 3.625% 1/15/08 2,236 2,193G
- ------------------------------------------------------------------------------------------------------------------------
24,208
- ------------------------------------------------------------------------------------------------------------------------
Total Long-term Debt Securities (Identified Cost-- $116,084) 116,406
- ------------------------------------------------------------------------------------------------------------------------
WARRANTS --N.M.
United States Dollar --N.M.
Republic of Argentina 0% USD 1 wt 31
- ------------------------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost-- $18) 31
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.1%
Options Purchased -- 0.1%
Federal Republic of Germany --EuroCall
Jan 99, Strike Price $1.66 DEM 7,000H 2
Federal Republic of Germany--EuroCall
Mar 99, Strike Price $1.51 DEM 70,000H 10
Government of Japan--EuroCall
Jan 99, Strike Price $104.978 JPY 48,000H 83
- ------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (Identified Cost-- $192) 95
- ------------------------------------------------------------------------------------------------------------------------
Total Investments-- 96.5% (Identified Cost-- $116,294) 116,532
Other Assets Less Liabilities-- 3.5% 4,273
------------------------------------------------------------------------------------------------------------------
Net assets consisting of:
Accumulated paid-in capital applicable to 11,913
shares outstanding $121,510
Overdistributions of net investment income (2,018)
Undistributed net realized gain on investments and foreign currency transactions 9
Unrealized appreciation of investments and foreign currency transactions 1,304
------------------------------------------------------------------------------------------------------------------
Net assets-- 100.0% $120,805
Net asset value per share $10.14
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Indexed Security -- The rate of interest earned on each security is tied to
the London Interbank Offered Rate (LIBOR). The coupon rate for each is the
rate as of December 31, 1998.
(B) 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. These securities represent approximately
3.9% of net assets.
(C) Stepped coupon security -- A bond or preferred stock which amortizes to par
by a specific date at which time it begins to accrue interest or pay
dividends.
(D) Front Loaded Interest Reduction Bond (FLIRB) -- Security pays a portion of
the coupon in cash and a portion is capitalized as an increase in par value.
(E) Yankee Bond -- Dollar-denominated bond issued in the U.S. by foreign
entities.
(F) Illiquid Security -- A security that cannot be disposed of within seven days
for approximately the price at which the Fund values it.
(G) United States Treasury Inflation - Indexed Security -- U.S. Treasury
Security whose prinicipal value is adjusted daily in accordance with changes
to the Consumer Price Index. Interest is calculated on the current adjusted
principal value.
(H) This represents the actual number of contracts.
N.M. Not meaningful
See notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Global Trust, Inc.
December 31, 1998
(Amounts in Thousands)
International Equity Trust
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 98.0%
<S> <C> <C> <C>
Argentina -- 0.7%
Telefonica de Argentina S.A. 644 $ 1,836
-----------
Australia -- 4.3%
Amcor Ltd. 193 824
Australia & New Zealand Bank Group Limited 137 900
Comalco Limited 94 361
Commonwealth Bank of Australia 41 576
GIO Australia Holdings Limited 218 717
Goodman Fielder Limited 429 433
National Australia Bank Limited 222 3,350
Newcrest Mining Limited 190 263
St. George Bank Limited 154 975
The News Corporation Limited 110 724
Westpac Banking Corporation Limited 310 2,077
-----------
11,200
-----------
Austria -- 1.8%
Bank Austria AG 47 2,410
OMV AG 22 2,111
-----------
4,521
-----------
Belgium -- 4.5%
Compagnie Benelux Paribas SA 37 3,101
D'Ieteren SA 1 488
Dexia Belgium 9 1,430
Fortis AG 3 1,188
KBC Bancassurance Holding 35 2,715
Suez Lyonnaise des Eaux 13 2,679
Suez Lyonnaise des Eaux - Rights 13 75A
Suez Lyonnaise des Eaux - Strip 13 N.M.A
-----------
11,676
-----------
Brazil -- 0.1%
Companhia Paulista de Forca e Luz-- CPFL 1,900 137
-----------
Chile -- 0.5%
Enersis S.A. ADR 51 1,304
-----------
Denmark -- 0.7%
A/S Dampskibsselskabet Svendborg N.M. 101
Sophus Berendsen 10 339
Tele Danmark A/S 10 1,363
-----------
1,803
-----------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finland -- 1.4%
Finnlines OY 29 $ 1,240
Kesko Oyj 55 820
Metsa-Serla Oyj 201 1,636
-----------
3,696
-----------
France -- 7.8%
Axa 5 652
Bollore Technologies SA 7 1,327
Bouygues Offshore S.A. 23 523
Ciments Francais 37 2,058
Eridania Beghin-Say SA 1 208
Groupe GTM 13 1,307
Lafarge SA 33 3,172
PSA Peugeot Citroen 18 2,785
Renault SA 78 3,506
SEITA 40 2,473
Strafor-Facom SA 5 355
Vivendi 6 1,660
-----------
20,026
-----------
Germany -- 8.8%
BASF AG 14 517
Continental AG 82 2,266
DaimlerChrysler AG 9 888
Deutsche Lufthansa AG 54 1,181
Deutsche Pfandbrief-und Hypothekenbank AG 23 2,032
Deutsche Telekom AG N.M. 2
HypoVereinsbank 48 3,719
Preussag AG 9 3,841
Siemens AG 59 3,803
Volkswagen AG 56 4,469
-----------
22,718
-----------
Greece -- 1.0%
Ergo Bank S.A. 22 2,567
-----------
Hong Kong -- 2.2%
Champion Technology Holdings 20,118 332
CLPHoldings Limited 732 3,647
HKR International Ltd. 699 427
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
International Equity Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong -- Continued
Hong Kong Telecommunications Ltd. 332 $ 581
Innovative International Holdings 698 90
Innovative International Holdings - Warrants 70 N.M.A
Peregrine Investment Holdings Limited 256 N.M.B
Smartone Telecommunications 151 419
Wong's International Holdings Ltd. 501 58
Wong's International Holdings Ltd. - Warrants 100 N.M.A
-----------
5,554
-----------
Ireland -- 2.6%
Allied Irish Banks plc 222 3,970
Bank of Ireland 92 2,041
Jefferson Smurfit Group plc 431 776
-----------
6,787
-----------
Israel -- 0.5%
Bezeq Israeli Telecommunication Corporation Ltd. 436 1,359
-----------
Italy -- 9.0%
Autostrada Torino-Milano S.p.A 86 455
Banca Agricola Mantovana 50 812
Banca Commerciale Italiana 199 1,373
Banca Nazionale del Lavoro (BNL) 980 2,931A
Banca Popolare di Bergamo Credito Varesino SpA 123 2,973
Banca Popolare di Brescia 78 1,894
ENI SpA 353 2,307
Italmobiliare 54 1,673
Magneti Marelli 164 284
Mondadori (Arnoldo) Editore SpA 61 800
Pirelli S.p.A 114 364
San Paolo IMI SpA 54 961
Telecom Italia SpA 764 6,516
-----------
23,343
-----------
Japan -- 7.9%
Bridgestone Corp. 125 2,836
Canon Inc. 132 2,820
Citizen Watch Co. 329 1,979
Daiwa Securities Co. Ltd. 429 1,465
Eisai Company, Ltd. N.M. 3
Fuji Photo Film 8 297
Furukawa Electric Co. 572 1,948
Jaccs Co., Ltd. 99 447
Katokichi Co., Ltd. 3 46
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japan -- Continued
Kawasaki Kisen Kaisha Ltd. 671 $ 902
Kishu Paper Co., Ltd. 10 20
Marubeni Corporation 30 51
Maruzen Showa Unyu Co., Ltd. 6 11
Mazda Motor Corporation 180 701
Minolta Co., Ltd. 75 370
Mitsubishi Rayon Company, Ltd. 215 588
Mitsui O.S.K. Lines 189 304
NSK Limited 146 545
Olympus Optical Co., Ltd. 53 609
Ricoh Company, Ltd. 110 1,014
Sanrio Company, Ltd. 24 310
Sumitomo Rubber Industries, Ltd. 76 362
The Bank of Iwate, Ltd. 18 914
Toho Zinc Co., Ltd. 246 598
Yakult Honsha Co., Ltd. 153 954
Yamaha Motor Co., Ltd. 47 303
-----------
20,397
-----------
Netherlands -- 8.4%
ABN AMRO Holding NV 29 614
AEGON N.V. 36 4,456
Akzo Nobel N.V. 59 2,694
ASR Verzekeringsgroep N.V. 10 914
Fortis Amev NV 11 940
Fugro N.V. 23 529
Hollandsche Beton Groep N.V. 24 295
ING Groep N.V. 84 5,123
Internatio-Muller NV 46 1,126
Koninklijke Ahrend NV 3 69
Koninklijke Van Ommeren N.V. 43 1,348
NBM-Amstelland N.V. 56 1,305
Roto Smeets de Boer N.V. 17 647
Royal Volker Wessels Stevin NV 56 1,103
Van der Moolen Holding N.V. 9 567
-----------
21,730
-----------
New Zealand -- 1.3%
Fletcher Challenge Energy 131 248
Telecom Corporation of New Zealand Limited 731 3,174
-----------
3,422
-----------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
International Equity Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norway -- 0.1%
Aker RGI ASA - B Shares 4 $ 32
Ekornes ASA 14 111
Hafslund ASA 4 16
Saga Petroleum ASA 21 191
-----------
350
-----------
Portugual -- 2.1%
Cimpor-Cimentos de Portugal, SGPS, SA 76 2,435
Portugal Telecom SA 62 2,865
Semapa 6 113
-----------
5,413
-----------
Singapore -- 0.2%
Oversea-Chinese Banking Corporation Ltd. 88 597
-----------
South Korea -- 0.5%
Samsung Electronics Co. 8 552
Samsung Heavy Industries 113 641
-----------
1,193
-----------
Spain -- 5.2%
Argentaria, Caya Postal y Banco Hipotecario de Espana, SA 110 2,855
Banco Bilbao Vizcaya, S.A. 179 2,801
Banco Central Hispanoamericano 133 1,572
Banco Santander SA 158 3,137
Repsol SA 15 804
Tabacalera S.A. 89 2,229
-----------
13,398
-----------
Sweden -- 2.7%
ABB AB 222 2,352
Electrolux AB 199 3,410
Mo och Domsjo AB 20 424
Svedala Industri 60 868
-----------
7,054
-----------
Switzerland -- 5.3%
Ascom Holding AG 1 1,072
Banca del Gottardo 1 518
Danzas Holding AG 1 401
Fotolabo S.A. 1 275
Georg Fischer AG N.M. 135
Holderbank Financiere Glarus AG 2 2,941
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Switzerland -- Continued
Rieter Holdings Ltd. 2 $ 1,284
Schweizerische Ruckvericherungs-Gesellschaft 2 5,970
Verwaltungs-und Privat-Bank AG N.M. 1,016
- ------------------------------------------------------------------------------------------------------------------------
13,612
- ------------------------------------------------------------------------------------------------------------------------
Turkey -- 0.3%
Akbank T.A.S. 22,178 450
Yapi ve Kredi Bankasi A.S. 34,138 395
- ------------------------------------------------------------------------------------------------------------------------
845
- ------------------------------------------------------------------------------------------------------------------------
United Kingdom -- 18.1%
ASDA Group plc 237 636
Bank of Scotland 182 2,171
Barclays PLC 158 3,415
Barratt Developments plc 238 913
British Aerospace PLC 144 1,224
British Telecommunications plc 47 705
British Vita plc 25 89
CGU PLC 46 724
English China Clays plc 159 431
General Electric Company plc 171 1,551
J Sainsbury plc 377 3,050
Ladbroke Group plc 508 2,043
Legal & General Group plc 89 1,162
Lex Service plc 238 1,519
Lloyds TSB Group plc 334 4,754
Misys plc 121 888
National Westminster Bank PLC 168 3,244
PowerGen plc 184 2,412
Prudential Corporation PLC 245 3,734
Rentokil Initial PLC 528 3,994
Reuters Group PLC 17 178
Rexam plc 170 471
Scottish & Newcastle plc 103 1,194
Sun Life and Provincial Holdings plc 104 925
Thames Water plc 41 796
Unilever plc 96 1,074
WPP Group plc 585 3,545
----------
46,842
----------
Total Common Stocks and Equity Interests (Identified Cost-- $215,328) 253,380
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
International Equity Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stocks -- 0.2%
Germany -- 0.2%
Rheinmetall AG 33 $ 613
----------
Total Preferred Stocks (Identified Cost-- $791) 613
----------
Repurchase Agreements -- 1.7%
Goldman, Sachs & Company
5%, dated 12/31/98, to be repurchased at $4,328 on 1/4/99
(Collateral: $4,406 Fannie Mae Mortgage-backed securities,
6.50% due 8/1/02, value $4,471)
(Identified Cost-- $4,325) $4,325 4,325
- -----------------------------------------------------------------------------------------------------------------------
Total Investments-- 99.9% (Identified Cost-- $220,444) 258,318
Other Assets Less Liabilities-- 0.1% 248
----------
Net assets consisting of:
Accumulated paid-in capital applicable to:
20,454 Primary Shares outstanding $240,125
4 Navigator Shares outstanding 50
Overdistributions of net investment income (4,570)
Accumulated net realized loss on investments and foreign currency transactions (14,880)
Unrealized appreciation of investments and foreign currency transactions 37,841
-----------
Net assets -- 100.0% $258,566
----------
Net asset value per share:
Primary Class $12.64
----------
Navigator Class $12.64
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
A Non-income producing
B In bankruptcy proceedings and non-income producing
ADR - American Depository Receipt
N.M. Not meaningful
See notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Legg Mason Global Trust, Inc.
December 31, 1998
(Amounts in Thousands)
Emerging Markets Trust
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks and Equity Interests -- 95.1%
Argentina -- 5.5%
Banco Frances del Rio de la Plata S.A. ADR 25 $ 511
Quilmes Industrial SA ADR 61 566
Telefonica de Argentina S.A. ADR 14 402
YPFSociedad Anonima SA ADR 31 852
----------
2,331
----------
Brazil -- 7.5%
Centrais Electricas Braseiras S/A 12,233 211A
Companhia Brasileira de Distribuicao Grupo Pao de Acucar ADR 16 248
Companhia de Eletricidade do Estado do Rio de Janeiro 980,900 325A
Companhia Energetica de Minas ADR 17 326
Gerdau Metalurgica S/A 79 1
Souza Cruz S.A. 27 174
Telecomunicacoes Brasileiras S/A 42,647 1,906
----------
3,191
----------
Chile -- 1.7%
Chilectra S.A. ADR 23 515
Sociedad Quimica y Minera de Chile ADR 6 216
----------
731
----------
China -- 8.4%
Bengang Steel Plates Co., Ltd. 790 87
Brilliance China Automotive Holdings, Ltd. 280 2,152
China International Marine Containers Ltd. 250 118
Guangdong Kelon Electric Holding 230 205
Guangzhou Pharmaceutical Company Limited 500 53
Huaneng Power International, Inc. ADR 11 155A
Northeast Electrical Transmission & Transformation
Machinery Manufacturing Co., Ltd. 1,000 66A
Shandong Huaneng Power Company Ltd. ADR 76 345
Shenzhen Expressway Company Limited 1,000 232B
Shenzhen Konka Electronics Group Limited 250 126
----------
3,539
----------
Egypt -- 2.7%
Arabian International Construction 46 308A
EFG-Hermes Holding S.A.E. GDR 8 78A,B
Egypt Investment Company Ltd. 10 103A
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets - Continued
Legg Mason Global Trust, Inc.
Emerging Markets Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Egypt -- Continued
International Food Egypt 5 $ 73A
Miraco International B.V. 2 41A
Orascom Projects & Touristic Development 6 219A
Oriental Weavers Co. 14 318
----------
1,140
----------
Greece -- 3.5%
Hellenic Telecommunication Organization S.A. 38 1,000
Heracles General Cement S.A. 17 472
----------
1,472
----------
Hong Kong -- 2.8%
China Pharmaceutical Enterprise and Investment Corporation Limited 2,249 255
Guangdong Brewery Holdings Limited 3,500 208
Legend Holdings Limited 1,000 352
Pacific Ports Company Ltd. 474 46
Shum Yip Investment Limited 1,000 237
Vanda Systems &Communication Holdings Ltd. 1,000 74
----------
1,172
----------
Hungary -- 1.9%
Magyar Olaj Es Gazipari KT 20 546
Magyar Tavkozlesi Rt. ADR 8 238
----------
784
----------
India -- 6.4%
Dr. Reddy's Laboratories Ltd. 30 343
ITCLimited GDR 27 610
NIIT Limited 9 336
Satyam Computer Services Limited 35 618
State Bank of India GDR 45 376A,B
Wipro Ltd. 10 436
----------
2,719
----------
Indonesia -- N.M.
Bank Internasional Indonesia - Warrants 29 N.M. A
----------
Israel -- 4.0%
Bank Hapoalim 79 143
Bank Leumi Le - Israel 83 117
Formula Systems (1985) Ltd. 13 319A
Makhteshim Chemical Works Limited 149 321A
NICE - Systems Ltd. ADR 12 252A
Orbotech, Ltd. 12 559A
----------
1,711
----------
</TABLE>
24
<PAGE>
<TABLE>
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kazakhstan -- 0.3%
Regent Central Asia Fund 97 $ 145A
----------
MalaysiaC -- 1.9%
Lingui Developments Berhad 272 135
Malakoff Berhad 171 280
Rothmans of Pall Mall (Malaysia) Berhad 34 140
Tanjong PLC 269 268
----------
823
----------
Mexico -- 12.7%
Biper S.A. de C.V. 1,252 240A
Cemex SA de CV 185 399
Fomento Economico Mexicana, SA de C.V. ADR 20 530
Grupo Continental, S.A. 67 162
Grupo Financiero Banamex Accival, SA de CV 340 446A
Grupo Industrial Bimbo SA de CV 235 413
Grupo Modelo S.A. de C.V. 226 479
Grupo Televisa SAADR 20 494A
Organizacion Soriana SA de CV 188 608
Telefonos de Mexico SA 565 1,392
Tubos de Acero de Mexico SA ADR 31 199
----------
5,362
----------
Namibia -- 0.6%
Namibian Minerals Corporation 204 267A
----------
Poland -- 0.7%
Amica Wronki 26 116A
Mostostal-Warszawa S.A.GDR 32 152A,B
Zaklady Plyt Wiorowych Grajewo 1 13A
----------
281
----------
Romania -- 0.5%
Societe Generale Romania Fund 5 223A
----------
South Africa -- 6.3%
Anglo American Corporation of South Africa Limited 14 386
Rembrandt Group Limited 161 954
Sasol Limited 208 786
Southern Africa Fund, Inc. 59 543
----------
2,669
----------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
Emerging Markets Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Korea -- 6.9%
Hana Bank GDR 32 $ 405A
Hansol Paper 25 285
Korea Electric Power Corporation 15 372
LG Insurance Company LTD. 11 384
Pohang Iron & Steel Company Ltd. 3 166
SK Corporation GDS 63 219A
SK Telecom Co. Ltd. N.M. 98
Samsung Electronics Co. 8 525
Samsung Fire & Marine Insurance 1 419
Samsung Fire & Marine Insurance - Rights N.M. 65A
----------
2,938
----------
Spain -- 0.6%
Melia Inversiones Americanas, N.V. 6 239A
----------
Taiwan -- 4.1%
Asustek Computer Inc. GDR 50 464A,B
Cathay Life Insurance Co., Ltd. 54 174
China Development Corporation 81 148A
China Steel Corporation GDR 15 185B
D-Link Corporation 46 107
Evergreen Marine Corporation GDR 11 99B
President Enterprises GDS 13 112A,B
Standard Foods Taiwan Limited 55 93A
Taiwan Semiconductor Manufacturing Company 28 61A
Teco Electric & Machinery GDR 22 188A,B
Yang Ming Marine Transport GDR 15 102A,B
----------
1,733
----------
Thailand -- 4.4%
Advanced Info Service Public Co., Ltd. 50 297
National Finance Public Company Limited 800 253
PTT Exploration & Production Public Company Limited 58 410A
Siam Cement Public Company Limited 40 907
----------
1,867
----------
Turkey -- 4.3%
Akbank T.A.S. 15,357 311
Aksigorta A.S. 4,300 131
Alfa Menkul Degerler A.S. 22,000 112A
Arcelik A.S. 8,929 258
Aselsan Askeri Elektronik A.S. 2,952 61
Borusan Birlesik Boru Fabrikalari A.S. 1,503 41
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Turkey -- Continued
Eczacibasi Ilac Sanayi ve Ticaret A.S. 2,813 $ 123A
Klimasan Klima Sanayi ve Ticaret A.S. 2,270 201
Kordsa Kord Bezi Sanayi ve Ticaret A.S. 4,452 126
Turkiye Garanti Bankasi A.S. 4,254 105A
Turkiye Is Bankasi (Isbank) 8,250 214
Yapi ve Kredi Bankasi A.S. 12,641 146
----------
1,829
----------
Ukraine -- 0.7%
Societe Generale Laden Thal Ukraine Fund 5 278A
----------
United States -- 5.8%
Global Telesystems Holdings Ltd. 44 2,447A
----------
Venezuela -- 0.9%
Compania Anonima Nacional Telefonos de Venezuela ADS 20 358
----------
Total Common Stocks and Equity Interests (Identified Cost-- $ 46,349) 40,249
- ----------------------------------------------------------------------------------------------------------------------------
Preferred Shares-- 5.8%
Argentina -- 0.9%
Nortel Inversora S.A. ADR 24 393
----------
Brazil -- 4.9%
Banco Itau S.A. 1,390 679
Companhia Paranaense de Energia-Copel 41,300 297
Companhia Vale do Rio Doce 35 445
Empresa Brasileira de Aeronautica, SA 25,500 317A
Gerdau Metalurgica S/A 10,676 177
Gerdau Siderugica SA 20,865 155
----------
2,070
----------
Total Preferred Shares (Identified Cost-- $ 3,675) 2,463
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets -- Continued
Legg Mason Global Trust, Inc.
Emerging Markets Trust -- Continued
Shares/Par Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Investments-- 100.9% (Identified Cost-- $ 50,024) $42,712
Other Assets Less Liabilities-- (0.9)% (371)
----------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to 6,086 shares outstanding $ 72,089
Accumulated net operating loss (13)
Accumulated net realized loss on investments and foreign currency transactions (22,417)
Unrealized depreciation of investments and foreign currency transactions (7,318)
------------
NET ASSETS-- 100.0% $42,341
==========
NET ASSET VALUE PER SHARE $6.96
==========
</TABLE>
-----------------------------------------------------------------------------
A Non-income producing
B 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.
C As of September 1, 1998, the repatriation of proceeds received from the sale
of Malaysian securities cannot be accomplished until at least 9/1/99. The
Fund's Malaysian securities are therefore considered illiquid and are being
fair valued using methods determined in good faith by the Board of Trustees.
ADR American Depository Receipt
GDR Global Depository Receipt
N.M. Not meaningful
See notes to financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
Legg Mason Global Trust, Inc.
(Amounts in Thousands)
Year Ended 12/31/98
- ------------------------------------------------------------------------------------------------------------------------
Global International Emerging
Government Equity Markets
Trust Trust Trust
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 7,947 $ 344 $ 108
Dividends -- 6,053 1,421
Less: Foreign tax withheld -- (697) (93)
------- ------- --------
Total income 7,947 5,700 1,436
------- ------- --------
Expenses:
Management fee 935 1,951 554
Distribution and service fees 935 2,601 554
Transfer agent and shareholder servicing expense 86 272 89
Audit and legal fees 65 50 47
Custodian fee 221 560 196
Directors' fees 6 6 6
Organization expense 6 14 15
Registration fees 18 21 26
Reports to shareholders 32 52 18
Other expenses 27 29 36
------- ------- --------
2,331 5,556 1,541
Less fees waived -- -- (156)
------- ------- --------
Total expenses, net of waivers 2,331 5,556 1,385
------- ------- --------
NET INVESTMENT INCOME 5,616 144 51
------- ------- --------
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on:
Investments, options and futures 3,044 (8,396) (20,688)
Foreign currency transactions 1,157 (785) (62)
------- ------- --------
4,201 (9,181) (20,750)
------- ------- --------
Change in unrealized appreciation (depreciation) of:
Investments, options and futures 3,137 25,825 300
Assets and liabilities denominated in foreign currencies 63 34 (7)
------- ------- --------
3,200 25,859 293
------- ------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 7,401 16,678 (20,457)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $13,017 $16,822 $(20,406)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Legg Mason Global Trust, Inc.
(Amounts in Thousands)
Global International Emerging
Government Equity Markets
Trust Trust Trust
--------------------- --------------------- ----------------------
Years Ended Years Ended Years Ended
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Change in Net Assets:
Net investment income (loss) $ 5,616 $ 8,300 $ 144 $ 368 $ 51 $ (424)
Net realized gain (loss) on
investments, options, futures
and foreign currency transactions 4,201 (3,888) (9,181) 15 (20,750) (1,729)
Change in unrealized appreciation
(depreciation) of investments and
assets and liabilities denominated
in foreign currencies 3,200 (7,126) 25,859 (809) 293 (8,793)
- ------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 13,017 (2,714) 16,822 (426) (20,406) (10,946)
Distributions to shareholders:
From net investment income:
Primary Class (5,948) (7,473) (2,768) (1,483) -- (66)
Navigator Class N/A N/A (1) N/A N/A N/A
In excess of net investment income:
Primary Class -- (641) -- -- -- --
Navigator Class N/A N/A -- N/A N/A N/A
From net realized gain on investments:
Primary Class (744) (1,553) -- (8,167) -- --
Navigator Class N/A N/A -- N/A N/A N/A
Change in net assets from Fund share transactions:
Primary Class (22,252) (12,436) 16,808 69,805 (2,555) 55,108
Navigator Class N/A N/A 50 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Change in net assets (15,927) (24,817) 30,911 59,729 (22,961) 44,096
Net Assets:
Beginning of year 136,732 161,549 227,655 167,926 65,302 21,206
- ------------------------------------------------------------------------------------------------------------------------
End of year $120,805 $136,732 $258,566 $227,655 $ 42,341 $ 65,302
- ------------------------------------------------------------------------------------------------------------------------
Under/(over) distributed
net investment income $ (2,018) $ (5,134) $ (4,570) $ (1,523)$ (13) $ (232)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
30
<PAGE>
Financial Highlights
Legg Mason Global 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>
Investment Operations Distributions:
--------------------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on Invest- From In Excess
Net Asset Net ments, Options, Total From In Excess Net of Net
Value, Investment Futures and From Net of Net Realized Realized
Beginning Income Foreign Currency Investment Investment Investment Gain on Gain on
of Year (Loss) Transactions Operations Income Income Investments Investments
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Global Government Trust
--Primary Class
Years Ended Dec. 31,
1998 $ 9.60 $ .37 $ .70 $ 1.07 $ (.47) $ -- $(.06) $ --
1997 10.41 .54 (.71) (.17) (.48) (.05) (.11) --
1996 10.33 .59 .21 .80 (.62) -- (.10) --
1995 9.54 .63 1.32 1.95 (1.16) -- -- --
1994 10.27 .57A (.71) (.14) (.59) -- -- --
International Equity Trust
--Primary Class
Years Ended Dec. 31,
1998 $11.78 $ .01 $ .99 $ 1.00 $ (.14) $ -- $ -- $ --
1997 12.09 .02 .19 .21 (.08) -- (.44) --
1996 10.70 .02B 1.74 1.76 (.05) -- (.32) --
1995D 10.00 .04B .77 .81 (.04) -- -- (.07)
--Navigator Class
Period Ended Dec. 31,
1998E $14.21 $ .10 $ (1.44) $ (1.34) $ (.23) $ -- $ -- $ --
Emerging Markets Trust
--Primary Class
Years Ended Dec. 31,
1998 $ 9.85 $ .01C $(2.90) $(2.89) $-- $ -- $-- $ --
1997 10.51 (.02)C (.63) (.65) (.01) -- -- --
1996F 10.00 (.03)C .57 .54 (.03) -- -- --
<CAPTION>
Distributions: Ratios/Supplemental Data
-------------- ----------------------------------------------------------------
Net
Net Asset Investment Net Assets,
Value, Expenses Income (Loss) Portfolio End of
Total End of Total to Average to Average Turnover Year
Distributions Year Return Net Assets Net Assets Rate (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Government Trust
--Primary Class
Years Ended Dec. 31,
1998 $ (.53) $10.14 11.50% 1.87% 4.51% 288% $120,805
1997 (.64) 9.60 (1.69)% 1.86% 5.39% 241% 136,732
1996 (.72) 10.41 8.22% 1.86% 5.80% 172% 161,549
1995 (1.16) 10.33 20.80% 1.81% 5.72% 169% 153,954
1994 (.59) 9.54 (1.40)% 1.34%A 5.71%A 127% 145,415
International Equity Trust
--Primary Class
Years Ended Dec. 31,
1998 $ (.14) $12.64 8.49% 2.14% .06% 72% $258,521
1997 (.52) 11.78 1.76% 2.17% .17% 59% 227,655
1996 (.37) 12.09 16.49% 2.25%B .21%B 83% 167,926
1995D (.11) 10.70 8.11%G 2.25%B,H .52%B,H 58%H 65,947
--Navigator Class
Period Ended Dec. 31
1998E $ (.23) $12.64 (9.42)%G 1.04%H 1.17%H 72%H $ 45
Emerging Markets Trust
--Primary Class
Years Ended Dec. 31,
1998 $ -- $ 6.96 (29.34)% 2.50%C .09%C 76% $42,341
1997 (.01) 9.85 (6.18)% 2.50%C (.76)%C 63% 65,302
1996F (.03) 10.51 5.40%G 2.50%C,H (.68)%C,H 46%H 21,206
</TABLE>
A Net of fees waived by LMFA for expenses in excess of voluntary expense
limitations of 0.5% until January 31, 1994; 0.7% until February 28, 1994;
0.9% until March 31, 1994; 1.1% until April 30, 1994; 1.3% until May 31,
1994; 1.5% until June 30, 1994; 1.7% until July 31, 1994; and 1.9%
indefinitely. If no fees had been waived by LMFA, the annualized ratio of
expenses to average daily net assets for 1994 would have been 1.82%.
B Net of fees waived by LMFA pursuant to a voluntary expense limitation of
2.25%. If no fees had been waived by LMFA, the annualized ratio of expenses
to average daily net assets for each period would have been as follows:
1996, 2.32%; and 1995, 2.91%.
C Net of fees waived by LMFA pursuant to a voluntary expense limitation of
2.50%. If no fees had been waived by LMFA, the annualized ratio of expenses
to average daily net assets for each period would have been as follows:
1998, 2.78%; 1997, 2.86%; and 1996, 3.71%.
D For the period February 17, 1995 (commencement of operations) to December
31, 1995.
E For the period May 5, 1998 (commencement of sale of Navigator Shares) to
December 31, 1998.
F For the period May 28, 1996 (commencement of operations) to December 31,
1996.
G Not annualized
H Annualized
See notes to financial statements.
31
<PAGE>
Notes to Financial Statements
Legg Mason Global Trust, Inc.
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Global Trust, Inc. ("Corporation"), consisting of the
Global Government Trust ("Global Government"), the International Equity
Trust ("International Equity"), and the Emerging Markets Trust ("Emerging
Markets") (each a "Fund"), is registered under the Investment Company Act
of 1940, as amended, as an open-end investment company. International
Equity and Emerging Markets are diversified; Global Government is
non-diversified.
Each Fund consists of two classes of shares: Primary Class, offered
since April 15, 1993 for Global Government; since February 17, 1995 for
International Equity; and since May 28, 1996 for Emerging Markets; and
Navigator Class, offered to certain institutional investors since May 5,
1998 for International Equity. The Navigator Class of Global Government
and Emerging Markets has not commenced operations. The income and expenses
of International Equity 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
Each Fund's securities are valued on the basis of market quotations
or, lacking such quotations, at fair value as determined under the
guidance of the Board of Directors. Securities for which market quotations
are readily available are valued at the last sale price of the day for a
comparable position, or, in the absence of any such sales, the last
available bid price for a comparable position. Where a security is traded
on more than one market, which may include foreign markets, the securities
are generally valued on the market considered by each Fund's adviser to be
the primary market. Each Fund will value its foreign securities in U.S.
dollars on the basis of the then-prevailing exchange rates.
Most securities held by Global Government are valued on the basis of
valuations furnished by an independent service which utilizes both
dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other data. 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 tax purposes. Bond
discounts, other than original issue and zero-coupon bonds, are not
amortized. 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 monthly for Global
Government, and annually for International Equity and Emerging Markets.
Net capital gain distributions, which are calculated at the composite
level, are declared and paid after the end of the tax year in which the
gain is realized. At December 31, 1998, Global Government had dividends
payable of $50; there were no dividends payable for International Equity
or Emerging Markets. There were no capital gain distributions payable for
any of the Funds. Distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles; accordingly, periodic reclassifications are made within a
Fund's capital accounts to reflect income and gains available for
distribution under income tax regulations.
32
<PAGE>
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
December 31, 1998, receivables for securities sold but not yet settled and
payables for securities purchased but not yet settled for each Fund were
as follows:
Receivable for Payable for
Securities Sold Securities Purchased
- --------------------------------------------------------------------------------
Global Government $ 119 --
International Equity -- --
Emerging Markets 1,161 $1,116
Deferred Organizational Expense
Deferred organizational expenses of $128 for Global Government, $71
for International Equity, and $73 for Emerging Markets are being amortized
on a straight-line basis over 5 years beginning on the date each
respective Fund began operations. LMFA has agreed that in the event it
redeems any of its shares during such period, it will reimburse the Fund
for any unamortized organization costs in the same proportion as the
number of shares to be redeemed bears to the number of shares that were
initially purchased by LMFA and remain outstanding at the time of
redemption.
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 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:
<TABLE>
<CAPTION>
For the year ended December 31, 1998, investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds from Sales
--------------------------------------- --------------------------------------
U.S. Gov't. Securities Other U.S. Gov't. Securities Other
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Government $75,693 $258,687 $39,617 $309,512
International Equity -- 196,160 -- 182,852
Emerging Markets -- 41,123 -- 40,902
<CAPTION>
At December 31, 1998, 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:
Net
Appreciation/
Cost Appreciation (Depreciation) (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Government $117,126 $ 3,304 $ (3,898) $ (594)
International Equity 225,749 47,065 (14,497) 32,568
Emerging Markets 50,063 4,887 (12,238) (7,351)
</TABLE>
33
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Global Trust, Inc.
- --------------------------------------------------------------------------------
Unused capital loss carryforwards for federal income tax purposes at
December 31, 1998 were as follows: International Equity, $14,099 which
expire in December 2006; Emerging Markets Trust, $11 which expire in
December 2004, $606 which expire in December 2005 and $20,951 which expire
in December 2006. Global Government had no capital loss carryforwards.
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 advisers,
acting under the supervision of the Board of Directors, review 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.
4. Options and Futures:
As part of its investment program, Global Government may utilize
options and futures. International Equity and Emerging Markets may also
utilize options and futures to a limited extent. Options may be written
(sold) or purchased by these Funds. When a Fund purchases a put or call
option, the premium paid is recorded as an investment and its value is
marked-to-market daily. When a Fund writes a call or put option, an amount
equal to the premium received by the Fund is recorded as a liability and
its value is marked-to-market daily.
When options, whether written or purchased, expire, are exercised or
are closed (by entering into a closing purchase or sale transaction), the
Fund realizes a gain or loss as described in the chart below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
PURCHASED OPTION: IMPACT ON THE FUND:
The option expires Realize a loss in the amount of the cost of the option.
- ---------------------------------------------------------------------------------------------------------------------
The option is closed through a Realize a gain or loss depending on whether the proceeds from the closing
closing sale transaction sale transaction are greater or less than the cost of the option.
- ---------------------------------------------------------------------------------------------------------------------
The Fund exercises a call option The cost of the security purchased through the exercise of the option will
be increased by the premium originally paid to purchase the option.
- ---------------------------------------------------------------------------------------------------------------------
The Fund exercises a put option Realize a gain or loss from the sale of the underlying security. The
proceeds of that sale will be reduced by the premium originally paid to
purchase the put option.
- ---------------------------------------------------------------------------------------------------------------------
WRITTEN OPTION: IMPACT ON THE FUND:
The option expires Realize a gain equal to the amount of the premium received.
- ---------------------------------------------------------------------------------------------------------------------
The option is closed through Realize a gain or loss without regard to any unrealized gain or loss on the
a closing purchase transaction underlying security and eliminate the option liability. The Fund will
realize a loss in this transaction if the cost of the closing purchase
exceeds the premium received when the option was written.
- ---------------------------------------------------------------------------------------------------------------------
A written call option is exercised Realize a gain or loss from the sale of the underlying security. The
by the option purchaser proceeds of that sale will be increased by the premium originally received
when the option was written.
- ---------------------------------------------------------------------------------------------------------------------
A written put option is exercised The amount of the premium originally received will reduce the cost of the
by the option purchaser security that the Fund purchased when the option was exercised.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no options written during the year ended December 31, 1998.
34
<PAGE>
Upon entering into a futures contract, the Fund is required to
deposit with the broker an amount of cash or cash equivalents equal to a
certain percentage of the contract amount. This is known as the "initial
margin." Subsequent payments ("variation margin") are made or received by
the Fund each day, depending on the daily fluctuation in the value of the
contract. The daily changes in contract value are recorded as unrealized
gains or losses and the Fund recognizes a realized gain or loss when the
contract is closed. Futures contracts are valued daily at the settlement
price established by the board of trade or exchange on which they are
traded.
The risk associated with purchasing options is limited to the premium
originally paid. Options written by a Fund involve, to varying degrees,
risk of loss in excess of the option value reflected in the Statement of
Net Assets. The risk in writing a covered call option is that a Fund may
forego the opportunity of profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a put
option is that a Fund may incur a loss if the market price of the
underlying security decreases and the option is exercised. In addition,
there is the risk a Fund may not be able to enter into a closing
transaction because of an illiquid secondary market or, for
over-the-counter options, because of the counterparty's inability to
perform.
The Funds enter into futures contracts as a hedge against anticipated
changes in interest rates. There are several risks in connection with the
use of futures contracts as a hedging device. Futures contracts involve,
to varying degrees, the risk of loss in excess of amounts reflected in the
financial statements. The change in the value of futures contracts
primarily corresponds with the value of their underlying instruments,
which may not correlate with the change in the value of the hedged
instruments. In addition, there is the risk that a Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
There were no open futures contracts at December 31, 1998.
5. Financial Instruments:
Emerging Market Securities
Each Fund has investments in securities denominated in the currencies
of emerging market countries, as well as in securities issued by companies
located in emerging market countries and, with respect to Global
Government, by governments of emerging market countries. Future economic
or political developments could adversely affect the liquidity or value,
or both, of such securities.
Forward Currency Exchange Contracts
As part of its investment program, each Fund may utilize forward
currency exchange contracts. The nature and risks of these financial
instruments and the reasons for using them are set forth more fully in the
Corporation's Prospectus and Statement of Additional Information.
Forward foreign currency contracts are marked-to-market daily using
foreign currency exchange rates supplied by an independent pricing
service. The change in a contract's market value is recorded by a Fund as
an unrealized gain or loss. When the contract is closed or delivery is
taken, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Fund's securities, but it
does establish a rate of exchange that can be achieved in the future.
These forward foreign currency contracts involve market risk in excess of
amounts reflected in the Financial Statements. Although forward foreign
currency contracts used for hedging purposes limit the risk of loss due to
a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of the currency
increase. In addition, the Funds could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their
contracts. Each Fund's adviser will enter into forward foreign currency
contracts only with parties approved by the Board of Directors because
there is a risk of loss to the Funds if the counterparties do not complete
the transaction.
35
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Global Trust, Inc.
- --------------------------------------------------------------------------------
At December 31, 1998, open forward currency exchange contracts were as follows:
International Equity:
Contract to
----------------------------------------------
Settlement Unrealized
Date Receive Deliver Gain/(Loss)
- --------------------------------------------------------------------------------
2/12/99 USD 2,465 DEM 4,140 $ (24)
2/12/99 USD 1,233 JPY 149,091 (93)
2/12/99 USD 1,233 JPY 148,770 (91)
2/12/99 DEM 4,140 USD 2,486 3
2/12/99 JPY 297,861 USD 2,507 143
--------
$ (62)
========
Global Government:
Contract to
- --------------------------------------------------------------------------------
Settlement Unrealized
Date Receive Deliver Gain/(Loss)
- --------------------------------------------------------------------------------
1/27/99 USD 5,908 CAD 9,142 $ (74)
1/27/99 DEM 42,078 USD 24,761 521
1/27/99 USD 18,944 DEM 31,922 (235)
1/27/99 DEM 4,565 GBP 1,624 47
1/27/99 DKK 348 USD 54 1
1/27/99 USD 5,284 DKK 33,313 45
1/27/99 GBP 4,574 USD 7,549 44
1/27/99 USD 12,104 GBP 7,349 (94)
1/27/99 ITL 17,227,058 USD 10,429 4
1/27/99 USD 10,226 ITL 17,227,058 (207)
1/27/99 JPY 3,248,756 USD 27,581 1,263
1/27/99 USD 8,269 JPY 969,919 (342)
1/27/99 NLG 3,587 USD 1,871 41
1/27/99 USD 1,911 NLG 3,587 (1)
1/27/99 USD 4,722 NZD 8,896 39
1/27/99 USD 2,051 SEK 16,466 21
1/27/99 XEU 1,185 USD 1,399 (6)
1/27/99 USD 1,368 XEU 1,185 (25)
2/17/99 USD 1,184 ZAR 6,959 20
------
$1,062
======
Euro Conversion
On January 1, 1999, the Euro became the official currency of the
countries in the European Economic and Monetary Union (EEMU). EEMU member
countries include Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain. Government bonds
issued by member countries were redenominated into Euro on January 1,
1999. Corporations based in member countries have until 2002 to
redenominate their existing bonds. New issuances of corporate and
government bonds from member countries will be denominated in Euro. The
redenomination into Euro has not had and is not expected to have a
material impact on the Funds' operations.
36
<PAGE>
- --------------------------------------------------------------------------------
6. Transactions with Affiliates:
Each Fund has a management agreement with Legg Mason Fund Adviser,
Inc. ("LMFA"). Pursuant to their respective agreements, LMFA provides the
Funds with 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 its fees to the extent
each Fund's expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) exceed during any month certain annual rates. The
following chart shows annual rates of management fees; expense limits and
their expiration dates; management fees waived; and management fees
payable for each Fund:
<TABLE>
<CAPTION>
Year Ended
December 31, 1998 At December 31, 1998
--------------------------------------
Management Management
Management Expense Expense Limitation Fees Fees
Fund Fee Limitation Expiration Date Waived Payable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Government 0.75%
--Primary Class 1.90% Indefinite -- $ 77
International Equity 0.75%
--Primary Class 2.25% Indefinite -- $ 161
--Navigator Class 1.25% Indefinite -- --
Emerging Markets 1.00%
--Primary Class 2.50% May 1, 1999 $ 156 $ 7
</TABLE>
Western Asset Management Company ("Adviser") serves as investment
adviser to Global Government. The Adviser is responsible for the actual
investment activity of the Fund, for which LMFA pays a fee at an annual
rate equal to 531/3% of the fee received by LMFA from Global Government.
Western Asset Global Management, Ltd. ("WAGM") serves as investment
sub-adviser to Global Government. The Adviser (not the Fund) pays WAGM a
fee at an annual rate equal to 26 2/3% of the fee received by the Adviser
from LMFA. LMFA pays WAGM a sub-administration fee at an annual rate equal
to 13 1/3% of the fee received by LMFA from Global Government.
Batterymarch Financial Management, Inc. ("Batterymarch") serves as
investment adviser to International Equity and Emerging Markets.
Batterymarch is responsible for the actual investment activity of these
Funds. LMFA pays Batterymarch a fee for its services at an annual rate
equal to 66 2/3% of the fee received by LMFA from International Equity and
75% of the fee received from Emerging Markets.
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 average daily net assets, calculated daily and
payable monthly, as follows:
At December 31, 1998
------------------------
Distribution Service Distribution and Service
Fee Fee Fees Payable
- --------------------------------------------------------------------------------
Global Government 0.50% 0.25% $ 77
International Equity 0.75 0.25 215
Emerging Markets 0.75 0.25 36
37
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Global Trust, Inc.
- --------------------------------------------------------------------------------
Legg Mason also has an agreement with the Funds' transfer agent to
assist with certain of its duties. For this assistance, Legg Mason was
paid the following amounts by the transfer agent for the year ended
December 31, 1998: Global Government, $26; International Equity, $82 and
Emerging Markets, $31.
LMFA, Batterymarch, the Adviser, WAGM and Legg Mason are corporate
affiliates and are wholly owned subsidiaries of Legg Mason, Inc.
7. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
a $150 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 December 31, 1998, the Funds had no borrowings under the line of
credit.
8. Fund Share Transactions:
At December 31, 1998, there were 1,000,000 shares authorized at $.001
par value for all portfolios of the Corporation. 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> <C>
Global Government
--Primary Class
Year Ended Dec. 31, 1998 2,308 $ 22,709 615 $6,032 (5,251) $(50,993) (2,328) $(22,252)
Year Ended Dec. 31, 1997 2,423 24,370 865 8,609 (4,558) (45,415) (1,270) (12,436)
International Equity
--Primary Class
Year Ended Dec. 31, 1998 5,900 77,550 221 2,717 (4,995) (63,459) 1,126 16,808
Year Ended Dec. 31, 1997 10,069 129,976 815 9,546 (5,444) (69,717) 5,440 69,805
--Navigator Class
May 5, 1998A to Dec. 31, 1998 4 50 -- -- -- -- 4 50
Emerging Markets
--Primary Class
Year Ended Dec. 31, 1998 1,965 16,510 -- -- (2,505) (19,065) (540) (2,555)
Year Ended Dec. 31, 1997 5,299 62,511 6 65 (697) (7,468) 4,608 55,108
</TABLE>
- ---------------------------------------------------------------
(A)Commencement of sale of Navigator Shares.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Legg Mason Global 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
Global Government Trust, International Equity Trust and Emerging Markets Trust
(comprising Legg Mason Global Trust, Inc., hereafter referred to as the "Funds")
at December 31, 1998, 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
December 31, 1998, by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 5, 1999
