INVESTMENT ADVISER REPORT TO SHAREHOLDER
Legg Mason Fund Adviser, Inc. FOR THE SIX MONTHS ENDED
Baltimore, MD SEPTEMBER 30, 1995
INVESTMENT SUB-ADVISER
Legg Mason Capital Management, Inc.
Baltimore, MD THE
LEGG MASON
BOARD OF DIRECTORS AMERICAN
John F. Curley, Jr., Chairman LEADING
Richard G. Gilmore COMPANIES
Charles F. Haugh TRUST
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
TRANSFER AND SHAREHOLDERS' SERVICING AGENT
Boston Financial Data Services
Boston, MA
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart
Washington, D.C.
INDEPENDENT AUDITORS
Ernst & Young LLP
Baltimore, MD
THIS REPORT IS NOT TO BE DISTRIBUTED PUTTING YOUR FUTURE FIRST
UNLESS PRECEDED OR ACCOMPANIED BY A (Legg Mason Funds Logo)
PROSPECTUS.
LEGG MASON WOOD WALKER, INCORPORATED
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
(recycled logo) Printed on Recycled Paper
LMF-013
<PAGE>
TO OUR SHAREHOLDERS,
The American Leading Companies Trust's net asset value increased from
$10.68 to $11.34 per share during the quarter ended September 30, 1995.
The Fund's total net assets have grown to $69 million as of the end of
September.
The Fund seeks to invest at least three-quarters of its assets in the
common stocks of large capitalization companies that exhibit the ability
to maintain or increase their market share. The balance of its assets may
be invested in smaller market capitalization stocks, bonds, or foreign
securities.
On the following pages, J. Eric Leo, the Fund's portfolio manager,
reviews the portfolio's structure and comments on the investment outlook.
The American Leading Companies Trust is Legg Mason's large company
growth alternative within its family of value stock funds. It is designed
for conservative investors who are most comfortable with large, stable,
well-recognized companies. We hope you will consider using the American
Leading Companies Trust for investments of additional funds as they become
available. Some shareholders regularly add to their investment in the Fund
by authorizing automatic, monthly transfers from their bank checking
accounts or Legg Mason money market funds. Your Investment Executive will
be happy to help you make these arrangements if you would like to purchase
additional shares in this convenient manner.
The Board of Directors has approved an ordinary income dividend of
$0.02, payable to shareholders of record on October 27, 1995.
Sincerely,
(Taber Signature Graphic)
Edward A. Taber, III
President
November 6, 1995
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
The financial markets performed well again during the third
quarter. Equities, as measured by the S&P 500, were strong, rising
7.73%. The continued surge in the stock market was driven primarily by
lower-than-expected inflation, coupled with large cash flows into
mutual funds. A low inflationary environment tends to boost equity
prices because earnings and dividend streams gain value when inflation
is low. Strong cash flows into mutual funds also provided fuel for the
surging market.
The U.S. economic outlook will continue to influence the markets
because two opposing schools of thought exist between forecasters. The
first school of thought expects real GDP growth in the 3% range for the
balance of 1995 and continuing into 1996. These forecasters believe the
economic slowdown experienced early in the year was a brief inventory
correction. This group acknowledges that overall consumer debt is close
to historical highs but they do not believe the consumer is over
extended. As a matter of fact, they predict that consumers will
continue to spend at rates greater than their incomes. The second group
of forecasters believes that economic growth will languish in the 2%
range. They attribute this in large part to the fact that consumer
total debt levels are at historical highs and will need to be cut.
Group two is also more skeptical about the level of economic growth in
Europe and Japan, especially with the strengthened dollar and the
potential for strong demand of U.S. exports, a major underpinning of
the U.S. economy. Both schools of thought allow for lower levels of
inflation, in large measure because labor rates, due to competitive
forces, are expected to be modest. The slower growth scenario appears
to be most likely at the moment. This is also the most positive
environment for financial markets, although the equity market will be
more volatile and corporate earnings will become a critical element in
equity performance.
The strong performance of the equity market masked the high level
of sector rotation during the quarter. The nation's largest mutual fund
groups continued to influence the market with aggressive trading and
the willingness to make large sector bets. The technology group is an
excellent example of sector rotation. Heavy accumulation by mutual
funds over the past 12 months, combined with positive earnings
surprises, have rocketed the sector to new highs. Money recently has
begun to rotate out of technology stocks and into more defensive
issues. This is due in part to positive earning surprises being priced
into the stocks and the fact that many mutual funds have heavily
overweighted the group. Mixed economic signals during the quarter
created sector rotations of lesser magnitude and caused nervous
investors to shift back and forth between the economically sensitive
group and the defensive group. As the fourth quarter began, the shift
to the defensive sectors gained increasing momentum.
The fund's performance improved during the quarter and was in-line
with the market until the last two weeks of September when a surge in
the prices of technology and bank stocks pushed the market indices
ahead of the portfolio. We believe the fund's performance should
improve as a result of the market's recent shift to more defensive
stocks, although performance in all equity funds is likely to be bumpy
due to aggressive shifting between sectors by nervous investors who are
reacting to earnings announcements and the overall investment
environment.
STOCK SELECTION
The ability to generate strong free cash flow and management's
utilization of Economic Value Added (EVA) are important factors in our
stock selection process. The adoption of EVA is a clear and powerful
indication of a management's commitment to improve shareholder value
because it encourages corporate managements to invest capital only in
projects that produce returns in excess of the cost of capital needed
to develop them. Additionally,
2
<PAGE>
this methodology encourages companies to allocate capital to their
highest return businesses. The EVA approach has been successfully
implemented by companies such as Coca Cola and General Electric. It is
a simple concept but complex to initiate, so it is often overlooked by
managements. We are surprised that many well-known companies have not
earned their cost of capital for years. At the same time, we are
impressed by the appreciation of those companies that have successfully
made the transition to EVA. After studying the EVA concept for more
than two years, we found that it fits well with our investment style
and we recently have employed new research tools to help identify those
companies' stocks that have successfully implemented EVA. We are
excited because many corporations are embracing the concept, which
should create significant improvement in their stock prices. Our
performance should benefit from the greater use of EVA because it will
help detect any change in the financial status of a company.
There were four significant additions to the portfolio during the
quarter: AETNA, COLGATE-PALMOLIVE, TRW, and MONSANTO. These
transactions reflect our focus on companies that have a strong
financial position and a long-term market leadership role.
Additionally, they look attractive using our EVA tools.
After years of underperformance, AETNA is taking meaningful steps
to improve shareholder value. With the clear goal of improving both
return on assets and stock price, management is considering a number of
alternatives to maximize shareholder value. We expect AETNA to sell or
spin off low return businesses, such as its property and casualty
business, and redeploy the capital in its higher return and
faster-growing health insurance subsidiary. If this occurs, the stock's
multiple could expand significantly as capital is directed to higher
return businesses that receive higher multiples, such as health
insurance. The company's current 3.9% dividend yield and solid earnings
should limit risk.
We began to establish smaller positions in three other stocks late
in the quarter: COLGATE-PALMOLIVE, MONSANTO, and TRW. COLGATE-PALMOLIVE
was added when the stock experienced weakness as earnings estimates
were cut in response to slumping profits in Mexico and the initial
dilution from the company's acquisition of Kolynos, a major South
American consumer products company. Excluding these two factors,
COLGATE'S sales and earnings are growing roughly 10% and 15%,
respectively. As 1996 rapidly approaches, we expect the company's
reported growth to accelerate materially, leading to a higher stock
price. Longer-term, COLGATE'S strong competitive position in developing
regions of the world, including South America, Africa, Eastern Europe,
and the Far East, should keep earnings at a relatively consistent level
of 12-15%.
MONSANTO has refocused the company dramatically over the past
several years. Through a series of acquisitions and divestitures,
MONSANTO is rapidly becoming a global powerhouse in the farming
industry by producing genetically-engineered seeds, weed killers, and
food ingredients. Because of their utilization of EVA, we believe
MONSANTO will make major investments in their high-return agribusiness.
Simultaneously, we expect further asset sales of low return segments,
such as their chemical division. We expect growth to accelerate over
the next several years, reaching 20% by 1997 and beyond, which should
push the stock higher over the long term.
Finally, we began to build a position in TRW, a diversified company
which competes in the rapidly growing air bag, space and defense, and
information services industries. TRW is the global leader in the
manufacturing of automotive engine valves, steering systems, and air
bags. TRW'S leadership position is enhanced by its ability to apply the
technology used in its defense business to its auto component business.
TRW is one of the few U.S. manufacturers of auto components that meet
the strict Japanese quality requirements. Since redirecting
3
<PAGE>
capital to their highest return businesses four years ago,
profitability has improved dramatically and the stock has responded
accordingly. We believe investors do not fully comprehend the
significant changes the company has made, which should result in
improved profitability across the economic cycle.
During the quarter, we sold our holdings of Nextel, Premier
Industrial, and Vastar Resources. The Nextel sale reflected our concern
that the company's success was a year to two farther away than we had
anticipated. Premier Industrial and Vastar Resources, a spin off of
Atlantic Richfield, were both used to fund other buy ideas. We also
made significant reductions to holdings of MINNESOTA MINING AND
MANUFACTURING, FEDERAL-MOGUL, and WOOLWORTH in order to fund buy ideas
with more attractive growth profiles.
LOOKING FORWARD
We believe that the positives for financial markets will continue
to be low inflation and healthy mutual fund cash inflows. Corporate
earnings will take center stage in the final quarter of 1995. During
the fourth quarter, we expect to see more earnings shortfalls and
higher volatility levels, which should create some interesting buying
opportunities. The strong mutual fund cash inflows mitigate the risk of
a significant correction, although many investors believe a market
pause is overdue. While it seems likely that the market could enter a
correction phase at any time, it is difficult to make the case for an
extensive sell-off. A modest correction of 5-10% would, in fact, be
very healthy for the market in the long term because it has been
anticipated for so long. The most likely scenario for the balance of
the year is a trading range with individual stocks becoming more
volatile and the continuation of sector rotation. The U.S. political
environment also will have an impact on the markets in the fourth
quarter. There are numerous pieces of legislation in Congress,
including health care reform, welfare reform, telecommunications
reform, and, most importantly, federal budget reform, which will impact
the market in both the short and long term. The atmosphere will be
highly charged with the Presidential election approaching in 1996. The
key for the financial markets will be the passage of budget reform. If
a reasonable budget compromise is reached, the market could respond
positively, especially if the Federal Reserve blesses the event by
reducing short-term interest rates.
Our focus continues to be finding companies with financially solid
businesses and below-average risks. This focus keeps us away from "high
fliers," where there is very little room for error, as well as marginal
companies whose long-term viability might be in question. Part of our
goal is to invest in companies that can capitalize on change,
recognizing that the opportunities created by the rapidly changing
business environment contain short-term risks to all companies that
attempt to adjust. The more serious long-term risk, of course, is not
to adjust. We try to position ourselves in companies on the backside of
the "wave of change" where the power is greater and the risks are
lower. The U.S. has regained its leadership position as the world's
most cost-effective producer and innovator. The next challenge requires
corporate management, as a whole, to focus more attention on creating
value for shareholders. We believe the addition of our EVA tools will
provide us with an edge in determining which companies have the
greatest potential.
J. Eric Leo
November 6, 1995
DJIA 4814.01
4
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
TOTAL RETURN FOR ONE YEAR AND LIFE OF FUND, AS OF SEPTEMBER 30, 1995
The returns shown below are based on historical results and are not
intended to indicate future performance. The investment return and
principal value of an investment in the fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Average annual returns tend to smooth out variations in
the fund's return, so they differ from actual year-to-year results. No
adjustment has been made for any income taxes payable by shareholders.
The fund's total returns as of September 30, 1995 were as follows:
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
<S> <C> <C>
One Year +14.68% +14.68%
Life of Fund(dagger) +15.55 +7.19
</TABLE>
(dagger) Fund inception -- September 1, 1993.
SELECTED PORTFOLIO PERFORMANCE
Top Ten Holdings
1. AT&T Corp.
2. Aetna Life & Casualty
3. Avon Products, Inc.
4. Emerson Electric Co.
5. Bausch & Lomb Incorporated
6. McCormick & Company, Incorporated
7. Union Pacific Corporation
8. American Greetings Corporation
9. J. P. Morgan & Co. Incorporated
10. American Brands, Inc.
Strong Performers for the 3rd quarter 1995*
Southern Pacific Rail Corporation
AT&T Corp.
Union Pacific Corporation
Weak Performers for the 3rd quarter 1995*
Corning, Incorporated
AMP, Inc.
Heilig-Meyers Company
Buenos Aires Embotelladora S.A. ADS
*SECURITIES HELD FOR THE ENTIRE QUARTER.
PORTFOLIO CHANGES
Securities Added
Aetna Life & Casualty Co.
TRW Inc.
Colgate-Palmolive Company
Monsanto Co.
Securities Sold
Vastar Resources Inc.
Federal Mogul Corporation
NEXTEL Communications, Inc.
Premier Industrial Corporation
5
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
COMMON STOCKS AND EQUITY INTERESTS -- 93.7%
Aerospace -- 1.9% 18 $1,339
TRW Inc.
Auto and Automotive Parts -- 1.6%
Chrysler Corporation 11 604
Federal-Mogul Corporation 25 482
1,086
Banking -- 3.9%
First Union Corporation 15 765
J.P. Morgan & Co. Incorporated 25 1,934
2,699
Chemicals -- 1.5%
Monsanto Co. 10 1,008
Computer Services and Systems -- 2.3 %
Diebold, Incorporated 35 1,623
Consumer Durables -- 1.2%
Heilig-Meyers Company 35 814
Cosmetics -- 3.1%
Avon Products, Inc. 30 2,152
Defense -- 3.4%
Litton Industries, Inc. 35 1,522A
Raytheon Company 10 850
2,372
Electrical Equipment -- 5.6%
AMP Incorporated 46 1,771
Emerson Electric Co. 30 2,145
3,916
Entertainment -- 1.3%
The Walt Disney Company 16 918
Food, Beverage and Tobacco -- 10.6%
American Brands, Inc. 45 1,901
Buenos Aires Embotelladora S.A. ADS 35 814
CPC International Inc. 20 1,320
McCormick & Company, Incorporated 85 2,029
Philip Morris Companies Inc. 15 1,253
7,317
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Health Care -- 3.0%
Bausch & Lomb Incorporated 50 $2,069
Household Products -- 1.9%
Colgate-Palmolive Company 20 1,333
Industrial Machinery -- 2.6%
Varity Corporation 40 1,780A
Insurance -- 10.5%
Aetna Life & Casualty 31 2,275
American General Corporation 40 1,495
First Colony Corporation 50 1,350
Lincoln National Corporation 20 942
The PMI Group, Inc. 25 1,184
7,246
Metals and Mining -- 1.5%
Cleveland-Cliffs Inc. 25 1,028
Multi-Industry -- 9.6%
Alco Standard Corporation 15 1,271
Corning Incorporated 60 1,717
Eastman Kodak Company 15 889
Minnesota Mining and Manufacturing
Company 20 1,130
Rockwell International Corporation 35 1,654
6,661
Oil and Oil Services -- 6.7%
Texaco Inc. 20 1,293
Unocal Corporation 60 1,710
Western Atlas Inc. 35 1,658A
4,661
Pharmaceuticals -- 3.3%
Eli Lilly and Company 10 899
Guidant Corporation 12 343
Pfizer Inc. 20 1,067
2,309
Publishing -- 2.9%
American Greetings Corporation 65 1,983
Railroads and Equipment -- 4.4%
Southern Pacific Rail Corporation 45 1,091A
Union Pacific Corporation 30 1,988
3,079
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Retail Sales -- 2.5%
Kmart Corporation 100 $ 1,450
Woolworth Corporation 20 315
1,765
Telecommunications -- 8.4%
AT&T Corp. 35 2,301
BCE Inc. 40 1,335
GTE Corporation 35 1,374
MCI Communications Corporation 30 782
5,792
Total Common Stocks and Equity
Interests
(Identified Cost -- $56,404) 64,950
PREFERRED STOCK -- 1.3%
Sonoco Products Company
$2.25 Series A Cum. Cv.
(Identified Cost -- $752) 15 904
<CAPTION>
Principal
Amount
<S> <C> <C>
U.S. GOVERNMENT OBLIGATION -- 1.5%
Student Loan Marketing
Association
6.04%(B) 5-1-96
(Identified Cost -- $1,002) $ 1,000 1,003
<CAPTION>
Principal
(Amounts in Thousands) Amount Value
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.2%
Prudential Securities, Inc.
6.25% dated 9-29-95, to be
repurchased at $2,252 on
10-2-95 (Collateral: $2,292
Federal Home Loan Mortgage
Corporation Mortgage-backed
securities, 7.5% due 10/1/24,
value $2,317)
(Identified Cost -- $2,251) $ 2,251 $ 2,251
Total Investments -- 99.7%
(Identified Cost -- $60,409) 69,108
Other Assets Less
Liabilities -- 0.3% 241
NET ASSETS CONSISTING OF:
Accumulated paid-in capital
applicable to 6,118 shares
outstanding 61,261
Undistributed net investment
income 173
Accumulated net realized loss on
investments (784)
Unrealized appreciation of
investments 8,699
NET ASSETS -- 100% $69,349
NET ASSET VALUE PER SHARE $11.34
</TABLE>
(A) NON-INCOME PRODUCING.
(B) THE RATE OF INTEREST EARNED IS TIED TO THE 3-MONTH TREASURY BILL INDEX
AND THE COUPON RATE SHOWN IS THE RATE AT SEPTEMBER 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 769
Interest 123
Total investment income $ 892
EXPENSES:
Management fee 245
Distribution and service fees 326
Transfer agent and shareholder servicing expense 37
Reports to shareholders 30
Legal and audit fees 27
Custodian fee 22
Registration fees 14
Organization expense 9
Directors' fees 4
Other expenses 2
716
Less fees waived (80)
Total expenses, net of waivers 636
NET INVESTMENT INCOME 256
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Realized loss on investments (304)
Change in unrealized appreciation of investments 7,355
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 7,051
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,307
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
(Amounts in Thousands) September 30, 1995 March 31, 1995
(Unaudited)
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 256 $ 694
Net realized loss on investments (304) (439)
Increase in appreciation of investments 7,355 3,246
Change in net assets resulting from operations 7,307 3,501
Net equalization credits -- 6
Distributions to shareholders from net investment income (331) (645)
Increase in net assets from Fund share transactions 2,388 2,101
Increase in net assets 9,364 4,963
NET ASSETS:
Beginning of period 59,985 55,022
End of period (including undistributed net investment income
of $173 and $248, respectively) $69,349 $59,985
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
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>
For the For the September 1, 1993*
Six Months Ended Year Ended to
September 30, 1995 March 31, 1995 March 31, 1994
(Unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.18 $ 9.69 $10.00
Net investment income(A) .041 0.12 0.059
Net realized and unrealized gain (loss) on investments 1.174 0.48 (0.344)
Total from investment operations 1.215 0.60 (0.285)
Distributions to shareholders from net investment income (0.055) (0.11) (0.025)
Net asset value, end of period $11.34 $10.18 $ 9.69
Total return 11.96%(C) 6.24% (2.86)%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(A,B) 1.95%(A) 1.95%(A,B)
Net investment income 0.78%(A,B) 1.21%(A) 1.14%(A,B)
Portfolio turnover rate 39.54%(B) 30.5% 21.0%(B)
Net assets, end of period (in thousands) $69,349 $59,985 $55,022
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(A) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 1.95% OF
AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE ADVISER, THE
RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER 1,
1993 TO MARCH 31, 1994, THE YEAR ENDED MARCH 31, 1995 AND THE SIX MONTHS
ENDED SEPTEMBER 30, 1995 WOULD HAVE BEEN 2.28%, 2.12% AND 2.19%,
RESPECTIVELY.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
(Amounts in Thousands) (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Investors Trust, Inc. ("Trust") is registered under the
Investment Company Act of 1940, as amended. The Legg Mason American
Leading Companies Trust ("Fund"), a diversified, open-end management
investment company, is currently the only portfolio established by the
Trust. The Fund was organized on May 5, 1993 and had no operations prior
to September 1, 1993, other than those related to organizational matters.
Security Valuation
Securities traded on national securities exchanges are valued at the
last quoted sales price. Over-the-counter securities, and listed
securities for which no sales price is available are valued at the mean
between the latest bid and asked prices. Short-term securities are valued
at cost which, when combined with accrued interest receivable,
approximates current value.
Dividends and Distributions to Shareholders
Dividend and interest income and expenses are recorded on the accrual
basis. Net investment income for dividend purposes consists of dividends
and interest earned, less expenses.
Dividends from net investment income and distributions from capital
gains are recorded on the ex-dividend date. Distributions from net capital
gains will be made annually. Additional distributions will be made when
necessary.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. At September 30, 1995, $747 was payable for securities purchased
but not yet received.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in
the possession of the Fund's custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially.
Deferred Organizational Expenses
Deferred organizational expenses of $89 are being amortized on a
straight-line basis over 5 years commencing on the date operations began.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Fund intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
Equalization
In prior years, the Fund followed the practice of equalization by
which a portion of proceeds from sales and cost of redemptions of Fund
shares is credited or charged to undistributed net investment income. In
the current fiscal year ending March 31, 1996, the Fund discontinued the
practice of equalization, resulting in a reclassification of $39 from
undistributed net income to accumulated paid-in capital.
2. INVESTMENT TRANSACTIONS:
Investment transactions for the six months ended September 30, 1995
(excluding short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $ 15,015
Proceeds from sales 3,658
</TABLE>
At September 30, 1995, the cost of securities for federal income tax
purposes was $60,409. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $9,834
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $1,135. The net unrealized
appreciation for tax purposes is $8,699.
3. FUND SHARE TRANSACTIONS:
At September 30, 1995, there were 1,000,000 shares authorized at $.001
par value for all portfolios of the Trust (including the Fund).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the
Six Months Ended For the
September 30, Year Ended
1995 March 31, 1995
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 837 $ 8,952 1,404 $ 13,743
Reinvestment of
distributions 30 323 66 638
Repurchased (640) (6,887) (1,258) (12,280)
Net increase 227 $ 2,388 212 $ 2,101
</TABLE>
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
(Amounts in Thousands)
4. TRANSACTIONS WITH AFFILIATES:
The Fund has a management agreement with Legg Mason Fund Adviser, Inc.
("Manager"), a corporate affiliate of Legg Mason Wood Walker, Incorporated
("Legg Mason"), a member of the New York Stock Exchange and the
distributor for the Fund. Under this agreement, the Manager provides the
Fund with management and administrative services for which the Fund pays a
fee at an annual rate of 0.75% of average daily net assets, calculated
daily and payable monthly. At September 30, 1995, $22 was due to the
Manager. The agreement with the Manager provides that expense
reimbursements be made to the Fund for expenses which in any month are in
excess of an annual rate of 1.95%, based on average daily net assets. For
the six months ended September 30, 1995, advisory fees of $80 were waived.
Legg Mason Capital Managment, Inc. ("Adviser"), a corporate affiliate
of the Manager and Legg Mason, serves as investment adviser to the Fund.
The Adviser is responsible for the actual investment activity of the
Fund, for which the Manager (not the Fund) pays the Adviser a fee at an
annual rate equal to 40% of the fee received by the Manager.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.75% and an annual service fee of 0.25% of the Fund's
average daily net assets, calculated daily and payable monthly. At
September 30, 1995, $57 was due to the distributor. Legg Mason also has an
agreement with the Fund's transfer agent to assist with certain of its
duties. For this assistance, Legg Mason was paid $11 by the transfer agent
for the six months ended September 30, 1995. No brokerage commissions were
paid to Legg Mason or its affiliates during the six months ended
September 30, 1995.
11
