<PAGE>
INVESTMENT MANAGER
Legg Mason Fund Adviser, Inc.
Baltimore, MD
INVESTMENT ADVISER
Legg Mason Capital Management, Inc.
Baltimore, MD
BOARD OF DIRECTORS
John F. Curley, Jr., Chairman
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services
Boston, MA
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart
Washington, D.C.
INDEPENDENT AUDITORS
Ernst & Young LLP
Baltimore, MD
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
LEGG MASON WOOD WALKER, INCORPORATED
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
(recycle logo) PRINTED ON RECYCLED PAPER
LMF-013
REPORT TO SHAREHOLDERS
FOR THE QUARTER ENDED
JUNE 30, 1995
THE
LEGG MASON
AMERICAN
LEADING
COMPANIES
TRUST
PUTTING YOUR FUTURE FIRST
(Legg Mason logo)
<PAGE>
TO OUR SHAREHOLDERS,
The American Leading Companies Trust's net asset value increased from
$10.18 to $10.68 per share during the quarter ended June 30, 1995. After
taking into account the $0.04 per share ordinary income dividend paid in
May, the Fund's total return* (not annualized) in the quarter was 5.3%
compared to a return of 9.5% in the Standard & Poor's 500 stock index. The
Fund's total net assets have grown to nearly $65 million as of the end of
June.
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 Fund's Board of Directors has approved an ordinary income dividend
of $0.015 per share, payable August 2, 1995 to shareholders of record on
July 28, 1995. Most shareholders will receive this dividend in the form of
additional shares credited to their accounts.
Sincerely,
(signature)
Edward A. Taber, III
President
July 31, 1995
* Total return measures investment performance in terms of appreciation or
depreciation in the fund's net asset value per share, plus capital gain
distributions and dividends. It assumes that capital gain distributions
and dividends were reinvested in the fund at the times they were paid.
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
Both the stock and bond markets have made spectacular gains since
December and the equity bull market appears poised to go even higher. The
slowing of economic growth and reduced inflation expectations helped ease
the financial stresses that had been building throughout 1994 and the
first quarter of 1995. The slower economic growth removed the pressure on
the Federal Reserve to raise interest rates further and the financial
markets responded aggressively, anticipating that the Fed would eventually
act to reduce rates. The resulting surge in financial assets drove equity
prices to historically high levels and set the stage for the bond market
to recover much of what had been lost during 1994. This allowed the Fed to
stop tightening credit, and interest rates declined significantly.
On July 6, 1995, the Fed reduced the Federal Funds rate by 1/4%,
setting the stage for additional gains in the stock market. We believe
that the Fed reduced interest rates a token amount as an insurance policy
to keep the U.S. economy out of a recession. While the amount of ease was
modest, the perceived message was strong; the Fed is now less concerned
with inflation and more concerned with economic growth. The Fed's
willingness to reduce interest rates at this time also may have been in
anticipation of the eventual fiscal drag that will be created by the
budget cuts now being discussed in Congress. The consensus view that has
evolved anticipates additional interest rate reductions by the Fed over
the balance of 1995 and into 1996. Recognizing that lower interest rates
would act to stimulate the economy, investors appear to be shifting funds
away from defensive stocks, such as health care and food, to economically
sensitive companies, such as metals and chemicals.
PERFORMANCE
This year provided a particularly difficult market environment for
managers of broadly diversified portfolios, as evidenced by recent data
from Lipper Analytical Services indicating that only 12% of mutual fund
managers outperformed the S&P 500 for the first half of 1995. On a
year-to-date basis, only 10 of the 88 Value Line sectors outperformed the
market averages by more than 10%, while 32 underperformed by a like
amount. The balance of the sectors performed within (plus/minus)10% of the
S&P 500. What appears to be happening is that some of the nation's largest
mutual fund groups are becoming more aggressive in their investing,
resulting in a greater propensity to concentrate assets in fewer sectors
and to shift more aggressively from sector to sector. As an example, the
largest fund in the country, Magellan, has assets in excess of $50 billion
and is currently almost 50% invested in technology stocks. The shifting of
funds by large mutual funds can become a self-fulfilling prophecy due to
the large amount of dollars they invest and the many smaller investors who
monitor the large pools and follow their actions (momentum investors).
This is a very risky approach.
American Leading Companies Trust under-performed the S&P 500 during
the quarter and year-to-date due to our modest weighting in the technology
sector. Technology stocks have produced spectacular gains in both the
second quarter and the first half of the year and have been the primary
driving force of the overall market. These stocks have gone too far, too
fast, and currently represent much more risk than those investors who are
purchasing the stocks may realize. As we have indicated in the past,
technology is an important driver of U.S. economic growth, but it is
highly competitive and difficult to predict. We believe the companies that
use the technology to lower cost and to improve productivity and quality
will benefit more than the producers of technology over the long term.
PORTFOLIO CHANGES
Early in the second quarter, we increased our exposure to stocks that
would benefit from falling interest rates based on the belief that the
Federal Reserve was unlikely to further tighten monetary policy. As a
result, we established new positions in three stocks which should
outperform the market in a declining interest rate environment: PMI GROUP,
HEILIG-MEYERS, and CHRYSLER.
PMI GROUP, a recent spin-off from Allstate Insurance, is the nation's
second largest participant
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<PAGE>
in the rapidly-growing mortgage insurance industry. PMI is generating
long-term growth of 15% and returns on equity of 17%, yet trades at a
discount to the market. With the current stable conditions in the
residential real estate market, we believe PMI and other mortgage insurers
are likely to receive claims well below the rate experienced in past
recessions, boosting profitability and possibly leading to higher
valuation levels over time.
HEILIG-MEYERS, the nation's largest furniture retailer with over 670
stores, has adopted a strategy very similar to Wal-Mart, the nation's
largest mass merchandising retailer. Both chains concentrate their stores,
which offer superior service and low prices, in small towns with
populations under 50,000 people where competition is less intense.
HEILIG-MEYERS has an excellent track record, reporting higher EPS in 18 of
the past 19 years, including each of the past three recessions. We began
to accumulate the stock in April after it fell nearly 50% from its
December 1993 high of $39 per share. HEILIG-MEYERS' revenues should
benefit from the recent bond market rally later this year and into 1996.
Finally, we initiated a small position in CHRYSLER to increase our
exposure to the interest-sensitive automotive industry. With most of the
company's profits originating in the United States, CHRYSLER stands to
gain more from lower interest rates than its larger competitors, which
have a significant overseas presence.
We increased our weighting in selected holdings, such as VARITY
CORPORATION, WESTERN ATLAS and CORNING, INC., during the quarter. VARITY
CORPORATION is the dominant, low-cost manufacturer of anti-lock braking
systems and VARITY'S Perkins division is one of the largest global
producers of diesel engines. WESTERN ATLAS, recently spun off from LITTON
INDUSTRIES, is the leading global provider and processor of
three-dimensional seismic data for the energy industry. Three-dimensional
seismology allows oil and gas companies to pinpoint the most advantageous
places to drill through intense data collection and computer manipulation.
By requiring fewer holes to be drilled, significant reductions can be made
in the finding costs for oil and gas. WESTERN ATLAS is a classic case of a
company that uses technology.
We also added to CORNING, INC., one of our weakest performing stocks
during the quarter. The weakness reflected the voluntary entry into
Chapter 11 bankruptcy of Dow Corning, which is 50% owned by CORNING. The
Chapter 11 filing was due to a lack of progress in settling the
long-standing breast implant liability suits. With the write-off behind
the company, investors should soon begin to focus on CORNING'S bright
future as a key producer of products for the rapidly growing "electronic
superhighway." CORNING is the world's largest and most efficient
manufacturer of fiber optic wiring. In addition, CORNING'S joint ventures
dominate the global markets for glass displays in large screen
televisions, cathode ray tubes, projection television lenses, and liquid
crystal display glass for portable personal computers. CORNING is also the
dominant manufacturer of ceramic substrates used in catalytic converters
for autos and trucks and the largest U.S. provider of clinical lab
services to the health care industry.
During the quarter, we sold Columbia/HCA, Hanson, and Deluxe
Corporation. We sold Columbia/HCA based on the belief that changes to
Medicare and Medicaid may put significant pricing pressure on health care
providers later this year. While Columbia is better positioned to take
advantage of these potential changes, the company may be hurt over the
next two years until the hospital industry consolidates further. With the
divestiture of some of its U.S. subsidiaries, Hanson has increasingly
become a play on economic conditions in the United Kingdom and was used as
a source to fund recent additions to our portfolio. Finally, secular
changes in the way consumers pay for goods is likely to dampen growth at
Deluxe, a leading check printer. We sold the stock in the quarter
believing overall growth may not be sufficient to justify a significantly
higher stock price.
LOOKING FORWARD
American industry has made great strides in improving its ability to
compete globally. Corporate managements are now becoming more
3
<PAGE>
focused on improving shareholder value by concentrating investments in
projects that return more than their cost of capital. Historically, this
has not generally been the case in corporate America. Corporations are
also beginning to recognize that their employees are best motivated by
becoming shareholders and profit participants. The combination of these
two trends can have a very positive impact on future profits and will be
an important factor in stock selection for the Fund.
During the second half of the year, we expect the advance in the stock
market to slow considerably with a pick-up in volatility. If a correction
does come, it is difficult to make the case for anything other than a
moderate one. Investors will be focused on the rate of economic expansion
and corporate profits. Political issues, as always, will impact the
markets. As we enter the second half of the year, the most important
political issues will be telecommunications decontrol, the repeal of the
Glass-Steagall Act, which allows banks to compete with brokers and
insurance companies, and budget reform. Interest rates and the bond market
will continue to be the leading indicators for the equity market. The wild
card, as we discussed, will be the strategies and tactics employed by the
large mutual fund groups. They can alter the markets over the short to
intermediate-term, but, in the end, the fundamentals should prevail. We
strongly believe that over the long term we will perform at least as well
as the larger funds, but with considerably less risk and far fewer
transactions.
J. Eric Leo
July 31, 1995
DJIA 4708.47
4
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
TOTAL RETURN FOR ONE YEAR AND LIFE OF FUND, AS OF JUNE 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 June 30, 1995 were as follows:
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
<S> <C> <C>
One Year +11.88 % +11.88%
Life of Fund(|) +8.68 +4.65
</TABLE>
(|) Fund inception -- September 1, 1993.
SELECTED PORTFOLIO PERFORMANCE
Top Ten Holdings
1. Bausch & Lomb Incorporated
2. Emerson Electric Co.
3. Avon Products, Inc.
4. AMP Incorporated
5. American Greetings Corporation
6. Minnesota Mining and Manufacturing
Company
7. AT&T Corp.
8. Corning Incorporated
9. American Brands, Inc.
10. Varity Corporation
Strong Performers for the 2nd quarter 1995*
AMP Incorporated
Diebold, Incorporated
Rockwell International Corporation
Weak Performers for the 2nd quarter 1995*
Corning Incorporated
McCormick & Company, Incorporated
Southern Pacific Rail Corporation
Woolworth Corporation
PORTFOLIO CHANGES
Securities Added
Chrysler Corporation
Heilig-Meyers Company
The PMI Group, Inc.
Securities Sold
Columbia/HCA Healthcare Corporation
Deluxe Corporation
Hanson P.L.C.
Schlumberger Limited
* SECURITIES HELD FOR THE ENTIRE QUARTER.
5
<PAGE>
PORTFOLIO OF INVESTMENTS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
JUNE 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
COMMON STOCKS AND EQUITY INTERESTS -- 90.0%
Auto and Automotive Parts -- 2.7%
Chrysler Corporation 15 $ 718
Federal-Mogul Corporation 55 1,004
1,722
Banking -- 3.7%
First Union Corporation 15 679
J.P. Morgan & Co. Incorporated 25 1,753
2,432
Business Services -- 0.6%
Premier Industrial Corporation 18 413
Computer Services and Systems -- 2.7%
Diebold, Incorporated 40 1,740
Consumer Durables -- 1.4%
Heilig-Meyers Company 35 893
Cosmetics -- 3.1%
Avon Products, Inc. 30 2,010
Defense -- 3.2%
Litton Industries, Inc. 35 1,291(A)
Raytheon Company 10 776
2,067
Electrical Equipment -- 6.3%
AMP Incorporated 46 1,943
Emerson Electric Co. 30 2,145
4,088
Entertainment -- 1.4%
The Walt Disney Company 16 890
Food, Beverage and Tobacco -- 9.9%
American Brands, Inc. 45 1,789
Buenos Aires Embotelladora S.A.
ADS 35 879
CPC International Inc. 17 1,050
McCormick & Company, Incorporated 75 1,613
Philip Morris Companies Inc. 15 1,116
6,447
Health Care -- 3.5%
Bausch & Lomb Incorporated 55 2,283
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Industrial Machinery -- 2.7%
Varity Corporation 40 $1,760(A)
Insurance -- 7.1%
American General Corporation 40 1,350
First Colony Corporation 55 1,320
Lincoln National Corporation 20 875
The PMI Group, Inc. 25 1,084
4,629
Metals and Mining -- 1.5%
Cleveland-Cliffs Inc. 25 963
Multi-Industry -- 11.4%
Alco Standard Corporation 15 1,198
Corning Incorporated 55 1,801
Eastman Kodak Company 15 909
Minnesota Mining and Manufacturing
Company 33 1,889
Rockwell International Corporation 35 1,601
7,398
Oil and Oil Services -- 8.4%
Texaco Inc. 20 1,313
Unocal Corporation 60 1,658
Vastar Resources Inc. 30 926
Western Atlas Inc. 35 1,553(A)
5,450
Pharmaceuticals -- 2.6%
Eli Lilly and Company 10 785
Pfizer Inc. 10 924
1,709
Publishing -- 2.9%
American Greetings Corporation 65 1,909
Railroads and Equipment -- 3.7%
Southern Pacific Rail Corporation 45 709(A)
Union Pacific Corporation 30 1,661
2,370
Retail Sales -- 2.7%
Kmart Corporation 85 1,243
Woolworth Corporation 35 529
1,772
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Telecommunications -- 8.5%
AT&T Corp. 35 $1,859
BCE Inc. 40 1,285
GTE Corporation 35 1,194
MCI Communications Corporation 30 660
NEXTEL Communications, Inc. 35 494(A)
5,492
Total Common Stocks and Equity
Interests
(Identified Cost -- $54,184) 58,437
CONVERTIBLE PREFERRED STOCK -- 1.3%
Sonoco Products Company
$2.25 Series A Cum. Cv.
(Identified Cost -- $752) 15 833
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.5%
Student Loan Marketing
Association
6.26%(B) 5-1-96
(Identified Cost -- $1,003) $1,000 1,005
REPURCHASE AGREEMENTS -- 7.0%
Morgan Stanley & Co.
Incorporated
6.1% dated 6-30-95, to be
repurchased at $4,103 on
7-5-95 (Collateral: $4,161
Federal National Mortgage
Association Mortgage-backed
securities, 7% due 10-1-07,
value $4,184) $ 4,100 $ 4,100
State Street Bank and Trust
Company, N.A.
3% dated 6-30-95, to be
repurchased at $445 on
7-3-95 (Collateral: $425
United States Treasury
Bonds, 7.25% due
5-15-16, value $454) 445 445
Total Repurchase Agreements
(Identified Cost -- $4,545) 4,545
Total Investments -- 99.8%
(Identified Cost -- $60,484) 64,820
Other Assets Less Liabilities -- 0.2% 131
NET ASSETS -- 100.0% $64,951
NET ASSET VALUE PER SHARE $10.68
</TABLE>
(A) NON-INCOME PRODUCING.
(B) THE RATE OF INTEREST EARNED IS TIED TO THE 3-MONTH TREASURY BILL INDEX.
THE COUPON RATE SHOWN IS THE RATE AT JUNE 30, 1995.
7
