Investment Manager
Legg Mason Fund Adviser, Inc. Report to Shareholders
Baltimore, MD For the Six Months Ended
September 30, 1996
Investment Adviser
Legg Mason Capital Management, Inc.
Baltimore, MD
The
Board of Directors Legg Mason
John F. Curley, Jr., Chairman American
Edward A. Taber, III, President Leading
Richard G. Gilmore Companies
Charles F. Haugh Trust
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Putting Your Future First
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Auditors [Legg Mason Logo]
Ernst & Young LLP FUNDS
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
[Recycled Logo] Printed on Recycled Paper
LMF-013
11/96
<PAGE>
To Our Shareholders,
The American Leading Companies Trust's net asset value increased from
$12.69 to $13.24 per share during the quarter ended September 30, 1996. The
Fund's assets have grown to more than $80 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 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
November 8, 1996
<PAGE>
Portfolio Manager's Comments
The third quarter remained a favorable period for investors, and
equities continued to lead the way. New market highs were recorded during
the quarter and equities, as measured by the S&P 500, provided a 3.13%
total return over the past three months. As occurred during the previous
two quarters, large cap stocks fared the best as institutional portfolio
managers continued to seek homes for the unprecedented inflows of funds
(largely 401-k related) that have bolstered market averages over the past
few years.
Stock market volatility also increased in the quarter, however, and
long interest rates continued to creep upward. Indeed, severe market
jitters were experienced early in the quarter following the release of
unexpectedly strong new job creation and average hourly wage rate numbers
and, peak to trough, the Dow Industrials declined by approximately 10%
from late May to mid July. However, continued favorable inflationary news
has enabled the equity markets to recoup their recent losses and reach new
highs. Additionally, the recent slowdown in economic growth to an
estimated 2-2.5% rate for the third quarter from the second quarter's
unsustainably strong 4.7% rate has reduced the likelihood of increased
inflationary pressure near term. Some market pundits have even referred to
it as the "Goldilocks" economy--not too strong and not too soft, rather,
just right.
The Fund's total returns of 4.25% and 14.13% for the quarter and
year-to-date exceeded both the S&P 500's returns of 3.09% and 13.49%, and
the returns of 2.90% and 13.42% reported for similar growth funds, as
measured by Lipper Analytical Services, Inc.
Intel, which we purchased early this year, was the single best
performing stock in the Fund during the quarter. Although many of Intel's
customers and competitors have been buffeted at various times over the
past year by the continued decline in microprocessor pricing and a
slowdown in personal computer demand, Intel's near monopoly position in
microprocessors has enabled it to continue to increase market share and
gain further benefits from its enormous economies of scale. Longer term,
we anticipate Intel will remain a rewarding investment. Monsanto, which
was added to the Fund late last year, continued to provide superior
investment returns in the recent quarter as well. Through a series of
acquisitions and divestitures, Monsanto has dramatically refocused its
assets to become a global powerhouse in the emerging life sciences
industry by producing genetically-engineered seeds, weed killers, food
ingredients, and pharmaceuticals. We expect the company to be the
unquestioned leader in this exponentially-growing industry.
Conversely, AT&T, which recently announced it is experiencing
pressure in its core long lines operations, has been under pressure over
the past few months. However, AT&T shareholders recently received their
pro-rata ownership interest in Lucent Technologies, AT&T's
telecommunications equipment manufacturing arm, and Lucent is performing
particularly well. The telecommunications industry is undergoing
unprecedented changes, and AT&T management currently is refocusing its
attention on the company's basic business. We anticipate AT&T's
fundamentals and stock performance will improve over the next few
quarters. The spinoff of Lucent Technologies was effective October 1,
1996.
Transactions during the quarter reflected our efforts to reduce the
number of portfolio holdings and increase weightings in existing
securities which we believe have the best combination of valuation and
long-term prospects.
Only one new issue was added to the Fund, Procter & Gamble, a company
well-known and excellently positioned to grow its consumer business
globally. Three positions were eliminated: Georgia Pacific, due to our
concerns of a slowing economy; TRW because its auto-related business could
be negatively impacted by the rising value of the U.S. dollar, especially
against the Japanese yen; and lastly, Southern Pacific, which was merged
into Union Pacific.
Major additions were made to the following existing holdings: Bristol
Myers, IBM, McCormick, First USA, KLA Instruments and Comsat. Major
reductions occurred in Diebold and Microsoft. These are both great
companies and excellent performers, but valuations were getting quite
full.
2
<PAGE>
Much to Wall Street's relief, the 1996 presidential election ended
with the continuation of the status quo. President Clinton easily won
re-election and the Republicans were able to maintain control of the
Congress. Wall Street was very happy with the outcome as evidenced by
strong rallies in both the bond and stock markets. Prior to the election,
the polls favored a Democratic victory in Congress. Investors became
nervous, fearing that a Democratic-controlled Congress would increase
government spending substantially thereby undermining recent progress in
reducing the budget deficit and, more importantly, risk reigniting
inflationary pressures.
Despite the conciliatory tone taken by both parties since the
election, resentment levels between the parties persist, especially on the
Republican side. Long term, the potential for gridlock in dealing with the
high priority problems of social security and medicare is high. Short
term, the investment environment is ideal now that the election is over;
the economy is slowing, interest rates continue to fall, and stock prices
are rising. We wonder, however, how much longer the "Goldilocks" economy
can continue. Going forward, the level of economic growth will continue to
weigh heavily on the financial markets. A further slowdown in economic
growth would continue to reduce inflationary fears, it would also raise
the specter of disappointing corporate earnings. Conversely, stronger than
expected economic growth would increase the likelihood of rising interest
rates and equity valuation compression.
The current stock market expansion is by far the longest one on
record without a meaningful correction. While we believe the longer-term
outlook for equities remains attractive, we are sensitive to the
possibility that a correction will occur over the next year, and we
continue to pay strict attention to valuation levels and company
fundamentals in our stock selection. We are very comfortable with the
Fund's positioning.
We are pleased to welcome E. Robert Quasman as a Senior Investment
Manager. Bob recently joined Legg Mason Capital Management as Senior Vice
President after spending six years as the Director of Research for Legg
Mason Wood Walker, Inc. He has over twenty-five years of investment
experience as a securities analyst and portfolio manager, and was a member
of the Institutional Investor All-American Research Team for thirteen
consecutive years. He graduated with honors from Dartmouth College,
majoring in government and economics, and received his M.B.A. from
Columbia University Graduate School of Business. We look forward to
working with Bob and are delighted with the investment depth he brings to
our organization, and to the American Leading Companies Trust in
particular.
J. Eric Leo
November 8, 1996
DJIA 6219.82
3
<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, 1996
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, 1996 were as follows:
Cumulative Average Annual
Total Return Total Return
- --------------------------------------------------------------------------------
One Year +17.31% +17.31%
Life of Fund(dagger) +35.57 +10.37
- ----------------
(dagger)Fund inception--September 1, 1993.
Selected Portfolio Performance
Top Ten Holdings
- --------------------------------------------------------------------------------
1.Monsanto Co.
2.Union Pacific Corporation
3.Intel Corporation
4.Avon Products, Inc.
5.Emerson Electric Company
6.Aetna Inc.
7.Corning Incorporated
8.First USA, Inc.
9.Western Atlas Inc.
10.Diebold, Inc.
Strong Performers for the 3rd quarter 1996*
- --------------------------------------------------------------------------------
Intel Corporation +29.96%
International Business Machines
Corporation +25.76%
The PMIGroup, Inc. +25.00%
Lucent Technologies Incorporated +21.12%
Diebold, Inc. +20.98%
Portfolio Changes
Securities Added
- --------------------------------------------------------------------------------
Procter and Gamble Company
Weak Performers for the 3rd quarter 1996*
- --------------------------------------------------------------------------------
AT&T Corp. -15.73%
GTE Corporation -13.97%
Philip Morris Companies Inc. -13.70%
Comsat Corporation -12.98%
Mattel Inc. -9.61%
Securities Sold
- --------------------------------------------------------------------------------
Georgia-Pacific Corporation
TRW Inc.
* Securities held for the entire quarter.
4
<PAGE>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
American Leading Companies Trust
September 30, 1996 (Unaudited)
(Amounts in Thousands) Shares Value
- --------------------------------------------------------------------------------
Common Stocks and Equity Interests -- 95.0%
Basic Materials -- 4.1%
Monsanto Co. 90 $ 3,285
Capital Goods -- 11.9%
Corning Incorporated 60 2,340
Emerson Electric Company 30 2,704
Litton Industries, Inc. 30 1,477(A)
Raytheon Company 25 1,391
Rockwell International Corporation 30 1,691
-------
9,603
-------
Consumer Cyclicals -- 6.4%
Alco Standard Corporation 20 998
Eastman Kodak Company 18 1,413
Mattel Inc. 65 1,682
Minnesota Mining and
Manufacturing Company 15 1,048
-------
5,141
-------
Consumer Staples -- 16.2%
American Brands, Inc. 45 1,901
Avon Products, Inc. 60 2,977
CPC International Inc. 20 1,498
Colgate-Palmolive Company 20 1,737
The Walt Disney Company 15 951
McCormick & Company, Incorporated 60 1,402
Philip Morris Companies Inc. 18 1,616
Procter and Gamble Company 10 975
-------
13,057
-------
Energy -- 7.4%
Texaco Inc. 20 1,840
Unocal Corporation 55 1,980
Western Atlas Inc. 35 2,179(A)
-------
5,999
-------
Financial Services -- 12.8%
American General Corporation 45 1,699
Chase Manhattan Corporation 25 2,003
First USA, Inc. 40 2,215
Lincoln National Corporation 30 1,316
J.P. Morgan & Co. Incorporated 20 1,778
The PMI Group, Inc. 25 1,328
-------
10,339
-------
(Amounts in Thousands) Shares Value
- --------------------------------------------------------------------------------
Health Care -- 10.4%
Aetna Inc. 38 $ 2,674
Bristol-Myers Squibb Company 20 1,928
Eli Lilly and Company 20 1,290
Pfizer Inc. 20 1,582
Schering-Plough Corporation 15 923
-------
8,397
-------
Technology -- 15.3%
AMP Incorporated 45 1,744
Diebold, Inc. 35 2,043
International Business Machines
Corporation 10 1,245
Intel Corporation 33 3,149
KLA Instruments Corporation 90 2,025(A)
Lucent Technologies Incorporated 25 1,147
Microsoft Corporation 8 1,055(A)
-------
12,408
-------
Telecommunication Services-- 6.5%
AT&T Corp. 30 1,567
Comsat Corporation 70 1,584
GTE Corporation 35 1,347
MCI Communications Corporation 30 769
-------
5,267
-------
Transportation -- 4.0%
Union Pacific Corporation 45 3,274
-------
Total Common Stocks and Equity
Interests
(Identified Cost--$57,705) 76,770
- --------------------------------------------------------------------------------
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Investors Trust, Inc.
American Leading Companies Trust
Principal
(Amounts in Thousands) Amount Value
- --------------------------------------------------------------------------------
Repurchase Agreement -- 4.4%
Prudential Securities, Inc.
5.75% dated 09-30-96,
to be repurchased at
$3,526 on 10-01-96
(Collateral: $3,842
Federal National Mortgage
Association Mortgage-
backed securities, 6.50%
due 04-01-26, value $3,632)
(Identified Cost--$3,526) $ 3,526 $ 3,526
- --------------------------------------------------------------------------------
Total Investments -- 99.4%
(Identified Cost-- $61,231) 80,296
Other Assets Less Liabilities-- 0.6% 493
-------
Net assets consisting of:
Accumulated paid-in capital
applicable to 6,101 shares
outstanding 61,046
Undistributed net investment
income 75
Undistributed net realized gain on
investments 603
Unrealized appreciation of
investments 19,065
-------
Net assets-- 100.0% $80,789
=======
Net asset value per share $13.24
======
(A) Non-income producing
See notes to financial statements.
6
<PAGE>
Statement of Operations
Legg Mason Investors Trust, Inc.
American Leading Companies Trust
For the Six Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
(Amounts in Thousands)
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $ 756
Interest 92
--------
Total investment income $ 848
Expenses:
Management fee 290
Distribution and service fees 386
Transfer agent and shareholder servicing expense 37
Custodian fee 32
Legal and audit fees 24
Registration fees 18
Reports to shareholders 12
Organization expense 9
Directors' fees 5
Other expenses 5
--------
818
Less fees waived (65)
--------
Total expenses, net of waivers 753
--------
Net Investment Income 95
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 2,177
Increase in unrealized appreciation of investments 4,016
--------
Net Realized and Unrealized Gain on Investments 6,193
- -----------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $ 6,288
=======
</TABLE>
See notes to financial statements.
7
<PAGE>
Statement of Changes in Net Assets
Legg Mason Investors Trust, Inc.
American Leading Companies Trust
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
(Amounts in Thousands) September 30, 1996 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 95 $ 472
Net realized gain (loss) on investments 2,177 (1,094)
Increase in unrealized appreciation of investments 4,016 13,705
------ ------
Increase in net assets resulting from operations 6,288 13,083
Distributions to shareholders from net investment income (61) (608)
Change in net assets from Fund share transactions (1,538) 3,640
------ ------
Increase in net assets 4,689 16,115
Net Assets:
Beginning of period 76,100 59,985
- ----------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $75 and $41, respectively) $80,789 $76,100
======= =======
</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 Six
Months Ended For the Years Ended March 31,
September 30, 1996 1996 1995 1994(dagger)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $12.23 $10.18 $ 9.69 $10.00
-------------------------------------------------------------------
Net investment income(A) 0.02 0.07 0.12 0.059
Net realized and unrealized gain (loss)
on investments 1.00 2.08 0.48 (0.344)
-------------------------------------------------------------------
Total from investment operations 1.02 2.15 0.60 (0.285)
-------------------------------------------------------------------
Distributions to shareholders from
net investment income (0.01) (0.10) (0.11) (0.025)
-------------------------------------------------------------------
Net asset value, end of period $13.24 $12.23 $10.18 $ 9.69
-------------------------------------------------------------------
Total return 8.34%(C) 21.24% 6.24% (2.86)%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses 1.95%(A,B) 1.95%(A) 1.95%(A) 1.95%(A,B)
Net investment income .25%(A,B) .69%(A) 1.21%(A) 1.14%(A,B)
Portfolio turnover rate 31.89%(B) 43.4% 30.5% 21.0%(B)
Average commission rate paid(D) $0.0630 -- -- --
Net assets, end of period (in thousands) $80,789 $76,100 $59,985 $55,022
</TABLE>
(dagger) For the period September 1, 1993 (commencement of operations) to
March 31, 1994.
(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 annualized ratio of expenses to average daily net
assets for the period September 1, 1993 to March 31, 1994, for the
years ended March 31, 1995, March 31, 1996 and the six months ended
September 30, 1996 would have been 2.28%, 2.12%, 2.20% and 2.12%,
respectively.
(B) Annualized
(C) Not annualized
(D) Pursuant to SEC regulations effective for fiscal years beginning
after September 1, 1995, this is the average commission rate paid on
securities purchased and sold by the Fund.
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"), consisting of the
American Leading Companies Trust ("Fund") and the Balanced Trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. 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
Interest income and expenses are recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. 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. Dividends from net investment
income and distributions from net capital gains, if available, 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, 1996, $533 was receivable for securities sold but
not yet delivered.
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. The Fund has
unused capital loss carryforwards for federal income tax purposes of
$1,574 which expire in March 2004.
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:
Investment transactions for the six months ended September 30, 1996
(excluding short-term securities) were as follows:
Purchases $11,804
Proceeds from sales 15,544
At September 30, 1996, the cost of securities for federal income tax
purposes was $61,231. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $19,549
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $484. The net unrealized
appreciation for tax purposes is $19,065.
10
<PAGE>
3. Fund Share Transactions:
At September 30, 1996, 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:
For the For the
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
- --------------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sold 435 $ 5,453 1,457 $ 16,227
Reinvestment of
distributions 5 60 54 594
Repurchased (563) (7,051) (1,178) (13,181)
- --------------------------------------------------------------------------------
Net change (123) $(1,538) 333 $ 3,640
================================================================================
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, 1996, $42 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, 1996, advisory fees of $65 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, 1996, $65 was due to the distributor. Legg Mason 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, 1996. No brokerage commissions were
paid to Legg Mason or its affiliates during the six months ended September
30, 1996.
In November 1995, the Fund, along with certain other Legg Mason
Funds, entered into a $75 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 prinicipal 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 six months ended September 30, 1996, the Fund had no
borrowings under the line of credit.
11
