<PAGE>
INVESTMENT MANAGER
Legg Mason Fund Adviser, Inc. REPORT TO SHAREHOLDERS
Baltimore, MD FOR THE YEAR ENDED
MARCH 31, 1996
INVESTMENT ADVISER
Legg Mason Capital Management, Inc.
Baltimore, MD THE
LEGG MASON
BOARD OF DIRECTORS AMERICAN
John F. Curley, Jr., Chairman LEADING
Edward A. Taber, III, President COMPANIES
Richard G. Gilmore TRUST
Charles F. Haugh
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 AUDITORS
Ernst & Young LLP
Baltimore, MD PUTTING YOUR FUTURE FIRST
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 (Legg Mason Funds Logo)
LMF-013
5/96
<PAGE>
TO OUR SHAREHOLDERS,
The American Leading Companies Trust's net asset value increased from
$10.18 to $12.23 per share during the year ended March 31, 1996. During the
year, the Fund's total return (price appreciation plus reinvested
dividends) was 21.24%. The Trust's total net assets have grown to over $76
million as of the end of March.
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
$0.01 per share, payable on May 15 to shareholders of record on May 10.
Most shareholders will receive this dividend in the form of additional
shares credited to their accounts.
Sincerely,
/s/ Edward A. Taber, III
Edward A. Taber, III
President
May 10, 1996
<PAGE>
PORTFOLIO MANAGER'S COMMENTS
In the first quarter of 1996, the financial markets confounded the experts
who expected interest rates to continue to gradually decline and the equity
market's advances to slow. Instead, equities surged in the opening weeks of the
quarter, experienced a sharp but short correction and then continued to rise,
albeit with considerably more volatility and sector rotation. Performance of
equities, as measured by the S&P 500, ended the quarter with a total return of
5.38%. Conversely, the bond market surprised the experts by retreating for much
of the quarter as yields on the long-term Treasury climbed from 5.95% to 6.67%.
The Fund performed in line with the market during the quarter, with a total
return of 5.34%.
So far in 1996, the weak bond market also has increased equity volatility
because it implies that the economy is stronger, and/or inflation higher, than
conventional wisdom. As this is an election year, the market likely suspects
that the President will attempt to keep the economy as strong as possible to
help win re-election. The main reason, however, for the increased volatility in
the financial markets has been the polarized economic outlook, with Wall Street
economists divided into two camps. One group believes the economy will
reaccelerate once a modest inventory adjustment is completed. This group
generally feels that the U.S. consumer has the capacity to increase debt levels
and spending, setting the stage for a more robust recovery in the second half of
1996, possibly reaching a 3% annualized GDP rate. The second group believes that
after five years of expansion, economic growth will slow to roughly 2% for much
of 1996, reflecting the tight monetary policy of the Federal Reserve during 1994
and early 1995. This is coupled with expectations that consumers will be forced
to slow purchases because they have been borrowing for a prolonged period at
rates well in excess of their means. Additionally, the increased need by the
"Baby Boom" generation to save, along with the uncertainties created by
corporate downsizing, will weigh heavily on the consumer's propensity to spend.
We believe the slower growth scenario has the highest probability of occurring.
Transaction levels were higher than usual during the quarter as we began to
increase the economic sensitivity of the fund. Although we believe the economy
will be slow for much of the year, the market is already beginning to discount
the recovery phase. The stocks we purchased during the quarter, while sensitive
to the economy, also have other important characteristics. Most importantly,
managements are very shareholder-oriented. Additionally, we believe these stocks
will perform well, even if the economy stays soft, due to market share
increases, strong international growth opportunities, and in one case,
significant internal change. We believe the group of stocks added will increase
the overall growth rate of the fund as well as reduce, on balance, its
price/earnings ratio.
During the first quarter, we began to build our exposure to the technology
sector. After resisting the rush to jump on the "technology train" in 1995, we
are now interested, on a valuation basis, as the group has fallen sharply.
Technology stocks historically have a magical ability to excite investors into
believing that growth will go on forever. In reality, the growth of technology
has and probably will go on forever. Nevertheless, the problem is that companies
producing "technology" have difficulty consistently making money due to rapidly
falling prices, short production cycles, intense competition and high capital
requirements. In the end, technology companies are cyclical. We seek undervalued
technology companies which are leaders in their respective fields, possess solid
secular growth opportunities and are somewhat insulated from a more serious
economic slowdown should one develop. To that end, we purchased INTEL, the
world's largest manufacturer of microprocessors. With a dominant market share
and no significant competition, INTEL should not be hurt by a slowdown as much
as computer manufacturers which are forced to lower prices to stimulate unit
shipments. While price cutting hurts a computer maker's margins, it helps
INTEL'S unit volume.
Complementing the INTEL purchase, we also purchased shares in MICROSOFT
CORPORATION, the undisputed leader in personal computer software.
2
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We were able to purchase these shares at a significant discount to current price
levels. Both MICROSOFT and INTEL will be the major beneficiaries of the
introduction of the improved version of Windows NT, expected late in 1996.
Windows NT has been gaining wide acceptance by corporate America's server
network environment and should be a very profitable long-lived product.
At the other end of the technology spectrum, we initiated a position in KLA
INSTRUMENTS, a leading manufacturer of yield management systems for the
semiconductor industry. The company's equipment, which identifies microscopic
defects in semiconductor wafers, has been installed in virtually every new
semiconductor plant, or fab, built around the world over the last several years.
We expect this trend to continue for the next several years. In fact, we
estimate that KLA'S market share in its key markets exceeds 70%. The investment
represents a safer vehicle for participating in the long-term growth of the
semiconductor industry without many of the risks associated with the commodity
manufacturers of the chips. Since KLA'S customers experience a payback on their
investment in as short as one month, we believe demand for the company's
equipment should remain relatively healthy even if some new fabs are pushed out
several quarters. In fact, chip makers have installed wafer inspection equipment
in old fabs during prior slowdowns, providing KLA with a steadier source of
demand across the economic cycle. KLA has a pristine balance sheet with nearly
$5.00 per share in cash and no long-term debt. The stock is currently selling at
almost half its 1995 high and at a significant discount to the S&P 500 earnings
multiple, yet its long-term growth rate is more than twice that of the market.
We purchased FIRST USA, the nation's most rapidly growing credit card
issuer. The credit card industry continues to experience rapid secular growth as
consumers find credit cards a convenient way to both spend and borrow money.
FIRST USA'S low cost structure, high credit quality standards, sound technology
base and innovative marketing have allowed the company to keep customer interest
rates well below those of its competitors. Coupled with innovative marketing,
this has enabled FIRST USA to gain a significant market share over the past
several years. On the surface, the stock's valuation appears to be in line with
its competitors. However, adjusting for noncash amortization and FIRST USA'S
recent partial sale of its merchant processing unit, the company's multiple is
actually well below its peers despite above-average growth and returns on
assets.
Also during the quarter we purchased COMSAT, an international satellite
communications company. We believe the stock is trading at a steep discount to
its underlying asset value. The company's management, apparently unhappy with
COMSAT'S stock price, recently hired an investment banker to advise it on ways
to improve shareholder value. We believe COMSAT will divest several
under-performing assets over the next year. In addition, if management can
successfully privatize the global Intelsat satellite network, which is 19% owned
by COMSAT, we believe the value of the stock could increase dramatically. With
the U.S. government's recent backing of COMSAT'S initiative, we are cautiously
optimistic that Intelsat's privatization could be completed within two years. We
believe the stock has significant upside potential over the next few years,
especially if Intelsat is privatized successfully.
Funding for the aforementioned purchases was generated by the sale of FIRST
UNION CORP. and SONOCO PRODUCTS, along with a significant reduction in the
holding of CLEVELAND CLIFFS, all of which reached our price objectives.
Additionally, we eliminated the investment in BUENOS AIRES EMBOTELLADORA, the
Argentinean Pepsi bottler, due to heavy price competition in its markets. We
also significantly reduced our holdings in AMERICAN GREETINGS, due to increasing
competition in the greeting card industry.
LOOKING FORWARD
We believe the U.S. economy is in a slow growth mode. As a result, we expect
the Federal Reserve to gradually reduce interest rates before the year is out.
In light of our economic expectations, and as long as inflation remains stable,
we
3
<PAGE>
expect to see bond prices on the long Treasury rise during the balance of the
year. Stronger bond prices should again provide a positive backdrop for the
equity markets. We make this economic forecast with the knowledge that actual
readings on the economy will be difficult due to the impact of the General
Motors strike, which will distort economic data as did the harsh weather and the
government shutdown in the first months of 1996. The initial impact of these
events typically has been to artificially slow the economy, and then provide an
artificial boost. In the case of GM, since the strike is over and after the
appropriate lag, the economy will look artificially stronger as workers return
to their jobs. In short, we will not have "reliable" data on the economy until
May or June because the temporary shutdown of a company the size of GM creates a
ripple effect that extends to suppliers and workers.
Our expectation for the financial markets is a continued upward bias, but
with both equities and bonds displaying greater volatility for the balance of
the year. For equities, we expect the record flows to mutual funds to slow as
the year progresses but to remain strong on balance. Corporate stock
repurchases, as well as additional consolidations, will continue at significant
levels and more than offset new stock issuance, thereby reducing the supply of
equities. Additionally, the "Fidelity Factor" could provide some lift to the
market. Fidelity, the nation's largest mutual fund group, apparently has
accumulated a $60-$65 billion pool of cash reserves created by the partial sale
of large positions in technology stocks during 1995 and early 1996, that is
awaiting reinvestment. The aforementioned should provide enough "fuel" to
generate positive equity returns for the year, though certainly below the huge
gains of 1995. Within this positive environment, we envision a continuation of
an above-average level of sector and individual issue rotation based on the high
level of uncertainty regarding the economic environment and corporate earnings.
After five years without at least a 10% correction in the stock market, many
investors believe a decline in the market is inevitable. We acknowledge that a
correction is overdue, but suspect that few will accurately anticipate its
arrival. At present, we do not see the excesses that historically have led to a
substantial retrenchment. There is a known wild card in the 1996 market
equation -- the Presidential election in November. Based on experience to date
with budget negotiations, the political bashing will create a higher level of
unease within the financial markets.
Looking beyond the election, we can see an issue evolving that at some point
will impact the financial markets. We believe it is increasingly likely that the
recent political focus on welfare, Social Security and Medicare/Medicaid reform
have sobered politicians with the immensity of the task, and the "late hour."
Politicians are "between a rock and hard place." They know something must be
done soon to contain the entitlement costs, and at the same time they know they
cannot "cut" their way to prosperity. Regardless of who wins in November, it is
our opinion that the conventional wisdom in Washington will shift from cost
containment to growth sometime during 1997. We believe the government will come
to the conclusion that a 2.25% trend line growth rate is too low. The trend line
growth rate is the highest level of economic growth the country is capable of
without creating inflationary excess; ten years ago it was 3%. Proponents of
higher growth will argue that because of the rapid advances in technology and
productivity, a higher level of growth can be achieved and sustained with little
risk of higher inflation due to intense global competition. Higher projected
real GDP growth numbers would begin to make the ticking time bombs of Social
Security, Medicare and budget deficits much less onerous.
THE FUND
We are very comfortable with the fund's balance of consistent growth
companies and economically sensitive companies with superior long-term growth
potential. We continue to favor companies with significant international
exposure, especially when the company is the dominant low-cost, high-quality
producer. The EVA (Economic Value Added) tools introduced in 1995 have been very
useful and have no doubt contributed to the
4
<PAGE>
improved performance of the fund. We are always on the lookout for good
businesses with shareholder-friendly management. As the year progresses, we will
be seeking companies with greater exposure to the economy. The rapid and
frustrating sector rotations that have become a part of the equity investing
landscape also create opportunities to purchase such companies at attractive
valuations.
As always, thank you for your continued support.
J. Eric Leo
May 8, 1996
DJIA 5420.95
MANAGEMENT'S DISCUSSION AND ANALYSIS
The fund's value increased sharply for the 12 month period ending
March 31, 1996, with a total return of 21.2%, but underperformed its
benchmark, the S&P 500, which produced a total return of 32.1%.
Performance lagged the index due to the significant underweighting in
technology stocks, which performed extraordinarily well during much of
1995 and then entered a sharp corrective phase which lasted into the first
quarter of 1996. Performance was also hurt by two sectors, energy and
retail. Retail stocks were sold during 1995 due to the unrelenting
competitive pressure which has significantly reduced the predictability of
the industry. Weakness in the energy sector lasted until late in the year
when a strong rally began which has continued throughout the end of the
recent quarter. The energy sector performance reflects the weakness and
strength of a broadly diversified portfolio during a period of intense
sector rotation. The fund's relative performance began to improve as the
technology sector slumped.
Strategy Employed
The portfolio changes during the fiscal year reflected a continuous
process to upgrade the portfolio's valuation multiples, market
capitalization and name recognition. The majority of the portfolio
additions during the fiscal year are companies that are very
shareholder-oriented, and which have adopted EVA (Economic Value Added)
principles. We believe that EVA is superior to earnings and other
financial measures because it takes into account the capital used to
create profits. More importantly EVA-oriented companies tend to link
management's incentive compensation to the correlation of shareholder
wealth. EVA principles have become an important part of our stock
selection process.
The focus early in the fiscal year was to add companies with stable
earnings growth to defend against a slowing economy. As the year
progressed, we purchased companies that would do well regardless of the
economy, such as MONSANTO. Most recently, we increased weightings of
companies which could benefit from a reacceleration in economic growth.
The Legg Mason American Leading Companies Trust is designed for
conservative long-term investors who are seeking a well-diversified
portfolio made up of stocks of large, well-known companies. Rapidly
changing environments can create significant adjustment problems for large
companies and potentially, very serious problems for smaller or
under-capitalized companies. Legg Mason American Leading Companies Trust
believes that large, well-capitalized, U.S.-based, globally-oriented
companies possess significant long-term advantages. Our goal is to
identify the blue chip companies of the future. The companies that
interest us the most are those making significant progress meeting the
challenge of change. We strive to purchase these companies at valuation
levels consistent with our value orientation but with the potential to
evolve into companies possessing growth stock characteristics.
5
<PAGE>
PERFORMANCE INFORMATION
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
SELECTED PORTFOLIO PERFORMANCE
Top Ten Holdings
1. Monsanto Co.
2. Aetna Life & Casualty Company
3. Avon Products, Inc.
4. Emerson Electric Company
5. Texaco, Inc.
6. AT&T Corp.
7. Corning Incorporated
8. Western Atlas, Inc.
9. Diebold, Incorporated
10. AMP, Incorporated
Strong Performers for the 1st quarter 1996*
Chemical Banking Corp.
Guidant Corp.
Monsanto Co.
TRW, Inc.
Weak Performers for the 1st quarter 1996*
AT&T Corp.
Diebold, Inc.
Lincoln National Corp.
Mattel, Inc.
PORTFOLIO CHANGES
Securities Added
Comsat Corporation
First USA, Incorporated
Georgia-Pacific Corp.
Intel Corporation
KLA Instruments Corporation
Microsoft Corporation
Securities Sold
Buenos Aires Embotelladora S.A. ADS
Federal-Mogul Corporation
First Union Corporation
Sonoco Products Company
$2.25 Series A Cum. Cv.
* SECURITIES HELD FOR THE ENTIRE QUARTER.
6
<PAGE>
PERFORMANCE COMPARISON AS OF MARCH 31, 1996 OF A $10,000 INVESTMENT
MADE AT THE FUND'S INCEPTION ON SEPTEMBER 1, 1993.
[Performance Graph Here]
<TABLE>
<CAPTION>
American Leading Companies Trust Standard & Poor's 500 Stock Composite Index(1)
<S> <C> <C>
9/1/93 10,000 10,000
9/93 9,960 9,923
10,085 10,152
3/94 9,714 9,772
9,714 9,811
9/94 10,076 10,289
9,661 10,286
3/95 10,320 11,290
10,868 12,366
9/95 11,555 13,348
11,879 14,152
3/31/96 12,513 14,911
</TABLE>
*Fund Inception -- September 1, 1993.
(1) An unmanaged index of widely held common stocks. The return for the index
does not include any expenses or transaction costs. The returns for the Fund
include such expenses.
TOTAL RETURN FOR ONE YEAR AND LIFE OF FUND, AS OF MARCH 31, 1996
The fund's total returns as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
<S> <C> <C>
One Year +21.24% +21.24%
Life of Fund(dagger) +25.13 +9.06
</TABLE>
(dagger)FUND INCEPTION -- SEPTEMBER 1,1993.
The results shown above 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.
7
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
MARCH 31, 1996
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
COMMON STOCKS AND EQUITY INTERESTS -- 96.3%
Aerospace -- 2.1%
TRW Inc. 18 $ 1,604
Banking -- 4.0%
Chemical Banking Corporation 20 1,410
J.P. Morgan & Co. Incorporated 20 1,660
3,070
Chemicals -- 3.6%
Monsanto Co. 18 2,763
Computer Services and Systems -- 2.7%
Diebold, Inc. 53 2,080
Cosmetics -- 3.4%
Avon Products, Inc. 30 2,572
Defense -- 3.3%
Litton Industries, Inc. 30 1,380(A)
Raytheon Company 22 1,128
2,508
Electrical Equipment -- 5.9%
AMP Incorporated 50 2,069
Emerson Electric Company 30 2,422
4,491
Electronics -- 3.5%
Intel Corporation 25 1,422
KLA Instruments Corporation 55 1,244(A)
2,666
Entertainment -- 1.3%
The Walt Disney Company 15 958
Food, Beverage and Tobacco -- 7.1%
American Brands, Inc. 45 1,907
CPC International Inc. 20 1,387
McCormick & Company, Incorporated 45 990
Philip Morris Companies Inc. 13 1,141
5,425
Financial Services -- 2.2%
First USA Inc. 30 1,699
Forest Products -- 0.9%
Georgia-Pacific Corporation 10 694
Household Products -- 2.0%
Colgate-Palmolive Company 20 1,558
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Industrial Machinery -- 2.6%
Varity Corporation 45 $ 1,946(A)
Insurance -- 11.0%
Aetna Life & Casualty Company 35 2,642
American General Corporation 45 1,552
First Colony Corporation 50 1,194
Lincoln National Corporation 25 1,269
Prudential Reinsurance Holdings Inc. 25 591
The PMI Group, Inc. 25 1,091
8,339
Metals and Mining -- 0.3%
Cleveland-Cliffs Inc. 6 266
Multi-Industry -- 8.9%
Alco Standard Corporation 20 1,042
Corning Incorporated 60 2,100
Eastman Kodak Company 15 1,065
Minnesota Mining and
Manufacturing Company 15 973
Rockwell International
Corporation 27 1,590
6,770
Oil and Oil Services -- 8.0%
Texaco Inc. 25 2,150
Unocal Corporation 55 1,836
Western Atlas Inc. 35 2,100(A)
6,086
Pharmaceuticals -- 7.1%
Bristol-Myers Squibb Company 15 1,284
Eli Lilly and Company 20 1,300
Guidant Corporation 12 635
Pfizer Inc. 20 1,340
Schering-Plough Corporation 15 872
5,431
Publishing -- 1.1%
American Greetings Corporation 30 829
Railroads and Equipment -- 4.1%
Southern Pacific Rail Corporation 45 1,057(A)
Union Pacific Corporation 30 2,059
3,116
Software / Technology -- 1.4%
Microsoft Corporation 10 1,031(A)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value
<S> <C> <C>
Telecommunications -- 7.3%
AT&T Corp. 35 $ 2,144
Comsat Corporation 40 935
GTE Corporation 35 1,536
MCI Communications Corporation 30 907
5,522
Toys & Amusements -- 2.5%
Mattel Inc. 70 1,899
Total Common Stocks and Equity
Interests
(Identified Cost -- $58,270) 73,323
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C>
U.S. GOVERNMENT OBLIGATION -- 1.3%
Student Loan Marketing
Association
5.87%(B) 5-1-96
(Identified Cost -- $1,000) $1,000 996
</TABLE>
<TABLE>
<CAPTION>
Principal
(Amounts in Thousands) Amount Value
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.2%
Prudential Securities, Inc.
5.50% dated 03-29-96, to be
repurchased at $1,652 on
04-01-96 (Collateral: $1,564
Federal National Mortgage
Association Mortgage-backed
securities, 10% due 10-1-06,
value $1,684)
(Identified Cost -- $1,651) $ 1,651 $ 1,651
Total Investments -- 99.8%
(Identified Cost -- $60,921) 75,970
Other Assets Less Liabilities -- 0.2% 130
NET ASSETS CONSISTING OF:
Accumulated paid-in capital
applicable to 6,224 shares
outstanding 62,584
Undistributed net investment
income 41
Accumulated net realized loss
on investments (1,574)
Unrealized appreciation of
investments 15,049
NET ASSETS -- 100.0% $76,100
NET ASSET VALUE PER SHARE $12.23
</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 MARCH 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,570
Interest 241
Total investment income $ 1,811
EXPENSES:
Management fee 515
Distribution and service fees 687
Transfer agent and shareholder servicing expense 66
Custodian fee 62
Reports to shareholders 60
Legal and audit fees 57
Registration fees 32
Organization expense 18
Directors' fees 10
Other expenses 3
1,510
Less fees waived (171)
Total expenses, net of waivers 1,339
NET INVESTMENT INCOME 472
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized loss on investments (1,094)
Net unrealized appreciation of investments 13,705
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 12,611
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,083
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
<TABLE>
<CAPTION>
For the Years Ended March 31,
(Amounts in Thousands) 1996 1995
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 472 $ 694
Net realized loss on investments (1,094) (439)
Change in unrealized appreciation of investments 13,705 3,246
Change in net assets resulting from operations 13,083 3,501
Net equalization credits -- 6
Distributions to shareholders from net investment income (608) (645)
Increase in net assets from Fund share transactions 3,640 2,101
Increase in net assets 16,115 4,963
NET ASSETS:
Beginning of year 59,985 55,022
End of year (including undistributed net investment income of $41 and $248,
respectively) $ 76,100 $ 59,985
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<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 Years Ended March 31,
1996 1995 1994(dagger)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.18 $ 9.69 $10.00
Net investment income(A) .07 0.12 0.059
Net realized and unrealized gain (loss) on investments 2.08 0.48 (0.344)
Total from investment operations 2.15 0.60 (0.285)
Distributions to shareholders from net investment income (0.10) (0.11) (0.025)
Net asset value, end of period $12.23 $10.18 $ 9.69
Total return 21.24% 6.24% (2.86)%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(A) 1.95%(A) 1.95%(A,B)
Net investment income .69%(A) 1.21%(A) 1.14%(A,B)
Portfolio turnover rate 43.4% 30.5% 21.0%(B)
Net assets, end of period (in thousands) $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 RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD
SEPTEMBER 1, 1993 TO MARCH 31, 1994 AND FOR THE YEARS ENDED MARCH 31,
1995 AND MARCH 31, 1996 WOULD HAVE BEEN 2.28%, 2.12% AND 2.20%,
RESPECTIVELY.
(B) ANNUALIZED
(C) NOT ANNUALIZED
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
(Amounts in Thousands)
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. Dividends from net investment
income, if available, will be paid quarterly. 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.
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.
Equalization
In prior years, the Fund followed the practice of equalization, under
which a portion of proceeds from sales and cost of redemptions of Fund
shares was 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 investment income to accumulated paid-in capital.
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 year ended March 31, 1996 (excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases $ 33,046
Proceeds from sales 28,314
</TABLE>
At March 31, 1996, the cost of securities for federal income tax
purposes was $60,921. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $15,612
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $563. The net unrealized
appreciation for tax purposes is $15,049.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
LEGG MASON INVESTORS TRUST, INC.
AMERICAN LEADING COMPANIES TRUST
(Amounts in Thousands)
3. FUND SHARE TRANSACTIONS:
At March 31, 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:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 1,457 $ 16,227 1,404 $ 13,743
Reinvestment of
distributions 54 594 66 638
Repurchased (1,178) (13,181) (1,258) (12,280)
Net increase 333 $ 3,640 212 $ 2,101
</TABLE>
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 March 31, 1996, $32 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 year
ended March 31, 1996, advisory fees of $171 were waived.
Legg Mason Capital Management, 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 March
31, 1996, $65 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 $22 by the transfer agent for the
year ended March 31, 1996. No brokerage commissions were paid to Legg
Mason or its affiliates during the year ended March 31, 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 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 March 31, 1996, the Fund had no borrowings under
the line of credit.
14
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND DIRECTORS OF LEGG MASON INVESTORS TRUST, INC.:
We have audited the accompanying statement of net assets of the Legg
Mason American Leading Companies Trust, a portfolio of the Legg Mason
Investors Trust, Inc., as of March 31, 1996, and the related statement of
operations for the year then ended, and the statement of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the two years in the period then ended and for the
period from September 1, 1993 (commencement of operations) to March 31,
1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1996, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Legg Mason American Leading Companies Trust at March 31,
1996, the results of its operations for the year then ended, and the
changes in its net assets for each of the two years in the period then
ended and financial highlights for each of the two years in the period
then ended and for the period from September 1, 1993 (commencement of
operations) to March 31, 1994, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Baltimore, Maryland
April 23, 1996
15
