Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
For American Leading Companies Trust:
Legg Mason Fund Adviser, Inc.
Baltimore, MD
For Balanced Trust:
Bartlett & Co.
Cincinnati, OH
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
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 Corporation
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
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 o 539 o 0000
LMF-013
11/97
Semi-Annual Report
September 30, 1997
Legg Mason
Investors
Trust, Inc.
American Leading
Companies Trust
Balanced Trust
The Art of Investing
[Legg Mason Logo]
FUNDS
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Investors Trust's semi-annual
report for the Legg Mason American Leading Companies Trust and Balanced Trust.
During the quarter ended September 30, 1997 American Leading Companies
Trust's Primary Class net asset value increased from $16.34 to $17.10 per share
and Balanced Trust's net asset value increased from $11.00 to $11.83 per share.
American Leading Companies Trust seeks to invest at least three-quarters of
its assets in the common stock of large capitalization companies that are
leaders in their industries. The balance of its assets may be invested in
smaller market capitalization stocks, bonds, or foreign securities. The Balanced
Trust seeks to invest at least 25% of its portfolio in fixed income securities
and no more than 75% of its assets in equity securities. Balanced Trust will
emphasize investments in dividend paying equity securities.
Effective September 8, 1997, a portfolio management team headed by Bill
Miller, the portfolio manager for Legg Mason Value Trust and Legg Mason Special
Investment Trust, assumed responsibility for the day-to-day management of
American Leading Companies. A member of the portfolio management team is Jay
Leopold who has been American Leading Companies principal research analyst since
January 1995 and continues to provide assistance in that capacity.
Comments on the investment outlook, portfolio structure and performance of
each Fund follows this letter.
We hope you will consider using the Trust for investments of additional funds
as they become available. Some shareholders regularly add to their investment in
the funds by authorizing automatic, monthly transfers from their bank checking
or Legg Mason accounts. Your Financial Advisor will be happy to help you make
these arrangements if you would like to purchase additional shares in this
convenient manner.
The Board of Directors has approved an ordinary income dividend of $.03 per
share to Primary Class shareholders of Balanced Trust, payable on November 20,
1997 to shareholders of record on November 19, 1997.
Sincerely,
/s/ Edward A. Taber, III
------------------------
Edward A. Taber, III
President
November 14, 1997
<PAGE>
Portfolio Managers' Comments
American Leading Companies Trust
Third Quarter 1997
Despite the turbulence of late October, investors in the stock market have
continued to earn solid returns. Even after this pullback, the S&P 500 is up
over 20% for the year, about double its long term average. We believe that the
most likely course for the market in the next several years is what we've called
a return to normalcy, where returns have two features that have been absent from
the recent annual stock market data: a central tendency in the high single, or
low double digit area, and a greater propensity for returns that may lag bonds
or even cash from time to time.
We are suspicious of most measures of central tendency in time series data,
and believe that betting on regression from the mean is at least as profitable a
strategy as counting on regression to the mean. Robust or predictable
regularities in markets are usually short lived and not scalable; about the time
you think you've found a profitable pattern it ceases to work. Markets are far
too complex and adaptive to be amenable to analysis by simple formulas such as
average price/earnings ratios, dividend yields, or counting the time since the
last recession or the last 10% correction. This has not discouraged the press or
commentators from using such formulas to generate wrong predictions. Markets are
context dependent, their behavior is a function of the particular circumstances
that obtain and how those circumstances are expected to or do change. The trick
is not to predict an unknowable future, but to try to understand the present,
and the probabilities of the various paths that may evolve from it.
The present economic circumstances in the US are about as good as it gets:
high growth, low inflation, low unemployment, record profit margins and profits,
high returns on capital, and a world generally at peace. Biologists often use
the notion of a fitness landscape, first devised by Sewell Wright in the 1930s,
to characterize the situation in which a species (say) might find itself. The
objective is to reach local or, better yet, global peaks on the landscape. If
you're on a peak, things are great, but they don't get better. If you're in a
valley, things are bad, but since any direction will take you up, they are
likely to improve almost no matter what you do.
The US economy appears to be at a peak on its fitness landscape, or maybe a
plateau. The nervousness of the markets is due to investors being worried that
any change from here is likely to be for the worse. After years of terrific
returns, valuations in the market generally reflect the strength and health of
corporate America. If the Asian currency devaluations had not spooked the equity
market, something else would have; we agree with Alan Greenspan's testimony on
that point. The recent declines have taken a lot of froth off the market and we
think it unlikely that the exuberance of the late summer will return soon.
The market is just "p" and "e": price times earnings. If earnings are moving
forward, if inflation is not rising, if interest rates are stable, and if stocks
are not too overpriced, the path of least resistance for the market is higher.
We think earnings are going to be up 5% to 8% next year, that the Asian flu will
slow the US down a bit, that the Fed is unlikely to tighten amidst this kind of
market instability, and that stocks are priced about where they should be. If
prices were to fall sharply from here, we think it would represent an excellent
buying opportunity.
2
<PAGE>
American Leading Companies
Your fund continues to generate solid returns, rising 23.47% for the nine
months ending September 30, and 38.87% for the past twelve months. Our returns
trailed the S&P 500 for the third quarter, and those of the average equity fund,
as the market shifted from its preference for the large, well-known companies
that constitute the bulk of our portfolio, to smaller and mid-sized companies.
For the past twelve months our results are right in line with the Dow Jones
Industrial average, whose component companies make up a cross section of the
best known names in corporate America.
The fund has recently come under new management. Bob Quasman, who previously
managed the portfolio, has left the company, and I have assumed his
responsibilities while a permanent replacement is being sought. Jay Leopold, who
has been the principal analyst for the fund, is also assisting in the interim.
We hope to have a new manager shortly.
We think the fund's portfolio is generally in good shape, although we have
made some changes in the past few months. The overall thrust of the changes was
to add some companies who are clearly leaders but which have been absent from
the fund, most notably General Electric, the largest component of the S&P 500,
and to eliminate those whose valuations we thought excessive, such as Microsoft,
or which were experiencing operational difficulties, such as Eastman Kodak. A
more complete list of the total portfolio changes, some made by the previous
manager and some more recent, are included elsewhere in this report.
We believe that the best opportunities for long-term growth with leading
companies are in financial services and technology. Our weightings there are
likely to increase gradually as opportunities present themselves. Recent
additions to your holdings include Citicorp, the world's leading consumer bank,
Fannie Mae, the dominant force in home lending, Cisco, the leading company in
networking technology, and America Online, which is #1 in online services.
Healthcare is another promising area and we added Merck, the leading
pharmaceutical company, to the portfolio. Merck currently trades at a discount
to companies such as Pfizer and Schering-Plough, as investors are concerned
about rising competitive pressures. Merck has been actively repurchasing its
shares and we are hopeful that it will perform well over the next few years.
The turmoil in Asia may pressure major global companies more than smaller,
mostly domestic US oriented companies. Exports to that region are likely to
slow, and earnings will be hit not only by slowing growth overseas but by
unfavorable foreign currency comparisons. Some impact, at least psychologically,
may be felt by some of our portfolio holdings. Leading American companies are
also usually leading global companies, and they are not immune to problems whose
origin or effects are far from our shores. These companies, though, have proven
their ability to adapt and prosper in widely varying circumstances and we are
confident they will continue to be rewarding long-term investments.
Bill Miller, CFA
November 13, 1997
DJIA 7487.76
3
<PAGE>
Portfolio Managers' Comments
Balanced Trust
This report marks the conclusion of the Legg Mason Balanced Trust's first
year of operations. We are pleased with the results in that we have generated
good returns without undue risk. During the first two quarters the portfolio was
in a construction phase as equity exposure was being built up in a methodical
and opportunistic way to avoid any unpleasant surprises early in your experience
as a shareholder.
Common Stocks
The equity portion of the portfolio had a great quarter, beating the S&P 500
Index by over five percentage points. This allowed the portfolio's stocks to
just about pull even with the S&P 500 Index for the calendar year to date and to
pull slightly ahead of the Dow Jones Industrial average. Far be it from us to
think it's time to take a bow, since the last quarter allowed us to essentially
recapture the shortfall in performance that occurred in January when the S&P
500's largest companies were propelling the market averages higher.
During the first six months of the year, the Russell 2000 Index of small
company stocks produced an 8.1% return, compared to a return of 20.6% that was
produced by the S&P 500 Index which is dominated by large company stocks. For
the trailing nine month period ending September 30, 1997, the S&P 500 produced a
29.6% return, while the Russell 2000 generated a 26.6% return. It was not until
mid-April that investors became interested in including smaller issues among
their common stock holdings. This trend was key to our having an outstanding
quarter.
This is not to say that the large capitalization issues in the portfolio have
not contributed to the gains. Companies such as Time Warner, Ford, AMR,
Federated Department Stores, and AT&T have been additive to the results.
Furthermore, these contributions have been made to the portfolio from a diverse
set of industrial sectors, thereby reducing the overall risk. It is one thing to
buy good companies that are cheaply or reasonably priced. We, however, attempt
to reduce investment risk further by making sure that we do not have an
overconcentration in any one particular sector of the economy.
The list regarding the smaller companies that have buoyed results is quite
long. Of particular note, however, is Kansas City Southern Industries--a large
position in the portfolio that became only larger as its stock nearly doubled in
price since the end of May. Kansas City Southern, incidentally, was not a
difficult company to analyze. The problem was that the company is followed
almost exclusively by rail analysts, yet over seventy percent of its earnings
are derived from its ownership of the Janus and Berger groups of funds and DST,
Inc., a processor of mutual fund confirmations and statements. In addition, at
quarter-end, another significant holding, Salomon Inc., announced that it would
be acquired by Travelers. This represented a nice return to a level that
approximated our target price. Situations such as Kansas City Southern and
Salomon are not hard to find from time to time. However, it takes patience to
continue to maintain positions in them when investors are literally throwing
money at nothing but the most familiar household name companies.
A couple of new companies were introduced to the portfolio during the
quarter--H&R Block and United Asset Management. Several companies appreciated
to our target price and were sold during the last three months--Raytheon, KU
Energy and MBIA.
Generally speaking, a value approach should not be able to capture all of the
gains generated by a market as hot as this one has been, especially since this
methodology has inherently less risk.
4
<PAGE>
Fixed Income
During the last three months, interest rates have continued to decline, as an
increasing number of fixed income investors are becoming believers in the
moderate growth/low inflation scenario. This positive economic environment,
coupled with significant progress on the federal budget deficit, has solidly
tipped the scales in favor of a bullish view for fixed income assets. While some
of the progress on the budget front is a function of higher income tax receipts
due to strong corporate and personal earnings, as well as a result of stock
sales stemming from the recent favorable capital gains legislation, one can make
a strong case that the improvement in the deficit is not a temporary phenomenon,
but may be a secular shift towards smaller government. In addition, there are a
number of other factors that have the potential to lead to sharply lower
interest rates, including the strong fiscal condition of most local and state
governments, the relatively high yields that exist in the US as compared to the
yields of most other major industrialized countries, and, finally, the desire to
hold dollar-denominated assets as a result of the financial problems in
Southeast Asia. We wonder if Federal Reserve Chairman Alan Greenspan, is looking
at the same economic and fiscal data that we are, since he continues to express
concerns about the inflation bogeyman rising up from the grave. As we have
stated in the past, our major concern should be the d-word (deflation) rather
than the i-word (inflation).
Value in bondland is becoming as scarce as bearish twenty-eight year old
technology fund managers. (I actually haven't come across one yet). Sounding
somewhat like a broken record, we still favor mortgage-backed securities, which
continue to be the best performing fixed income asset class this year. We have
continued migrating toward lower coupon pass-throughs to minimize prepayment
risk. We have also stepped up our purchase of callable agency and corporate
bonds with two-year calls due to the relatively attractive yield spreads that
these securities offer. We continue to add to our position in 7-year treasury
STRIPS which still offer compelling value. Our exposure to corporate bonds is
relatively low as we feel that the risk/reward ratio of these securities is
quite unattractive, particularly when compared to the yields available on
mortgage-backed securities. With the recent stock market sell-off, spreads on
corporate bonds have begun to widen and we shall look for opportunities if
spreads continue to widen further as we expect. As anecdotal evidence of the
relatively tight yields on corporate bonds, consider that Safra Republic Bank,
which is a medium sized A-rated financial holding company, recently issued
1000-year bonds at a spread of under 100 basis points to 30-year treasuries (100
basis points = 1%). We have no idea who bought these bonds and under what
rationale they were viewed as an attractive investment.
With volatility in the capital markets on the increase, we shall continue to
pursue an opportunistic approach since it is in this type of market environment
that attractive opportunities present themselves.
We are pleased with the progress that your investments have made and are
happy to report it to you. Perhaps more important, we want to thank you for your
commitment to Bartlett & Co.'s value approach. We shall do everything to
continue to make your commitment to our value methodology a rewarding one. As
always, we thank you for your continued support.
Woodrow H. Uible, CFA Dale H. Rabiner, CFA
Equity Portfolio Manager Fixed Income Portfolio Manager
November 13, 1997
DJIA 7487.76
5
<PAGE>
Performance Information
Legg Mason Investors Trust, Inc.
Total Return for One Year and Life of Funds as of September 30, 1997
The returns shown on these pages are based on historical results and
are not intended to indicate future performance. Total return measures
investment performance in terms of appreciation or depreciation in a
portfolio's net assets per share plus dividends and any capital gain
distributions. The investment return and principal value of an investment
in each of these Funds will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Average
annual returns tend to smooth out variations in a fund's return, so they
differ from actual year-to-year results. No adjustment has been made for
any income taxes payable by shareholders.
The American Leading Companies Trust has two classes of shares: Primary
Class and Navigator Class. The Navigator Class, offered only to certain
institutional investors, pays fund expenses similar to those paid by the
Primary Class, except that transfer agency fees and shareholder servicing
expenses are determined separately for each class and the Navigator Class
does not incur Rule 12b-1 distribution fees.
The Funds' total returns as of September 30, 1997 were as follows:
American Leading Balanced
Companies Trust Trust
- --------------------------------------------------------------------------------
Average Annual Total Return
Primary Class:
One Year +38.87% +20.26%
Life of Class(dagger) +16.75% +20.26%
Cumulative Total Return
Primary Class:
One Year +38.87% +20.26%
Life of Class(dagger) +88.27% +20.26%
Navigator Class:
One Year N/A N/A
Life of Class(dagger,dagger) +39.82% N/A
- --------------------------------------------------------------------------------
(dagger) Primary Class inception dates are:
American Leading Companies Trust -- September 1, 1993
Balanced Trust -- October 1, 1996
(dagger,dagger) Navigator Class inception dates are:
American Leading Companies Trust -- October 4, 1996
6
<PAGE>
American Leading Companies Trust
Selected Portfolio Performance*
Strong Performers for the 3rd quarter 1997
------------------------------------------------
1. KLA-Tencor Corporation +38.6%
2. Conseco Inc. +31.9%
3. Intel Corporation +30.2%
4. Chase Manhattan Corporation +21.6%
5. Mellon Bank Corporation +21.3%
* Securities held for the entire quarter.
Weak Performers for the 3rd quarter 1997
------------------------------------------------
1. MCI Communications Corporation -23.3%
2. Aetna, Inc. -20.5%
3. Avon Products Inc. -12.1%
4. Fortune Brands, Inc. -9.7%
5. The PMI Group, Inc. -8.1%
Portfolio Changes
Securities Added during the 3rd quarter 1997
------------------------------------------------
America Online, Inc.
Circus Circus Enterprises, Inc.
Cisco Systems, Inc.
Citicorp
Compaq Computer Corporation
Fannie Mae
Ford Motor Company
General Electric Company
General Motors Corporation
HealthCare COMPARE Corporation
Merck & Co., Inc.
Ryder System, Inc.
Western Digital Corporation
Securities Sold during the 3rd quarter 1997
------------------------------------------------
CPC International, Inc.
Colgate-Palmolive Company
Corning Incorporated
Eastman Kodak Company
Electronic Data Systems Corporation
Eli Lilly and Company
Gallaher Group PLC ADR
J.P. Morgan & Co., Incorporated
Lucent Technologies, Incorporated
Microsoft Corporation
Procter & Gamble Company
Union Pacific Resources Group, Inc.
Unocal Corporation
7
<PAGE>
Performance Information--Continued
Balanced Trust
Selected Portfolio Performance*
Strong Performers for the 3rd quarter 1997
---------------------------------------------------
1. Kansas City Southern Industries, Inc. +60.2%
2. Salomon, Inc. +35.2%
3. Century Telephone Enterprises, Inc. +30.6%
4. Pioneer-Standard Electronics, Inc. +27.3%
5. AT&T Corporation +26.4%
* Securities held for the entire quarter.
Weak Performers for the 3rd quarter 1997
---------------------------------------------------
1. Korea Fund, Inc. -19.5%
2. First Data Corporation -14.5%
3. Cincinnati Bell, Inc. -9.7%
4. Triton Energy Ltd. -9.6%
5. York International Corporation -0.3%
Portfolio Changes
Securities Added during the 3rd quarter 1997
---------------------------------------------------
Columbia/HCA HealthCare Corporation
Toronoto-Dominion Bank
7.875%, 8/15/04
H&RBlock Inc.
United Asset Management Corporation
Securities Sold during the 3rd quarter 1997
---------------------------------------------------
Ameritech Corporation
Government National Mortgage Association
7%, 3/15/26-4/15/26
General Motors Acceptance Corporation
5.977%, 1/29/99
KUEnergy Corporation
MBIA, Inc.
National Presto Industries, Inc.
Raytheon Company
Stewart &Stevenson Services, Inc.
Zilog, Inc.
8
<PAGE>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
September 30, 1997 (Unaudited)
(Amounts in Thousands)
American Leading Companies Trust
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Common Stocks and Equity Interests -- 91.0%
Automotive -- 1.7%
Ford Motor Company 25 $ 1,131
General Motors Corporation 25 1,673
-------
2,804
-------
Banking -- 9.9%
Banc One Corporation 70 3,907
Chase Manhattan Corporation 64 7,552
Citicorp 20 2,679
Mellon Bank Corporation 40 2,190
-------
16,328
-------
Basic Materials -- 2.6%
Monsanto Co. 108 4,212
-------
Capital Goods -- 4.7%
Emerson Electric Company 60 3,458
General Electric Company 25 1,702
Rockwell International Corporation 42 2,643
-------
7,803
-------
Consumer Cyclicals -- 4.9%
BJ's Wholesale Club, Inc. 33 949(A)
Mattel, Inc. 215 7,122
-------
8,071
-------
Consumer Staples -- 4.6%
Avon Products Inc. 55 3,410
Fortune Brands,Inc. 48 1,617
Kimberly-Clark Corporation 50 2,447
-------
7,474
-------
Energy -- 2.6%
Texaco, Incorporated 40 2,458
Western Atlas, Inc. 20 1,760(A)
-------
4,218
-------
Entertainment -- 1.5%
Circus Circus Enterprises, Inc. 100 2,519(A)
Financial Services -- 2.5%
Fannie Mae 50 2,350
Travelers Group, Inc. 26 1,774
-------
4,124
-------
</TABLE>
9
<PAGE>
Statement of Net Assets--Continued
Legg Mason Investors Trust, Inc.
American Leading Companies Trust--Continued
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Food, Beverage and Tobacco -- 5.3%
Philip Morris Companies, Inc. 148 $ 6,151
RJR Nabisco Holdings Corp. 75 2,578
-------
8,729
-------
Health Care -- 14.1%
Amgen Inc. 113 5,417(A)
Bristol-Myers Squibb Company 53 4,386
HealthCare COMPARE Corporation 38 2,427(A)
Merck & Co., Inc. 40 3,998
Pfizer, Inc. 40 2,402
Schering-Plough Corporation 88 4,532
-------
23,162
-------
Insurance -- 9.9%
Aetna, Inc. 35 2,850
Conseco Inc. 165 8,054
The PMI Group, Inc. 93 5,330
-------
16,234
-------
Media -- 0.9%
America Online, Inc. 20 1,509(A)
-------
Technology -- 22.3%
Cisco Systems, Inc. 20 1,461(A)
Compaq Computer Corporation 40 2,990
EMC Corporation 113 6,602
Intel Corporation 66 6,093
International Business Machines Corporation 65 6,886
KLA-Tencor Corporation 90 6,081(A)
Raychem Corporation 53 4,512
Western Digital Corporation 50 2,003(A)
-------
36,628
-------
Telecommunications -- 1.5%
MCI Communications Corporation 85 2,497
-------
Transportation -- 2.0%
Ryder System, Inc. 92 3,306
-------
Total Common Stocks and Equity Interests (Identified Cost-- $112,791) 149,618
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Repurchase Agreement -- 6.9%
Lehman Brothers, Inc.
6.20%, dated 9/30/97, to be repurchased at $11,419 on 10/1/97
(Collateral: $11,764 Freddie Mac Mortgage-backed securities,
7%, due 8/1/27, value $11,804)
(Identified Cost-- $11,417) $ 11,417 $ 11,417
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 97.9% (Identified Cost-- $124,208) 161,035
Other Assets Less Liabilities-- 2.1% 3,384
--------
Net assets consisting of:
Accumulated paid-in-capital applicable to:
9,614 Primary shares outstanding $117,487
4 Navigator shares outstanding 50
Distributions in excess of net investment income (161)
Undistributed net realized gain on investments 10,216
Unrealized appreciation of investments 36,827
--------
Net assets--100.0% $164,419
========
Net asset value per share:
Primary Class $17.10
======
Navigator Class $17.18
======
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing
See notes to financial statements.
11
<PAGE>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
September 30, 1997 (Unaudited)
(Amounts in Thousands)
Balanced Trust
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Common Stocks and Equity Interests -- 60.0%
Advertising/Media -- 2.4%
A.H. Belo Corporation 7 $ 364
Time Warner, Inc. 5 293
--------
657
--------
Aerospace -- 0.9%
Lockheed Martin Corporation 2 245
--------
Automotive -- 1.8%
Ford Motor Company 10 475
--------
Chemicals -- 2.1%
Ferro Corporation 7 286
Potash Corporation of Saskatchewan, Inc. 3 267
--------
553
--------
Computer Services and Systems -- 2.3%
First Data Corporation 9 346
Pitney Bowes, Inc. 3 266
--------
612
--------
Construction and Building Materials -- 0.8%
Martin Marietta Materials, Inc. 6 216
--------
Electrical Equipment and Electronics -- 2.7%
Pioneer-Standard Electronics, Inc. 26 447
UCARInternational, Inc. 6 287(A)
--------
734
--------
Energy -- 3.4%
Phillips Petroleum Company 6 289
Southwestern Energy Company 10 128
Triton Energy Ltd. 7 311(A)
YPF Sociedad Anonima ADR 5 199
--------
927
--------
Finance -- 5.5%
Fannie Mae 9 447
H&R Block Inc. 4 174
Salomon, Inc. 7 511
United Asset Management Corporation 4 115
U.S. Trust Corporation 4 231
--------
1,478
--------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Food, Beverage and Tobacco -- 5.1%
Archer-Daniels-Midland Company 15 $ 364
McDonald's Corporation 7 333
RJR Nabisco Holdings Corp. 6 206
Universal Foods Corporation 4 121
UST, Inc. 11 336
--------
1,360
--------
Investment Companies -- 3.7%
Blackrock North American Government Income Trust, Inc. 75 796
Korea Fund, Inc. 17 202
--------
998
--------
Manufacturing -- 6.8%
Fleetwood Enterprises, Inc. 12 403
Kaydon Corporation 11 690
Tyco International Ltd. 4 361
York International Corporation 8 371
--------
1,825
--------
Hospital Management -- 0.8%
Columbia/HCA HealthCare Corporation 7 201
--------
Multi-Industry -- 1.5%
Loews Corporation 4 407
--------
Real Estate -- 2.4%
Chateau Communities, Inc. 12 354
United Dominion Realty Trust, Inc. 19 293
--------
647
--------
Retail -- 4.8%
Federated Department Stores, Inc. 8 367(A)
Jostens, Inc. 17 475
Toys "R" Us, Inc. 13 451(A)
--------
1,293
--------
Savings and Loan -- 1.4%
Washington Federal, Inc. 13 372
--------
Telecommunications -- 2.7%
AT&T Corporation 6 288
Century Telephone Enterprises, Inc. 7 308
Cincinnati Bell, Inc. 5 142
--------
738
--------
</TABLE>
13
<PAGE>
Statement of Net Assets--Continued
Legg Mason Investors Trust, Inc.
Balanced Trust--Continued
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Transportation -- 5.9%
AMR Corporation 4 $ 410(A)
GATX Corporation 6 385
Kansas City Southern Industries, Inc. 23 799
-------
1,594
-------
Utilities -- 3.0%
NIPSCO Industries, Inc. 4 147
TNP Enterprises, Inc. 15 364
Western Resources, Inc. 9 309
-------
820
-------
Total Common Stocks and Equity Interests (Identified Cost-- $13,361) 16,152
- ---------------------------------------------------------------------------------------------------------------------------
Preferred Stock -- 0.9%
Chiquita Brands International, Inc., 3.75%, Series B, Cv (Identified Cost-- $235) 4 246
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes -- 5.1%
Kroger Company 8.50% 6/15/03 $ 400 420
Merrill Lynch & Co., Inc. 7.05% 4/15/03 425 428
Toronto-Dominion Bank 7.875% 8/15/04 500 524
-------
Total Corporate Bonds and Notes (Identified Cost-- $1,350) 1,372
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations -- 30.8%
Treasury Notes/Strips -- 12.9%
United States Treasury Notes 7.125% 2/29/00 750 772
United States Treasury Notes 6.50% 5/31/01 250 254
United States Treasury Notes 6.25% 6/30/02 200 202
United States Treasury Bonds 0% 8/15/99 600 539(B)
United States Treasury Bonds 0% 5/15/04 1,100 737(B)
United States Treasury Bonds 0% 11/15/04 1,500 972(B)
-------
3,476
-------
Medium-term Notes -- 5.9%
Fannie Mae 7.37% 4/1/04 300 304
Fannie Mae 8.25% 10/12/04 900 934
Freddie Mac 8.14% 9/29/04 350 362
-------
1,600
-------
Mortgage-backed Securities -- 12.0%
Fannie Mae 6% 12/1/25-1/1/27 898 854
Freddie Mac 6% 3/1/26 98 93
Freddie Mac 6.50% 1/1/26-5/1/26 509 496
Government National Mortgage Association 8% 4/15/26-11/15/26 1,721 1,779
-------
3,222
-------
Total U.S. Government Agency Obligations (Identified Cost-- $8,223) 8,298
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Repurchase Agreement -- 3.9%
State Street Corporation
4.25%, dated 9/30/97, to be repurchased at $1,050 on 10/1/97
(Collateral: $1,071 United States Treasury Notes,
5.75%, due 12/31/98, value $1,076)
(Identified Cost-- $1,050) $ 1,050 $ 1,050
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.7% (Identified Cost-- $24,219) 27,118
Other Assets Less Liabilities-- (0.7%) (182)
-------
Net assets consisting of:
Accumulated paid-in-capital applicable to
2,276 shares outstanding $23,703
Undistributed net investment income 90
Undistributed net realized gain on investments 244
Unrealized appreciation of investments 2,899
-------
Net assets-- 100.0% $26,936
=======
Net asset value per share $11.83
======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing
(B) Zero-coupon bond -- A bond with no periodic interest payments which is
sold at such a discount as to produce a current yield-to-maturity.
See notes to financial statements.
15
<PAGE>
Statements of Operations
Legg Mason Investors Trust, Inc.
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 9/30/97
--------------------------------------------
American Leading Balanced
Companies Trust Trust
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Dividends $ 933 $ 159
Interest 281 286
------- ------
Total income 1,214 445
------- ------
Expenses:
Management fee 529 83
Distribution and service fees 705 83
Transfer agent and shareholder servicing expense 57 10
Custodian fees 43 29
Audit and legal fees 25 20
Reports to shareholders 15 4
Registration fees 12 13
Organization expense 9 9
Directors' fees 3 3
Other expenses 3 1
------- ------
1,401 255
Less fees waived (26) (51)
------- ------
Total expenses, net of waivers 1,375 204
------- ------
Net Investment Income (Loss) (161) 241
------- ------
Net Realized and Unrealized Gain on Investments:
Realized gain on investments 10,279 251
Change in unrealized appreciation of investments 13,359 3,127
------- ------
Net Realized and Unrealized Gain on Investments 23,638 3,378
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $23,477 $3,619
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
16
<PAGE>
Statements of Changes in Net Assets
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
American Leading Balanced
Companies Trust Trust
----------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
9/30/97 3/31/97 9/30/97 3/31/97(A)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S><C>
Change in Net Assets:
Net investment income (loss) $ (161) $ 42 $ 241 $ 153
Net realized gain on investments 10,279 9,367 251 23
Change in unrealized appreciation (depreciation)
of investments 13,359 8,419 3,127 (228)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 23,477 17,828 3,619 (52)
Distributions to shareholders:
From net investment income:
Primary Class -- (137) (241) (63)
Navigator Class -- (1) N/A N/A
From net realized gain on investments:
Primary Class (4,897) (2,899) (30) --
Navigator Class (3) (2) N/A N/A
Change in net assets from Fund share transactions:
Primary Class 40,975 13,928 5,640 18,062
Navigator Class -- 50 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets 59,552 28,767 8,988 17,947
Net Assets:
Beginning of period 104,867 76,100 17,948 1
- ---------------------------------------------------------------------------------------------------------------------------
End of period $164,419 $104,867 $26,936 $17,948
- ---------------------------------------------------------------------------------------------------------------------------
Under/(over)distributions of net investment income,
end of period $ (161) $ -- $ 90 $ 90
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) For the period October 1, 1996 (commencement of operations) to March
31, 1997.
See notes to financial statements.
17
<PAGE>
Financial Highlights
Legg Mason Investors Trust, Inc.
Contained below is per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data. This information has been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Investment Operations Distributions From:
---------------------------------------------------- ----------------------
Net Asset Net Net Realized Total Net Net Asset
Value, Investment and Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Investment Gain on Total End of
of Period (Loss) Investments Operations Income Investments Distributions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
American Leading Companies
--Primary Class
Six Months Ended
Sept. 30, 1997* $14.74 $(.01)(G) $3.00 $2.99 $ -- $(.63) $(.63) $17.10
Years Ended Mar. 31,
1997 12.23 .01(G) 3.00 3.01 (.02) (.48) (.50) 14.74
1996 10.18 .07(G) 2.08 2.15 (.10) -- (.10) 12.23
1995 9.69 .12(G) .48 .60 (.11) -- (.11) 10.18
1994(A) 10.00 .06(G) (.34) (.28) (.03) -- (.03) 9.69
--Navigator Class
Six Months Ended
Sept. 30, 1997* $14.71 $ .06(H) $3.04 $3.10 $ -- $(.63) $(.63) $17.18
Year Ended Mar. 31,
1997(B) 13.30 .07(H) 1.94 2.01 (.12) (.48) (.60) 14.71
Balanced Trust
Six Months Ended
Sept. 30, 1997* $10.16 $ .11(I) $1.70 $1.81 $(.12) $(.02) $(.14) $11.83
Year Ended Mar. 31,
1997(C) 10.00 .09(I) .11 .20 (.04) -- (.04) 10.16
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------
Net
Investment Average Net Assets
Expenses Income (Loss) Portfolio Commission End of
Total to Average to Average Turnover Rate Period
Return Net Assets Net Assets Rate Paid(F) (in thousands)
- -------------------------------------------------------------------------------------------------------
<S><C>
American Leading Companies
--Primary Class
Six Months Ended
Sept. 30, 1997* 20.62%(D) 1.95%(E,G) (.23)%(E,G) 77.5%(E) $.0638 $164,355
Years Ended Mar. 31,
1997 24.73% 1.95%(G) .05%(G) 55.7% .0640 104,812
1996 21.24% 1.95%(G) .69%(G) 43.4% -- 76,100
1995 6.24% 1.95%(G) 1.21%(G) 30.5% -- 59,985
1994(A) (2.86)%(D) 1.95%(E,G) 1.14%(E,G) 21.0%(E) -- 55,022
--Navigator Class
Six Months Ended
Sept. 30, 1997* 21.42%(D) .94%(E,H) .79%(E,H) 77.5%(E) $.0638 $ 64
Year Ended Mar. 31,
1997(B) 15.16%(D) .86%(E,H) .98%(E,H) 55.7%(E) .0640 55
Balanced Trust
Six Months Ended
Sept. 30, 1997* 17.88%(D) 1.85%(E,I) 2.18%(E,I) 54.1%(E) $.0733 $ 26,936
Year Ended Mar. 31,
1997(C) 2.02%(D) 1.85%(E,I) 2.52%(E,I) 5.1%(E) .0622 17,948
- -------------------------------------------------------------------------------------------------------
</TABLE>
(A) For the period September 1, 1993 (commencement of operations) to
March 31, 1994.
(B) For the period October 4, 1996 (commencement of operations) to
March 31, 1997.
(C) For the period October 1, 1996 (commencement of operations) to
March 31, 1997.
(D) Not annualized
(E) Annualized
(F) Pursuant to SEC regulations effective for fiscal years beginning after
September 1, 1995, this is the commission rate paid on securities
purchased and sold by the Fund.
(G) 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, March 31, 1997, and for the six months ended
September 30, 1997 would have been 2.28%, 2.12%, 2.20%, 2.06%, and 1.99%,
respectively.
(H) Net of fees waived pursuant to a voluntary expense limitation of 0.95%
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 October 4, 1996 to March 31, 1997 and for the six months ended
September 30, 1997 would have been 0.97% for each period, respectively.
(I) Net of fees waived pursuant to a voluntary expense limitation of 1.85%
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 October 1, 1996 to March 31, 1997 and for the six months ended
September 30, 1997 would have been 3.03% and 2.31%, respectively.
* Unaudited
See notes to financial statements.
18
<PAGE>
Notes to Financial Statements
Legg Mason Investors Trust, Inc.
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Investors Trust, Inc. ("Trust") consisting of the
American Leading Companies Trust ("American Leading Companies") and the
Balanced Trust ("Balanced Trust") (each separately referred to as a "Fund"
and collectively as the "Funds") is registered under the Investment
Company Act of 1940, as amended, each as an open-end, diversified
investment company.
American Leading Companies consists of two classes of shares: Primary
Class, offered since 1993, and Navigator Class, offered to certain
institutional investors since October 4, 1996. The income and expenses of
the Fund are allocated proportionately to the two classes of shares except
for Rule 12b-1 distribution fees, which are charged only on Primary
shares, and transfer agent and shareholder servicing expenses, which are
determined separately for each class.
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. Securities for which market
quotations are not readily available are valued at fair value as
determined by management and approved in good faith by the Board of
Directors. Fixed income securities with 60 days or less remaining to
maturity are valued using the amortized cost method, which approximates
current market value.
Investment Income 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 annually for American Leading
Companies, and quarterly for Balanced Trust. Distributions from net
capital gains, if available, will be made annually. Additional
distributions will be made when necessary.
Investment Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis for both financial reporting and federal income tax purposes. At
September 30, 1997, $2,934 was receivable for securities sold but not yet
delivered to American Leading Companies and $359 was payable for
securities purchased but not yet received by Balanced Trust.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. Government or its agencies and such collateral is in
the possession of the Funds' custodian. The value of such collateral
includes accrued interest. Risks arise from the possible delay in recovery
or potential loss of rights in the collateral should the issuer of the
repurchase agreement fail financially. The Funds' investment advisers,
acting under the supervision of their Board of Directors, review the value
of the collateral and the creditworthiness of those banks and dealers with
which the Funds enter into repurchase agreements to evaluate potential
risks.
19
<PAGE>
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Deferred Organizational Expenses
Deferred organizational expenses of $89 for American Leading
Companies and $86 for Balanced Trust are being amortized on a straight
line basis over 5 years commencing on the date their respective operations
began.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Funds intend to continue to qualify as regulated investment companies and
distribute all of their taxable income to their shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Investment Transactions:
For the six months ended September 30, 1997 investment transactions
(excluding short-term investments) were as follows:
Purchases Proceeds from Sales
-------------------------------------------------------------------
American Leading Companies $79,559 $50,216
Balanced Trust 11,686 5,796
At September 30, 1997, cost, aggregate gross unrealized appreciation
and gross unrealized depreciation based on the cost of securities for
federal income tax purposes for each Fund were as follows:
Cost Appreciation (Depreciation) Net
--------------------------------------------------------------------------
American Leading Companies $124,208 $38,995 $(2,168) $36,827
Balanced Trust 24,219 3,061 (162) 2,899
3. Transactions with Affiliates:
Each 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 Funds. Pursuant to their respective agreements,
the Manager provides the Funds with management and administrative services
for which each Fund pays a fee, computed daily and payable monthly at an
annual rate of 0.75% of each Fund's respective average daily net assets.
The Manager has agreed to waive its fees and to reimburse each Fund
for its expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) which in any month are in excess of annual rates
based on average daily net assets according to the following schedules:
for American Leading Companies Primary Class, 1.95% indefinitely; American
Leading Companies Navigator Class, 0.95% indefinitely; and for Balanced
Trust, 1.85% until July 31, 1998. For the six months ended September 30,
1997 management fees of $26, and $51, respectively, for American Leading
Companies (Primary and Navigator Classes combined) and Balanced Trust were
waived and $99 and $8 were due to the Manager by American Leading
Companies (Primary and Navigator Classes combined) and Balanced Trust,
respectively.
20
<PAGE>
Legg Mason Capital Management, Inc. ("LMCM"), a wholly owned
subsidiary of Legg Mason, Inc., serves as investment adviser to American
Leading Companies. LMCM is responsible for the actual investment activity
of the Fund. The Manager pays LMCM a fee for its services at an annual
rate equal to 40% of the fee received by the Manager.
Bartlett & Co. ("Bartlett"), a wholly owned subsidiary of Legg Mason,
Inc., serves as investment adviser to Balanced Trust. Bartlett is
responsible for the actual investment activity of the Fund. The Manager
pays Bartlett a fee for its services at an annual rate equal to 67% of the
fee received by the Manager.
Legg Mason, as distributor of the Funds, receives an annual
distribution fee and an annual service fee, computed daily and payable
monthly, from each of the Funds at annual rates based on the average daily
net assets of each Fund's Primary Class as follows: American Leading
Companies, 0.75% and 0.25%; and Balanced Trust 0.50% and 0.25%, for
distribution and service fees, respectively. At September 30, 1997,
distribution and service fees due to the distributor were: American
Leading Companies, $134; and Balanced Trust, $16.
No brokerage commissions were paid to Legg Mason or its affiliates
during the six months ended September 30, 1997.
Legg Mason also has an agreement with the Funds' transfer agent to
assist it with some of its duties. For this assistance, Legg Mason was
paid the following amounts by the transfer agent for the six months ended
September 30, 1997: American Leading Companies, $14; and Balanced Trust,
$3.
4. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
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 six
months ended September 30, 1997, the Funds had no borrowings under the
line of credit.
21
<PAGE>
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
5. Fund Share Transactions:
At September 30, 1997, there were 250,000 and 125,000 shares
authorized at $.001 par value for the Primary class of American Leading
Companies Trust and Balanced Trust, respectively. At September 30, 1997
there were 250,000 and 125,000 shares authorized at $.001 for the
Navigator class of American Leading Companies Trust and Balanced Trust,
respectively. Navigator shares of Balanced Trust have not commenced
operation. Share transactions were as follows:
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net Change
----------------- ---------------- ----------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
American Leading Companies
--Primary Class
Six Months Ended September 30, 1997 2,798 $46,094 307 $4,829 (603) $ (9,948) 2,502 $40,975
Year Ended March 31, 1997 1,720 25,050 210 2,991 (1,042) (14,113) 888 13,928
--Navigator Class
Six Months Ended September 30, 1997 -- -- -- -- -- -- -- --
Oct. 10, 1996+ to March 31, 1997 4 50 -- -- -- -- 4 50
Balanced Trust
--Primary Class
Six Months Ended September 30, 1997 723 7,970 24 264 (237) (2,594) 510 5,640
Oct. 1, 1996++ to March 31, 1997 1,973 20,213 6 61 (213) (2,212) 1,766 18,062
</TABLE>
+ Commencement of Navigator shares.
++ Commencement of operations.
22
<PAGE>
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