Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Annual Report
Investment Adviser March 31, 1997
For American Leading Companies Trust:
Legg Mason Capital Management, Inc.
Baltimore, MD
For Balanced Trust:
Bartlett & Co. Legg Mason
Cincinnati, OH Investors
Trust, Inc.
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Charles F. Haugh American Leading
Arnold L. Lehman Companies Trust
Dr. Jill E. McGovern
T. A. Rodgers Balanced Trust
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Putting Your Future First
Custodian
State Street Bank & Trust Company
Boston, MA
[Legg Mason Logo]
Counsel FUNDS
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 (bullet) 539 (bullet) 0000
[Recycle Logo] Printed on Recycled Paper
LMF-013
5/97
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Investors Trust's annual
report, combining reports for the Legg Mason American Leading Companies Trust
and Balanced Trust.
During the quarter ended March 31, 1997 American Leading Companies Trust's
Primary Class net asset value increased from $14.40 to $14.74 per share while
Balanced Trust's net asset value decreased from $10.34 to $10.16 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 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. The Balanced Trust, the newest addition to the Legg Mason
Family of Funds, 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.
Comments on the investment outlook, portfolio structure and performance of
each Trust 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.
Ernst & Young LLP, the Investors Trust independent auditors, have completed
their annual examination, and audited financial statements for the fiscal year
ended March 31, 1997 are included in this report.
Sincerely,
/s/ Edward A. Taber, III
_________________________
Edward A. Taber, III
President
May 12, 1997
<PAGE>
Portfolio Manager's Comments
American Leading Companies Trust
The first quarter of 1997 was a mixed period for investors and volatility
returned to the market with a vengeance. While large cap stocks continued to
lead the way and fared relatively well (at least until the final few trading
days of the quarter), the performance of other market indices was far less
favorable. The Dow Industrials advanced by 2.59% for the quarter while the S&P
500 eked out a slightly stronger 2.68% gain. However, the Nasdaq Composite index
declined by 5.22% in the quarter and the Russell 2000, which tracks the
performance of smaller market capitalization stocks, fell by 5.17%. Fixed income
securities were not immune to the market's vagaries. The Salomon Brothers Broad
Investment Grade Bond Index declined by 0.52% in the quarter.
Several notable factors influenced the markets during the quarter. On the
positive side, continued large inflows into equity mutual funds in January and
February enhanced the performance of large cap stocks and benign inflationary
news augmented the performance of both the equity and fixed income markets.
However, the strengthening of the dollar raised fears about earnings of
multi-national corporations and continued favorable economic news raised
concerns (subsequently confirmed) that the Fed would soon raise interest rates.
Indeed, the Fed did raise the fed funds rate from 5.25% to 5.50% on March 25,
and in reaction, long rates crossed the 7% threshold level for the first time
since September, ending the quarter at 7.10%. Investors who ignored Alan
Greenspan's recent warnings of "irrational (investor) exuberance" and
"unwarranted expectations" soon were reminded of the old adage: "Fool me once,
shame on you. Fool me twice, shame on me."
The increased market volatility was exemplified by the performance of
technology stocks during the quarter. Tech stocks started the quarter off strong
and the Nasdaq Composite index, which closely reflects the performance of
technology stocks, advanced by 7.5% during the first three weeks of January.
However, previously mentioned concerns about the strengthening of the dollar and
of a possible slowdown in orders soon affected the group and the Nasdaq
Composite declined by 12.0% during the remainder of the quarter. Additionally,
three of the largest point (although not absolute) declines ever recorded in the
Dow occurred during the final two weeks of March, and the Dow, which first
crossed the 7000 level in mid-February, declined by 7.1% during the final three
weeks of the quarter from its closing peak of 7085.16 recorded on March 11. In
our last portfolio manager's commentary, we stated our belief that "portfolio
performance this year (1997) will be far more constrained than in 1996.
Essentially, everything that could go right for investors in 1996 did and we
doubt conditions can improve much from current levels. An acceleration of
economic activity most likely would lead to renewed inflationary concerns and
higher interest rates, while a slowdown in growth most probably would lead to
earnings disappointments." Unfortunately, we continue to believe that 1997 will
be a challenging year for most investors. The performance of your Fund, however,
continued to fare well during the first quarter of 1997 and advanced by 2.36%
during that period. By comparison, the value of similar growth funds, as
measured by Lipper Analytical Services, Inc., declined by 1.28% over the same
period.
First USA, which is being acquired by Banc One, the nation's tenth largest
commercial bank, was the single best performing stock in the Fund during the
quarter, and advanced by a healthy 22.4%. We purchased First USA last spring
after determining that the longer-term fundamental outlook for the major credit
card issuers remained bright and that First USA appeared particularly well
positioned in the industry. Banc One's willingness to pay a 43% premium over
First USA's closing price on the day before the acquisition was announced only
confirmed the soundness of that purchase decision.
2
<PAGE>
Pharmaceutical stocks also performed well during the quarter due to the
combination of enhanced expectations for several new drugs and the defensive
earnings characteristics generally perceived to exist in the group. Our
holdings in Eli Lilly (+12.7%), Schering-Plough (+12.4%) and Bristol Myers
(+8.3%) also enhanced the Fund's first quarter results. Additionally, favorable
corporate developments occurred at other companies owned by the Fund that we
believe will enhance their longer-term prospects. More specifically, Monsanto
announced the intended spin-off of its basic chemicals business as did Rockwell
International with its automotive components operations. We anticipate both of
these developments will enable the remaining companies to record faster growth
than otherwise would have been the case.
The level of transaction activity in the Fund slowed notably during the
quarter. We added two new names-Kimberly Clark and Conseco, Inc.- to the
portfolio and eliminated our positions in AT&T and Walt Disney. Kimberly Clark
is a $13 billion consumer and personal care products manufacturer that is
benefitting from its 1995 acquisition of Scott Paper. Kimberly's future results
are expected to benefit from further cost savings derived from that acquisition
and from its recently announced plans to sell the majority of its paper making
facilities. Conseco, a life, annuity and supplemental health insurance company,
is benefitting from the consolidation trend occurring within the insurance
industry. Conseco, through a series of astute acquisitions and internal growth,
has increased its revenues 11-fold over the past decade, from $278 million in
1987 to $3.1 billion in 1996, and, in the process, has recorded even more rapid
earnings growth. At the same time, Conseco has strengthened its balance sheet
and improved its credit ratings. We anticipate Conseco's future results will
continue to benefit from opportunistic acquisitions, attendant cost savings and
the company's enormous cash flow, which will be used either to repurchase shares
or for further accretive acquisitions. Our decision to sell AT&T early in the
quarter was based on our belief (subsequently confirmed) that that company's
earnings would remain under pressure due to the massive restructuring AT&T
continues to undergo.
As previously noted, increased volatility recently returned to the stock
market and, unfortunately, we believe it will continue over the next several
months. The Fed's recent decision to raise interest rates was pre-emptive rather
than reactive and we suspect further rate increases could be in the offing. The
level of economic activity remains robust and the Fed would rather slow economic
growth and dampen inflationary fears at present than have to deal with
inflationary pressures in the future. Investors have existed in an extremely
benign investment environment over the past few years (moderate economic growth,
low inflation, strong corporate profits, rising equity valuation levels) and
unfortunately, we doubt such conditions can improve much further from current
levels. Overall, we anticipate growth in corporate earnings will slow over the
next several quarters and believe investor returns will become more
circumscribed. While the Fed's recent and anticipated moves might cause investor
discomfort near term, we believe they will limit the degree of any economic
downturn and be beneficial longer term.
The objective of the American Leading Companies Trust is to invest in
companies that enjoy strong market positions in growing markets, have solid
financial characteristics and possess identifiable characteristics (i.e.
financial, technological, distribution, etc.) that should enable them to gain
market share longer term. Any investments in commodity type companies will be
severely limited due to our belief that they are unattractive investments longer
term.
3
<PAGE>
Portfolio Managers' Comments--Continued
The Fund's investment style reflects a combination of Value and "Growth At a
Reasonable Price" ("GARP") investing. We are not attracted to stocks solely
because they appear to be cheap and, likewise, we are very careful about paying
high multiples of earnings or cash flow even for companies reporting rapid
growth. We intend to own approximately 40 different stocks at any one time and
spread our investments across several industry sectors. However, we will not be
a closet index fund nor will we unduly concentrate our investments in any single
industry sector.
At the end of the first quarter, the median market capitalization of the
stocks in our portfolio was $28.0 billion and the mean market capitalization of
those same stocks was $18.9 billion. Additionally, the Fund held 5 of the top 10
and 7 of the top 20 companies within the S&P 500 and 80% of our holdings were of
companies contained in the S&P 500.
For the 12 months ended March 31, 1997, the American Leading Companies Trust
provided a 24.73% total return. By comparison, the S&P 500 advanced by 19.83%
over the same period. The superior return recorded by your Fund over the past
year resulted from: its focus on market sectors (technology, financials and
pharmaceuticals) perceived to provide above average attractiveness; favorable
stock selection within those market segments (Intel +144.6%, Microsoft +77.8%,
KLA Instruments +61.3%, First USA +49.6% and Bristol-Myers Squibb +37.9%, over
the past year); the underweighting or avoidance of market sectors deemed to be
relatively unattractive (autos, housing and basic materials) and benefits from
the substantial portfolio realignment that was undertaken in the third fiscal
quarter. As previously noted, we believe we have entered a period of increased
market volatility and reduced growth in corporate profits. Accordingly we have
positioned the Fund to contain an above average weighting of companies that we
believe possess defensive earnings characteristics, superior growth potential
and the ability to successfully weather the economic disruptions that we believe
could arise over the next 12-18 months.
E. Robert Quasman
May 9, 1997
DJIA 7169.53
4
<PAGE>
Portfolio Managers' Comments
Balanced Trust
The Legg Mason Balanced Trust began operations on October 1, 1996. We felt
that this was an opportune time to launch a fund with a balanced investment
objective, given our beliefs about the high valuations in the stock market.
However, the exuberance remains in the valuations of selected large companies,
which has meant that the equity segment of the Fund has trailed the return of
the S&P 500 to date.
Equity
During 1996, 25% of the return produced by the S&P 500 Index was generated by
only five stocks--Coca Cola, Merck, Intel, Microsoft, and General Electric. In
fact, had each of the five hundred stocks in the S&P Index been weighted
equally, this particular benchmark would have generated a 13% gain, as opposed
to the 23% gain that was enjoyed last year. This trend has persisted in 1997 and
January was a month in which this particular phenomenon was never more visible.
While companies such as Philip Morris, Merck, and Procter & Gamble increased by
20% during the first two months of the year, smaller companies tended to
languish.
During the first quarter of 1997, the Russell 2000 Index, a broader index
which includes small and medium-sized companies, actually posted a 5.17%
decline. The Dow Jones Industrial Average produced a 2.59% gain, while the S&P
500 produced a 2.68% gain. This is rather graphic evidence that the inclusion of
small and medium-sized companies would have worked against a portfolio manager
for the first quarter of the year. In fact, the valuation gap between large
company stocks and small company stocks has not been greater during the last
twenty-five years, in spite of the fact that small company stocks have generated
higher total returns to their shareholders since this data was collected in
1925--over seventy years ago.
Our investment approach is market cap blind in that we generally go where the
value is instead of being restricted to a certain size company. At the present
time, the more profitable and attractively priced operations tend to be among
the small and medium-sized companies. Kaydon Corporation has put together a
string of 20% plus earnings gains in the manufacture of ball bearings, rings,
and metal castings. The company has a tremendous amount of excess cash which it
has been using to buy in its shares. We suppose that they would be using their
free cash flow to pay off debt if, of course, they had any debt. Other companies
such as Washington Federal, perhaps the most efficiently run savings and loan in
the country, and York International, one of the leading heating, ventilation,
and air conditioning equipment manufacturers, have watched their stocks languish
during the first quarter. Investors have ignored them in favor of virtually
throwing money at the great names of America. If the market falters, one would
expect investors to more assiduously analyze the value that they are getting for
their investment dollars. It will more than likely be found in companies that
are not necessarily the most visible.
Our performance results for the first quarter were heavily influenced by our
significant holdings of small and medium-sized companies and our larger than
normal holdings of fixed income securities. We continue to be focused on making
opportunistic purchases of common stocks to reach our goal of 60% in the near
future. The Fund currently has 57% of its holdings in equity securities. Our
portfolio has held up very well during the difficult days in the market.
Fixed Income
During the first quarter of 1997, bond prices did an abrupt about-face after
rallying during the fourth quarter of 1996. During this period, yields on 1-10
year U.S. government securities rose, on average, approximately fifty basis
points (100 basis points = 1%). This weakness can be attributed largely to
market participants' concerns about expected inflationary pressures as a result
of a compara-
5
<PAGE>
Portfolio Managers' Comments--Continued
tively strong economy and a tight labor market. In March, after a considerable
amount of jawboning over the previous four months, the Federal Reserve Board
opted to increase the rate on federal funds by twenty-five basis points as a
"pre-emptive strike" to help keep inflation in check. For the quarter, the
Lehman Intermediate Government/Corporate Index, which is the benchmark for the
fixed income portion of the LeggMason Balanced Trust, produced a total return of
- -0.11%. If there is any good news, it is that intermediate bonds outperformed
the broader indices. For example, the Lehman Government/Corporate Index's total
return was -0.86% during this same period. This hike in interest rates, coupled
with the current level of inflation, which remains comparatively tame, has led
to attractive valuations in the fixed income market. At some point, this should
result in compelling returns, both in the absolute and relative sense, for
fixed income investors.
With regard to the fixed income section of the portfolio, we continue to
favor treasury securities, which, as of March 31, represented 65% of the Fund's
fixed income holdings. In particular, we think that seven year treasury strips
are compelling due to the attractive "roll down" yield advantage that these
securities offer relative to coupon-bearing securities. In addition, we continue
to find the mortgage sector attractive and, presently have 29% of the portfolio
committed to this sector. Although mortgages performed well and, accordingly,
spreads narrowed somewhat, we still find them attractive when compared to
corporate securities. The balance of the fixed income portion of the Fund is
invested in selective short-term corporate notes and special situations. In
general, we are maintaining a low exposure to corporates, as we do not believe
that the yield spreads on these securities compensate for the attendant risks.
Recently, corporate spreads have begun to widen and, should this trend continue,
may present us with selected opportunities to re-enter the corporate sector.
In sum, the fixed income portion of the portfolio is characterized by a focus
on maintaining the highest credit quality, which we think will better serve
investors in what could be increasingly turbulent capital markets.
Performance Summary
For the 3 months ended March 31, 1997, the Balanced Trust had a return of
- -1.74%. By comparison, the 60/40 blend of the S&P 500 and the Lehman
Intermediate Government/Corporate Index advanced by 1.56% over the same period.
Our performance results for the quarter were negatively influenced by our
significant holdings of small and medium-sized companies (which dropped 5.17% in
the quarter as measured by the Russell 2000 index) and our larger than normal
holdings of fixed income securities. We have had difficulty finding compelling
equity investments that meet our stringent value criteria. As a result, we have
broadened our search to include more small and medium-sized companies. Our
selective and careful approach to adding equities to the portfolio has caused
fixed income securities to represent a higher proportion of Fund assets than we
had anticipated and although this is temporary in nature, we feel the portfolio
is positioned well to weather the turbulence that might result from the elevated
stock market valuations that currently exist.
Woodrow H. Uible, CFA Dale H. Rabiner, CFA
Equity Portfolio Manager Fixed Income Portfolio
Manager
May 9, 1997
DJIA 7169.53
6
<PAGE>
Performance Information
Legg Mason Investors Trust, Inc.
Performance Comparison of a $10,000 Investment as of March 31, 1997
The returns shown on these pages are based on historical results and
are not intended to indicate future performance. 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 following graphs compare each Fund's total returns against that of
the most closely matched broad-based securities market index. The lines
illustrate the cumulative total return of an initial $10,000 investment
for the periods indicated. The line for each Legg Mason Fund represents
the total return after deducting all Fund investment management and other
administrative expenses and the transaction costs of buying and selling
securities. The line representing the securities market index does not
include any transaction costs associated with buying and selling
securities in the index or other administrative expenses. Both the Legg
Mason Funds' results and the indices results assume reinvestment of all
dividends and distributions.
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.
American Leading Companies Trust--Primary Class
Cumulative Average Annual
Total Return Total Return
One Year +24.73% +24.73%
Life of Class(dagger) +56.08 +13.23
(dagger) Primary Class inception -- September 1, 1993
[Graph appears here--see plot points below]
American Leading Standard & Poor's
Companies Trust 500 Stock
Primary Class Composite Index(1)
9/1/93 10,000 10,000
3/31/94 9,714 9,772
3/31/95 10,320 11,290
3/31/96 12,513 14,911
3/31/97 15,608 17,869
(1) An unmanaged index of widely held common stocks.
7
<PAGE>
Performance Information--Continued
American Leading Companies Trust--Navigator Class
Cumulative Total Return
Life of Class(dagger)
+15.16%
(dagger) Navigator Class inception--October 4, 1996
[Graph appears here--see plot points below]
American Leading Standard & Poor's
Companies Trust 500 Stock
Navigator Class Composite Index(1)
10/3/96 10,000 10,000
10/31/96 10,361 10,180
11/30/96 11,271 10,927
12/31/96 11,220 10,692
1/31/97 12,113 11,348
2/28/97 12,074 11,415
3/31/97 11,516 10,929
(1) An unmanaged index of widely held common stocks.
Balanced Trust
Cumulative Total Return
Life of Fund(dagger)
+2.02%
(dagger) Fund inception--October 1, 1996
[Graph appears here--see plot points below]
Standard & Poor's Lehman Intermediate
Balanced Lipper Balanced 500 Stock Government/Corporate
Trust Fund Index(1) Composite Index(2) Bond Index(3)
10/1/96 10,000 10,000 10,000 10,000
10/31/96 10,080 10,187 10,235 10,177
11/30/96 10,360 10,662 10,986 10,311
12/31/96 10,383 10,531 10,750 10,245
1/31/97 10,433 10,852 11,409 10,285
2/28/97 10,423 10,893 11,476 10,304
3/31/97 10,202 10,576 10,987 10,233
(1) The Lipper Balanced Fund Index is composed of 30 funds whose primary
objective is to conserve principal by maintaining a balanced portfolio of
stocks and bonds with stock/bond ratio ranges of approximately 60%/40%.
(2) An unmanaged index of widely held common stocks.
(3) The Lehman Intermediate Government/Corporate Bond Index includes the
Government and Corporate Bond Indices, including U.S. Government treasury
and agency securities, corporate and Yankee bonds. The index returns are
market value weighted inclusive of accrued interest and includes bonds with
maturities between 1 and 10 years. The returns for this index are for the
periods beginning September 30, 1996.
8
<PAGE>
American Leading Companies Trust
Selected Portfolio Performance*
Strong Performers for the 1st quarter 1997
- --------------------------------------------------------------------------------
First USA, Inc. +22.38%
Corning Incorporated +14.15%
Lucent Technologies, Incorporated +14.05%
Eli Lilly and Company +12.67%
Schering-Plough Corporation +12.36%
* Securities held for the entire quarter.
Weak Performers for the 1st quarter 1997
- --------------------------------------------------------------------------------
Western Atlas, Inc. -14.46%
Mattel, Inc. -13.51%
The PMI Group, Inc. -9.48%
International Business Machines
Corporation -9.02%
Union Pacific Resources Group, Inc. -8.55%
Portfolio Changes
Securities Added
- --------------------------------------------------------------------------------
Kimberly-Clark Corporation
Conseco, Incorporated
Securities Sold
- --------------------------------------------------------------------------------
AT&T Corporation
Walt Disney Company
Balanced Trust
Selected Portfolio Performance*
Strong Performers for the 1st quarter 1997
- --------------------------------------------------------------------------------
Time Warner, Inc. +15.33%
Kansas City Southern Industries, Inc. +11.11%
Martin Marietta Materials, Inc. +10.75%
ADT Ltd. +9.29%
Jostens, Inc. +7.10%
* Securities held for the entire quarter.
Weak Performers for the 1st quarter 1997
- --------------------------------------------------------------------------------
Stewart & Stevenson Services, Inc. -31.33%
York International Corporation -25.06%
TNP Enterprises, Inc. -21.92%
Zilog, Inc. -19.62%
Archer-Daniels-Midland -18.75%
Portfolio Changes
Securities Added
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.
Korea Fund, Inc.
RJR Nabisco Holdings Corp.
Toys "R" Us, Inc.
UCAR International, Inc.
United States Treasury Note
6.75% 05/31/99
YPF Sociedad Anonima ADR
Securities Sold
- --------------------------------------------------------------------------------
American Brands, Inc.
John Alden Financial Corporation
Philip Morris Companies Inc.
Raymond James Financial, Inc.
Raytheon Company
9
<PAGE>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
March 31, 1997
(Amounts in Thousands)
American Leading Companies Trust
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks and Equity Interests -- 92.2%
Basic Materials -- 3.7%
Monsanto Co. 100 $ 3,825
-------
Capital Goods -- 9.6%
Corning Incorporated 53 2,352
Emerson Electric Company 60 2,700
New Holland N.V. 100 2,225(A)
Rockwell International Corporation 42 2,725
-------
10,002
-------
Consumer Cyclicals -- 6.9%
Eastman Kodak Company 44 3,338
Mattel, Inc. 70 1,680
Waban, Inc. 80 2,230(A)
-------
7,248
-------
Consumer Staples -- 14.4%
American Brands, Inc. 48 2,430
Avon Products Inc. 55 2,887
CPC International, Inc. 15 1,230
Colgate-Palmolive Company 20 1,992
Kimberly-Clark Corporation 20 1,988
Philip Morris Companies Inc. 30 3,424
Procter & Gamble Company 10 1,150
-------
15,101
-------
Energy -- 7.1%
Texaco, Inc. 20 2,190
Union Pacific Resources Group, Inc. 38 1,013
Unocal Corporation 55 2,097
Western Atlas, Inc. 35 2,122(A)
-------
7,422
-------
Financial Services -- 14.0%
Chase Manhattan Corporation 38 3,558
First USA, Inc. 105 4,449
J.P. Morgan & Co., Incorporated 18 1,769
Mellon Bank Corporation 15 1,091
The PMI Group, Inc. 52 2,606
Travelers Group, Inc. 26 1,245
-------
14,718
-------
Health Care -- 14.2%
Aetna, Inc. 48 4,122
Bristol-Myers Squibb Company 44 2,596
Conseco, Incorporated 55 1,959
Eli Lilly and Company 16 1,316
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Health Care -- Continued
Pfizer, Inc. 20 $ 1,683
Schering-Plough Corporation 44 3,201
--------
14,877
--------
Technology -- 16.6%
Electronic Data Systems Corporation 80 3,230
Intel Corporation 33 4,591
International Business Machines Corporation 27 3,709
KLA Instruments Corporation 90 3,285(A)
Lucent Technologies, Incorporated 27 1,424
Microsoft Corporation 13 1,192(A)
--------
17,431
--------
Telecommunications -- 5.7%
Comsat Corporation 60 1,463
GTE Corporation 25 1,166
MCI Communications Corporation 95 3,384
--------
6,013
--------
Total Common Stocks and Equity Interests (Identified Cost-- $73,169) 96,637
--------------------------------------------------------------------------------------------------------------------
Repurchase Agreement -- 8.6%
Lehman Brothers, Inc.
6.68% dated 3/31/97, to be repurchased at $9,043
on 4/1/97 (Collateral: $9,597 Federal National
Mortgage Association Mortgage-backed Securities,
7% due 11/1/26, value $9,278) (Identified Cost-- $9,041) $ 9,041 9,041
--------------------------------------------------------------------------------------------------------------------
Total Investments-- 100.8% (Identified Cost-- $82,210) 105,678
Other Assets Less Liabilities-- (0.8%) (811)
--------
Net assets consisting of:
Accumulated paid-in-capital applicable to:
7,112 Primary shares outstanding $76,512
4 Navigator shares outstanding 50
Undistributed net realized gain on investments 4,837
Unrealized appreciation of investments 23,468
-------
Net assets-- 100.0% $104,867
========
Net asset value per share
Primary Class $14.74
======
Navigator Class $14.71
======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing
See notes to financial statements.
11
<PAGE>
Statement of Net Assets
Legg Mason Investors Trust, Inc.
March 31, 1997
(Amounts in Thousands)
Balanced Trust
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks and Equity Interests -- 51.9%
Advertising/Media -- 2.5%
A.H. Belo Corporation 6 $215
Time Warner, Inc. 5 233
----
448
----
Aerospace -- 2.0%
Lockheed Martin Corporation 2 193
Raytheon Company 4 160
----
353
----
Automotive -- 1.7%
Ford Motor Company 10 314
----
Chemicals -- 2.5%
Ferro Corporation 8 237
Potash Corporation of Saskatchewan, Inc. 3 205
----
442
----
Computer Services & Systems -- 0.3%
Zilog, Inc. 2 46(A)
----
Construction/Building Materials -- 1.0%
Martin Marietta Materials, Inc. 7 180
----
Electrical Equipment/Electronics -- 1.5%
Pioneer-Standard Electronics, Inc. 21 268
----
Energy -- 3.2%
Cabot Oil & Gas Corporation 7 117
Phillips Petroleum Company 3 135
Southwestern Energy Company 14 182
YPF Sociedad Anonima ADR 5 143
----
577
----
Finance -- 3.2%
Fannie Mae 6 213
Salomon, Inc. 6 289
U.S. Trust Corporation 2 67
----
569
----
Food, Beverage & Tobacco -- 5.4%
Archer-Daniels-Midland 14 250
Chiquita Brands International, Inc. 3 182
RJR Nabisco Holdings Corp. 3 107
Universal Foods Corporation 5 183
UST, Inc. 9 245
----
967
----
Insurance/Hospital Management -- 0.6%
MBIA, Inc. 1 110
----
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Companies -- 3.1%
Blackrock North American Government Income Trust, Inc. 50 $ 494
Korea Fund, Inc. 5 72
------
566
------
Manufacturing -- 5.9%
Fleetwood Enterprises, Inc. 10 260
Kaydon Corporation 8 318
National Presto Industries, Inc. 2 58
Stewart & Stevenson Services, Inc. 1 20
UCAR International, Inc. 4 158(A)
York International Corporation 6 247
------
1,061
------
Multi-Industry -- 1.1%
Loews Corporation 2 200
------
Real Estate -- 2.3%
Chateau Properties, Inc. 8 200
United Dominion Realty Trust, Inc. 15 219
------
419
------
Retail -- 4.7%
Federated Department Stores, Inc. 8 257(A)
Jostens, Inc. 14 317
Toys "R" Us, Inc. 9 266(A)
------
840
------
Savings & Loan -- 1.5%
Washington Federal, Inc. 12 263
------
Services -- 1.4%
ADT, Ltd. 10 250(A)
------
Telecommunications -- 0.1%
Ameritech Corporation N.M. 18
------
Transportation -- 4.4%
AMR Corporation 3 256(A)
GATX Corporation 5 230
Kansas City Southern Industries, Inc. 6 305
------
791
------
Utilities -- 3.5%
KU Energy Corporation 7 215
NIPSCO Industries, Inc. 3 137
TNP Enterprises, Inc. 7 150
Western Resources, Inc. 4 135
------
637
------
Total Common Stocks and Equity Interests (Identified Cost-- $9,414) 9,319
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Statement of Net Assets--Continued
Balanced Trust--Continued
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate Bonds and Notes -- 1.6%
Time Warner Sr. Notes (Identified Cost-- $285) 0% 6/22/13 $ 650 $ 290(B)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations -- 39.7%
Treasury Notes/Strips -- 26.9%
United States Treasury Notes 5.875% 8/15/98 300 298
United States Treasury Notes 6.750% 5/31/99 500 502
United States Treasury Notes 7.125% 2/29/00 750 760
United States Treasury Notes 6.500% 5/31/01 250 248
United States Treasury Bond Strip 0% 8/15/98 1,200 1,103(B)
United States Treasury Bond Strip 0% 2/15/99 700 622(B)
United States Treasury Bond Strip 0% 8/15/99 600 516(B)
United States Treasury Bond Strip 0% 8/15/03 300 195(B)
United States Treasury Bond Strip 0% 5/15/04 500 307(B)
United States Treasury Bond Strip 0% 11/15/04 450 267(B)
------
4,818
------
Mortgage-Backed Securities -- 12.8%
Federal Home Loan Mortgage Corporation 6.500% 1/1/26 197 184
Federal Home Loan Mortgage Corporation 6.000% 3/1/26 99 89
Federal Home Loan Mortgage Corporation 6.500% 5/1/26 321 299
Federal National Mortgage Association 6.000% 1/1/27 601 543
Government National Mortgage Association 7.000% 3/15/26 97 92
Government National Mortgage Association 7.000% 4/15/26 174 166
Government National Mortgage Association 8.000% 4/15/26 95 95
Government National Mortgage Association 7.500% 10/15/26 195 191
Government National Mortgage Association 8.000% 10/15/26 545 547
Government National Mortgage Association 8.000% 11/15/26 98 99
------
2,305
------
Total U.S. Government and Agency Obligations (Identified Cost-- $7,261) 7,123
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Repurchase Agreement -- 4.9%
State Street Bank and Trust Co., N.A.
4.25% dated 3/31/97, to be repurchased
at $882 on 4/1/97 (Collateral: $900 U.S. Treasury Notes
6.125% due 3/31/98, value $900) (Identified Cost-- $882) $ 882 $ 882
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments-- 98.1% (Identified Cost-- $17,842) 17,614
Other Assets Less Liabilities-- 1.9% 334
-------
Net assets consisting of:
Accumulated paid-in-capital applicable to
1,766 shares outstanding $18,063
Undistributed net investment income 90
Undistributed net realized gain on investments 23
Unrealized depreciation of investments (228)
-------
Net assets-- 100.0% $17,948
=======
Net asset value per share $10.16
======
- ---------------------------------------------------------------------------------------------------------------------------
</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.
N.M. Not meaningful
See notes to financial statements.
15
<PAGE>
Statements of Operations
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended 3/31/97
----------------------------------------
American Leading Balanced
Companies Trust Trust+
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $ 1,488 $ 81
Interest 227 184
------- -----
Total income 1,715 265
------- -----
Expenses:
Management fee 643 45
Distribution and service fees 858 45
Transfer agent and shareholder servicing expense 71 6
Custodian fee 69 33
Audit and legal fees 45 23
Reports to shareholders 25 9
Registration fees 22 8
Organization expense 18 8
Directors' fees 9 6
Other expenses 7 1
------- -----
1,767 184
Less fees waived (94) (72)
------- -----
Total expenses, net of waivers 1,673 112
------- -----
Net Investment Income 42 153
------- -----
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain on investments 9,367 23
Change in unrealized appreciation (depreciation) of investments 8,419 (228)
------- -----
Net Realized and Unrealized Gain (Loss) on Investments 17,786 (205)
===========================================================================================================================
Change in Net Assets Resulting from Operations $17,828 $ (52)
======= =====
</TABLE>
+Commencement of Operations--October 1, 1996.
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 Companies Balanced
Trust Trust
-------------------------- ----------
10/1/96(A)
Years Ended to
3/31/97 3/31/96 3/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Change in Net Assets:
Net investment income $ 42 $ 472 $ 153
Net realized gain (loss) on investments 9,367 (1,094) 23
Change in unrealized appreciation (depreciation) of investments 8,419 13,705 (228)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 17,828 13,083 (52)
Distributions to shareholders:
From net investment income:
Primary Class (137) (608) (63)
Navigator Class (1) N/A N/A
From net realized gain on investments:
Primary Class (2,899) -- --
Navigator Class (2) N/A N/A
Change in net assets from Fund share transactions:
Primary Class 13,928 3,640 18,062
Navigator Class 50 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets 28,767 16,115 17,947
Net Assets:
Beginning of period 76,100 59,985 1
----------------------------------------------
End of period $104,867 $76,100 $17,948
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income, end of period $ -- $ 41 $ 90
======== ======= =======
</TABLE>
(A) Commencement of operations.
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
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
Sept. 1, 1993(A)-
Mar. 31, 1994 10.00 .06(G) (.34) (.28) (.03) -- (.03) 9.69
--Navigator Class
Oct. 4, 1996(B) to
Mar. 31, 1997 $13.30 $.07(H) $1.94 $2.01 $(.12) $(.48) $(.60) $14.71
Balanced Trust
Oct. 1, 1996(C)-
Mar. 31, 1997 $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
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
Sept. 1, 1993(A)-
Mar. 31, 1994 (2.86)%(D) 1.95%(E,G) 1.14%(E,G) 21.0%(E) -- 55,022
--Navigator Class
Oct. 4, 1996(B) to
Mar. 31, 1997 15.16%(D) .86%(E,H) .98%(E,H) 55.7% $.0640 $ 55
Balanced Trust
Oct. 1, 1996(C)-
Mar. 31, 1997 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 sale of Navigator Shares)
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 each Fund.
(G) Net of fees waived in excess of 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 and for the years ended March 31, 1995,
1996 and 1997 would have been 2.28%, 2.12%, 2.20%, and 2.06%, 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 would have been 0.97%.
(I) Net of fees waived in excess of 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 would have been 3.03%.
See notes to financial statements.
18
<PAGE>
Notes to Financial Statements
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
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
March 31, 1997, $936 was payable for securities purchased but not yet
received for American Leading Companies.
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
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
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 qualify, or 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 year ended March 31, 1997 investment transactions (excluding
short-term investments) were as follows:
Purchases Proceeds from Sales
- --------------------------------------------------------------------------------
American Leading Companies $50,086 $45,539
Balanced Trust 17,540 670
At March 31, 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 $82,238 $24,305 $(865) $23,440
Balanced Trust 17,851 265 (502) (237)
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, 1997. For the year ended March 31, 1997
management fees of $94, and $46, respectively, for American Leading
Companies (Primary and Navigator Classes combined) and Balanced Trust were
waived and $64 and $0 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 March 31, 1997,
distribution and service fees due to the distributor were as follows:
American Leading Companies, $92; and Balanced Trust, $11.
No brokerage commissions were paid to Legg Mason or its affiliates
during the year ended March 31, 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 year ended March 31,
1997: American Leading Companies, $22; and Balanced Trust, $2.
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 year
ended March 31, 1997, the Funds had no borrowings under the line of
credit.
5. Fund Share Transactions:
At March 31, 1997, there were 1,000,000 shares authorized at $.001
par value for all portfolios of the Trust. 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
Year Ended March 31, 1997 1,720 $25,050 210 $2,991 (1,042) $(14,113) 888 $13,928
Year Ended March 31, 1996 1,457 16,227 54 594 (1,178) (13,181) 333 3,640
--Navigator Class
Oct. 4, 1996+ to March 31, 1997 4 50 -- -- -- -- 4 50
Balanced Trust
Oct. 1, 1996++ to March 31, 1997 1,973 20,213 6 61 (213) (2,212) 1,766 18,062
+ Commencement of sale of Navigator shares.
++ Commencement of operations.
</TABLE>
21
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Directors of Legg Mason Investors Trust, Inc.:
We have audited the accompanying statements of net assets of the Legg Mason
Investors Trust, Inc. (the "Trust") (comprising, respectively, the Legg Mason
American Leading Companies Trust and the Legg Mason Balanced Trust) as of March
31, 1997, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust'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 and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1997, 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 audits provide 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 each
of the respective portfolios constituting the Legg Mason Investors Trust, Inc.
at March 31, 1997, and the results of their operations, changes in their net
assets, and their financial highlights for the periods indicated therein, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
April 22, 1997
22
<PAGE>
Legg Mason Family of Funds
================================================================================
Equity Funds
LEGG MASON BALANCED TRUST
Growth and Income--An equity mutual fund which seeks long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk.
LEGG MASON TOTAL RETURN TRUST
Growth and Income--An equity mutual fund with investment objectives of capital
appreciation and current income.
LEGG MASON AMERICAN LEADING COMPANIES TRUST
Growth--A large capitalization equity mutual fund which seeks long-term capital
appreciation and current income consistent with prudent investment management.
LEGG MASON VALUE TRUST
Growth--An equity mutual fund which seeks long-term growth of capital using the
"Value Approach" to investing.
LEGG MASON SPECIAL INVESTMENT TRUST
Aggressive Growth--An equity mutual fund which seeks capital appreciation.
It invests principally in securities of companies that are involved in
restructurings or other special situations, or are out of favor with, or not
closely followed by the market.
================================================================================
Global Funds
LEGG MASON EMERGING MARKETS TRUST
Aggressive Growth--A mutual fund which is designed for investors seeking
long-term growth possibilities available in emerging markets.+
LEGG MASON INTERNATIONAL EQUITY TRUST
Aggressive Growth--A diversified, professionally managed portfolio seeking
maximum long-term total return by investing primarily in common stocks of
companies located outside the United States.+
LEGG MASON GLOBAL GOVERNMENT TRUST
Growth and Income--A global bond fund which seeks to provide a competitive total
return by investing primarily in a global portfolio of high quality debt
securities of U.S. and foreign governments, their agencies and
instrumentalities, denominated in various currencies.+
================================================================================
Taxable Bond Funds
LEGG MASON U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
Conservative Income--A mutual fund which seeks to achieve high current income
consistent with prudent investment risk and liquidity needs.
LEGG MASON INVESTMENT GRADE INCOME PORTFOLIO
Income--A mutual fund which seeks to provide investors with a high level of
current income through a diversified portfolio of debt instruments.
LEGG MASON HIGH YIELD PORTFOLIO
Growth and Income--A fund which seeks to provide high current income, and as a
secondary objective, seeks capital appreciation. Under normal circumstances, the
Fund will invest a majority of its total assets in high yield fixed income
securities commonly known as "junk" bonds. The Fund may invest up to 25% of
total assets in foreign securities.
================================================================================
Tax-Free Bond Funds
LEGG MASON TAX-FREE
INTERMEDIATE-TERM INCOME TRUST
Tax-Free Income--A fund which seeks a high level of current income exempt from
federal income tax consistent with prudent investment risk.++
LEGG MASON MARYLAND TAX-FREE INCOME TRUST
Tax-Free Income--A fund whose objective is a high level of current income exempt
from federal, Maryland state, and local income taxes.++
LEGG MASON PENNSYLVANIA TAX-FREE INCOME TRUST
Tax-Free Income--A fund which seeks a high level of current income exempt from
federal income tax and Pennsylvania personal income tax.++
================================================================================
Money Market Funds
LEGG MASON U.S. GOVERNMENT MONEY MARKET PORTFOLIO
A professionally managed portfolio seeking high current income consistent with
liquidity and conservation of principal.*
LEGG MASON CASH RESERVE TRUST
A diversified management investment company investing in money market
instruments to achieve stability of principal and current income consistent
with stability of principal.*
LEGG MASON TAX EXEMPT TRUST
A money market fund seeking to produce high current income exempt from federal
income tax, to preserve capital and to maintain liquidity.*
+ Investment in foreign securities involves increased risks, such as currency
rate fluctuations, foreign taxation and political changes.
++ Income produced from the tax-free funds may be subject to state and local
taxes. Long-term capital gain distributions generally are taxable. A
portion of each Fund's dividends may be subject to the federal alternative
minimum tax.
* An investment in any of these Funds is neither insured nor guaranteed by
the U.S. Government and there can be no guarantee that these Funds will
maintain a stable $1 share price.
For a prospectus containing more complete information, including charges and
expenses on any of the Legg Mason funds, call 1-800-577-8589. Please read it
carefully before investing or sending money.
23
