Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
For American Leading Companies Trust: Quarterly Report
Legg Mason Fund Adviser, Inc. December 31, 1997
Baltimore, MD
Legg Mason
For Balanced Trust: Investors Trust, Inc.
Bartlett & Co.
Cincinnati, OH
American Leading
Board of Directors Companies Trust
John F. Curley, Jr., Chairman
Edward A. Taber, III, President Balanced Trust
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman The Art of Investing
Dr. Jill E. McGovern
T. A. Rodgers
[LEGG MASON LOGO]
Transfer and Shareholder Servicing Agent FUNDS
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Auditors
Ernst & Young LLP
Philadelphia, PA
This report is not to be distributed unless preceded or accompanied by a
prospectus.
Legg Mason Wood Walker, Incorporated
--------------------------------------------------------------------
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
LMF-013
11/97
<PAGE>
To Our Shareholders,
We are pleased to provide you with Legg Mason Investors Trust's quarterly
report for the American Leading Companies Trust and Balanced Trust.
During the quarter ended December 31, 1997 American Leading Companies
Trust's Primary Class net asset value decreased from $17.10 to $15.90 per share
reflecting payment of a long-term capital gain distribution of $1.22 per share.
The distribution was paid on December 19 to shareholders of record on December
17. Over the same period, Balanced Trust's net asset value increased from $11.83
to $11.93 per share.
American Leading Companies Trust seeks to invest at least 75% 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 emphasizes investments in
dividend-paying equity securities.
Comments on the investment outlook, portfolio structure and performance of
each Fund begin on page 2.
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 approved an ordinary income dividend of $.06 per
share and a short-term capital gain distribution of $.20 per share to
shareholders of Balanced Trust, payable on December 12, 1997 to shareholders of
record on December 10, 1997.
Sincerely,
/s/Edward A. Taber, III
___________________________
Edward A. Taber, III
President
February 2, 1998
<PAGE>
Portfolio Managers' Comments
American Leading Companies Trust
Fourth Quarter 1997
In 1997, stocks rose over 33% and completed the best 3 year period in
history, averaging gains of over 31% per year, besting the previous three year
high which occurred from 1926-1928. The troika of up 20% years has never
occurred before in the 101 year history of the Dow Jones Industrial Average, nor
have we ever had 7 consecutive up years in a row. Rounding out the hat trick,
stocks also posted the best 10 year stretch in history.
Congenital pessimists or historical determinists will no doubt point to the
past as prologue, noting that the 1929-1932 stretch was the worst in market
history. The more spiritually inclined among those with a bearish disposition
will recall the biblical seven fat years followed by seven lean years. Bears
even have a friend in Herman Melville, who's epic (and today forgotten) poem
Clarel sounds the following warning to those who see a benign future:
Nay, nay; your future's too sublime
The Past, the Past is half of time,
The proven half.
These loomings aside, we remain reasonably optimistic about the outlook for
stocks in l998. The factors that have supported equities for most of the past 15
years are still intact: falling inflation, declining interest rates, solid
economic growth, high corporate profitability, and fiscal and monetary
discipline. Valuations, though, largely reflect these positive factors, and we
think they are unlikely to expand from the current multiple of about 20x 1998
estimated earnings. The market looks fairly valued to us given the structure of
interest rates and the outlook for corporate profits.
Put differently, the direction of stock prices will be a function of the
path of profits and interest rates. There is little margin of safety at today's
prices for bad news, which is why stocks are lurching around in response to the
marginal items on the tape. If a company with an otherwise solid record misses a
quarter, its stock gets pummeled. If the news out of Asia sounds grim, the
market sells off. We see no reason why this pattern should not continue for some
time.
We think reasonable expectations for equity returns are in the 8-10% range,
about in line with profits growth, but well below the 19% average annual returns
earned over the past 15 years. Those abnormally high returns were fueled by low
initial valuations due to the inflation of the 1970's and the early 1980's
recession, coupled with an economic expansion that has had only 9 months of
recession in 15 years. Bond investors likewise should see returns far below the
16% per year they earned from 1981 through the previous peak in bonds in
September of 1993.
Bond yields have recently fallen to all time lows on the 30-year treasury,
surpassing the l993 price peaks. The impact of Asia's currency crisis, coupled
with 1.7% inflation in the US, have fueled the strong bond market. Investors
have earned 25% returns in bonds since yields peaked in the Spring following the
Fed's 25 basis point tightening (100 basis points = 1%). At that time the
conventional wisdom was that rates would be higher now, yet another instance of
the general tendency to overemphasize the impact of short-term trends and
information.
The source of greatest consternation and uncertainty in markets now is Asia,
and how that situation will develop over the next few months. The answer is
nobody knows. The problem began when Thailand's currency came under pressure due
to the country's high external debt and worsening economic situation brought on
by over-investment in under-earning capacity. After the Thai currency peg came
undone, investors quickly realized that most of the other economies of southeast
Asia were likewise characterized by an asset base that was overbuilt,
under-earning, and debt financed at short maturities in US dollars.
2
<PAGE>
The so-called Asian miracle now looks like just another debt financed investment
bubble, except on a grander scale than usually encountered. MIT economist Paul
Krugman, was one of the few to correctly identify the fallacy behind Asia's
remarkable growth and was roundly ridiculed, even by fellow economists. In
general, the economics profession consistently urges more savings and investment
as the path to growth; by following this formula, Asia is now in collapse.
Savings and investment only lead to growth when the rates of return on savings
and investment are greater than the cost of capital. This is a notion still not
well understood by economists. When the local currencies collapsed, debt that
was high but not punishing at one exchange rate suddenly ballooned to crushing
levels. We have only begun to see the bankruptcies and economic travail that
will result as these new realities feed back into the local economies.
The situation is quite similar to the Mexican crisis of late l994-l995. Then,
the Fed began tightening in February 1994, and followed that by several more
interest rate hikes in quick succession. People sold pesos for dollars as rates
rose in the US, finally forcing Mexico to devalue and float the currency. (Under
a fixed rate regime the government has to balance the supply and demand for
currency with its own reserves. A massive move to sell the local currency
depletes those reserves.) That shock threw Mexico into deep recession, and
destabilized most of the economies in Latin America for the next year.
This time, the Fed only tightened once in the Spring, but inflation has
continued to fall, leading to a rise in real interest rates: a de facto
continuous tightening. The collapse of gold, the sharp rise in the dollar, the
fall in oil and other commodities, all are indicative of a monetary policy that
is too tight. People have reacted the same way they did in l994, selling the
most vulnerable currencies for dollars.
Looking longer term, interest rates have been falling irregularly but
persistently since they peaked in late l981. The last bottom in rates was l993,
when long bonds yielded 5.78% and short rates were 2.6%. Subsequently, both long
and short rates rose for three years. Now long rates have dropped to new lows
while short rates hover over 5%. We think the next important move in short rates
is down, and perhaps down to levels approaching the 1993 low.
We believe that the Asian crisis is unlikely to resolve itself until the Fed
eases, and that when monetary policy is eased, it will be the beginning of a
long decline in short-term interest rates. This, of course, is unabashedly
positive for equities, assuming corporate profits are still intact.
If we are right that future rates of return will be much lower than those of
the past 15 years, that inflation will stay low, and that the Asian crisis will
be resolved only through Fed easing, a few implications for investment strategy
follow: 1) Yield will be a much more important component of returns than it has
been in the past decade or so. 2) Missing earnings estimates will become more
frequent and will be punished more severely. Good companies whose prices have
collapsed due to disappointments will be quite rewarding to investors who are
able to value them properly. 3) Companies which can demonstrate consistent
growth will see their valuations rise, no matter what their industry. Fifteen
years ago people thought Coke was fully priced at a single digit multiple, given
its stodgy nature and plodding growth. Now it is regarded as a quintessential
growth stock at about 40x earnings. 4) Merger and acquisition activity will
accelerate from today's frenetic pace since money will be cheap and growth hard
to come by. Companies will buy growth if they can't generate it internally. 5)
Pressure on corporate management to take steps to increase shareholder value
will also be intense. We hope to take advantage of these factors over the coming
year.
All in all, we think l998 will be tougher than previous years, but with some
luck, it may still prove quite rewarding.
3
<PAGE>
Portfolio Managers' Comments--Continued
American Leading Companies Trust--Continued
American Leading Companies
Results for the American Leading Companies Trust for the quarter, one year,
and three year periods ended December 31, 1997 are listed below, along with
those of some representative benchmarks:
Fourth Quarter
1997 One Year Three Years
- --------------------------------------------------------------------------------
American Leading Companies 0.22% 23.74% 95.29%
S&P 500 Composite Index 2.87% 33.36% 125.61%
Lipper General Equity Funds -1.54% 24.36% 95.30%
Dow Jones Industrial Average -0.01% 24.91% 120.50%
The results present a mixed picture. We did better than most funds in the
choppy fourth quarter, and better than the Dow, but trailed the S&P 500. That
index was by far the best performer in 1997, outdistancing 90% of all funds as
well as the Dow and other indices such as the Russell 2000 and the Value Line.
Once again, the S&P's results were driven by the very largest companies in the
index, such as GE, Coca Cola, Microsoft, Exxon, WalMart, and AT&T. The S&P 500
is capitalization weighted, meaning that the largest companies have a
disproportionate effect on the calculation of the index's returns. If you had an
equal holding in every company in the S&P 500, the index would have still
outperformed your portfolio due to the effects of capitalization weighting.
Our returns were penalized in the quarter by declines in several of our
technology holdings. The Asian financial crisis, discussed more fully in the
market comment section of this report, led investors to sell technology and
banking stocks, both of which were feared to have above-average exposure to the
problems in that region. As with many such quick reactions to complicated
problems, this led to indiscriminate selling and created some opportunities for
us.
We have added to our positions in KLA, Citicorp, and Compaq. In each case, we
see little long-term negative impact from the Asian problems. For Citicorp,
especially, Asia's difficulties should create substantial opportunities to
increase market share and profitability after the dislocations sort themselves
out.
We made a few changes to the portfolio in the past three months. Western
Atlas, which had performed quite well, was sold because we believed it had
reached fair value. The stock has subsequently fallen sharply as investors got
increasingly worried about the effects of falling oil prices on oil service
companies. We bought Kodak and ITT. Kodak's share price had fallen into the 50's
from the 90's earlier in the year due to a price war with Fuji of Japan. Kodak
has recently reduced film prices and vowed to stem its loss of market share. The
stock has rallied into the new year as investors gain confidence that the worst
of the company's problems are behind them. ITT provides us with an attractive
arbitrage rate of return as its merger with Starwood Lodging approaches.
Starwood is now not only among the leading REITs in the market, it also is the
largest integrated publicly traded lodging company.
The markets are entering the new year in an unsettled state. Your fund has
started off well, and in the early going is ahead of the S&P. The portfolio
consists of solid, well managed companies and we have adequate cash to add to
positions if they decline or to take advantage of opportunities that may present
themselves.
As always, we appreciate your support and welcome your comments.
Bill Miller, CFA
February 2, 1998
DJIA 8107.78
4
<PAGE>
Portfolio Managers' Comments
Balanced Trust
Results for the fourth quarter and full year 1997 for the Balanced Trust
and related benchmarks are reflected in the following table:
Fourth Quarter
1997 One Year
- -------------------------------------------------------------------------------
Balanced Trust 2.49% 18.71%
Lipper Balanced Fund Index 1.49% 20.05%
S&P 500 Composite Index 2.87% 33.36%
S&P 400 Composite Index (mid-cap) 0.52% 30.44%
Russell 2000 (small-cap) (3.35)% 22.36%
Lehman Intermediate Government/
Corporate Index 2.14% 7.86%
Good returns in the fourth quarter put the finishing touches on an
outstanding year for the US equity market. Generally speaking, a good measure of
large, growth-oriented companies was necessary to keep up with or outperform the
S&P 500 Index which put us at a distinct disadvantage given our multi-cap value
investment philosophy. One noteworthy change in market conditions during 1997
was the increase in volatility. Daily percentage changes in the trading range of
stocks increased to a level that we have not seen in over ten years. Although
this would suggest that risk factors are higher for equity investors, it has
been our experience that increased market turbulence has frequently been
additive to our performance. This occurs as stocks fluctuate more in relation to
our calculation of a company's intrinsic value and create more opportunities for
us to buy, sell, add or reduce our positions; permitting us to capture gains on
sales or to add to compelling investment opportunities.
Our solid performance during the quarter came from many different industry
sectors as well as small, medium and large-sized companies. AT&T was the best
performing stock, up 38%. We added AT&T to the portfolio earlier in the year at
a time when the company was very much out of favor. Investors at the time
focused on the uncertainty as to who would fill the CEO role and overlooked
AT&T's powerful position in the growing business of global telecommunications.
Fleetwood Enterprises was also a top performer and one of the larger positions
in the portfolio. Although it is a small capitalization company, it is dominant
in the recreational vehicle and manufactured home industries. It is unusual for
a public utility to be among the top performing stocks, but Western Resources
contributed nicely to our returns in the fourth quarter. The market finally
recognized the tremendous value created through its investment in Tyco
International, which the fund also owns. From time to time, we have
had significant exposure to tobacco stocks due to the attractive valuations,
steady growth and high profitability of these companies. UST, a new holding this
year, is a mid-sized company dominant in the smokeless tobacco market. Its
market share has stabilized recently and investor interest in the stock has
picked up. UST continues to represent excellent value from a growth and income
standpoint.
As is usually the case with a portfolio of our size, there are a number of
underperforming stocks as well. Triton Energy underperformed as a result of its
substantial oil reserves in geographic areas also known as emerging markets. The
turbulence in these economies has had a negative effect on investor sentiment
toward Triton. We remain very enthused about Triton's opportunities and the
inherent values within the company and we added further to the position during
the quarter. First Data Corp. also has underperformed due to disappointment on
the earnings front.
New positions during the quarter include Kansas City Power & Light, Frontier
Insurance, Latin America Investment Fund and Lowe's. Frontier Insurance is a
small specialty insurance company with an enviable
5
<PAGE>
Portfolio Managers' Comments--Continued
Balanced Trust--Continued
record of growth and profitability. The company sells at a price/earnings ratio
that is unduly low, in our opinion, given its track record. The Latin America
Investment Fund is a closed-end fund focused on the emerging markets of South
America selling at a substantial discount to its net asset value. Lowe's is a
home improvement retailer that is a beneficiary of the consolidation taking
place within its industry. It is a proven survivor and a successful competitor
against Home Depot.
Fixed Income
The bond market continued to gain ground during the fourth quarter, with the
Lehman Intermediate Government/Corporate Index posting a return of 2.14%. In our
last report to you, dated November 13, 1997, we repeated our view that the major
concern should be the D-word (deflation) rather than the I-word (inflation) and,
as a result of the increased financial problems in Southeast Asia, deflation is
being mentioned by an increasing number of market participants. We are grateful
that Federal Reserve Chairman Alan Greenspan, appears to have given up the ghost
of inflation, at least for the near term.
Over the past three months, the yield curve flattened considerably as three
month Treasury Bill yields actually increased 25 basis points (100 basis points
= 1%) while thirty year bond yields declined 48 basis points. We know from past
experience that a flat yield curve is both a comparatively rare phenomenon and
also a very unstable condition that is unlikely to persist for very long. While
we do not make interest rate forecasts, we would be in the camp that believes
that the flat curve will resume its more normal, positive slope as a result of
short-term interest rates declining. With sentiment toward the bond market
reversing course to a strongly bullish consensus and net cash in-flows into bond
funds increasing significantly, it is certainly possible that we could see a
temporary setback in bonds. However, we believe that the long-term outlook
remains favorable and that we could actually see short rates declining below the
levels reached in 1992-1993. The outlook on inflation remains favorable with
reported inflation reaching a ten year low as many commodity prices are falling
to levels not seen for over three-plus years.
In this environment, we believe the current structure of the bond component
of the Balanced Trust is particularly well situated to outperform the Lehman
Intermediate benchmark. We continue to maintain a very high level of credit
quality which has certainly served the fund well over the past year. Seven-year
STRIPS and mortgage securities are our largest bets and, as spreads have widened
in the mortgage market recently, we have increased our exposure to this sector.
During 1997, mortgages were the top performing asset class and we believe, at
current spread levels, offer compelling value. As mentioned in prior letters, we
have been significantly underweight in our exposure to the corporate sector.
This too has served the portfolio well, as spreads in this sector have recently
widened. We believe that there is a strong likelihood that corporate spreads are
poised to widen further, particularly in the financial sector if the Asian flu
spreads further.
As always, we will continue to monitor the situation closely and will seek to
take advantage of additional investment opportunities if the markets remain
volatile as we expect they will.
It has been a pleasure to serve you in 1997 and we appreciate your support.
We wish you, your family and your associates a healthy and prosperous New Year.
Woodrow H. Uible, CFA Dale H. Rabiner, CFA
Equity Portfolio Manager Fixed Income Portfolio Manager
February 2, 1998
DJIA 8107.78
6
<PAGE>
Performance Information
Legg Mason Investors Trust, Inc.
Total Return for One Year and Life of Funds as of December 31, 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 December 31, 1997 were as follows:
American Leading Balanced
Companies Trust Trust
- --------------------------------------------------------------------------------
Average Annual Total Return
Primary Class:
One Year +23.74% +18.71%
Life of Class+ +15.77% +18.17%
Navigator Class:
One Year +25.29% N/A
Life of Class++ +31.41% N/A
Cumulative Total Return
Primary Class:
One Year +23.74% +18.71%
Life of Class+ +88.69% +23.25%
Navigator Class:
One Year +25.29% N/A
Life of Class++ +40.56% N/A
- --------------------------------------------------------------------------------
+Primary Class inception dates are:
American Leading Companies Trust -- September 1, 1993
Balanced Trust -- October 1, 1996
++Navigator Class inception date is:
American Leading Companies Trust -- October 4, 1996
7
<PAGE>
Performance Information--Continued
American Leading Companies Trust
Selected Portfolio Performance*
Strong performers for the 4th quarter 1997
-------------------------------------------------------------------------
1. MCI Communications Corporation +45.7%
2. The PMI Group, Inc. +26.2%
3. Pfizer, Inc. +24.1%
4. Fannie Mae +21.4%
5. Schering-Plough Corporation +20.6%
Weak performers for the 4th quarter 1997
-------------------------------------------------------------------------
1. Western Digital Corporation -59.9%
2. KLA-Tencor Corporation -42.8%
3. Compaq Computer Corporation -24.5%
4. Intel Corporation -23.9%
5. HealthCare COMPARE Corporation -20.0%
* Securities held for the entire quarter.
Portfolio Changes
Securities added during the 4th quarter 1997
-------------------------------------------------------------------------
Eastman Kodak Company
ITT Corporation
Securities sold during the 4th quarter 1997
-------------------------------------------------------------------------
Western Atlas, Inc.
8
<PAGE>
Balanced Trust
Selected Portfolio Performance*
Strong performers for the 4th quarter 1997
-------------------------------------------------------------------------
1. AT&T Corporation +38.2%
2. TNP Enterprises, Inc. +32.3%
3. Fleetwood Enterprises, Inc. +26.4%
4. Western Resources, Inc. +25.3%
5. Travelers Group, Inc. +21.5%
Weak performers for the 4th quarter 1997
-------------------------------------------------------------------------
1. Korea Fund, Inc. -44.2%
2. Triton Energy Ltd. -29.6%
3. First Data Corporation -22.1%
4. UCAR International, Inc. -16.4%
5. Jostens, Inc. -15.0%
* Securities held for the entire quarter.
Portfolio Changes
Securities added during the 4th quarter 1997
-------------------------------------------------------------------------
Frontier Insurance Group, Inc.
Government National Mortgage Association
8%, 12/15/27
Kansas City Power & Light Company
Latin America Investment Fund, Inc.
Lowe's Companies, Inc.
Stewart & Stevenson Services, Inc.
United States Treasury Bonds
0%, 5/15/00
Securities sold during the 4th quarter 1997
-------------------------------------------------------------------------
NIPSCO Industries, Inc.
United States Treasury Bonds
0%, 8/15/99
Universal Foods Corporation
9
<PAGE>
Portfolio of Investments
Legg Mason Investors Trust, Inc.
December 31, 1997 (Unaudited)
(Amounts in Thousands)
American Leading Companies Trust
Shares/Par Value
- -----------------------------------------------------------------------------
Common Stocks and Equity Interests -- 88.8%
Aerospace/Defense -- 0.1%
Raytheon Company 2 $ 79
--------
Automotive -- 1.8%
Ford Motor Company 25 1,217
General Motors Corporation 25 1,516
Meritor Automotive, Inc. 14 295
--------
3,028
--------
Banking -- 9.1%
Banc One Corporation 70 3,802
Chase Manhattan Corporation 64 7,008
Citicorp 20 2,529
Mellon Bank Corporation 40 2,425
--------
15,764
--------
Basic Materials -- 2.6%
Monsanto Co. 108 4,536
--------
Capital Goods -- 4.3%
Emerson Electric Company 60 3,386
General Electric Company 25 1,834
Rockwell International Corporation 42 2,195
--------
7,415
--------
Computer Services and Systems -- 18.0%
Cisco Systems, Inc. 38 2,091(A)
Compaq Computer Corporation 50 2,822
EMC Corporation 226 6,206(A)
Intel Corporation 66 4,636
International Business Machines Corporation 65 6,796
KLA-Tencor Corporation 100 3,862(A)
Raychem Corporation 87 3,738
Western Digital Corporation 60 964(A)
--------
31,115
--------
Consumer Cyclicals -- 4.4%
BJ's Wholesale Club, Inc. 33 1,020(A)
Mattel, Inc. 175 6,519
--------
7,539
--------
Consumer Staples -- 4.4%
Avon Products Inc. 55 3,376
Fortune Brands,Inc. 48 1,779
Kimberly-Clark Corporation 50 2,465
--------
7,620
--------
10
<PAGE>
Shares/Par Value
- -----------------------------------------------------------------------------
Energy -- 1.3%
Texaco, Incorporated 40 $ 2,175
--------
Entertainment -- 1.2%
Circus Circus Enterprises, Inc. 100 2,050(A)
--------
Financial Services -- 2.9%
Fannie Mae 50 2,853
Travelers Group, Inc. 39 2,101
--------
4,954
--------
Food, Beverage and Tobacco -- 5.5%
Philip Morris Companies, Inc. 148 6,706
RJR Nabisco Holdings Corp. 75 2,813
--------
9,519
--------
Health Care -- 14.5%
Amgen Inc. 113 6,116(A)
Bristol-Myers Squibb Company 53 5,015
HealthCare COMPARE Corporation 38 1,943(A)
Merck & Co., Inc. 40 4,250
Pfizer, Inc. 30 2,237
Schering-Plough Corporation 88 5,467
--------
25,028
--------
Hotels & Motels -- 0.8%
ITT Corporation 16 1,351(A)
--------
Insurance -- 9.7%
Aetna, Inc. 35 2,470
Conseco Inc. 165 7,497
The PMI Group, Inc. 93 6,725
--------
16,692
--------
Media -- 1.3%
America Online, Inc. 25 2,230(A)
--------
Photo Equipment & Supplies -- 0.9%
Eastman Kodak Company 25 1,520
--------
Telecommunications -- 4.3%
MCI Communications Corporation 175 7,492
--------
Transportation -- 1.7%
Ryder System, Inc. 92 3,013
--------
Total Common Stocks and Equity Interests
(Identified Cost-- $118,155) 153,120
- ----------------------------------------------------------------------------
11
<PAGE>
Portfolio of Investments--Continued
Legg Mason Investors Trust, Inc.
American Leading Companies Trust--Continued
Shares/Par Value
- -----------------------------------------------------------------------------
Repurchase Agreement -- 10.8%
Lehman Brothers, Inc.
6%, dated 12/31/97, to be repurchased
at $18,699 on 1/2/98 (Collateral: $18,534
United States Treasury Notes,
6.25%, due 7/31/98, value $19,088)
(Identified Cost-- $18,693) $18,693 $ 18,693
- ----------------------------------------------------------------------------
Total Investments-- 99.6%
(Identified Cost-- $136,847) 171,813
Other Assets Less Liabilities-- 0.4% 613
--------
Net assets-- 100.0% $172,426
========
Net asset value per share:
Primary Class $15.90
======
Navigator Class $16.03
======
- ------------------------------------------------------------------------------
(A) Non-income producing
12
<PAGE>
Portfolio of Investments
Legg Mason Investors Trust, Inc.
December 31, 1997 (Unaudited)
(Amounts in Thousands)
Balanced Trust
Shares/Par Value
- -----------------------------------------------------------------------------
Common Stocks and Equity Interests -- 58.4%
Advertising/Media -- 1.9%
A.H. Belo Corporation 7 $ 421
Time Warner, Inc. 4 254
--------
675
--------
Aerospace -- 0.9%
Lockheed Martin Corporation 3 315
--------
Automotive -- 1.5%
Ford Motor Company 11 536
--------
Chemicals -- 1.9%
Ferro Corporation 16 390
Potash Corporation of Saskatchewan, Inc. 3 282
--------
672
--------
Computer Services and Systems -- 1.6%
First Data Corporation 12 351
Pitney Bowes, Inc. 2 198
--------
549
--------
Construction and Building Materials -- 0.5%
Martin Marietta Materials, Inc. 5 183
--------
Electrical Equipment and Electronics -- 2.3%
Pioneer-Standard Electronics, Inc. 32 480
UCARInternational, Inc. 8 304(A)
--------
784
--------
Energy -- 3.0%
Phillips Petroleum Company 6 272
Southwestern Energy Company 10 129
Triton Energy Ltd. 15 438(A)
YPF Sociedad Anonima ADR 5 185
--------
1,024
--------
Finance -- 4.4%
Fannie Mae 10 582
H&R Block Inc. 9 421
United Asset Management Corporation 13 318
U.S. Trust Corporation 3 188
--------
1,509
--------
13
<PAGE>
Portfolio of Investments--Continued
Legg Mason Investors Trust, Inc.
Balanced Trust--Continued
Shares/Par Value
- -----------------------------------------------------------------------------
Food, Beverage and Tobacco -- 4.9%
Archer-Daniels-Midland Company 19 $ 406
McDonald's Corporation 11 525
RJR Nabisco Holdings Corp. 6 225
UST, Inc. 15 554
--------
1,710
--------
Hospital Management -- 0.8%
Columbia/HCA HealthCare Corporation 10 284
--------
Insurance -- 2.2%
Frontier Insurance Group, Inc. 17 384
Travelers Group, Inc. 7 365
--------
749
--------
Investment Companies -- 3.2%
Blackrock North American Government Income Trust, Inc. 75 792
Korea Fund, Inc. 24 159(A)
Latin America Investment Fund, Inc. 10 139
--------
1,090
--------
Machinery -- 0.8%
Stewart & Stevenson Services, Inc. 12 293
--------
Manufacturing -- 6.7%
Fleetwood Enterprises, Inc. 14 594
Kaydon Corporation 24 799
Tyco International Ltd. 9 406
York International Corporation 13 507
--------
2,306
--------
Multi-Industry -- 1.7%
Loews Corporation 5 573
--------
Real Estate -- 2.3%
Chateau Communities, Inc. 13 410
United Dominion Realty Trust, Inc. 27 369
--------
779
--------
Retail -- 4.6%
Federated Department Stores, Inc. 9 383(A)
Jostens, Inc. 22 507
Lowe's Companies, Inc. 4 196
Toys "R" Us, Inc. 17 519(A)
--------
1,605
--------
Savings and Loan -- 1.3%
Washington Federal, Inc. 14 451
--------
14
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Telecommunications -- 2.8%
AT&T Corporation 7 $ 429
Century Telephone Enterprises, Inc. 7 349
Cincinnati Bell, Inc. 6 201
-------
979
-------
Transportation -- 5.7%
AMR Corporation 5 643(A)
GATX Corporation 6 472
Kansas City Southern Industries, Inc. 27 857
-------
1,972
-------
Utilities -- 3.4%
Kansas City Power & Light Company 8 237
TNP Enterprises, Inc. 16 535
Western Resources, Inc. 9 387
-------
1,159
-------
Total Common Stocks and Equity Interests (Identified Cost-- $17,087) 20,197
--------------------------------------------------------------------------------------------------------------------
Preferred Stock-- 0.8%
Chiquita Brands International, Inc., 3.75%, Series B, Cv (Identified Cost-- $266) 5 277
--------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes -- 4.4%
Kroger Company 8.50% 6/15/03 $ 400 420
Merrill Lynch & Co., Inc. 7.05% 4/15/03 425 426
Toronto-Dominion Bank 7.875% 8/15/04 675 693
-------
Total Corporate Bonds and Notes (Identified Cost-- $1,528) 1,539
--------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations -- 33.3%
Treasury Notes/Strips -- 17.9%
United States Treasury Notes 7.125% 2/29/00 1,000 1,029
United States Treasury Notes 6.50% 5/31/01 500 512
United States Treasury Notes 6.25% 6/30/02 500 510
United States Treasury Bonds 0% 5/15/00 1,000 876(B)
United States Treasury Bonds 0% 5/15/04 1,300 905(B)
United States Treasury Bonds 0% 11/15/04 3,500 2,364(B)
-------
6,196
-------
Medium-term Notes -- 4.6%
Fannie Mae 7.37% 4/1/04 300 304
Fannie Mae 8.25% 10/12/04 900 931
Freddie Mac 8.14% 9/29/04 350 362
-------
1,597
-------
</TABLE>
15
<PAGE>
Portfolio of Investments--Continued
Legg Mason Investors Trust, Inc.
Balanced Trust--Continued
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Mortgage-backed Securities -- 10.8%
Fannie Mae 6% 12/1/25-1/1/27 $ 894 $ 863
Freddie Mac 6% 3/1/26 97 94
Freddie Mac 6.50% 1/1/26-5/1/26 502 497
Government National Mortgage Association 8% 4/15/26-12/15/27 2,193 2,274
-------
3,728
-------
Total U.S. Government Agency Obligations (Identified Cost-- $11,378) 11,521
--------------------------------------------------------------------------------------------------------------------
Repurchase Agreement -- 2.9%
State Street Bank & Trust Company
4.25%, dated 12/31/97, to be repurchased at $988 on 1/2/98
(Collateral: $1,010 United States Treasury Notes,
5.625%, due 11/30/99, value $1,014)
(Identified Cost-- $988) 988 988
--------------------------------------------------------------------------------------------------------------------
Total Investments-- 99.8% (Identified Cost-- $31,247) 34,522
Other Assets Less Liabilities-- 0.2% 55
-------
Net assets-- 100% $34,577
=======
Net asset value per share $11.93
======
--------------------------------------------------------------------------------------------------------------------
</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.
16
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