Annual Report
March 31, 1998
Legg Mason
Investors Trust, Inc.
American Leading
Companies Trust
Balanced Trust
The Art of Investing
[LEGG MASON LOGO APPEARS HERE]
FUNDS
Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
For American Leading Companies Trust:
Legg Mason Fund Adviser, Inc.
Baltimore, MD
For Balanced Trust:
Bartlett & Co.
Cincinnati, OH
Board of Directors
John F. Curley, Jr., Chairman
Edward A. Taber, III, President
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street 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 o 539 o 0000
LMF-013
5/98
<PAGE>
To Our Shareholders,
We are pleased to provide you with combined annual reports for the Legg Mason
American Leading Companies Trust and the Legg Mason Balanced Trust.
The following table summarizes key statistics for the Primary Class of shares
of each Fund, as of March 31, 1998:
<TABLE>
<CAPTION>
3 Month 12 Month
Total Return* Total Return*
------------- -------------
<S> <C>
American Leading Companies Trust 11.82% 35.18%
Balanced Trust 5.78% 27.80%
S&P 500 Stock Composite Index 13.95% 48.00%
Lehman Brothers Intermediate Government/Corporate
Bond Index 1.56% 9.67%
</TABLE>
On the following pages, the portfolio managers for each of the Funds discuss
the investment outlook for the Funds. Long-term investment results for each of
the Funds are shown in the Performance Information section of this report.
Ernst & Young LLP, independent auditors for the Funds, have completed their
annual examination, and audited financial statements for the fiscal year ended
March 31, 1998 are included in this report.
Sincerely,
/s/ Edward A. Taber, III
________________________
Edward A. Taber, III
President
May 1, 1998
- --------------------
*Total return measures investment performance in terms of appreciation or
depreciation in net asset value per share plus dividends and any capital gain
distributions. It assumes that dividends and distributions were reinvested at
the time they were paid.
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
American Leading Companies Trust
Strategies affecting results: American Leading Companies
For the twelve months ending March 31, 1998, the American Leading Companies
Trust total return was 35%. These returns were in line with the Dow Jones
Industrial Average, but trailed the returns of the Standard & Poors 500 Stock
Composite Index. The strategy of the Fund is to invest long-term in a portfolio
of mostly US domestic companies which enjoy leading positions in their
respective industries and which possess above-average growth prospects and
financial strength.
The stock market's returns over the past twelve months were paced by a
continuation of superior results from the largest companies in the S&P 500
including Microsoft, Coca Cola, and General Electric. The Fund had less exposure
to the largest names in the market than did the S&P 500, which hindered results
during the period. Helping the Fund's results were strong performances from
Schering Plough, Bristol Myers, and Travelers. Also helping results was the
absence of losing positions in the portfolio. A list of companies whose share
price changes affected our results is included elsewhere in this report.
Market Outlook: Near Term
As usual, we are agnostic about the market's near-term direction. A variety
of valuation tools suggest that stock prices in the aggregate approximate fair
value, a view with which we concur. Prices should tend in the direction of
market participants' shifting views about interest rates and earnings prospects.
Share prices have begun the year with another strong advance, fueled by
continued low inflation, stable monetary policy, a growing budget surplus, and
high corporate profitability. Merger and acquisition activity remains extremely
robust and is expected to remain so.
We believe short-term market forecasts have no predictive value and generally
avoid them. The current market advance has further extended valuations, having
occurred without a commensurate increase in profits or decrease in interest
rates. This has eroded the margin of safety we would prefer to exist when new
investment commitments are made. As a result, we believe share prices are
becoming increasingly susceptible not only to changes in fundamentals but to
changes in mass psychology.
We believe that calendar 1998 will be characterized by moderate economic
growth and subdued inflation. Corporate profits growth could be in the 6-8%
area. We think the probabilities favor a moderate stock market advance, albeit
with perhaps more volatility than has been common over the past few years.
Market Outlook: Long Term -- The Era of Extraordinary Returns is Over; "Return
to Normalcy"
"When we think about the future of the world, we always have in mind its
being at the place where it would be if it continued to move as we see it
moving now. We do not realize that it moves not in a straight line . . .
and that its direction changes constantly."
Wittgenstein
We thought it might be instructive to reprint in this space what we said last
year about our views on the long-term market outlook. We indicated that we
thought the extraordinary returns of the previous 15 years were over and that
investors should expect returns in the 9-10% annual range over the longer term.
In the ensuing twelve months, share prices continued to soar with the S&P 500
rising nearly 50%. This brings to mind Warren Buffett's comment that the
function of stock market forecasts is to make fortune tellers look good.
2
<PAGE>
PORTFOLIO MANAGERS' COMMENTS--CONTINUED
We find little to change, though, in our long-term outlook, hence our
repetition of it. (We have left the piece as written, with last year's interest
rates and valuation data.) Share prices rose so strongly last fiscal year
because interest rates fell from 7% to under 6%. Price earnings ratios expanded
as a result, and coupled with solid profits growth, propelled stocks higher. A
similar advance would require another sharp drop in rates amid continued strong
earnings growth, a combination that does not appear probable, though in
financial markets almost anything is possible.
"A Return to Normalcy"
In the 1920 Presidential election, Senator Warren G. Harding, a former
Ohio newspaper editor, promised a return to normalcy. The country had
experienced both the activism of Teddy Roosevelt and the idealism of
Woodrow Wilson. He thought neither extreme suited the post-war mood.
According to one source, "Voters responded to his genial nature,
impressive stature, and bland message; he won in a landslide."
We think that after the inflation driven extremes in hard asset returns
in the 1970's, and the abnormally high returns in bonds from 1981-1993 and
in stocks from 1982-1996, a return to normalcy is in store for investors
across a variety of asset classes. For much of the past 20 years, returns
far higher than historic norms could be achieved by following investment
strategies simple enough to fit on a bumper sticker: e.g. in the 70's buy
oil, buy gold; in the 80's, buy bonds; in the 90's, buy stocks. Oil, gold,
and bonds are mostly undifferentiated assets, one is pretty much like
another. With stocks, the question of which one (or ones) to buy was
likewise easy. For most of the past 15 years, no work was required--if you
bought an index fund you earned far higher returns than historic norms,
and you beat almost all the stock investors who bothered to actually do
the work and understand what they own. The past 15 years have seen the
highest returns of any 15 year period in stock market history.
From the bond market bottom on October 26, 1981 until the top on
October 15, 1993, investors in government bonds earned average annual
returns of 16.2% per year! This compares to returns of 5.1% per year from
1926 through 1996. Excluding the extraordinary return of the past 15
years, the long-term return of bonds averaged just 3.2% per year from 1926
through 1981. Today's bond yields of over 7% are thus quite high by
historical standards. (But not as high as they look; read on.)
During the same period (Oct. 1981-Oct. 1993) the S&P 500 rose 16.54%
per year, just about the same as bonds. But 1926-1996 returns in stocks
were more than double those of bonds, averaging 10.7% per year.
Since the bond market peak in late 1993, stocks have far outperformed
bonds, rising in 1994, 1995 and 1996, while bonds declined in both 1994
and 1996. Bonds are down again this year, while the S&P 500 is up
modestly.
One problem in assessing long-term rate of return data is what
physicists call sensitive dependence on initial conditions. It matters to
the measurement where the measurement begins. Returns measured from lows
to highs give one perspective, those measured on a calendar basis another.
Economist Peter Bernstein has attempted to adjust for this phenom-
3
<PAGE>
PORTFOLIO MANAGERS' COMMENTS--CONTINUED
American Leading Companies Trust--Continued
enon in a new study of stock and bond returns. He found that stock returns
have averaged 9.6% per year including dividends across wide historical
periods. Inflation has averaged 3.9%, meaning the real return on stocks
has been 5.7% per year. This is moderately lower than the 10.7% return
noted above.
With bonds, the sensitivity to the starting point was more acute.
Actual returns were about 6%, higher than the 1926-1996 average of 5.1%.
From this data, we can make some reasonable judgments about future
rates of return in stocks. With dividend yields of about 2%, stock prices
will have to rise 7.6% per year to equal the long-term average. If
valuations remain the same at about 17x earnings, earnings growth will
have to average 7.6% per year. Over the past 40 years, earnings have grown
at just under 6%. In the past ten years, earnings growth has averaged
almost 9%. Most analysts' forecasts peg the next 5 years earnings growth
rate at about 7%.
Reasonable expectations for stock returns would thus seem to be in the
9-10% range (2% yields with 7 or 8% earnings growth) or about the
long-term historic norm. This is far below the returns of the past 15
years.
We think that the period of extraordinary returns in bonds ended in
October 1993, when yields fell well under 6%. Today's 7% coupons are good,
but they are a long way from the 16% annual rates earned since yields
peaked and prices bottomed in 1981.
We believe that the period of extraordinary stock returns that began in
1982 ended in 1997. Valuations are too high and future growth rates too
low for stocks to average more than 9-10% per year. Although earnings
growth is still solid, pricing power is non-existent, unemployment is low,
and wage pressures are building. Corporate profit margins are high by
historical standards, suggesting that competitive pressures may result in
weakening margins and reduced profits when the economy slows from its
present 4% pace. We think that, absent some deus ex machina, 9-10%
long-term returns are the best that can reasonably be expected. Sensible
investors will be prepared for periods, perhaps extended, where returns
are well below those levels, or even negative.
A return to normalcy in stocks, like Harding's message in 1920, may
seem rather bland compared to the excitement of the past few years. We
believe though, that such returns will still exceed those of bonds and
cash, and that equity investors will continue to be rewarded for their
commitment to that asset class.
Manager Change
Effective with the beginning of the new fiscal year, the Fund will be managed
by David Nelson. Mr. Nelson previously managed the UAM ICM Equity Fund, which
earned a 5 star designation from Morningstar Inc., that company's highest rating
for a mutual fund. He is a seasoned professional with over 25 years of
investment experience as an analyst, director of research, and portfolio
manager. We are confident he will continue his long record of investment success
with this Fund.
Bill Miller, CFA
April 20, 1998
DJIA 9141.84
4
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
Balanced Trust
Results for the first quarter and twelve months ended March 31, 1998 for the
Balanced Trust and related benchmarks are reflected in the following table:
First Quarter
1998 One Year
- --------------------------------------------------------------------------------
Balanced Trust 5.78% 27.80%
Lipper Balanced Fund Composite 7.90% 28.97%
S&P 500 Stock Composite Index (large-cap) 13.95% 48.00%
S&P 400 Composite Index (mid-cap) 11.01% 49.04%
Russell 2000 Index (small-cap) 10.06% 42.01%
Lehman Intermediate Government/Corporate
Bond Index 1.56% 9.67%
We all breathed a sigh of relief to learn that this business is not quite as
easy as it looks. Instead of the 24.3% annual return for the ten years since
1983 which vaulted the Beardstown Ladies to the top of the best seller list, it
turns out that they actually achieved only 9.1% compounded versus the S&P 500
average of 15%. The stock and bond markets also disengaged during the first
quarter as stocks continued to soar while bonds generated returns within the
historical norm. Of course, this type of divergent investment experience
underscores the diversification benefits of a balanced fund. Equity holdings
ended the quarter just under our 60% target as our search for compelling and
diversified investment opportunities came up short. Our fixed income holdings
continue to be focused on intermediate-term government issues and mortgages,
which lends a high level of credit quality to the Balanced Trust. In spite of
our risk-averse approach to the markets, the Balanced Trust has generated a
solid return for the last year.
The Standard & Poor's 500 gained nearly 14% for the quarter as the economy
continued to display stellar performance, neatly sidestepping Southeast Asia, El
Nino and Sadam Hussein to boast terrific statistics on employment, inflation,
real wage growth and, not surprisingly given the first three, consumer
confidence. In view of this economic data, it is not surprising that consumer
related stocks did well in the first quarter. Among the winners in your
portfolio benefiting from the consumers' optimism during the first quarter of
1998, were Lowe's (+47%), Ford Motor (+33.1%), and McDonald's (+25.7%). Kansas
City Southern (+38.6%), Kaydon (+25.3%), and Triton Energy (+25.9%) were also
strong performers.
The biggest negative impact on your portfolio came from the tobacco issues,
RJR Nabisco (-15%) and UST (-12%) and an electronics distributor, Pioneer
Standard (-19%).
We trimmed a number of our successful holdings such as Kansas City Southern,
Kaydon and Tyco as the gap between market price and intrinsic value narrowed.
New investments during the quarter included Union Pacific, Aetna and Charter One
Financial. The problems of Union Pacific have been widely covered in the press.
Its railroad assets are substantial and impressive. In our opinion, Union
Pacific's short-term problems pale next to the value of its long-lived assets.
Aetna is among the largest HMO's in the country. Poor industry underwriting
results recently drove the stock down to a point at which its financial service
operations nearly equaled the total value of the company without regard to its
sizable healthcare business. Charter One Financial is a northern Ohio savings
and loan with an excellent record of growth and profitability. Short-term
concerns over higher interest rates in January created an attractive buying
opportunity.
5
<PAGE>
PORTFOLIO MANAGERS' COMMENTS--CONTINUED
Balanced Trust--Continued
At present, the stock market, as measured by the S&P 500, is trading at 6.5x
the net worth of the companies that comprise the index, while your portfolio's
stocks carry a book value multiple of 2.9. The cash flow multiple of the market
is roughly 18, while the cash flow multiple of your portfolio is 13. The price
earnings multiple of the market is now 23 and the price earnings multiple of
your portfolio is 17. With regard to your portfolio's volatility vis-a-vis the
market, its portfolio beta is .70, meaning that it is 70% as erratic as the
market. This would offer the portfolio some protection in the event that a
market decline might occur.
While there was a significant amount of volatility in the bond market during
the quarter, yields were comparatively unchanged during the period. There was a
slight steepening in the curve as the yield on 90-day T-bills decreased 22 basis
points (100 basis points = 1%), while 30-year treasury bonds held steady at
5.92%. For the quarter, the Lehman Intermediate Government/Corporate Index
posted a return of 1.56%.
The key to successful investing for the quarter was in security and sector
selection, particularly since total returns were remarkably similar across the
maturity spectrum. The mortgage sector continued to perform well as did treasury
strips. Our continued overweighting in the mortgage-backed and 7-year strips
served the Fund well during this period. We continue to find value in these
sectors, and have recently increased our exposure to high coupon GNMAs due to a
widening of yield spreads there.
With regard to the economy, it seems that there are counter-balancing
inflationary and deflationary trends that are holding the market in check. On
the positive side, reported inflation continues to remain benign and the demand
for credit remains moderate. On the other hand, the labor market continues to be
tight and we are also noting a pickup in certain commodity prices. On the
sentiment front, we are somewhat concerned about the nearly uniform view that
inflation is a non-event. It seems likely that the Federal Reserve will remain
on hold until such time that the inflationary or deflationary trends assert
themselves in a more dominant fashion.
As always, we will monitor the situation closely as we feel that it is likely
that something will give over the next quarter or two.
Woodrow H. Uible, CFA Dale H. Rabiner, CFA
Equity Portfolio Manager Fixed Income Portfolio Manager
April 24, 1998
DJIA 9064.62
6
<PAGE>
PERFORMANCE INFORMATION
Legg Mason Investors Trust, Inc.
Performance Comparison of a $10,000 Investment as of March 31, 1998
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
a 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 +35.18% +35.18%
Life of Class(dagger) +111.00 +17.69
- -----------------------------------------------------
(dagger) Primary Class inception -- September 1, 1993
- -----------------------------------------------------
[GRAPH APPEARS HERE-PLOT POINTS BELOW]
American Leading S&P 500
Companies Trust Stock Composite
Primary Class Index(1)
---------------- ---------------
9/1/93 $10,000 $10,000
3/31/94 9,714 9,768
3/31/95 10,320 11,289
3/31/96 12,513 14,913
3/31/97 15,608 17,869
3/31/98 21,100 26,447
(1) An unmanaged index of widely held common stocks.
7
<PAGE>
PERFORMANCE INFORMATION--CONTINUED
Balanced Trust -- Primary Class
- ----------------------------------------------------------
Cumulative Average Annual
Total Return Total Return
- ----------------------------------------------------------
One Year +27.80% +27.80%
Life of Class(dagger) +30.38 +19.36
- ----------------------------------------------------------
(dagger) Fund inception -- October 1, 1996
- ----------------------------------------------------------
[GRAPH APPEARS HERE-PLOT POINTS BELOW]
<TABLE>
<CAPTION>
S&P 500 Lehman Intermediate
Balanced Trust Stock Composite Lipper Balanced Government/Corporate
Primary Class Index(2) Fund Index(1) Bond Index(3)
-------------- --------------- --------------- --------------------
<S> <C>
10/1/96 $10,000 $10,000 $10,000 $10,000
12/31/96 10,383 10,833 10,557 10,245
3/31/97 10,202 11,124 10,603 10,233
6/30/97 11,114 13,066 11,738 10,535
9/30/97 12,026 14,044 12,492 10,819
12/31/97 12,325 14,448 12,673 11,051
3/31/98 13,038 16,463 13,675 11,223
</TABLE>
(1) The Lipper Balanced Fund Index is composed of approximately 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 include bonds with
maturities between 1 and 10 years. The returns for this Index are for the
periods beginning September 30, 1996.
American Leading Companies Trust -- Navigator Class
- ---------------------------------------------------------
Cumulative Average Annual
Total Return Total Return
- ---------------------------------------------------------
One Year +36.68% +36.68%
Life of Class(dagger) +57.40 +35.50
- ---------------------------------------------------------
(dagger) Navigator Class inception -- October 4, 1996
- ---------------------------------------------------------
[GRAPH APPEARS HERE-PLOT POINTS BELOW]
American Leading S&P 500
Companies Trust Stock Composite
Navigator Class Index(1)
---------------- ---------------
10/4/96 $10,000 $10,000
12/31/96 11,220 10,833
3/31/97 11,516 11,124
6/30/97 12,892 13,066
9/30/97 13,982 14,044
12/31/97 14,056 14,448
3/31/98 15,740 16,463
(1) An unmanaged index of widely held common stocks.
8
<PAGE>
AMERICAN LEADING COMPANIES TRUST
Selected Portfolio Performance(dagger)
Strong performers for the year ended March 31, 1998*
----------------------------------------------------
1. Schering-Plough Corporation +124.6%
2. Travelers Group, Inc. +88.0%
3. Bristol-Myers Squibb Company +76.8%
4. Banc One Corporation +75.0%
5. Mellon Bank Corporation +74.6%
Weak performers for the year ended March 31, 1998*
----------------------------------------------------
1. Kimberly-Clark Corporation +0.8%
2. Rockwell International Corporation +0.9%
3. KLA-Tencor Corporation +4.8%
4. Aetna Inc. +8.8%
5. Philip Morris Companies, Inc. +9.6%
(dagger) Individual stock performance is measured by the change in the
stock's price; reinvestment of dividends is not included.
* Securities held for the entire year.
Portfolio Changes
Securities added during the 1st quarter 1998
--------------------------------------------
Applied Materials, Inc.
Toys "R" Us, Inc.
Securities sold during the 1st quarter 1998
-------------------------------------------
BJ's Wholesale Club, Inc.
Eastman Kodak Company
Meritor Automotive, Inc.
Pfizer, Inc.
Raychem Corporation
Raytheon Company
9
<PAGE>
PERFORMANCE INFORMATION--CONTINUED
Balanced Trust
Selected Portfolio Performance(dagger)
Strong performers for the year ended March 31, 1998*
----------------------------------------------------
1. Kansas City Southern Industries, Inc. +164.0%
2. Tyco International Ltd. +111.1%**
3. Ford Motor Company +106.6%
4. Travelers Group, Inc. +103.9%***
5. Kaydon Corporation +95.2%
Weak performers for the year ended March 31, 1998*
----------------------------------------------------
1. Korea Fund, Inc. -43.5%
2. UCAR International, Inc. -20.8%
3. Southwestern Energy Company -20.6%
4. Chiquita Brands International, Inc.
3.75%, Series B, Cv. Pfd. -7.4%
5. Pioneer-Standard Electronics, Inc. -3.9%
(dagger) Individual stock performance is measured by the change in the stock's
price; reinvestment of dividends is not included.
* Securities held for the entire year.
** At March 31, 1997, the Fund owned ADT, Ltd. which subsequently merged
with Tyco International Ltd. The twelve month performance was measured
using ADT, Ltd.'s value at March 31, 1997, and Tyco International
Ltd.'s value at March 31, 1998.
*** At March 31, 1997, the Fund owned Salomon, Inc. which subsequently
merged with Travelers Group, Inc. The twelve month performance was
measured using Salomon, Inc.'s value at March 31, 1997 and Travelers
Group, Inc.'s value at March 31, 1998.
Portfolio Changes
Securities added during the 1st quarter 1998
--------------------------------------------
Aetna Inc.
Charter One Financial, Inc.
Littelfuse, Inc.
PMC Capital, Inc.
Union Pacific Corporation
Freddie Mac
6.5%, 3/1/28
Government National Mortgage Association
8%, 6/15/26
Government National Mortgage Association
8%, 5/15/27
United States Treasury Notes
6.25%, 5/31/00
United States Treasury Bonds
0%, 2/15/02
United States Treasury Bonds
0%, 2/15/05
Securities sold during the 1st quarter 1998
-------------------------------------------
United Asset Management Corporation
U.S. Trust Corporation
United States Treasury Notes
7.125%, 2/29/00
10
<PAGE>
STATEMENT OF NET ASSETS
Legg Mason Investors Trust, Inc.
March 31, 1998
(Amounts in Thousands)
American Leading Companies Trust
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks and Equity Interests -- 88.7%
Automotive -- 1.7%
Ford Motor Company 25 $ 1,620
General Motors Corporation 25 1,686
--------
3,306
--------
Banking -- 11.5%
Banc One Corporation 77 4,870
Chase Manhattan Corporation 64 8,632
Citicorp 50 7,100
Mellon Bank Corporation 40 2,540
--------
23,142
--------
Basic Materials -- 2.0%
Monsanto Co. 78 4,056
--------
Capital Goods -- 4.2%
Emerson Electric Company 60 3,911
General Electric Company 25 2,155
Rockwell International Corporation 42 2,410
--------
8,476
--------
Computer Services and Systems -- 17.5%
Applied Materials, Inc. 50 1,766(A)
Cisco Systems, Inc. 38 2,564(A)
Compaq Computer Corporation 150 3,881
EMC Corporation 176 6,663(A)
Intel Corporation 66 5,152
International Business Machines Corporation 65 6,752
KLA-Tencor Corporation 140 5,355(A)
Western Digital Corporation 160 2,810(A)
--------
34,943
--------
Consumer Cyclicals -- 3.5%
Mattel, Inc. 175 6,934
--------
Consumer Staples -- 4.3%
Avon Products Inc. 55 4,290
Fortune Brands,Inc. 48 1,914
Kimberly-Clark Corporation 50 2,506
--------
8,710
--------
</TABLE>
11
<PAGE>
STATEMENT OF NET ASSETS--CONTINUED
Legg Mason Investors Trust, Inc.
American Leading Companies Trust--Continued
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Energy -- 1.2%
Texaco, Incorporated 40 $ 2,410
--------
Entertainment -- 1.1%
Circus Circus Enterprises, Inc. 100 2,100(A)
--------
Financial Services -- 2.7%
Fannie Mae 50 3,163
Travelers Group, Inc. 39 2,340
--------
5,503
--------
Food, Beverage and Tobacco -- 4.3%
Philip Morris Companies, Inc. 148 6,170
RJR Nabisco Holdings Corp. 75 2,348
--------
8,518
--------
Health Care -- 14.0%
Amgen Inc. 113 6,879(A)
Bristol-Myers Squibb Company 53 5,529
First Health Group Corp. 38 2,061(A)
Merck & Co., Inc. 50 6,419
Schering-Plough Corporation 88 7,188
--------
28,076
--------
Insurance -- 9.5%
Aetna Inc. 35 2,920
Conseco Inc. 165 9,343
The PMI Group, Inc. 83 6,702
--------
18,965
--------
Media -- 1.7%
America Online, Inc. 50 3,416(A)
--------
Real Estate -- 2.0%
Starwood Hotels & Resorts 76 4,077
---------
Specialty Retail -- 1.0%
Toys "R" Us, Inc. 68 2,044(A)
--------
Telecommunications -- 3.7%
MCI Communications Corporation 150 7,425
--------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Transportation -- 2.8%
Ryder System, Inc. 150 $ 5,700
--------
Total Common Stocks and Equity Interests
(Identified Cost-- $127,122) 177,801
-----------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 12.0%
Prudential Securities, Inc.
5.98%, dated 3/31/98, to be repurchased at $24,002 on 4/1/98
(Collateral: $24,491 Fannie Mae Mortgage-backed securities
6.50% due 12/1/12, value $24,685)
(Identified Cost-- $23,998) $ 23,998 23,998
-----------------------------------------------------------------------------------------------------------------
Total Investments-- 100.7% (Identified Cost-- $151,120) 201,799
Other Assets Less Liabilities-- (0.7%) (1,391)
--------
Net assets consisting of:
Accumulated paid-in capital applicable to:
11,268 Primary shares outstanding $144,615
5 Navigator shares outstanding 65
Undistributed net realized gain on investments 5,049
Unrealized appreciation of investments 50,679
--------
Net assets-- 100.0% $200,408
========
Net asset value per share:
Primary Class $17.78
======
Navigator Class $17.95
======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing
See notes to financial statements.
13
<PAGE>
STATEMENT OF NET ASSETS
Legg Mason Investors Trust, Inc.
March 31, 1998
(Amounts in Thousands)
Balanced Trust
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks and Equity Interests -- 58.5%
Advertising/Media -- 1.7%
A.H. Belo Corporation 8 $ 413
Time Warner, Inc. 5 396
-------
809
-------
Aerospace -- 0.8%
Lockheed Martin Corporation 3 383
-------
Automotive -- 1.6%
Ford Motor Company 12 778
-------
Chemicals -- 2.2%
Ferro Corporation 21 617
Potash Corporation of Saskatchewan, Inc. 5 454
-------
1,071
-------
Computer Services and Systems -- 1.5%
First Data Corporation 14 455
Pitney Bowes, Inc. 5 251
-------
706
-------
Construction and Building Materials -- 0.5%
Martin Marietta Materials, Inc. 6 259
-------
Electrical Equipment and Electronics -- 2.2%
Littelfuse, Inc. 7 195(A)
Pioneer-Standard Electronics, Inc. 32 386
UCAR International, Inc. 15 458(A)
-------
1,039
-------
Energy -- 3.6%
Phillips Petroleum Company 9 449
Southwestern Energy Company 10 106
Triton Energy Ltd. 27 1,003(A)
YPF Sociedad Anonima ADR 5 184
-------
1,742
-------
Financial Services -- 4.3%
Fannie Mae 15 949
H&R Block Inc. 12 594
Travelers Group, Inc. 9 540
-------
2,083
-------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Food, Beverage and Tobacco -- 4.5%
Archer-Daniels-Midland Company 21 $ 466
McDonald's Corporation 14 810
RJR Nabisco Holdings Corp. 7 219
UST, Inc. 20 645
-------
2,140
-------
Hospital Management -- 0.7%
Columbia/HCA HealthCare Corporation 10 310
-------
Insurance -- 1.8%
Aetna Inc. 6 484
Frontier Insurance Group, Inc. 14 387
-------
871
-------
Investment Companies -- 2.8%
Blackrock North American Government Income Trust, Inc. 75 797
Korea Fund, Inc. 24 195(A)
Latin America Investment Fund, Inc. 17 248
PMC Capital, Inc. 5 72
-------
1,312
-------
Machinery -- 0.6%
Stewart & Stevenson Services, Inc. 13 301
-------
Manufacturing -- 6.2%
Fleetwood Enterprises, Inc. 19 885
Kaydon Corporation 25 1,001
Tyco International Ltd. 7 410
York International Corporation 15 675
-------
2,971
-------
Multi-Industry -- 1.6%
Loews Corporation 7 740
-------
Real Estate -- 2.3%
Chateau Communities, Inc. 23 684
United Dominion Realty Trust, Inc. 30 435
-------
1,119
-------
Retail -- 4.2%
Federated Department Stores, Inc. 8 425(A)
Jostens, Inc. 27 648
Lowe's Companies, Inc. 4 316
Toys "R" Us, Inc. 20 601(A)
-------
1,990
-------
</TABLE>
15
<PAGE>
STATEMENT OF NET ASSETS--CONTINUED
Legg Mason Investors Trust, Inc.
Balanced Trust--Continued
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Savings and Loan -- 3.0%
Charter One Financial, Inc. 11 $ 703
Washington Federal, Inc. 26 721
-------
1,424
-------
Telecommunications -- 2.8%
AT&T Corporation 10 656
Century Telephone Enterprises, Inc. 7 428
Cincinnati Bell, Inc. 7 249
-------
1,333
-------
Transportation -- 6.7%
AMR Corporation 6 888(A)
GATX Corporation 7 569
Kansas City Southern Industries, Inc. 26 1,144
Union Pacific Corporation 11 590
-------
3,191
-------
Utilities -- 2.9%
Kansas City Power & Light Company 11 347
TNP Enterprises, Inc. 16 532
Western Resources, Inc. 12 513
-------
1,392
-------
Total Common Stocks and Equity Interests
(Identified Cost-- $22,807) 27,964
-----------------------------------------------------------------------------------------------------------------
Preferred Stock -- 0.8%
Chiquita Brands International, Inc., 3.75%, Series B, Cv
(Identified Cost-- $396) 7 381
-----------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes -- 3.2%
Kroger Company 8.50% 6/15/03 $ 400 418
Merrill Lynch & Co., Inc. 7.05% 4/15/03 425 425
Toronto-Dominion Bank 7.875% 8/15/04 675 687
-------
Total Corporate Bonds and Notes (Identified Cost-- $1,527) 1,530
-----------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations -- 33.5%
Treasury Notes/STRIPS -- 19.4%
United States Treasury Notes 6.25% 5/31/00 1,500 1,519
United States Treasury Notes 6.50% 5/31/01 500 512
United States Treasury Notes 6.25% 6/30/02 500 511
United States Treasury Strips 0% 5/15/00 1,000 890(B)
United States Treasury Strips 0% 2/15/02 1,000 805(B)
United States Treasury Strips 0% 5/15/04 1,300 920(B)
United States Treasury Strips 0% 11/15/04 3,500 2,403(B)
United States Treasury Strips 0% 2/15/05 2,500 1,691(B)
-------
9,251
-------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Rate Maturity Date Shares/Par Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Medium-term Notes -- 3.3%
Fannie Mae 7.37% 4/1/04 $ 300 $ 304
Fannie Mae 8.25% 10/12/04 900 931
Freddie Mac 8.14% 9/29/04 350 361
-------
1,596
-------
Mortgage-backed Securities -- 10.8%
Fannie Mae 6% 12/1/25-1/1/27 890 860
Freddie Mac 6% 3/1/26 84 82
Freddie Mac 6.50% 1/1/26-3/1/28 991 981
Government National Mortgage
Association 8% 4/15/26-12/15/27 3,100 3,209
-------
5,132
-------
Total U.S. Government and Agency Obligations (Identified Cost-- $15,861) 15,979
-----------------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 5.0%
State Street Bank & Trust Company
4.25%, dated 3/31/98, to be repurchased at $2,409 on 4/1/98
(Collateral: $2,430 United States Treasury Notes,
5.875% due 1/31/99, value $2,484)
(Identified Cost-- $2,409) 2,409 2,409
-----------------------------------------------------------------------------------------------------------------
Total Investments-- 101.0% (Identified Cost-- $43,000) 48,263
Other Assets Less Liabilities-- (1.0)% (502)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
3,786 shares outstanding $41,822
Undistributed net investment income 205
Undistributed net realized gain on investments 471
Unrealized appreciation of investments 5,263
-------
Net assets-- 100% $47,761
=======
Net asset value per share $12.62
=======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Non-income producing
(B) STRIPS -- Separate Trading of Registered Interest and Principal of
Securities- A pre-stripped zero-coupon bond that is a direct
obligation of the U.S. Treasury.
See notes to financial statements.
17
<PAGE>
STATEMENTS OF OPERATIONS
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended 3/31/98
----------------------------------
American Leading Balanced
Companies Trust Trust
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $ 1,894 $ 368
Interest 772 760
------- ------
Total income 2,666 1,128
------- ------
Expenses:
Management fee 1,191 215
Distribution and service fees 1,587 215
Transfer agent and shareholder servicing expense 132 27
Audit and legal fees 49 37
Custodian fees 87 60
Directors' fees 6 6
Organization expense 18 17
Registration fees 48 23
Reports to shareholders 41 12
Other expenses 6 2
------- ------
3,165 614
Less fees waived (70) (83)
------- ------
Total expenses, net of waivers 3,095 531
------- ------
NET INVESTMENT INCOME (LOSS) (429) 597
------- ------
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on investments 17,728 752
Change in unrealized appreciation (depreciation) of investments 27,211 5,491
------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 44,939 6,243
---------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $44,510 $6,840
---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
American Leading Balanced
Companies Trust Trust
---------------------------------------------------------
Years Ended Years Ended
3/31/98 3/31/97 3/31/98 3/31/97(A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Change in Net Assets:
Net investment income (loss) $ (429) $ 42 $ 597 $ 153
Net realized gain (loss) on investments 17,728 9,367 752 23
Change in unrealized appreciation (depreciation)
of investments 27,211 8,419 5,491 (228)
---------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 44,510 17,828 6,840 (52)
Distributions to shareholders:
From net investment income:
Primary Class -- (137) (484) (63)
Navigator Class -- (1) N/A N/A
From net realized gain on investments:
Primary Class (17,081) (2,899) (302) --
Navigator Class (7) (2) N/A N/A
Change in net assets from Fund share transactions:
Primary Class 68,104 13,928 23,759 18,062
Navigator Class 15 50 N/A N/A
---------------------------------------------------------------------------------------------------------------------
Change in net assets 95,541 28,767 29,813 17,947
Net Assets:
Beginning of year 104,867 76,100 17,948 1
---------------------------------------------------------------------------------------------------------------------
End of year $200,408 $104,867 $47,761 $17,948
---------------------------------------------------------------------------------------------------------------------
Under/(over)distributions of net investment income,
end of year $ -- $ -- $ 205 $ 90
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) For the period October 1, 1996 (commencement of operations) to March
31, 1997.
See notes to financial statements.
19
<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 Year (Loss) Investments Operations Income Investments Distributions Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
American Leading Companies
-- Primary Class
Years Ended Mar. 31,
1998 $14.74 $(.04)(B) $4.93 $4.89 $ -- $(1.85) $(1.85) $17.78
1997 12.23 .01(B) 3.00 3.01 (.02) (.48) (.50) 14.74
1996 10.18 .07(B) 2.08 2.15 (.10) -- (.10) 12.23
1995 9.69 .12(B) .48 .60 (.11) -- (.11) 10.18
1994(E) 10.00 .06(B) (.34) (.28) (.03) -- (.03) 9.69
-- Navigator Class
Years Ended Mar. 31,
1998 $14.71 $ .10(C) $4.99 $5.09 $ -- $(1.85) $(1.85) $17.95
1997(F) 13.30 .07(C) 1.94 2.01 (.12) (.48) (.60) 14.71
Balanced Trust
-- Primary Class
Years Ended Mar. 31,
1998 $10.16 $ .21(D) $2.58 $2.79 $(.21) $ (.12) $ (.33) $12.62
1997(G) 10.00 .09(D) .11 .20 (.04) -- (.04) 10.16
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------
Net
Investment Average Net Assets,
Expenses Income (Loss) Portfolio Commission End of
Total to Average to Average Turnover Rate Year
Return Net Assets Net Assets Rate Paid(A) (in thousands)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
American Leading Companies
-- Primary Class
Years Ended Mar. 31,
1998 35.18% 1.95%(B) (.28)%(B) 51.4% $.0620 $200,326
1997 24.73% 1.95%(B) .05%(B) 55.7% .0640 104,812
1996 21.24% 1.95%(B) .69%(B) 43.4% -- 76,100
1995 6.24% 1.95%(B) 1.21%(B) 30.5% -- 59,985
1994(E) (2.86)%(H) 1.95%(I),(B) 1.14%(I),(B) 21.0%(I) -- 55,022
-- Navigator Class
Years Ended Mar. 31,
1998 36.68% .93%(C) .74%(C) 51.4% $.0620 $ 82
1997(F) 15.16%(H) .86%(I),(C) .98%(I),(C) 55.7%(I) .0640 55
Balanced Trust
-- Primary Class
Years Ended Mar. 31,
1998 27.80% 1.85%(D) 2.08%(D) 34.5% $.0714 $ 47,761
1997(G) 2.02%(H) 1.85%(I),(D) 2.52%(I),(D) 5.1%(I) .0622 17,948
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Pursuant to SEC regulations effective for fiscal years beginning
after September 1, 1995, this is the commission rate paid on
securities purchased and sold by the Funds.
(B) Net of fees waived pursuant to a voluntary expense limitation of 1.95%
of average daily net assets. If no fees had been waived by the
Adviser, the annualized ratio of expenses to average daily net assets
for the period September 1, 1993 to March 31, 1994, and for the years
ended March 31, 1995, 1996, 1997 and 1998 would have been 2.28%,
2.12%, 2.20%, 2.06% and 1.99%, respectively.
(C) Net of fees waived pursuant to a voluntary expense limitation of 0.95%
of average daily net assets. If no fees had been waived by the
Adviser, the annualized ratio of expenses to average daily net assets
for the period October 4, 1996 to March 31, 1997 and for the year
ended March 31, 1998 would have been 0.97% and 0.98%, respectively.
(D) Net of fees waived pursuant to a voluntary expense limitation of 1.85%
of average daily net assets. If no fees had been waived by the
Adviser, the annualized ratio of expenses to average daily net assets
for the period October 1, 1996 to March 31, 1997 and for the year
ended March 31, 1998 would have been 3.03% and 2.14%, respectively.
(E) For the period September 1, 1993 (commencement of operations) to March
31, 1994.
(F) For the period October 4, 1996 (commencement of sale of Navigator
Class) to March 31, 1997.
(G) For the period October 1, 1996 (commencement of operations) to March
31, 1997.
(H) Not annualized
(I) Annualized
See notes to financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Legg Mason Investors Trust, Inc.
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Investors Trust, Inc. ("Corporation"), consisting of
the American Leading Companies Trust ("American Leading Companies") and
the Balanced Trust ("Balanced Trust") (each a "Fund"), is registered under
the Investment Company Act of 1940, as amended, each as an open-end,
diversified investment company.
Each Fund consists of two classes of shares:Primary Class, offered
since September 1, 1993 for American Leading Companies Trust and since
October 1, 1996 for Balanced Trust, and Navigator Class, offered to
certain institutional investors since October 4, 1996 for American Leading
Companies Trust. The Navigator Class of Balanced Trust has not commenced
operations. The income and expenses of each of these Funds are allocated
proportionately to the two classes of shares based on daily net assets,
except for Rule 12b-1 distribution fees, which are charged only on Primary
Class 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. Capital gain distributions,
which are calculated at the Fund level, are declared and paid after the
end of the tax year in which the gain is realized. 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, 1998, receivables for securities sold and not yet delivered and
payables for securities purchased but not yet received for each Fund were
as follows:
Receivable for Payable for
Securities Sold Securities Purchased
- -------------------------------------------------------------------------------
American Leading Companies $-- $1,611
Balanced Trust 54 896
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
- --------------------------------------------------------------------------------
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.
Deferred Organizational Expenses
Deferred organizational expenses of $89 for American Leading
Companies and $86 for Balanced Trust are being amortized on a straight
line basis over 5 years commencing on the date their respective operations
began.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Funds intend to continue to qualify as regulated investment companies and
distribute all of their taxable income to their shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Investment Transactions:
For the year ended March 31, 1998, investment transactions (excluding
short-term investments) were as follows:
Purchases Proceeds from Sales
- --------------------------------------------------------------------------------
American Leading Companies $110,250 $74,024
Balanced Trust 32,336 9,613
At March 31, 1998, 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:
<TABLE>
<CAPTION>
Net
Cost Appreciation (Depreciation) Appreciation
- ---------------------------------------------------------------------------------------
<S> <C>
American Leading Companies $151,441 $53,822 $(3,464) $50,358
Balanced Trust 43,009 5,643 (389) 5,254
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
3. Transactions with Affiliates:
Each Fund has a management agreement with Legg Mason Fund Adviser,
Inc. ("LMFA"). Pursuant to their respective agreements, LMFAprovides 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.
LMFA has agreed to waive its fees in any month to the extent a Fund's
expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during that month annual rates of that Fund's average
daily net assets as follows: for American Leading Companies Primary Class,
1.95% indefinitely; American Leading Companies Navigator Class, 0.95%
indefinitely; and for Balanced Trust, 1.85% until July 31, 1998. For the
year ended March 31, 1998, management fees of $70 and $83 were waived for
American Leading Companies and Balanced Trust, respectively; and $116 and
$26 were due to LMFA by American Leading Companies and Balanced Trust,
respectively.
Bartlett & Co. ("Bartlett") serves as investment adviser to Balanced
Trust. Bartlett is responsible for the actual investment activity of the
Fund. LMFA pays Bartlett a fee for its services at an annual rate equal to
67% of the fee received by LMFA.
Legg Mason Wood Walker, Inc. ("Legg Mason"), a member of the New York
Stock Exchange and the distributor for 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%,
respectively. At March 31, 1998, distribution and service fees due to the
distributor were: American Leading Companies, $166; and Balanced Trust,
$29.
No brokerage commissions were paid to Legg Mason or its affiliates
during the year ended March 31, 1998.
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, 1998: American Leading Companies, $28; and Balanced Trust, $7.
LMFA, Legg Mason and Bartlett are wholly owned subsidiaries of Legg
Mason, Inc.
4. Line of Credit:
The Funds, along with certain other Legg Mason Funds, participate in
a $150 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, 1998, the Funds had no borrowings under the line of
credit.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
- --------------------------------------------------------------------------------
5. Fund Share Transactions:
At March 31, 1998, there were 250,000 and 125,000 shares authorized
at $.001 par value for the Primary Class of American Leading Companies
Trust and Balanced Trust, respectively; and there were 250,000 and 125,000
shares authorized at $.001 for the Navigator Class of American Leading
Companies Trust and Balanced Trust, respectively. 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, 1998 4,484 $74,695 1,074 $16,848 (1,402) $(23,439) 4,156 $68,104
Year Ended March 31, 1997 1,720 25,050 210 2,991 (1,042) (14,113) 888 13,928
--Navigator Class
Year Ended March 31, 1998 1 15 -- -- -- -- 1 15
Year Ended March 31, 1997(A) 4 50 -- -- -- -- 4 50
Balanced Trust
--Primary Class
Year Ended March 31, 1998 2,418 28,311 67 771 (465) (5,323) 2,020 23,759
Year Ended March 31, 1997(B) 1,973 20,213 6 61 (213) (2,212) 1,766 18,062
</TABLE>
(A) For the period October 4, 1996 (commencement of sale of Navigator
Class) to March 31, 1997.
(B) For the period October 1, 1996 (commencement of operations) to March
31, 1997.
24
<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 "Corporation") (comprised of the American Leading
Companies Trust and the Balanced Trust) as of March 31, 1998, and the related
statements of operations for the year then ended, and the 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 Corporation'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, 1998, 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, 1998, and the results of their operations for the year then ended,
and the changes in their net assets and their financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
_____________________
Philadelphia, Pennsylvania
April 21, 1998
25
<PAGE>
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<PAGE>
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