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No. 1 manager called 'amazing'; Legg Mason's Miller named nation's best by Morningstar Inc.; For 5 years, 33% average; Mutual funds


Minutes after Legg Mason Inc.'s William H. Miller III learned that he had been named mutual fund manager of the year, he received a call from a competitor who congratulated him, then quickly offered his condolences.

The caller was Mario Gabelli, a highly regarded mutual fund manager, who told Miller, "I won this award, and I didn't do so well."

Miller immediately began thinking of the others who had been named mutual fund managers of the year by Morningstar Inc., the Chicago-based mutual fund research firm. Several struggled after the award: Shelby Davis of Davis New York Venture, Jack Laporte of T. Rowe Price Associates, and Robert Rodriguez of FPA Capital.

"It is one of those things where you kind of wonder if it is the pinnacle, and it is all downhill from here," quipped Miller, who manages Legg Mason's Value Trust fund, and received the award Wednesday over thousands of mutual fund managers.

Miller, it seems, has been unstoppable, grinding out stellar returns year after year. The Value Trust returned 48 percent last year, beating the benchmark Standard & Poor's 500 index by nearly 20 percentage points. For the past five years, the fund has returned on average 33 percent.

"He is amazing," said Preston Athey, manager of T. Rowe Price's Small Cap Value Fund.

Brian C. Rogers, who manages two funds for Baltimore-based T. Rowe, said, "He basically has put together a string that is the envy of everybody in the business."

What does the award mean to the 48-year-old Miller? "Nothing," he said. "The stuff going on is so hectic, we haven't had much of a celebration. We had a three-minute toast, and it was back to the grind."

If Miller doesn't have time to celebrate, Value Trust investors certainly do.

A $10,000 investment socked away in the fund over the past five years with dividends reinvested is worth $40,083, compared with the $29,372 the S&P; 500 returned. That $10,000 is worth $244,852 since the fund's inception in 1982.

As a result of the success, Value Trust's assets have exploded to $8.3 billion, more than double the $3.8 billion when 1998 began.

Christine Benz, the equity fund analyst at Morningstar, who recommended Miller as a candidate, said he was selected because of Value Trust's "tremendous long-term record." The fund has beaten the S&P; 500 for eight consecutive years under Miller's direction.

"That is really an unbeatable feat," she said.

In addition to naming Miller the domestic fund manager of the year, Morningstar selected two other mutual fund managers for awards in their discipline. They are William H. Gross, who oversees PIMCo's Total Return and Low Duration funds, named the fixed-income manager of the year; and Mark Yockey, who manages the Artisan International fund, named international equity manager of the year.

Miller has distinguished himself by sticking to a style that invests in companies that are in trouble, with the expectation that their prices will rise. He has been greatly influenced by investment guru Warren Buffett, who is known for buying quality stocks and holding them for years.

Miller's strategy is similar in that the average stock in his portfolio has been there for five years. Many mutual fund managers add and get rid of stocks in their portfolio more quickly than Miller.

But what truly sets him apart from the crowd is his ability to consistently pick the winners.

"We are trying to value businesses, and many people are trying to value stocks," Miller said.

One of his biggest hits has been America Online Inc., which he bought about three years ago for $10 a share adjusting for splits. The stock closed yesterday at $147.875.

Shortly after he began buying AOL in mid-1996, he picked off Dell Computer Corp. for about $2 a share split-adjusted, and it has jumped to $78.1875.

When the market plunged last fall, Miller scooped up banking stocks, such as Citigroup, Chase Manhattan and BankAmerica Corp., at greatly reduced prices.

"He is an outstanding investor," said Raymond A. "Chip" Mason, the Baltimore-based company's chairman and chief executive, who was the first investor in Value Trust. "He has an extremely good sense of the market and where the market is going, and an even better sense of what stocks to own."

Mason acknowledges that Miller, who has completed all course work for a doctorate in philosophy, wasn't the typical hire because of his background.

"We are obviously thrilled to have him," Mason said.

Miller's life revolves around his job. He works seven days a week, and lugs home a briefcase packed with annual reports and financial analyses. He has little time for hobbies, but does have a parrot, a dog and two cats, which a colleague assures him is good luck.

Miller hopes his colleague is right, so he can fend off the Morningstar curse.

"I hope I'm in his shoes next year," said T. Rowe's Rogers. But "I can see how he would be worried about that. You can't look backward. You have to keep going."

Pub Date: 1/08/99

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