As filed with the Securities and Exchange Commission on August 14, 1998.
1933 Act File No.
1940 Act File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No:
LEGG MASON LIGHT STREET TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
100 Light Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
ARTHUR J. BROWN, ESQ.
CHARLES A. BACIGALUPO STEPHANIE L. BOURQUE, ESQ.
100 Light Street Kirkpatrick & Lockhart LLP
Baltimore, Maryland 21202 1800 Massachusetts Ave., N.W.
(Name and Address of Second Floor
Agent for Service) Washington, D.C. 20036-1800
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends the Registration Statement under the Securities Act of
1933 on such date or dates as may be necessary to delay its effective date until
Registrant shall file a further amendment that specifically states that such
Registration Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), shall determine.
<PAGE>
Legg Mason Light Street Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Legg Mason Market Neutral Trust - Primary Shares
Navigator Market Neutral Trust
Part B - Statement of Additional Information
Legg Mason Market Neutral Trust
Primary Shares and Navigator Shares
Part C -Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Light Street Trust, Inc.:
Legg Mason Market Neutral Trust (Primary Shares)
Form N-1A Cross Reference Sheet
-------------------------------
Part A Item No. Prospectus Caption
- --------------- ------------------
1 Cover Page
2 Prospectus Highlights; Expenses
3 Performance Information
4 Investment Objective and Policies; Description of the
Corporation and Its Shares
5 Expenses; The Fund's Management and Investment
Adviser; The Fund's Distributor
6 Prospectus Highlights; Dividends and Other
Distributions; Shareholder Services; Tax Treatment of
Dividends and Other Distributions; How Your
Shareholder Account Is Maintained; Description of the
Corporation and Its Shares
7 How You Can Invest In the Fund; How Your Shareholder
Account is Maintained; How Net Asset Value Is
Determined; The Fund's Distributor
8 How You Can Redeem Your Primary Shares
9 Not Applicable
<PAGE>
Legg Mason Light Street Trust, Inc.:
Navigator Market Neutral Trust
Form N-1A Cross Reference Sheet
-------------------------------
Part A Item No. Prospectus Caption
- --------------- ------------------
1 Cover Page
2 Expenses
3 Performance Information
4 Investment Objective and Policies; Description of the
Corporation and its Shares
5 Expenses; The Fund's Management and Investment
Adviser; The Fund's Distributor
6 Dividends and Other Distributions; Shareholder
Services; Tax Treatment of Dividends and Other
Distributions; How Your Shareholder Account Is
Maintained; Description of the Corporation and Its
Shares
7 How To Purchase and Redeem Shares; How Your
Shareholder Account Is Maintained; How Net Asset
Value Is Determined; The Fund's Distributor
8 How To Purchase and Redeem Shares
9 Not Applicable
<PAGE>
Legg Mason Light Trust, Inc.:
Legg Mason Market Neutral Trust
Primary Shares and Navigator Shares
Form N-1A Cross Reference Sheet
-------------------------------
Statement of Additional
Part B Item No. Information Caption
- --------------- -----------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About Investment Limitations
and Policies; Portfolio Transactions and Brokerage
14 The Corporation's Directors and Officers
15 The Corporation's Directors and Officers
16 The Fund's Investment Adviser/Manager; The Fund's
Distributor; The Corporation's Directors and
Officers; The Fund's Independent Accountants; The
Fund's Legal Counsel; The Fund's Custodian and
Transfer and Dividend - Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Not Applicable
19 Valuation of Fund Shares; Additional Purchase and
Redemption Information
20 Additional Tax Information; Tax-Deferred Retirement
Plans
21 Portfolio Transactions and Brokerage; The Fund's
Distributor; The Fund's Custodian and Transfer and
Dividend - Disbursing Agent
22 Performance Information
23 Financial Statements
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 3
Performance Information 4
Investment Objective and Policies 5
How You Can Invest in the Fund 7
How Your Shareholder Account is Maintained 8
How You Can Redeem Your Primary Shares 9
How Net Asset Value is Determined 10
Dividends and Other Distributions 10
Tax Treatment of Dividends and Other Distributions 11
Shareholder Services 12
The Fund's Management and Investment Adviser 12
The Fund's Distributor 14
Description of the Corporation and its Shares 14
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
INDEPENDENT ACCOUNTANTS:
PricewaterhouseCoopers LLP
250 W. Pratt Street, Baltimore, Maryland 21201
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
LMF-001
LEGG MASON
MARKET NEUTRAL TRUST
A SERIES OF
LEGG MASON
LIGHT STREET
TRUST, INC.
PRIMARY SHARES
THE ART OF INVESTING
PROSPECTUS
, 1998
[LEGG MASON FUNDS LOGO HERE]
<PAGE>
LEGG MASON LIGHT STREET TRUST, INC. -- PRIMARY SHARES
LEGG MASON MARKET NEUTRAL TRUST
The Legg Mason Market Neutral Trust ("Market Neutral" or "Fund") is a
professionally managed portfolio seeking long-term capital appreciation
while minimizing exposure to general U.S. equity market volatility.
Batterymarch Financial Management, Inc. ("Batterymarch" or "Adviser"), the
Fund's investment adviser, will seek to achieve this objective primarily by
purchasing equity securities that it believes to be undervalued, selling
short equity securities that it believes to be overvalued, and coordinating
the establishment of long and short positions in an effort to keep the
portfolio neutral to general U.S. equity market volatility. There can be no
assurance that the Fund will achieve its objective.
This Prospectus sets forth concisely the information about the
fund that a prospective investor ought to know before investing. It
should be read and retained for future reference. A Statement of
Additional Information about the fund dated , 1998 has been
filed with the Securities and Exchange Commission ("SEC") and, as
amended or supplemented from time to time, is incorporated herein by
reference. The Statement of Additional Information is available
without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers
listed below).
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE
NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
, 1998
Legg Mason Wood Walker, Incorporated
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus and in the Statement
of Additional Information.
Market Neutral's objective is long-term capital appreciation while
minimizing exposure to general U.S. equity market volatility. Market
Neutral is a separate series of Legg Mason Light Street Trust, Inc.
("Corporation"), a diversified, open-end management investment company.
Batterymarch will seek to achieve this objective primarily by purchasing
equity securities that it believes to be undervalued, selling short equity
securities that it believes to be overvalued, and coordinating the
establishment of long and short positions in an effort to keep the
portfolio neutral to general U.S. equity market volatility. There can be no
assurance that the Fund will achieve its objective. See "Investment
Objective and Policies, which also includes a discussion of risks.
Shares of the Fund may be appropriate for investments by Individual
Retirement Accounts, Simplified Employee Pension Plans, Savings Incentive
Match Plans for Employees and other tax-qualified retirement plans
(collectively referred to as "Retirement Plans").
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
INVESTMENT MANAGER:
Legg Mason Fund Adviser, Inc. ("LMFA")
INVESTMENT ADVISER:
Batterymarch Financial Management, Inc.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. There is a $1,000
minimum, generally, for initial purchases, and a $100 minimum, generally,
for subsequent purchases. Lower minimums for initial and subsequent
purchases apply for automatic investments. See "How You Can Invest in the
Fund."
REDEMPTION METHODS:
Redeem by calling your financial advisor or service provider, or
redeem by mail. See "How You Can Redeem Your Primary Shares."
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege."
DIVIDENDS:
Declared and paid quarterly. See "Dividends and Other Distributions."
REINVESTMENT:
All dividends and other distributions are automatically reinvested in
Primary Shares unless cash payments are requested.
2
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Primary
Shares of the Fund will bear directly or indirectly. The expenses and fees
set forth below are based on estimates for the current fiscal year, and
fees are adjusted for current expense limits and fee waiver levels.
ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 1.20%(A)
12b-1 fees 1.00%
Other expenses 0.80%
----
Total operating expenses 3.00%(A)
----
---------------------
(A) After fee waivers. LMFA and Legg Mason have voluntarily agreed to
waive management and 12b-1 fees to the extent necessary to limit the
Fund's total operating expenses relating to Primary Shares (exclusive
of taxes, brokerage commissions, interest and extraordinary expenses)
to 3.00% of the Fund's average daily net assets attributable to
Primary Shares until July 31, 1999. In the absence of such waivers,
the management fee, 12b-1 fee, estimated other expenses and estimated
total operating expenses relating to Primary Shares would have been
1.90%, 1.00%, 0.80% and 3.70% of average net assets.
Because the Fund pays 12b-1 fees with respect to Primary Shares,
long-term investors in Primary Shares may pay more in distribution
expenses than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
("NASD"). For further information concerning the Fund's expenses, please
see "The Fund's Management and Investment Adviser" and "The Fund's
Distributor."
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1)
a 5% annual rate of return and (2) redemption at the end of each time
period. The Fund charges no redemption fees of any kind.
1 YEAR 3 YEARS
-------------------
$30 $93
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same over the time periods shown. The above
table and the assumption in the example of a 5% annual return are required
by regulations of the SEC applicable to all mutual funds. THE ASSUMED 5%
ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT THE PROJECTED
OR ACTUAL PERFORMANCE OF, PRIMARY SHARES OF THE FUND. THE ABOVE TABLE AND
EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
actual expenses attributable to Primary Shares will depend upon, among
other things, the level of average net assets, the levels of sales and
redemptions of shares, the extent to which LMFA and/or Legg Mason waive
their fees and the extent to which Primary Shares incur variable expenses,
such as transfer agency costs.
3
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may quote the TOTAL RETURN of a class of
shares in advertisements or in reports or other communications to
shareholders. A mutual fund's total return is a measurement of the overall
change in value of an investment in the fund, including changes in share
price and assuming reinvestment of dividends and other distributions.
CUMULATIVE TOTAL RETURN shows the fund's performance over a specific
period of time. AVERAGE ANNUAL TOTAL RETURN is the average annual
compounded return that would have produced the same cumulative total
return if the fund's performance had been constant over the entire period.
Average annual returns, which differ from actual year-to-year results,
tend to smooth out variations in a fund's returns. No adjustment has been
made for any income taxes payable by shareholders.
The investment return and principal value of an investment in the Fund
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Performance figures reflect past performance only and are not intended
to and do not indicate future performance.
Although U.S. equity funds have grown significantly in recent years,
the average long-term growth of general equity funds as reported by Lipper
Analytical Services, Inc. over the last 25 years has been 13.2%, and some
years have shown a net decline in value.
--------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective may not be changed without shareholder
approval; however, except as otherwise noted, the investment policies of
the Fund described below may be changed by the Fund's Board of Directors
without a shareholder vote. There can be no assurance that the Fund will
achieve its investment objective.
MARKET NEUTRAL'S objective is long-term capital appreciation while
minimizing exposure to general U.S. equity market volatility. Batterymarch
will seek to achieve this objective primarily by purchasing equity
securities that it believes to be undervalued, selling short equity
securities that it believes to be overvalued, and coordinating the
establishment of long and short positions in an effort to keep the
portfolio neutral to general U.S. equity market volatility. The portfolio
will be highly diversified and represent a broad sector of the market.
Certain characteristics of the long positions as a whole (e.g., industry
sector weighting, market capitalization, and dollar amounts) are expected
to match the characteristics of the short positions as a whole.
Accordingly, when the overall U.S. equity market declines, the value of
the Fund would not be expected to decline unless its long and short
positions behaved in a manner inconsistent with the expectation
Batterymarch had for the relative movement of each. Similarly, the value
of the Fund would not be expected to advance solely because the overall
U.S. equity market advances; the Fund will advance if the stocks it holds
long outperform the stocks it has sold short. For these purposes, the U.S.
equity market consists of those equity securities listed on the New York
Stock Exchange, the American Stock Exchange or NASDAQ.
To meet margin requirements or redemptions, or pending investment, the
Fund may also hold a portion of its assets in cash or short-term
investments, including money market instruments.
Proceeds from the Fund's short sales of equity securities will earn
interest at a rate approximately equal to that of a 3-month U.S. Treasury
bill ("T-bill"). The interest will contribute to the Fund's return.
Although the Fund uses the T-bill as a benchmark, an investment in the
Fund differs in most respects from an investment in a T-bill because
T-bills, unlike the Fund, are backed by the full faith and credit of the
United States, have a fixed rate of return and a short duration, and have
no risk of losing capital and little or no potential for appreciation.
4
<PAGE>
TYPES OF INVESTMENTS AND ASSOCIATED RISKS:
STOCK SELECTION
In an attempt to neutralize market risk, the Fund's portfolio will
contain both long and short equity positions, with long positions
generally matched to short positions within the same industry sector, in
approximately equal dollar balance. Batterymarch will select portfolio
securities based upon Batterymarch's multifactor stock selection model,
which encompasses both quantitative and qualitative approaches and
includes analysis of cash flow, earnings growth expectations, value and
corporate signals. The stock selection model will be run frequently,
ranking each stock in the investable universe of approximately 2,000
liquid stocks, in order to re-evaluate the long and short components of
the portfolio, each of which consists of approximately 150 stocks.
INVESTMENT RISKS
The Fund is newly organized and has no operating history prior to the
date of this Prospectus. An investment in the Fund is subject to the risk
that the stock selection model will fail to consider appropriately those
factors that influence the Fund's exposure to market risk. In addition,
even if the stock selection model properly considers the appropriate
factors, Batterymarch may fail to establish or maintain long and short
positions that have matching market characteristics (e.g., industry sector
weighting, market capitalization and dollar amounts). To the extent that
the market characteristics of the long and short positions do not match,
the Fund will not be neutral to general U.S. equity market volatility, the
Fund's positions will become speculative in nature, and the Fund's losses
may exceed those of other mutual Funds. See "Short Sales," below.
An investment in the Fund is also subject to the risk of poor stock
selection by Batterymarch. For example, the stocks that Batterymarch buys
may not outperform stocks that Batterymarch sells short, and thereby the
Fund would not be successful in achieving its objective. Further, since
Batterymarch will manage both long and short positions in approximately
equal dollar balance, it is possible that the Fund's equity securities
held long may decline in value at the same time the value of its equity
securities sold short increases, thereby increasing the Fund's potential
for loss. In such a case, the Fund's losses may exceed those of other
mutual funds.
The Fund will be different from many other funds, and will bear
different risks, in that it will maintain substantial short positions in
equity securities and will have high turnover of both its long and short
positions, as described below.
SHORT SALES
The Fund, as noted above, expects to sell securities short in order to
fulfill the Fund's objective. When Batterymarch concludes that a security
is overvalued, it may sell the security short and borrow the same security
from a broker or other institution to complete the sale. The Fund will
incur a loss as a result of a short sale if the price of the borrowed
security increases between the date of the short sale and the date on
which the Fund terminates or closes out its short position by buying the
same security. The Fund will realize a gain if the security declines in
price between those dates. There can be no assurance that the Fund will be
able to close out a short position at an acceptable time or price. The
values of the Fund's short positions, in the aggregate, are expected to
equal the values of its long positions in equity securities. It will not
make a short sale if, after giving effect to such sale, the market value
of all securities sold short exceeds 100% of the Fund's net assets.
There also is a risk that a borrowed security will need to be returned
to the broker or other institution on short notice. If the request for the
return of securities occurs at a time when other short sellers of the
security are receiving similar requests, a "short squeeze" can occur,
meaning that the Fund might be compelled, at the most disadvantageous
time, to replace the borrowed security with a security purchased on the
open market, possibly at prices significantly in excess of the proceeds
received earlier. Further, because the Fund will attempt to remain market
neutral, if the Fund must close out a short position at a time or price
not of its choosing, it may also have to sell a corresponding long
position at an unfavorable time or price in order to maintain market
neutrality.
Until the Fund replaces a borrowed security, it will maintain a
segregated account with its custodian containing cash and
5
<PAGE>
liquid securities such that the amount deposited in the account plus any
amount deposited with a broker as collateral will at least equal the
current market value of the security sold short. Depending on arrangements
made with the broker or custodian, the Fund might not receive any payments
(including interest) on collateral deposited with the broker or custodian.
Rule 10a-1 under the Securities Exchange Act of 1934 ("Rule 10a-1")
provides that exchange-traded shares can be sold short only at a price
that is higher than the last trade or the same as the last trade price if
that price is higher than the previous price. The requirements of Rule
10a-1 can delay, or in some cases prevent, execution of short sales,
resulting in opportunity costs and increased exposure to market action.
While it is Batterymarch's intention to maintain approximately equal
dollar investments in the long and short components of its portfolio,
market circumstances and Rule 10a-1 may prevent it from doing so from time
to time. Batterymarch will generally attempt to execute short sales before
taking offsetting long positions in order to reduce the risk of unequal
long and short exposure.
Possible losses from short sales differ from losses that could be
incurred from a purchase of securities; losses from short sales may be
unlimited, whereas losses from purchases of securities cannot exceed the
total amount invested.
Until the Fund replaces a borrowed security, the Fund is required to
repay the lender any dividends or interest that accrue during the period
of the loan. To borrow the security, the Fund also may be required to pay
a premium. The net proceeds of the short sale will be retained by the
broker (or by the Fund's custodian in a special custody account) to the
extent necessary to meet margin requirements, until the short position is
closed out. The Fund also will incur transaction costs in effecting short
sales.
PORTFOLIO TURNOVER
The portfolio will likely experience very substantial turnover of
securities and Batterymarch will not consider turnover in making its
investment decisions. The rate of the Fund's portfolio turnover may vary
significantly from time to time depending on economic and market
volatility. Although the rate of portfolio turnover is difficult to
predict, it is anticipated that under normal circumstances the annual
portfolio turnover rate of the long and short components of the portfolio
will each average from 500% to 700% per year. High portfolio turnover
involves correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund. High turnover
could also involve an increased likelihood that the Fund will realize
capital gains that are taxable when distributed to shareholders. To the
extent that high portfolio turnover results in the realization of net
short-term capital gains (that is, gains from positions held for not more
than one year), distributions of those gains are taxed to shareholders at
ordinary income tax rates rather than at more favorable long-term capital
gain tax rates. It is anticipated that the Fund's capital gains, if any,
will be short-term and therefore taxed at ordinary income tax rates when
distributed to shareholders.
ADRS
The Fund may invest in U.S. dollar-denominated American Depositary
Receipts ("ADRs"), which are bought and sold in the United States and are
issued by domestic banks. ADRs represent the right to receive securities
of foreign issuers deposited in the domestic bank or a correspondent bank.
By investing in ADRs rather than directly in a foreign issuer's stock, the
Fund may avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the
United States for ADRs. The Fund has no current intention to invest in
unsponsored ADRs.
OTHER
When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest without limit in repurchase agreements and
money market instruments, including high-quality short-term debt
securities.
INVESTMENT LIMITATIONS
The Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or (2) 67% or more
of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the
6
<PAGE>
Statement of Additional Information under "Additional Information About
Investment Limitations and Policies." Fund policies, unless described as
fundamental, can be changed by action of its Board of Directors.
The fundamental restrictions applicable to the Fund include a
prohibition on investing 25% or more of its total assets in the securities
of issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
with respect thereto).
HOW YOU CAN INVEST IN THE FUND
You may purchase Primary Shares of the Fund through a brokerage
account with Legg Mason, with an affiliate that has an agreement with Legg
Mason, or with an unaffiliated entity having an agreement with Legg Mason
("Financial Advisor or Service Provider"). Your Financial Advisor or
Service Provider will be pleased to explain the shareholder services
available from the Fund and answer any questions you may have. Documents
available from your Financial Advisor or Service Provider should be
completed if you invest in shares of the Fund through a Retirement Plan.
Investors who are considering establishing a Retirement Plan may wish
to consult their attorneys or tax advisers with respect to individual tax
questions. Your Financial Advisor or Service Provider can make available
to you forms of plans. The option of investing in these plans through
regular payroll deductions may be arranged with Legg Mason and your
employer. Additional information with respect to these plans is available
upon request from a Financial Advisor or Service Provider.
Clients of certain institutions that maintain omnibus accounts with
the Fund's transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Fund's distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.
The minimum initial investment in Primary Shares for a Fund account,
including investments made by exchange from other Legg Mason funds and
investments in a Retirement Plan, is $1,000, and the minimum investment
for each purchase of additional shares is $100, except as noted below. For
those investing through the Fund's Future First Systematic Investment
Plan, payroll deduction plans and plans involving automatic payment of
funds from financial institutions or automatic investment of dividends
from certain unit investment trusts, minimum initial and subsequent
investments are lower. The Fund may change these minimum amount
requirements at its discretion.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares of the Fund:
1. THROUGH A FINANCIAL ADVISOR OR SERVICE PROVIDER
Shares may be purchased through a Financial Advisor or Service
Provider. A Financial Advisor or Service Provider will be pleased to open
an account for you, explain to you the shareholder services available from
the Fund and answer any questions you may have. After you have established
an account, you can order shares from your Financial Advisor or Service
Provider in person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Fund of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Fund's transfer agent, to transfer funds each month from
your Legg Mason account or from your checking account. Please contact a
Financial Advisor or Service Provider for further information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition,
7
<PAGE>
it may be possible for dividends from certain unit investment trusts to be
invested automatically in shares. Persons interested in establishing such
automatic investment programs should contact the Fund through a Financial
Advisor or Service Provider.
Primary Share purchases will be processed at the net asset value next
determined after your Financial Advisor or Service Provider has received
your order; payment must be made within three business days to Legg Mason.
Orders received by your Financial Advisor or Service Provider before the
close of regular trading on the New York Stock Exchange ("Exchange")
(normally 4:00 p.m. Eastern time) ("close of the Exchange") on any day the
Exchange is open will be executed at the net asset value determined as of
the close of the Exchange on that day. Orders received by your Financial
Advisor or Service Provider after the close of the Exchange or on days the
Exchange is closed will be executed at the net asset value determined as
of the close of the Exchange on the next day the Exchange is open. See
"How Net Asset Value is Determined." The Fund reserves the right to reject
any order for its shares or to suspend the offering of shares for a period
of time. Some Service Providers may place other conditions on the purchase
of shares. Consult their program literature for further information.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or receipt. Shares may not be held in, or
transferred to, an account with any brokerage firm that does not have an
agreement with Legg Mason. The Fund does not issue share certificates.
HOW YOU CAN REDEEM YOUR PRIMARY SHARES
There are two ways you can redeem your Primary Shares. First, you may
give your Financial Advisor or Service Provider an order for redemption of
your shares in person or by telephone. Please have the following
information ready when you call: the name of the Fund, the number of
shares (or dollar amount) to be redeemed and your shareholder account
number. Second, you may send a written request for redemption to: Legg
Mason Market Neutral Trust, c/o Legg Mason Funds Processing, P.O. Box
1476, Baltimore, Maryland 21203-1476.
Requests for redemption received by your Financial Advisor or Service
Provider before the close of the Exchange on any day when the Exchange is
open, will be transmitted to BFDS, transfer agent for the Fund, for
redemption at the net asset value per share determined as of the close of
the Exchange on that day. Requests for redemption received by your
Financial Advisor or Service Provider after the close of the Exchange will
be executed at the net asset value determined as of the close of the
Exchange on its next trading day. A redemption request received by your
Financial Advisor or Service Provider may be treated as a request for
repurchase and, if it is accepted, your shares will be purchased at the
net asset value per share determined as of the next close of the Exchange.
Proceeds from your redemption will settle in your brokerage account
two business days after trade date. The proceeds of your redemption or
repurchase may be more or less than your original cost. If the shares to
be redeemed or repurchased were paid for by check (including certified or
cashier's checks), within 10 business days of the redemption or repurchase
request, the proceeds will not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
Written requests for redemption must be in "good order." A redemption
request will be considered to be received in "good order" only if:
1. You have indicated in writing the number of Primary Shares (or
dollar amount) to be redeemed, the complete Fund name and your shareholder
account number;
8
<PAGE>
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of shares, contact your Financial
Advisor or Service Provider.
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Fund may request identifying
information from callers or employ identification numbers. The Fund may be
liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their Financial Advisor or Service Provider for
further instructions.
Because of the relatively high cost of maintaining small accounts, the
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
you. However, the Fund will not redeem accounts that fall below $500
solely as a result of a reduction in net asset value per share. If the
Fund elects to redeem the shares in your account, you will be notified
that your account is below $500 and will be allowed 60 days to make an
additional investment to avoid having your account closed.
To the extent permitted by law, the Fund reserves the right to take up
to seven days to make payment upon redemption if, in the judgment of the
Adviser, it could be adversely affected by immediate payment. (The
Statement of Additional Information describes several other circumstances
in which the date of payment may be postponed or the right of redemption
suspended.) Some Service Providers may have other procedures for
redemption, either in addition to or instead of those described above.
Consult your Service Provider's literature for more information.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Primary Share of the Fund is determined daily as
of the close of the Exchange, on every day that the Exchange is open, by
subtracting the liabilities attributable to Primary Shares from the total
assets attributable to such shares and dividing the result by the number
of Primary Shares outstanding. Securities owned by the Fund or sold short
by the Fund for which market quotations are readily available are valued
at current market value. In the absence of readily available market
quotations, securities are valued at fair value as determined by the
Fund's Board of Directors. Where a security is traded on more than one
market, which may include foreign markets, the securities are generally
valued on the market considered by the Adviser to be the primary market.
Securities with remaining maturities of 60 days or less are valued at
amortized cost.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund declares dividends to holders of Primary Shares out of its
investment company taxable income (which generally consists of net
investment income and any net short-term capital gain) quarterly.
Dividends from any net short-term capital gains are paid annually. The
Fund also distributes substantially all of its net capital gain (the
excess of net long-term capital gain over net short-term capital loss)
after the end of the taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of the excise tax described
9
<PAGE>
under the heading "Additional Tax Information" in the Statement of
Additional Information. Dividends and other distributions, if any, on
Primary Shares held in a Retirement Plan and by shareholders maintaining a
Systematic Withdrawal Plan generally are reinvested in Primary Shares of
the Fund on the payment dates. Other shareholders may elect to:
1. Receive both dividends and other distributions in Primary Shares of
the Fund;
2. Receive dividends in cash and other distributions in Primary Shares
of the Fund;
3. Receive dividends in Primary Shares of the Fund and other
distributions in cash; or
4. Receive both dividends and other distributions in cash.
If a shareholder has elected to receive dividends and/or other
distributions in cash and the postal or other delivery service is unable
to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to
having all dividends and other distributions reinvested in additional
Primary Shares. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
In certain cases, shareholders may reinvest dividends and other
distributions in the corresponding class of shares of another Legg Mason
fund. Please contact your Financial Advisor or Service Provider for
additional information about this option.
If no election is made, both dividends and other distributions are
credited to your Fund account in Primary Shares at the net asset value of
the shares determined as of the close of the Exchange on the reinvestment
date. Shares received pursuant to any of the first three (reinvestment)
elections above also are credited to your account at that net asset value.
Shareholders electing to receive dividends and/or other distributions in
cash will be sent a check or will have their Legg Mason account credited
after the payment date. You may elect at any time to change your option by
notifying the Fund in writing at: Legg Mason Market Neutral Trust, c/o
Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476. Your election must be received at least 10 days before the
record date in order to be effective for dividends and other distributions
paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to qualify for treatment as a regulated investment
company under the Internal Revenue Code of 1986, as amended, so that it
will be relieved of federal income tax on that part of its investment
company taxable income and net capital gain that it distributes to its
shareholders.
Dividends from the Fund's investment company taxable income (whether
paid in cash or reinvested in Primary Shares) are taxable to its
shareholders (other than Retirement Plans and other tax-deferred or
tax-exempt investors) as ordinary income to the extent of the Fund's
earnings and profits. Distributions of the Fund's net capital gain
(whether paid in cash or reinvested in Primary Shares), when designated as
such, are taxable to those shareholders as long-term capital gain,
regardless of how long they have held their Fund shares. The maximum tax
rate applicable to a noncorporate taxpayer's net capital gain recognized
on capital assets held for more than one year is 20% (10% for taxpayers in
the 15% marginal tax bracket). In the case of a regulated investment
company such as the Fund, the relevant holding period is determined by how
long the Fund has held the portfolio security on which the gain was
realized, not by how long you have held your Fund shares. See the
discussion of portfolio turnover and tax consequences on page 6.
The Fund will send its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. The notice
will tell you what portion of the capital gain distributions falls into
each of the different tax rate categories mentioned above.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and
certain other noncorporate shareholders who do not
10
<PAGE>
provide the Fund with a certified taxpayer identification number. The Fund
also is required to withhold 31% of all dividends and capital gain
distributions payable to such shareholders who otherwise are subject to
backup withholding.
A redemption of Primary Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Primary Shares for shares of any other Legg Mason
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege." If Fund shares are purchased within 30
days before or after redeeming at a loss other shares of the same Fund
(regardless of class), all or part of that loss will not be deductible and
instead will increase the basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Primary Shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur tax
liabilities and should not be made solely for the purpose of receiving the
dividend or other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, you may also be subject to state, local or foreign
taxes on distributions from the Fund, depending on the laws of your home
state and locality. Prospective shareholders are urged to consult their
tax advisers with respect to the effects of this investment on their own
tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends, capital gain
distributions and shares purchased through the Future First Systematic
Investment Plan or through automatic investments).
An account statement will be sent to you monthly unless there has been
no activity in the account or you are purchasing shares only through the
Future First Systematic Investment Plan or through automatic investments,
in which case an account statement will be sent quarterly. Reports will be
sent to each Fund's shareholders at least semiannually showing its
portfolio and other information; the annual report for the Fund will
contain financial statements audited by its independent accountants.
Shareholder inquiries should be addressed to: Legg Mason Market
Neutral Trust, c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of the Fund while they are participating in the Systematic
Withdrawal Plan. Please contact your Financial Advisor or Service Provider
for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares for Primary Shares of any of the Legg Mason funds, provided that
such shares are eligible for sale in your state of residence.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by
11
<PAGE>
exchange from a fund on which the same or higher initial sales charge
previously was paid.
There is no charge for the exchange privilege, but the Fund reserves
the right to terminate or limit the exchange privilege of any shareholder
who makes more than four exchanges from the Fund in one calendar year. To
obtain further information concerning the exchange privilege and
prospectuses of other Legg Mason funds, or to make an exchange, please
contact your Financial Advisor or Service Provider.
To effect an exchange by telephone, please call your Financial Advisor
or Service Provider with the information described in "How You Can Redeem
Your Primary Shares." The other factors relating to telephone redemptions
described in that section apply also to telephone exchanges. Please read
the prospectus for the other fund(s) carefully before you invest by
exchange. The Fund reserves the right to modify or terminate the exchange
privilege upon 60 days' notice to shareholders. Some Service Providers may
not offer all of the Legg Mason funds for exchange.
THE FUND'S MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction
of its Board of Directors.
MANAGEMENT AGREEMENT
The Fund has a management agreement with LMFA which was approved by
the Fund's Board of Directors ("Management Agreement"). Under the
Management Agreement, LMFA is obligated to provide the Fund with
investment management and administrative services, and to oversee the
Fund's relationships with outside service providers, such as the
custodian, transfer agent, accountants, and lawyers.
For services under the Management Agreement, LMFA receives a fee from
the Fund, calculated daily and payable monthly, at an annual rate of 1.90%
of its average daily net assets.
ADVISORY AGREEMENT
LMFA has entered into an investment advisory agreement with
Batterymarch to provide investment advisory services to the Fund. Battery-
march has the responsibility for making all investment decisions and
placing all orders to buy or sell a particular security.
Under its Advisory Agreement, Batterymarch receives an advisory fee
from LMFA, computed daily and paid monthly, at an annual rate equal to
78.9% of the fee received by LMFA, or 1.50% of the Fund's average daily
net assets, adjusted for any fee waivers, as discussed below.
FEE WAIVERS
LMFA has agreed to waive its fees in any month to the extent the
Fund's expenses related to Primary Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during that month an annual
rate of 3.00% of average daily net assets attributable to Primary Shares
until July 31, 1999.
This agreement is voluntary and may be terminated by LMFA at any time.
The Fund pays all its other expenses which are not assumed by LMFA.
PRIMARY SHARES EXPENSE RATIO
As of the date of this Prospectus, the Fund has not yet begun
operations. In addition to management and distribution fees, the Fund will
be responsible for interest, taxes, brokerage fees and commissions,
expenses of preparing and printing prospectuses, statements of additional
information, proxy statements and reports to shareholders and of
distributing them to existing shareholders, custodian charges, transfer
agency fees, organizational expenses, compensation of the independent
directors, legal and audit expenses, insurance expenses, shareholder
meetings, proxy solicitations, expenses of registering and qualifying Fund
shares for sale under federal and state law, governmental fees and
expenses incurred in connection with industry organizations.
LMFA
LMFA acts as adviser or manager to eighteen investment company
portfolios which had aggregate assets under management of approximately
12
<PAGE>
$ billion as of June 30, 1998. LMFA's address is 100 Light Street,
Baltimore, Maryland 21202.
BATTERYMARCH
Batterymarch acts as investment adviser to institutional accounts,
such as corporate pension plans, mutual funds and endowment funds, as well
as to individual investors. Batterymarch's aggregate assets under
management totalled approximately $ billion as of June 30, 1998.
Batterymarch's address is 200 Clarendon Street, Boston, Massachusetts
02116.
LMFA and Batterymarch are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
PORTFOLIO MANAGEMENT
Batterymarch investment teams are responsible for the day-to-day
management of the Fund.
BROKERAGE
The Fund may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
YEAR 2000
Like other mutual funds and other financial and business organizations
around the world, the Fund could be adversely affected if the computer
systems used by LMFA, other service providers and entities with computer
systems that are linked to Fund records do not accurately process and
calculate date sensitive information after January 1, 2000. This is
commonly referred to as the "Year 2000 Issue." Calculating net asset
value, redeeming shares, delivering account statements and providing other
information to shareholders are all functions that are performed by
computer. LMFA is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems it uses
and to obtain satisfactory assurances that the Fund's other major service
providers will continue to provide services without interruption. However,
there can be no certainty that these steps will be sufficient to avoid any
adverse impact on the Fund.
The companies in which the Fund invests also could be adversely
affected by the Year 2000 Issue. While many companies are taking steps to
address the Year 2000 Issue, there can be no assurance that these steps
will be sufficient to avoid adverse impact. LMFA endeavors to obtain
information on this problem, but it is difficult to assess accuracy or
completeness, or potential impact on portfolio companies if their
suppliers suffer from the problem.
THE FUND'S DISTRIBUTOR
Legg Mason, a wholly owned subsidiary of Legg Mason, Inc., is the
distributor of the Fund's shares pursuant to an Underwriting Agreement
with the Fund. The Underwriting Agreement obligates Legg Mason to pay
certain expenses in connection with the offering of shares, including any
compensation to its financial advisors, the printing and distribution of
prospectuses, statements of additional information and periodic reports
used in connection with the offering to prospective investors, after the
prospectuses, statements of additional information and reports have been
prepared, set in type and mailed to existing shareholders at the Fund's
expense, and for any supplementary sales literature and advertising costs.
Legg Mason has an agreement with the Fund's transfer agent to assist
it with some of its duties. Legg Mason will be paid by the transfer agent
for this service.
The Board of Directors of the Fund has adopted a Distribution and
Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"). The Plan provides that as
compensation for its ongoing services to investors in Primary Shares and
its activities and expenses related to the sale and distribution of
Primary Shares, Legg Mason receives from the Fund an annual distribution
fee payable from the assets attributable to Primary Shares, of up to 0.75%
of the average daily net assets attributable to Primary Shares; and an
annual service fee equal to 0.25% of the average daily net assets
attributable to Primary Shares of the Fund. The distribution fee and
service fee are calculated daily and paid monthly. The fees received by
Legg Mason during any year may be more or less than its cost of providing
distribution and shareholder services for Primary Shares. Legg Mason has
agreed to waive distribution fees in any month to the extent the Fund's
expenses related to Primary Shares (exclusive of taxes, interest,
brokerage costs and extraordinary expenses) exceed an annual rate of 3.00%
of its average daily net assets attributable to Primary Shares until July
31, 1999.
NASD rules limit the amount of annual distribution and service fees
that may be paid by mutual funds and impose a ceiling on the cumulative
distribution fees received. The Fund's Plan complies with those rules.
Legg Mason may enter into agreements with unaffiliated dealers to sell
Primary Shares of the Fund. Legg Mason pays such dealers up to 90% of
13
<PAGE>
the distribution and shareholder service fees that it receives from the
Fund with respect to shares sold by the dealers.
The President and Treasurer of the Fund are employed by Legg Mason.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
The Corporation was established as a Maryland corporation on August 5,
1998. The Articles of Incorporation of the Corporation authorize issuance
of 450 million shares of par value $.001 per share of the Fund. The
Corporation may issue additional series of shares. The Fund currently
offers two Classes of Shares -- Class A (known as "Primary Shares") and
Class Y (known as "Navigator Shares"). The two Classes represent interests
in the same pool of assets. A separate vote is taken by a Class of Shares
of the Fund if a matter affects just that Class of Shares. Each Class of
Shares may bear certain differing Class-specific expenses and sales
charges, which may affect performance.
Investors may obtain more information concerning the Navigator Class
from their financial advisor or any person making available to them shares
of the Primary Class, or by calling 1-800-822-5544.
The Board of Directors of the Fund does not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Board will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of the Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract, and approval of a plan of
distribution pursuant to Rule 12b-1). The Fund will call a special meeting
of the shareholders at the request of 10% or more of the shares entitled
to vote; shareholders wishing to call such a meeting should submit a
written request to the Fund at 100 Light Street, Baltimore, Maryland
21202, stating the purpose of the proposed meeting and the matters to be
acted upon.
14
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
THE
NAVIGATOR
CLASS
OF THE
LEGG MASON
MARKET NEUTRAL
TRUST,
A SERIES OF THE
LEGG MASON
LIGHT STREET TRUST
The Art of Investing
Prospectus
[ ], 1998
This wrapper is not part of the prospectus.
Addresses
Distributor:
Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000 800 o 822 o 5544
Authorized Dealer:
Fairfield Group, Inc.
271 Dresher Road
Horsham, PA 19044
215 o 657 o 9400 800 o 441 o 3885
Transfer and Shareholder Servicing Agent:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
Counsel:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036-1800
Independent Accountants:
PricewaterhouseCoopers LLP
250 W. Pratt Street
Baltimore, Maryland 21201
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Fund or its distributor. The Prospectus does not
constitute an offering by the Fund or by the principal underwriter in any
jurisdiction in which such offering may not lawfully be made.
[LEGG MASON FUNDS LOGO HERE]
<PAGE>
NAVIGATOR MARKET NEUTRAL TRUST
PROSPECTUS
[ ], 1998
LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON MARKET NEUTRAL TRUST
Shares of Navigator Market Neutral Trust ("Navigator Shares") represent a
separate class ("Navigator Class") of common stock in Legg Mason Market Neutral
Trust ("Market Neutral" or "Fund").
The Navigator Class of Shares, described in this Prospectus, is currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own monies and monies for which they act
in a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust
Company") for which Trust Company exercises discretionary investment management
responsibility (such institutional investors are referred to collectively as
"Institutional Clients" and accounts of the customers with Institutional Clients
("Customers") are referred to collectively as "Customer Accounts"), to qualified
retirement plans managed on a discretionary basis and having net assets of at
least $200 million, and to any qualified retirement plan of Legg Mason, Inc. or
of any of its affiliates. Navigator Shares may not be purchased by individuals
directly, but Institutional Clients may purchase shares for Customer Accounts
maintained for individuals.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
Fund dated [ ], 1998 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information is
available without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed on the
following page).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Navigator Shares are sold and redeemed without any purchase or redemption
charge imposed by the Funds, although Institutional Clients may charge their
Customer Accounts for services provided in connection with the purchase or
redemption of shares. See "How to Purchase and Redeem Shares." The Fund will pay
management fees to Legg Mason Fund Adviser, Inc., but Navigator Shares pay no
distribution fees.
MARKET NEUTRAL is a professionally managed portfolio seeking long-term
capital appreciation while minimizing exposure to general U.S. equity market
volatility. Market Neutral is a separate series of Legg Mason Light Street
Trust, Inc. ("Corporation"), a diversified, open-end management investment
company. Batterymarch Financial Management, Inc. ("Batterymarch" or "Adviser"),
the Fund's investment adviser, will seek to achieve this objective primarily by
purchasing equity securities that it believes to be undervalued, selling short
equity securities that it believes to be overvalued, and coordinating the
establishment of long and short positions in an effort to keep the portfolio
neutral to general U.S. equity market volatility. There can be no assurance that
the Fund will achieve its objective. See "Investment Objective and Policies,
which also includes a discussion of risks.
<PAGE>
TABLE OF CONTENTS
Expenses 3
Performance Information 4
Investment Objectives and Policies 5
How To Purchase and Redeem Shares 7
How Shareholder Accounts are
Maintained 9
How Net Asset Value is Determined 9
Dividends and Other Distributions 9
Tax Treatment of Dividends and
Other Distributions 10
Shareholder Services 10
The Fund's Management and Investment
Advisers 11
The Fund's Distributor 12
Description of The Corporation
and its Shares 12
Legg Mason Wood Walker, Inc.
100 Light Street, P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000/800 (Bullet) 822 (Bullet) 5544
2
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in understanding
the various costs and expenses that an investor in Navigator Shares of the Fund
will bear directly or indirectly. The expenses and fees set forth below are
based on estimates for the initial period of operations of the Fund's Navigator
Shares.
ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 1.20%(A)
12b-1 fees None
Other expenses 0.80%
------
Total operating expenses 2.00%(A)
======
- ---------------
(A) After fee waivers. LMFA has voluntarily agreed to waive management fees to
the extent necessary to limit total operating expenses relating to Navigator
Shares (exclusive of taxes, brokerage commissions, interest and
extraordinary expenses) to 2.00% of average daily net assets attributable to
Navigator Shares until July 31, 1999. In the absence of such waivers, the
management fee, estimated other expenses and estimated total operating
expenses relating to Navigator Shares would have been 1.90%, 0.80% and 2.70%
of average net assets.
For further information concerning the Fund's expenses, please see "The
Fund's Management and Investment Advisers."
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Navigator Shares over various time periods assuming (1) a
5% annual rate of return and (2) redemption at the end of each time period. The
Fund charges no redemption fees of any kind.
1 Year 3 Years
--------------------------
$20 $63
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same over the time periods shown. The above table and the
assumption in the example of a 5% annual return are required by regulations of
the SEC applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A
PREDICTION OF, AND DOES NOT REPRESENT THE PROJECTED OR ACTUAL PERFORMANCE OF,
NAVIGATOR SHARES OF THE FUND. THE ABOVE TABLE AND EXAMPLE SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The actual expenses attributable to Navigator
Shares will depend upon, among other things, the level of average net assets,
the levels of sales and redemptions of shares, the extent to which LMFA waives
its fees and the extent to which Navigator Shares incur variable expenses, such
as transfer agency costs.
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PERFORMANCE INFORMATION
From time to time the Fund may quote the TOTAL RETURN of a class of shares
in advertisements or in reports or other communications to shareholders. A
mutual fund's total return is a measurement of the overall change in value of an
investment in the fund, including changes in share price and assuming
reinvestment of dividends and other distributions. CUMULATIVE TOTAL RETURN shows
the fund's performance over a specific period of time. AVERAGE ANNUAL TOTAL
RETURN is the average annual compounded return that would have produced the same
cumulative total return if the fund's performance had been constant over the
entire period. Average annual returns, which differ from actual year-to-year
results, tend to smooth out variations in a fund's returns. No adjustment is
made for any income taxes payable by shareholders.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Performance figures reflect past performance only and are not intended to
and do not indicate future performance.
Although U.S. equity funds have grown significantly in recent years, the
average long-term growth of general equity funds as reported by Lipper
Analytical Services, Inc. over the last 25 years has been 13.2%, and some years
have shown a net decline in value.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective may not be changed without shareholder
approval; however, except as otherwise noted, the investment policies of
the Fund described below may be changed by the Fund's Board of Directors
without a shareholder vote. There can be no assurance that the Fund will
achieve its investment objective.
MARKET NEUTRAL'S objective is long-term capital appreciation while
minimizing exposure to general U.S. equity market volatility. Batterymarch
will seek to achieve this objective primarily by purchasing equity
securities that it believes to be undervalued, selling short equity
securities that it believes to be overvalued, and coordinating the
establishment of long and short positions in an effort to keep the
portfolio neutral to general U.S. equity market volatility. The portfolio
will be highly diversified and represent a broad sector of the market.
Certain characteristics of the long positions as a whole (e.g., industry
sector weighting, market capitalization, and dollar amounts) are expected
to match the characteristics of the short positions as a whole.
Accordingly, when the overall U.S. equity market declines, the value of
the Fund would not be expected to decline unless its long and short
positions behaved in a manner inconsistent with the expectation
Batterymarch had for the relative movement of each. Similarly, the value
of the Fund would not be expected to advance solely because the overall
U.S. equity market advances; the Fund will advance if the stocks it holds
long outperform the stocks it has sold short. For these purposes, the U.S.
equity market consists of those equity securities listed on the New York
Stock Exchange, the American Stock Exchange or NASDAQ.
To meet margin requirements or redemptions, or pending investment, the
Fund may also hold a portion of its assets in cash or short-term
investments, including money market instruments.
Proceeds from the Fund's short sales of equity securities will earn
interest at a rate approximately equal to that of a 3-month U.S. Treasury
bill ("T-bill"). The interest will contribute to the Fund's return.
Although the Fund uses the T-bill as a benchmark, an investment in the
Fund differs in most respects from an investment in a T-bill because
T-bills, unlike the Fund, are backed by the full faith and credit of the
United States, have a fixed rate of return and a short duration, and have
no risk of losing capital and little or no potential for appreciation.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS:
STOCK SELECTION
In an attempt to neutralize market risk, the Fund's portfolio will
contain both long and short equity positions, with long positions
generally matched to short positions within the same industry sector, in
approximately equal dollar balance. Batterymarch will select portfolio
securities based upon Batterymarch's multifactor stock selection model,
which encompasses both quantitative and qualitative approaches and
includes analysis of cash flow, earnings growth expectations, value and
corporate signals. The stock selection model will be run frequently,
ranking each stock in the investable universe of approximately 2,000
liquid stocks, in order to re-evaluate the long and short components of
the portfolio, each of which consists of approximately 150 stocks.
INVESTMENT RISKS
The Fund is newly organized and has no operating history prior to the
date of this Prospectus. An investment in the Fund is subject to the risk
that the stock selection model will fail to consider appropriately those
factors that influence the Fund's exposure to market risk. In addition,
even if the stock selection model properly considers the appropriate
factors, Batterymarch may fail to establish or maintain long and short
positions that have matching market characteristics (e.g., industry sector
weighting, market capitalization and dollar amounts). To the extent that
the market characteristics of the long and short positions do not match,
the Fund will not be neutral to general U.S. equity market volatility, the
Fund's positions will become speculative in nature, and the Fund's losses
may exceed those of other mutual Funds. See "Short Sales," below.
An investment in the Fund is also subject to the risk of poor stock
selection by Batterymarch. For example, the stocks that Batterymarch buys
may not outperform stocks that Batterymarch sells short, and thereby the
Fund would not be successful in achieving its objective. Further, since
Batterymarch will manage both long and short positions in approximately
equal dollar balance, it is possible that the Fund's equity securities
held long may decline in value at the same time the value of its equity
securities sold short increases, thereby increasing the Fund's potential
for loss. In such a case, the Fund's losses may exceed those of other
mutual funds.
The Fund will be different from many other funds, and will bear
different risks, in that it will maintain substantial short positions in
equity securities and will have high turnover of both its long and short
positions, as described below.
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SHORT SALES
The Fund, as noted above, expects to sell securities short in order to
fulfill the Fund's objective. When Batterymarch concludes that a security
is overvalued, it may sell the security short and borrow the same security
from a broker or other institution to complete the sale. The Fund will
incur a loss as a result of a short sale if the price of the borrowed
security increases between the date of the short sale and the date on
which the Fund terminates or closes out its short position by buying the
same security. The Fund will realize a gain if the security declines in
price between those dates. There can be no assurance that the Fund will be
able to close out a short position at an acceptable time or price. The
values of the Fund's short positions, in the aggregate, are expected to
equal the values of its long positions in equity securities. It will not
make a short sale if, after giving effect to such sale, the market value
of all securities sold short exceeds 100% of the Fund's net assets.
There also is a risk that a borrowed security will need to be returned
to the broker or other institution on short notice. If the request for the
return of securities occurs at a time when other short sellers of the
security are receiving similar requests, a "short squeeze" can occur,
meaning that the Fund might be compelled, at the most disadvantageous
time, to replace the borrowed security with a security purchased on the
open market, possibly at prices significantly in excess of the proceeds
received earlier. Further, because the Fund will attempt to remain market
neutral, if the Fund must close out a short position at a time or price
not of its choosing, it may also have to sell a corresponding long
position at an unfavorable time or price in order to maintain market
neutrality.
Until the Fund replaces a borrowed security, it will maintain a
segregated account with its custodian containing cash and liquid
securities such that the amount deposited in the account plus any amount
deposited with a broker as collateral will at least equal the current
market value of the security sold short. Depending on arrangements made
with the broker or custodian, the Fund might not receive any payments
(including interest) on collateral deposited with the broker or custodian.
Rule 10a-1 under the Securities Exchange Act of 1934 ("Rule 10a-1")
provides that exchange-traded shares can be sold short only at a price
that is higher than the last trade or the same as the last trade price if
that price is higher than the previous price. The requirements of Rule
10a-1 can delay, or in some cases prevent, execution of short sales,
resulting in opportunity costs and increased exposure to market action.
While it is Batterymarch's intention to maintain approximately equal
dollar investments in the long and short components of its portfolio,
market circumstances and Rule 10a-1 may prevent it from doing so from time
to time. Batterymarch will generally attempt to execute short sales before
taking offsetting long positions in order to reduce the risk of unequal
long and short exposure.
Possible losses from short sales differ from losses that could be
incurred from a purchase of securities; losses from short sales may be
unlimited, whereas losses from purchases of securities cannot exceed the
total amount invested.
Until the Fund replaces a borrowed security, the Fund is required to
repay the lender any dividends or interest that accrue during the period
of the loan. To borrow the security, the Fund also may be required to pay
a premium. The net proceeds of the short sale will be retained by the
broker (or by the Fund's custodian in a special custody account) to the
extent necessary to meet margin requirements, until the short position is
closed out. The Fund also will incur transaction costs in effecting short
sales.
PORTFOLIO TURNOVER
The portfolio will likely experience very substantial turnover of
securities and Batterymarch will not consider turnover in making its
investment decisions. The rate of the Fund's portfolio turnover may vary
significantly from time to time depending on economic and market
volatility. Although the rate of portfolio turnover is difficult to
predict, it is anticipated that under normal circumstances the annual
portfolio turnover rate of the long and short components of the portfolio
will each average from 500% to 700% per year. High portfolio turnover
involves correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund. High
turnover could also involve an increased likelihood that the Fund will
realize capital gains that are taxable when distributed to shareholders.
To the extent that high portfolio turnover results in the realization of
net short-term capital gains (that is, gains from positions held for not
more than one year), distributions of those gains are taxed to
shareholders at ordinary income tax rates rather than at more favorable
long-term capital gain tax rates. It is anticipated that the Fund's
capital gains, if any, will be short-term and therefore taxed at ordinary
income tax rates when distributed to shareholders.
ADRS
The Fund may invest in U.S. dollar-denominated American Depositary
Receipts ("ADRs"), which are bought and sold in the United States and are
issued by domestic banks. ADRs represent the right to receive securities
of foreign issuers deposited in the domestic bank or a correspondent bank.
By investing in ADRs rather than directly in
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a foreign issuer's stock, the Fund may avoid currency risks during the
settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for ADRs. The Fund has no
current intention to invest in unsponsored ADRs.
OTHER
When cash is temporarily available, or for temporary defensive
purposes, the Fund may invest without limit in repurchase agreements and
money market instruments, including high-quality short-term debt
securities.
INVESTMENT LIMITATIONS
The Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or (2) 67% or more
of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Fund policies, unless described as fundamental, can be changed
by action of its respective Board of Directors.
The fundamental restrictions applicable to the Fund include a
prohibition on investing 25% or more of its total assets in the securities
of issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
with respect thereto).
HOW TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield may purchase Navigator Shares from
Fairfield, the principal offices of which are located at 271 Dresher Road,
Horsham, Pennsylvania 19044. Other investors eligible to purchase
Navigator Shares may purchase them through a brokerage account with Legg
Mason.
Customers of certain Institutional Clients that maintain omnibus
accounts with the Fund's transfer agent may obtain shares through those
Institutions. Such Institutional Clients may receive payments from the
Fund's distributor for account servicing, and may receive payments from
their customers for other services performed. Investors otherwise eligible
to purchase Navigator Shares can purchase them from Legg Mason without
receiving or paying for such other services.
Institutional Clients purchasing or holding Navigator Shares on behalf
of their Customers are responsible for the transmission of purchase and
redemption orders (and the delivery of funds) to the Fund on a timely
basis.
Purchase of Shares
The minimum investment is $50,000 for the initial purchase of
Navigator Shares of the Fund and $100 for each subsequent investment. The
Fund may change these minimum amounts at its discretion. Institutional
Clients may set different minimums for their Customers' investments in
accounts invested in Navigator Shares.
Share purchases will be processed at the net asset value next
determined after Legg Mason or Fairfield has received your order; payment
must be made within three business days to the selling organization.
Orders received by Legg Mason or Fairfield before the close of regular
trading on the New York Stock Exchange ("Exchange") (normally 4:00 p.m.
Eastern time) ("close of the Exchange") on any day the Exchange is open
will be executed at the net asset value determined as of the close of the
Exchange on that day. Orders received by Legg Mason or Fairfield after the
close of the Exchange or on days the Exchange is closed will be executed
at the net asset value determined as of the close of the Exchange on the
next day the Exchange is open. See "How Net Asset Value is Determined."
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Certain institutions that have agreements with Legg Mason or the Fund
may be authorized to accept purchase and redemption orders on their
behalf. In that case, the Fund will be deemed to have received your
purchase or redemption order when the authorized institution accepts the
order, and your order will receive the next price calculated after the
order has been accepted by the institution. You should consult with your
institution to determine the time by which it must receive your order for
you to purchase or redeem Fund shares at that day's price. It is the
institution's responsibility to transmit your order to the Fund in a
timely fashion.
The Fund reserves the right to reject any order for its shares or to
suspend the offering of shares for a period of time, or to waive any
minimum investment requirements. In addition to Institutional Clients
purchasing shares directly from Fairfield, Navigator Shares may be
purchased through procedures established by Fairfield in connection with
requirements of Customer Accounts of various Institutional Clients.
No sales charge is imposed by the Fund in connection with the purchase
of Navigator Shares. Depending upon the terms of a particular Customer
Account, however, Institutional Clients may charge their Customers fees
for automatic investment and other cash management services provided in
connection with investments in the Fund. Information concerning these
services and any applicable charges will be provided by the Institutional
Clients. This Prospectus should be read by Customers in connection with
any such information received from the Institutional Clients. Any such
fees, charges or other requirements imposed by an Institutional Client
upon its Customers will be in addition to the fees and requirements
described in this Prospectus.
Redemption of Shares
Shares may ordinarily be redeemed by a shareholder via telephone, in
accordance with the procedures described below. However, Customers of
Institutional Clients wishing to redeem shares held in Customer Accounts
at the Institution may redeem only in accordance with instructions and
limitations pertaining to their Account at the Institution.
Fairfield clients can make telephone redemption requests by calling
Fairfield at 1-800-441-3885. Legg Mason clients should call their
financial advisor at 1-800-822-5544. Callers should have available the
number of shares (or dollar amount) to be redeemed and their account
number.
Orders for redemption received by Legg Mason or Fairfield before the
close of the Exchange, on any day when the Exchange is open, will be
transmitted to Boston Financial Data Services ("BFDS"), transfer agent for
the Fund, for redemption at the net asset value per share determined as of
the close of the Exchange on that day. Requests for redemption received by
Legg Mason or Fairfield after the close of the Exchange will be executed
at the net asset value determined as of the close of the Exchange on its
next trading day. A redemption request received by Legg Mason or Fairfield
may be treated as a request for repurchase and, if it is accepted by Legg
Mason, your shares will be purchased at the net asset value per share
determined as of the next close of the Exchange. See above for information
on pricing of redemptions made through certain institutions having
agreements with Legg Mason or the Fund.
Shareholders may have their telephone redemption requests paid by a
direct wire to a domestic commercial bank account previously designated by
the shareholder, or mailed to the name and address in which the
shareholder's account is registered. Such payments will normally be
transmitted on the next business day following receipt of a valid request
for redemption. The proceeds of redemption or repurchase may be more or
less than the original cost. If the shares to be redeemed or repurchased
were paid for by check (including certified or cashier's checks) within 10
business days of the redemption or repurchase request, the proceeds may
not be disbursed unless the Fund can be reasonably assured that the check
has been collected.
To the extent permitted by law, the Fund reserves the right to take up
to seven days to make payment upon redemption if, in the judgment of the
adviser, the Fund could be adversely affected by immediate payment. (The
Statement of Additional Information describes several other circumstances
in which the date of payment may be postponed or the right of redemption
suspended.)
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Fund may request identifying
information from callers or employ identification numbers. The Fund may be
liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish
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to have telephone redemption privileges should call their financial
advisor for further instructions.
Because of the relatively high cost of maintaining small accounts, the
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
the investor. However, the Fund will not redeem accounts that fall below
$500 solely as a result of a reduction in net asset value per share. If
the Fund elects to redeem the shares in an account, the investor will be
notified that the account is below $500 and will be allowed 60 days in
which to make an additional investment in order to avoid having the
account closed. Each Institutional Client may establish its own minimum
account size for investors using its services.
HOW SHAREHOLDER ACCOUNTS ARE MAINTAINED
A shareholder account is established automatically for each investor.
Any shares the investor purchases or receives as a dividend or other
distribution will be credited directly to the account at the time of
purchase or receipt. Shares may not be held in, or transferred to, an
account with any brokerage firm that does not have an agreement with Legg
Mason or Fairfield. The Fund does not issue share certificates.
Navigator Shares sold to Institutional Clients acting in a fiduciary,
advisory, custodial or other similar capacity on behalf of persons
maintaining Customer Accounts at Institutional Clients will normally be
held of record by the Institutional Clients. Therefore, in the context of
Institutional Clients, references in this Prospectus to shareholders mean
the Institutional Clients rather than their Customers.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Navigator Share of the Fund is determined daily as
of the close of the Exchange, on every day that the Exchange is open, by
subtracting the liabilities attributable to Navigator Shares from the
total assets attributable to such shares and dividing the result by the
number of Navigator Shares outstanding. Securities owned by the Fund or
sold short by the Fund for which market quotations are readily available
are valued at current market value. In the absence of readily available
market quotations, securities are valued at fair value as determined by
the Fund's Board of Directors. Where a security is traded on more than one
market, which may include foreign markets, the securities are generally
valued on the market considered by the Fund's adviser to be the primary
market. Securities with remaining maturities of 60 days or less are valued
at amortized cost. The Fund will value its foreign securities in U.S.
dollars on the basis of the then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which generally consists of net
investment income and any net short-term capital gain) quarterly.
Dividends from any net short-term capital gains are paid annually. The
Fund also distributes substantially all of its net capital gain (the
excess of net long-term capital gain over net short-term capital loss)
after the end of the taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of the excise tax described under the heading "Additional Tax
Information" in the Statement of Additional Information. Navigator Shares
held by qualified retirement plans generally receive dividends and other
distributions in additional shares. Other shareholders may elect to:
1. Receive both dividends and other distributions in Navigator Shares;
2. Receive dividends in cash and other distributions in Navigator
Shares;
3. Receive dividends in Navigator Shares and other distributions in
cash; or
4. Receive both dividends and other distributions in cash.
If a shareholder has elected to receive dividends and/or other
distributions in cash and the postal or other delivery service is unable
to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to
having all dividends and other distributions reinvested in additional
Navigator Shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Navigator fund. Please contact a
financial advisor for additional information about this option.
If no election is made, both dividends and other distributions are
credited to the Institutional Client's account in Navigator Shares at the
net asset value of the shares determined as of the close
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of the Exchange on the reinvestment date. Shares received pursuant to any
of the first three (reinvestment) elections above also are credited to
your account at that net asset value. If an investor elects to receive
dividends and/or other distributions in cash, a check will be sent.
Investors purchasing through Fairfield may elect at any time to change the
distribution option by notifying the Fund in writing at: Navigator Market
Neutral Trust, c/o Fairfield Group, Inc., 271 Dresher Road, Horsham,
Pennsylvania 19044. Those purchasing through Legg Mason should write to:
Navigator Market Neutral Trust, c/o Legg Mason Funds Processing, P.O. Box
1476, Baltimore, Maryland 21203-1476. An election must be received at
least 10 days before the record date in order to be effective for
dividends and other distributions paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to qualify for treatment as a regulated investment
company under the Internal Revenue Code of 1986, as amended ("Code"), so
that it will be relieved of federal income tax on that part of its
investment company taxable income and net capital gain that it distributes
to its shareholders.
Dividends from the Fund's investment company taxable income (whether
paid in cash or reinvested in Navigator Shares) are taxable to their
shareholders (other than qualified retirement plans and other tax-exempt
investors) as ordinary income to the extent of the Fund's earnings and
profits. Distributions of the Fund's net capital gain (whether paid in
cash or reinvested in Navigator Shares), when designated as such, are
taxable to those shareholders as long-term capital gain, regardless of how
long they have held their Fund shares. The maximum tax rate applicable to
a noncorporate taxpayer's net capital gain recognized on capital assets
held for more than one year is 20% (10% for taxpayers in the 15% marginal
tax bracket). In the case of a regulated investment company such as the
Fund, the relevant holding period is determined by how long the Fund has
held the portfolio security on which the gain was realized, not by how
long you have held your Fund shares. See the discussion of portfolio
turnover and tax consequences on page 6.
The Fund will send its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. The notice
will tell you what portion of the capital gain falls into each of the
different tax rate categories mentioned above.
A redemption of Navigator Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Navigator Shares for shares of any other Navigator
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," below. If Fund shares are purchased
within 30 days before or after redeeming at a loss other shares of the
same Fund (regardless of class), all or part of that loss will not be
deductible and instead will increase the basis of the newly purchased
shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Navigator Shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur tax
liabilities and should not be made solely for the purpose of receiving the
dividend or other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, an investor may also be subject to state, local or
foreign taxes on distributions from the Fund, depending on the laws of its
home state and locality. Prospective shareholders are urged to consult
their tax advisers with respect to the effects of this investment on their
own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
Every shareholder of record will receive a confirmation of each new
share transaction with the Fund. In addition, Legg Mason clients will
receive a monthly statement, which will also show the total number of
shares being held in safekeeping by the Fund's transfer agent for the
account of the shareholder.
Confirmations for each purchase and redemption transaction (except a
reinvestment of dividends or other distributions) of Navigator Shares made
by Institutional Clients acting in a fiduciary, advisory, custodial, or
other similar capacity on behalf of persons maintaining Customer Accounts
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at Institutional Clients will be sent to the Institutional Client by the
transfer agent. Beneficial ownership of shares by Customer Accounts will
be recorded by the Institutional Client and reflected in the regular
account statements provided by them to their Customers.
Reports will be sent to the Fund's shareholders at least semiannually
showing its portfolio and other information; the annual report for the
Fund will contain financial statements audited by its independent
accountants.
Shareholder inquiries should be addressed to "Navigator Market Neutral
Trust, c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476," or "Navigator Market Neutral Trust, c/o Fairfield Group,
Inc., 271 Dresher Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for the
corresponding class of shares of any of the Legg Mason funds including the
Legg Mason Cash Reserve Trust, provided the shares to be acquired are
eligible for sale under applicable state securities laws.
Investments by exchange into other Navigator funds are made at the per
share net asset value next determined on the same business day as
redemption of the Fund shares you wish to exchange. To obtain further
information concerning the exchange privilege and prospectuses of other
Navigator funds, or to make an exchange, please contact your financial
advisor. To effect an exchange by telephone, please call your financial
advisor with the information described in the section "How to Purchase and
Redeem Shares," page 16. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges.
Please read the prospectus for the other fund(s) carefully before you
invest by exchange. The Fund reserves the right to modify or terminate the
exchange privilege upon 60 days' notice to shareholders. Some
Institutional Clients may not offer all of the Navigator Funds for
exchange.
THE FUND'S MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction
of its Board of Directors.
MANAGEMENT AGREEMENT
The Fund has a management agreement with LMFA which was approved by
the Fund's Board of Directors ("Management Agreement"). Under the
Management Agreement, LMFA is obligated to provide the Fund with
investment management and administrative services, and to oversee the
Fund's relationships with outside service providers, such as the
custodian, transfer agent, accountants, and lawyers.
For services under the Management Agreement, LMFA receives a fee from
the Fund, calculated daily and payable monthly, at an annual rate of 1.90%
of its average daily net assets.
ADVISORY AGREEMENT
LMFA has entered into an investment advisory agreement with
Batterymarch to provide investment advisory services to the Fund.
Batterymarch has the responsibility for making all investment decisions
and placing all orders to buy or sell a particular security.
Under its Advisory Agreement, Batterymarch receives an advisory fee
from LMFA, computed daily and paid monthly, at an annual rate equal to
78.9% of the fee received by LMFA, or 1.50% of the Fund's average daily
net assets, adjusted for any fee waivers, as discussed below.
FEE WAIVERS
LMFA has agreed to waive its fees in any month to the extent the
Fund's expenses related to Navigator Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during that month an annual
rate of 2.00% of average daily net assets attributable to Navigator
Shares until July 31, 1999.
This agreement is voluntary and may be terminated by LMFA at any time.
The Fund pays all its other expenses which are not assumed by LMFA.
NAVIGATOR SHARES EXPENSE RATIOS
As of the date of this Prospectus, the Fund has not yet begun
operations. In addition to management and distribution fees, the Fund will
be responsible for interest, taxes, brokerage fees and commissions,
expenses of preparing and printing prospectuses, proxy statements and
reports to shareholders and of distributing them to existing shareholders,
custodian charges, transfer agency fees, compensation of the independent
directors, legal and audit expenses, insurance expenses, shareholder
meetings, proxy solicitations, expenses of registering and qualifying Fund
shares for sale
11
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under federal and state law, governmental fees and expenses incurred in
connection with industry organizations.
LMFA
LMFA acts as adviser or manager to eighteen investment company
portfolios which had aggregate assets under management of approximately
$ billion as of June 30, 1998. LMFA's address is 100 Light Street,
Baltimore, Maryland 21202.
BATTERYMARCH
Batterymarch acts as investment adviser to institutional accounts,
such as corporate pension plans, mutual Funds and endowment Funds, as well
as to individual investors. Batterymarch's aggregate assets under
management totalled approximately $ billion as of June 30, 1998.
Batterymarch's address is 200 Clarendon Street, Boston, Massachusetts
02116.
LMFA and Batterymarch are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
PORTFOLIO MANAGEMENT
Batterymarch investment teams are responsible for the day-to-day
management of the Fund.
BROKERAGE
The Fund may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
YEAR 2000
Like other mutual funds and other financial and business organizations
around the world, the Fund could be adversely affected if the computer
systems used by LMFA, other service providers and entities with computer
systems that are linked to Fund records do not accurately process and
calculate date sensitive information after January 1, 2000. This is
commonly referred to as the "Year 2000 Issue." Calculating net asset
value, redeeming shares, delivering account statements and providing other
information to shareholders are all functions that are performed by
computer. LMFA is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems it uses
and to obtain satisfactory assurances that each of the Fund's other major
service providers will continue to provide services without interruption.
However, there can be no certainty that these steps will be sufficient to
avoid any adverse impact on the Fund.
The companies in which the Fund invests also could be adversely
affected by the Year 2000 Issue. While many companies are taking steps to
address the Year 2000 Issue, there can be no assurance that these steps
will be sufficient to avoid adverse impact. LMFA endeavors to obtain
information on this problem, but it is difficult to assess accuracy or
completeness, or potential impact on portfolio companies if their
suppliers suffer from the problem.
THE FUND'S DISTRIBUTOR
Legg Mason, a wholly owned subsidiary of Legg Mason, Inc., is the
distributor of the Fund's shares pursuant to an Underwriting Agreement.
The Underwriting Agreement obligates Legg Mason to pay certain expenses in
connection with the offering of shares, including any compensation to its
financial advisors, the printing and distribution of prospectuses,
statements of additional information and periodic reports used in
connection with the offering to prospective investors, after the
prospectuses, statements of additional information and reports have been
prepared, set in type and mailed to existing shareholders at the Fund's
expense, and for any supplementary sales literature and advertising costs.
Legg Mason also assists BFDS with certain of its duties as transfer agent
and will be paid by BFDS for this service.
Fairfield, a wholly owned subsidiary of Legg Mason, Inc., is a
registered broker-dealer with principal offices located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Fairfield may sell Navigator Shares
pursuant to a Dealer Agreement with the Fund's Distributor, Legg Mason.
Legg Mason and LMFA may make payments out of their own assets to Fairfield
or others to support the distribution of Navigator Shares and shareholder
servicing.
The President and Treasurer of the Fund are employed by Legg Mason.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
The Corporation was established as a Maryland corporation on August 5,
1998. The Articles of Incorporation of the Corporation authorize issuance
of 450 million shares of par value $.001 per share of the Fund. The
Corporation may issue additional series of shares. The Fund currently
offers two Classes of Shares -- Class A (known as "Primary Shares") and
Class Y (known as "Navigator Shares"). The two Classes represent interests
in the same pool of assets. A separate vote is taken by a Class of Shares
of the Fund if a matter affects just that Class of Shares. Each Class of
Shares may bear certain differing Class-specific expenses and sales
charges, which may affect performance.
Investors may obtain more information concerning the Primary Class
from their financial advisor or by calling 1-800-822-5544.
The Board of Directors of the Fund does not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Board will consider
whether any such conflict exists and, if so, take appropriate action.
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Shareholders of the Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters
(including the election of directors, approval of an advisory contract,
and approval of a plan of distribution pursuant to Rule 12b-1). The Fund
will call a special meeting of the shareholders at the request of 10% or
more of the shares entitled to vote; shareholders wishing to call such a
meeting should submit a written request to the Fund at 100 Light Street,
Baltimore, Maryland 21202, stating the purpose of the proposed meeting and
the matters to be acted upon. The address of BFDS is P.O. Box 953, Boston,
Massachusetts 02103.
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<PAGE>
LEGG MASON LIGHT STREET TRUST, INC.:
LEGG MASON MARKET NEUTRAL TRUST
PRIMARY SHARES AND NAVIGATOR SHARES
STATEMENT OF ADDITIONAL INFORMATION
[ ] 1, 1998
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Shares or for Navigator
Shares (both dated [ ] 1, 1998), as appropriate, which have been filed with the
Securities and Exchange Commission ("SEC"). Copies of the Prospectuses are
available without charge from the Fund's distributor, Legg Mason Wood Walker,
Incorporated ("Legg Mason"), at (410) 539-0000.
The LEGG MASON MARKET NEUTRAL TRUST ("Market Neutral" or "Fund"), a
separate series of the Legg Mason Light Street Trust, Inc., an open-end
investment company ("Trust"), is a mutual fund seeking capital appreciation
while minimizing exposure to general equity market risk. It seeks to achieve its
objective primarily by investing in a highly diversified portfolio of long and
short positions in U.S. equity securities. It establishes long positions in
equity securities that its adviser, Batterymarch Financial Management, Inc.
("Batterymarch" or "Adviser"), has identified as undervalued and establishes
short positions in equity securities that Batterymarch has identified as
overvalued.
Shares of Navigator Market Neutral ("Navigator Shares") represent
interests in Market Neutral that are currently offered for sale only to
institutional clients of the Fairfield Group, Inc. ("Fairfield") for investment
of their own monies and monies for which they act in a fiduciary capacity, to
clients of Legg Mason Trust Company ("Trust Company") for which Trust Company
exercises discretionary investment management responsibility (such institutional
investors are referred to collectively as "Institutional Clients" and accounts
of the customers with Institutional Clients ("Customers") are referred to
collectively as "Customer Accounts"), to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to any
qualified retirement plans of Legg Mason, Inc. or of any of its affiliates. The
Navigator Class of Shares may not be purchased by individuals directly, but
Institutional Clients may purchase shares for Customer Accounts maintained for
individuals.
The Primary Class of shares of Market Neutral ("Primary Shares") is
offered for sale to all other investors and may be purchased directly by
individuals.
Navigator and Primary Shares of Market Neutral are sold and redeemed
without any purchase or redemption charge, although institutions may charge
their Customer Accounts for services provided in connection with the purchase or
redemption of Navigator Shares. The Fund pays management fees to LMFA. Primary
Shares pay a 12b-1 distribution fee, but Navigator Shares pay no distribution
fees. See "The Fund's Distributor."
LEGG MASON WOOD WALKER,
INCORPORATED
- --------------------------------------------------------------------------------
100 LIGHT STREET, P.O. BOX 1476
BALTIMORE, MARYLAND 21203-1476
(410) 539-0000 (800) 822-5544
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS AND POLICIES
In addition to the investment objective of the Fund described in the
Prospectus, the Fund has adopted certain fundamental investment limitations that
cannot be changed except by vote of its shareholders. The Fund may not:
1. Borrow money, except from banks for temporary purposes, in an
aggregate amount not to exceed 10% of the value of the total assets of the Fund
at the time of borrowing; short sales and related borrowings of securities are
not subject to this restriction (although not a fundamental policy subject to
shareholder approval, the Fund will not purchase securities if borrowings exceed
5% of its total assets);
2. Purchase securities on "margin", except for short-term credits
necessary for clearance of portfolio transactions and except that the Fund may
make margin deposits in connection with the use of futures contracts and options
on futures contracts;
3. Invest 25% or more of its total assets (taken at market value) in
any one industry. This limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements with respect thereto;
4. Purchase or sell commodities and commodity contracts, but this
limitation shall not prevent the Fund from purchasing or selling options and
futures contracts;
5. Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;
6. Make loans, except loans of portfolio securities and except to the
extent that the purchase of notes, bonds or other evidences of indebtedness or
deposits with banks and other financial institutions may be considered loans;
7. Purchase or sell real estate, except that the Fund may invest in
securities collateralized by real estate or interests therein or in securities
issued by companies that invest in real estate or interests therein (as a
non-fundamental policy changeable without a shareholder vote, the Fund will not
purchase or sell interests in real estate limited partnerships);
8. Make short sales of securities or maintain a short position if, when
added together, more than 100% of the value of the Fund's net assets would be
(a) deposited as collateral for the obligation to replace securities borrowed to
effect short sales, and (b) allocated to segregated accounts in connection with
short sales. Short sales "against the box" are not subject to this limitation;
or
9. Issue senior securities, except as permitted under the
Investment Company Act of 1940 ("1940 Act").
The foregoing limitations may be changed by "the vote of a majority of
the outstanding voting securities" of the Fund, a term defined in the 1940 Act
to mean the vote (a) of 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present, or (b) of more than 50% of the outstanding voting
securities of the Fund, whichever is less.
Except as otherwise stated, if a fundamental or non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later increase or decrease in percentage
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<PAGE>
resulting from a change in value of portfolio securities, in the net asset value
of the Fund, or in the number of securities an issuer has outstanding, will not
be considered to be outside the limitation.
Unless otherwise stated, the investment policies and limitations
contained in this Statement of Additional Information are not fundamental, and
can be changed without shareholder approval.
Illiquid Securities
The Fund may invest up to 10% of its net assets in illiquid securities.
For this purpose, "illiquid securities" are those that cannot be disposed of
within seven days for approximately the price at which the Fund values the
security. Illiquid securities include repurchase agreements with terms of
greater than seven days and restricted securities other than those the adviser
has determined are liquid pursuant to guidelines established by the Fund's Board
of Directors.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, or pursuant to an exemption from registration. The Fund may be
required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.
SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to the Fund, acting
pursuant to guidelines established by the Fund's Board of Directors, may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated,
restricted securities in the Fund's portfolio may adversely affect the Fund's
liquidity.
Convertible Securities
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stocks of the same
or similar issuers, but lower than the yield of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible securities but rank senior to common stock in a corporation's
capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. The price of a convertible
security often reflects variations in the price of the underlying common stock
in a way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
convertible security's governing instrument, which may be less than the ultimate
conversion value.
Many convertible securities are rated below investment grade or, if
unrated, are considered of comparable quality. Moody's describes securities
rated Ba as having "speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class."
3
<PAGE>
If an investment grade security purchased by the Fund is subsequently
given a rating below investment grade, Batterymarch will consider that fact in
determining whether to retain that security in the Fund's portfolio, but is not
required to dispose of it.
Portfolio Lending
The Fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash or equivalent collateral, equal to
at least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the Fund. During the time portfolio securities
are on loan, the borrower will pay the Fund an amount equivalent to any
dividends or interest paid on such securities, and the Fund may invest the cash
collateral and earn income, or it may receive an agreed upon amount of interest
income from the borrower who has delivered equivalent collateral. These loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not have
the right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment. The risks of securities lending are similar to those of repurchase
agreements. The Fund presently does not intend to lend more than 5% of its
portfolio securities at any given time.
Repurchase Agreements
A repurchase agreement is an agreement under which either U.S.
government obligations or high-quality liquid debt securities are acquired from
a securities dealer or bank subject to resale at an agreed-upon price and date.
The securities are held for the Fund by a custodian bank as collateral until
resold and will be supplemented by additional collateral if necessary to
maintain a total value equal to or in excess of the value of the repurchase
agreement. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities,
which may decline in value in the interim. The Fund will enter into repurchase
agreements only with financial institutions determined by the adviser to present
minimal risk of default during the term of the agreement based on guidelines
established by the Fund's Board of Directors.
Repurchase agreements are usually for periods of one week or less, but
may be for longer periods. The Fund will not enter into repurchase agreements of
more than seven days' duration if more than 10% of net assets would be invested
in such agreements and other illiquid investments. To the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the
repurchase price, the Fund might suffer a loss. If bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund could be delayed or limited. However, the Fund has
adopted standards for the parties with whom it may enter into repurchase
agreements, including monitoring by the Fund's adviser of the creditworthiness
of such parties which the Fund's Board of Directors believes are reasonably
designed to assure that each party presents no serious risk of becoming involved
in bankruptcy proceedings within the time frame contemplated by the repurchase
agreement.
When the Fund enters into a repurchase agreement, it will obtain as
collateral from the other party securities equal in value to 102% of the amount
of the repurchase agreement (or 100%, if the securities obtained are U.S.
Treasury bills, notes or bonds). Such securities will be held by a custodian
bank or an approved securities depository or book-entry system.
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<PAGE>
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting the Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any federal, state or local taxes that might be applicable to them.
General
The Fund intends to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"). In
order to do so, the Fund must distribute annually to its shareholders at least
90% of its investment company taxable income (generally, net investment income
plus any net short-term capital gain) ("Distribution Requirement") and must meet
several additional requirements. These requirements include the following: (1)
at least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities, or other income derived with
respect to its business of investing in securities ("Income Requirement"); (2)
at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
government securities, securities of other RICs and other securities, with those
other securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (3)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in the securities (other than U.S.
government securities or the securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and Other Distributions
Dividends and other distributions declared by the Fund in December of
any year and payable to its shareholders of record on a date in that month will
be deemed to have been paid by the Fund and received by the shareholders on
December 31 if the distributions are paid by the Fund during the following
January. Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or reinvested in Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund for the taxable year
from domestic corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the federal alternative minimum tax. Distributions of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) made by the Fund do not qualify for the dividends-received
deduction.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
5
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Other
If the Fund has an "appreciated financial position" - generally, an
interest (including an interest through a short sale) with respect to any
stock, debt instrument (other than "straight debt") or partnership interest the
fair market value of which exceeds its adjusted basis - and enters into a
"constructive sale" of the same or substantially similar property, the Fund will
be treated as having made an actual sale thereof, with the result that the gain
will be recognized at that time. A constructive sale generally consists of a
short sale entered into by the Fund or a related person with respect to the same
or substantially similar property. In addition, if the appreciated financial
position is itself a short sale, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund offers two classes of shares, known as Primary Shares and
Navigator Shares. Primary Shares are available from Legg Mason, certain of its
affiliates and unaffiliated entities having an agreement with Legg Mason.
Navigator Shares are currently offered for sale only to Institutional Clients,
to qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million, and to any qualified retirement plan of Legg
Mason, Inc. or of any of its affiliates. Navigator Shares may not be purchased
by individuals directly, but Institutional Clients may purchase shares for
Customer Accounts maintained for individuals. Primary Shares are available to
all other investors.
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
If you invest in Primary Shares, the Prospectus for those shares
explains that you may buy Primary Shares through the Future First Systematic
Investment Plan. Under this plan you may arrange for automatic monthly
investments in Primary Shares of $50 or more by authorizing Boston Financial
Data Services ("BFDS"), the Fund's transfer agent, to transfer funds each month
from your Legg Mason account or from your checking account to be used to buy
Primary Shares at the per share net asset value determined on the day the funds
are sent from your bank. You will receive a quarterly account statement. You may
terminate the Future First Systematic Investment Plan at any time without charge
or penalty. Forms to enroll in the Future First Systematic Investment Plan are
available from any Legg Mason or affiliated office.
Investors in Primary Shares may also buy Primary Shares through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow the investor, on a pre-authorized basis, to have $50 or
more automatically transferred monthly for investment in shares of the Fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution it is drawn on, the
investor may be subject to extra charges in order to cover collection costs.
These charges may be deducted from the investor's shareholder account.
Systematic Withdrawal Plan
If you own Primary Shares with a net asset value of $5,000 or more,
you may also elect to make systematic withdrawals from your Fund account of a
minimum of $50 on a monthly basis. The amounts paid to you each month are
obtained by redeeming sufficient shares from your account to provide the
withdrawal amount that you have specified. The Systematic Withdrawal Plan is not
currently available for
6
<PAGE>
shares held in an Individual Retirement Account ("IRA"), Simplified Employee
Pension Plan ("SEP"), Savings Incentive Match Plan for Employees ("SIMPLE") or
other qualified retirement plan. You may change the monthly amount to be paid to
you without charge not more than once a year by notifying Legg Mason or the
affiliate with which you have an account. Redemptions will be made at the
Primary Shares' net asset value per share determined as of the close of regular
trading of the New York Stock Exchange ("Exchange") (normally 4:00 p.m., eastern
time) ("close of the Exchange") on the first day of each month. If the Exchange
is not open for business on that day, the shares will be redeemed at the per
share net asset value determined as of the close of regular trading of the
Exchange on the preceding business day. The check for the withdrawal payment
will usually be mailed to you on the next business day following redemption. If
you elect to participate in the Systematic Withdrawal Plan, dividends and other
distributions on all Primary Shares in your account must be automatically
reinvested in Primary Shares. You may terminate the Systematic Withdrawal Plan
at any time without charge or penalty. The Fund, its transfer agent, and Legg
Mason also reserve the right to modify or terminate the Systematic Withdrawal
Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and distributions, the
amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund if
you maintain a Systematic Withdrawal Plan, because you may incur tax liabilities
in connection with such purchases and withdrawals. The Fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Future First Systematic
Investment Plan.
Other Information Regarding Redemption
The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended, by the Fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets
the Fund normally utilizes is restricted, or an emergency, as defined by rules
and regulations of the SEC, exists, making disposal of the Fund's investments or
determination of its net asset value not reasonably practicable, or (iii) for
such other periods as the SEC by regulation or order may permit for protection
of the Fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.
The Fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing the Fund's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting those securities into cash and
will be subject to fluctuation in the market price of those securities until
they are sold. The Fund does not redeem "in kind" under normal circumstances,
but would do so where the adviser determines that it would be in the best
interests of the Fund's shareholders as a whole.
VALUATION OF FUND SHARES
Net asset value of the Fund share is determined daily for each Class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that
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Class, less liabilities attributable to that Class, by the number of shares of
that Class outstanding. Pricing will not be done on days when the Exchange is
closed. The Exchange currently observes the following holidays: New Year's Day,
Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. As described in the
Prospectuses, securities for which market quotations are readily available are
valued at current market value. Securities traded on an exchange or the NASDAQ
Stock Market securities are normally valued at last sale prices. Other
over-the-counter securities, and securities traded on exchanges for which there
is no sale on a particular day (including debt securities), are valued at the
mean of latest closing bid and asked prices. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Securities and other
assets quoted in foreign currencies will be valued in U.S. dollars based on the
currency exchange rates prevailing at the time of the valuation. All other
securities are valued at fair value as determined by or under the direction of
the Fund's Board of Directors. Premiums received on the sale of call options are
included in the net asset value of each Class, and the current market value of
options sold by the Fund will be subtracted from net assets of each Class.
PERFORMANCE INFORMATION
General
From time to time each Fund may compare the performance of a Class of
to the performance of other investment companies, groups of investment
companies, various market indices, the features or performance of alternative
investments, in advertisements, sales literature and reports to shareholders.
The Fund may also include calculations, such as hypothetical compounding
examples or tax-free compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions are not indicative of the performance of
the Fund.
From time to time, the total return of the fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Total Return Calculations
Average annual total return quotes used in the Fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
separately for each Class according to the following formula:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the Fund are assumed to have been
reinvested at net asset value on the reinvestment dates during the period.
The Fund may also cite rankings and ratings, and compare the return of
a Class with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc.,
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Wiesenberger Investment Company Services, Value Line, Morningstar, and other
services or publications that monitor, compare and/or rank the performance of
investment companies. The Fund may also refer in such materials to mutual fund
performance rankings, ratings, comparisons with funds having similar investment
objectives, and other mutual funds reported in independent periodicals,
including, but not limited to, FINANCIAL WORLD, MONEY Magazine, FORBES, BUSINESS
WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE WALL STREET JOURNAL, and THE
NEW YORK TIMES.
The Fund may compare the investment return of a Class to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, Fund shares are not insured, the value of Fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which remains at a specified rate for a specified period of time,
the return of each Class of Shares will vary.
Fund advertisements may reference the history of the distributor and
its affiliates, the education and experience of the portfolio manager, and the
fact that the portfolio manager engages in market neutral investing. With market
neutral investing, the Adviser establishes long positions in those securities it
believes to be undervalued in relation to the long-term earning power or asset
value of their issuers and establishes a similar dollar amount of short
positions in equity securities that it believes to be overvalued. Securities may
be undervalued because of many factors, including market decline, poor economic
conditions, tax-loss selling, or actual or anticipated unfavorable developments
affecting the issuer of the security. The Adviser believes that the securities
of sound, well-managed companies that may be temporarily out of favor due to
earnings declines or other adverse developments are likely to provide a greater
total return than securities with prices that appear to reflect anticipated
favorable developments and that are therefore subject to correction should any
unfavorable developments occur.
In advertising, the Fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The Fund may use other recognized
sources as they become available.
The Fund may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.
The Fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The Fund may also include in advertising biographical information on
key investment and managerial personnel.
The Fund may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should
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consider their ability to purchase shares through periods of low price levels.
The Fund may discuss Legg Mason's tradition of service. Since 1899,
Legg Mason and its affiliated companies have helped investors meet their
specific investment goals and have provided a full spectrum of financial
services. Legg Mason affiliates serve as investment advisers for private
accounts and mutual funds with assets of more than $[ ] billion as of June 30,
1998.
In advertising, the Fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.
TAX-DEFERRED RETIREMENT PLANS - PRIMARY SHARES
In general, income earned through the investment of assets of qualified
retirement plans is not taxed to the beneficiaries of such plans until the
income is distributed to them. Primary Share investors who are considering
establishing an IRA, SEP, SIMPLE or other qualified retirement plan should
consult their attorneys or other tax advisers with respect to individual tax
questions. The option of investing in these plans with respect to Primary Shares
through regular payroll deductions may be arranged with a Legg Mason or
affiliated financial advisor and your employer. Additional information with
respect to these plans is available upon request from Financial Advisor or
Service Provider.
TRADITIONAL IRA. Certain Primary Share investors may obtain tax
advantages by establishing IRAs. Specifically, except as noted below, if neither
you nor your spouse is an active participant in a qualified employer or
government retirement plan, or if either you or your spouse is an active
participant and your adjusted gross income does not exceed a certain level, then
each of you may deduct cash contributions made to an IRA in an amount for each
taxable year not exceeding the lesser of 100% of your earned income or $2,000. A
married investor who is not an active participant in such a plan and files a
joint income tax return with his or her spouse (and their combined adjusted
gross income does not exceed $150,000) is not affected by the spouse's active
participant status. In addition, if your spouse is not employed and you file a
joint return, you may establish a separate IRA for your spouse and contribute up
to a total of $4,000 to the two IRAs, provided that the contribution to either
does not exceed $2,000. If your employer's plan qualifies as a SARSEP, permits
voluntary contributions and meets certain other requirements, you may make
voluntary contributions to that plan that are treated as deductible IRA
contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Primary Shares through
non-deductible IRA contributions, up to certain limits, because all dividends
and other distributions on your Fund shares are then not immediately taxable to
you or the IRA; they become taxable only when distributed to you. To avoid
penalties, your interest in an IRA must be distributed, or start to be
distributed, to you not later than the end of the taxable year in which you
attain age 70 1/2. Distributions made before age 59 1/2, in addition to being
taxable, generally are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability, where the distribution is rolled over
into another qualified plan or certain other situations.
ROTH IRA. A shareholder whose adjusted gross income (or combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
IRAs may be converted to a Roth IRA;
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these rollover distributions and conversions are, however, subject to federal
income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).
EDUCATION IRA. Although not technically for retirement savings, an
Education IRA provides a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than the maximum amount allowable under
current law (currently $500) may be contributed for any year to Education IRAs
for the same beneficiary. Contributions are not deductible and may not be made
after the beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or transferred to an Education IRA of a qualified
family member).
Simplified Employee Pension Plan -- SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Shares.
Savings Incentive Match Plan for Employees - SIMPLE
An employer with no more than 100 employees that does not maintain
another retirement plan instead may establish a SIMPLE either as separate IRAs
or as part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, will allow certain employees to make elective contributions of up to
$6,000 per year and will require the employer to make either matching
contributions up to 3% of each such employee's salary or a 2% nonelective
contribution.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from the foregoing retirement plans (except IRAs and SEPs), unless the
recipient transfers the distribution directly to an "eligible retirement plan"
(including IRAs and other qualified plans) that accepts those distributions.
Other distributions generally are subject to regular wage withholding at the
rate of 10% (depending on the type and amount of the distribution), unless the
recipient elects not to have any withholding apply. Primary Share investors
should consult their plan administrator or tax advisor for further information.
THE CORPORATION'S DIRECTORS AND OFFICERS
The Fund's officers are responsible for the operation of the Fund under
the direction of the Board of Directors. The officers and directors of the Fund
and their principal occupations during the past five years are set forth below.
An asterisk (*) indicates officers and/or directors who are "interested persons"
of the Fund as defined by the 1940 Act. The business address of each officer and
director is 100 Light Street, Baltimore, Maryland 21202, unless otherwise
indicated.
JOHN F. CURLEY, JR.* [7/24/39], Chairman of the Board and Director;
Retired Vice Chairman and Director of Legg Mason, Inc. and Legg Mason Wood
Walker, Incorporated; Chairman of the Board and Director of three Legg Mason
funds; Chairman of the Board, President and Trustee of one Legg Mason fund;
Chairman of the Board and Trustee of one Legg Mason fund. Formerly: Director of
Legg Mason Fund Adviser, Inc. and Western Asset Management Company (each a
registered investment
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adviser); Officer and/or Director of various other affiliates of Legg Mason,
Inc.
RICHARD G. GILMORE [6/9/27], Director; 948 Kennett Way, West Chester,
Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in the manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia Electric
Company); Director/Trustee of five other Legg Mason funds. Formerly: Senior Vice
President and Chief Financial Officer of Philadelphia Electric Company (now PECO
Energy Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company, the Girard Company; and Director of
Finance, City of Philadelphia.
CHARLES F. HAUGH [12/27/25], Director; 14201 Laurel Park Drive, Suite
104, Laurel, Maryland. Real Estate Developer and Investor; President and
Director of Resource Enterprises, Inc. (real estate brokerage); Chairman of
Resource Realty LLC (management of retail and office space); Partner in Greater
Laurel Health Park Ltd. Partnership (real estate investment and development);
Director/Trustee of five other Legg Mason funds.
ARNOLD L. LEHMAN [7/18/44], Director; Director of the Brooklyn Museum
of Art; Director/Trustee of five other Legg Mason funds. Formerly: Director of
the Baltimore Museum of Art.
JILL E. McGOVERN [8/29/44], Director; 400 Seventh Street NW, Washington,
DC. Chief Executive Officer of the Marrow Foundation. Director/Trustee of five
other Legg Mason funds. Formerly: Executive Director of the Baltimore
International Festival (January 1991 - March 1993); and Senior Assistant to the
President of The Johns Hopkins University (1986-1991).
T. A. RODGERS [10/22/34], Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting);
Director/Trustee of five other Legg Mason funds. Formerly: Director and Vice
President of Corporate Development, Polk Audio, Inc. (manufacturer of audio
components).
EDWARD A. TABER, III* [8/25/43], President and Director; Senior
Executive Vice President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.;
Vice Chairman and Director of Legg Mason Fund Adviser, Inc.; President and/or
Director/Trustee of four Legg Mason funds.
The executive officers of the Funds, other than those who also serve as
directors, are:
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer;
Treasurer of the Adviser; Vice President and Treasurer of six other Legg Mason
funds; Vice President of Legg Mason.
KATHI D. BAIR* [12/15/64], Secretary; Secretary/Assistant Treasurer of
five other Legg Mason funds.
SUSAN L. SILVA* [3/29/67], Assistant Secretary; Assistant Secretary of
one other Legg Mason fund; employee of Legg Mason since January 1994.
The Nominating Committee of the Board of Directors is responsible
for the selection and nomination of disinterested directors. The Committee is
composed of Messrs. Haugh, Gilmore, Lehman, Rodgers and Dr. McGovern.
Officers and directors of the Fund who are "interested persons" of the
Fund receive no salary or fees from the Fund. Each Director who is not an
interested person of the Fund ("Independent Directors") receives an annual
retainer and a per meeting fee based on the average net assets of the Fund at
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December 31, of the previous year.
THE FUND'S INVESTMENT ADVISER/MANAGER
LMFA, a Maryland Corporation, is located at 100 Light Street,
Baltimore, Maryland 21202. LMFA is a wholly owned subsidiary of Legg Mason,
Inc., which is also the parent of Legg Mason and Batterymarch. LMFA serves as
manager to the Fund under a management agreement ("Management Agreement"). The
Management Agreement was approved by the Fund's sole shareholder on [ ], 1998.
The Management Agreement provides that, subject to overall direction by
the Fund's Board of Directors, LMFA oversees the investment and other affairs of
the Fund. LMFA is obligated to (a) furnish the Fund with office space and
executive and other personnel necessary for the operation of the Fund; (b)
supervise all aspects of the Fund's operations; (c) bear the expense of certain
informational and purchase and redemption services to the Fund's shareholders;
(d) arrange, but not pay for, the periodic updating of prospectuses, proxy
material, tax returns and reports to shareholders and state and federal
regulatory agencies; and (e) report regularly to the Fund's officers and
directors. LMFA and its affiliates pay all compensation of directors and
officers of the Fund who are officers, directors or employees of LMFA. The Fund
pays all of its expenses which are not expressly assumed by LMFA. These expenses
include, among others, interest expense, taxes, brokerage fees and commissions,
expenses of preparing and printing prospectuses, proxy statements and reports to
shareholders and of distributing them to existing shareholders, custodian
charges, transfer agency fees, distribution fees to Legg Mason, each Fund's
distributor, compensation of the independent directors, organizational expenses,
legal and audit expenses, insurance expense, shareholder meetings, proxy
solicitations, expenses of registering and qualifying Fund shares for sale under
federal and state law, governmental fees and expenses incurred in connection
with membership in investment company organizations. The Fund also is liable for
such nonrecurring expenses as may arise, including litigation to which it may be
a party. The Fund may also have an obligation to indemnify its directors and
officers with respect to litigation.
LMFA receives for its services to the Fund a management fee, calculated
daily and payable monthly at an annual rate of 1.90% of the average daily net
assets of the Fund. LMFA has agreed to waive its fees for expenses related to
Primary Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) in excess of 3.00% of average net assets attributable to Primary
Shares until July 31, 1999. LMFA has agreed to waive its fees for expenses
related to Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 2.00% of average net assets attributable to
Navigator Shares until July 31, 1999.
Under the Management Agreement, the Fund has the non-exclusive right to
use the name "Legg Mason" until that agreement is terminated, or until the right
is withdrawn in writing by LMFA.
Batterymarch, 200 Clarendon Street, Boston, Massachusetts 02116, an
affiliate of Legg Mason, serves as investment adviser to the Fund pursuant to an
Investment Advisory Agreement dated [ ], between Batterymarch and LMFA
("Advisory Agreement"). The Advisory Agreement was approved by the Board of
Directors, including a majority of the directors who are not "interested
persons" (as that term is defined in the 1940 Act) of the Corporation,
Batterymarch or LMFA, on August 7, 1998. The Advisory Agreement was approved by
Legg Mason Fund Adviser, Inc., as the Fund's sole shareholder, on [ ],
1998.
Under the Advisory Agreement, Batterymarch is responsible, subject to
the general supervision of LMFA and the Corporation's Board of Directors, for
the actual management of the Fund's assets, including responsibility for making
all decisions and placing all orders to buy, sell or hold a particular security.
For Batterymarch's services to the Fund, LMFA (not the Fund) pays Batterymarch a
fee,
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computed daily and payable monthly, at an annual rate equal to 1.50% of the
Fund's average daily net assets, or 78.9% of the fee received by LMFA from the
Fund, net of any waivers by LMFA.
Under the Advisory Agreement and Management Agreement, LMFA and
Batterymarch will not be liable for any error of judgment or mistake of law or
for any loss by the Fund in connection with the performance of the Advisory
Agreement or Management Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard of its
obligations or duties under the respective Agreement.
The Advisory Agreement and Management Agreement terminate automatically
upon assignment and are terminable at any time without penalty by vote of the
Fund's Board of Directors, by vote of a majority of the Fund's outstanding
voting securities, or by LMFA and Batterymarch, on not less than 60 days' notice
to the other party to the Agreement, and may be terminated immediately upon the
mutual written consent of all parties to the Agreement.
To mitigate the possibility that the Fund will be affected by personal
trading of employees, the Corporation and LMFA have adopted policies that
restrict securities trading in the personal accounts of portfolio managers and
others who normally come into advance possession of information on portfolio
transactions. These policies comply, in all material respects, with the
recommendations of the Investment Company Institute.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio turnover rate is computed by dividing the lesser of
purchases or sales of securities for the period by the average value of
portfolio securities for that period. Short-term securities are excluded from
the calculation.
Under the Advisory Agreement with the Fund, the Adviser is responsible
for the execution of the Fund's portfolio transactions and must seek the most
favorable price and execution for such transactions, subject to the possible
payment, as described below, of higher brokerage commissions to brokers who
provide research and analysis. The Fund may not always pay the lowest commission
or spread available. Rather, in placing orders for the Fund the Adviser also
takes into account such factors as size of the order, difficulty of execution,
efficiency of the executing broker's facilities (including the services
described below), and any risk assumed by the executing broker.
Consistent with the policy of most favorable price and execution, the
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place orders
with brokers who provide supplemental investment and market research and
securities and economic analysis and may pay to these brokers a higher brokerage
commission than may be charged by other brokers. Such services include, without
limitation, advice as to the value of securities; the advisability of investing
in, purchasing, or selling securities; advice as to the availability of
securities or of purchasers or sellers of securities; and furnishing analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. Such research and
analysis may be useful to the Adviser in connection with services to clients
other than the Fund whose brokerage generated the service. LMFA's and/or
Batterymarch's fee is not reduced by reason of its receiving such brokerage and
research services.
From time to time the Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include
14
<PAGE>
amounts which are "reasonable and fair compared to the commission, fee or other
remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, the Fund generally deals with responsible primary market-makers unless a
more favorable execution can otherwise be obtained.
Except as permitted by SEC rules or orders, the Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. The Fund's Board of Directors has adopted procedures in conformity
with Rule 10f-3 under the 1940 Act whereby the Fund may purchase securities that
are offered in certain underwritings in which Legg Mason or any of its
affiliated persons is a participant. These procedures, among other things, limit
the Fund's investment in the amount of securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated persons
is a participant so that: the Fund together with all other registered investment
companies having the same adviser, may not purchase more than 25% of the
principal amount of the offering of such class . In addition, the Fund may not
purchase securities during the existence of an underwriting if Legg Mason is the
sole underwriter for those securities.
Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg
Mason from executing transactions on an exchange for its affiliates, such as the
Fund, unless the affiliate expressly consents by written contract. The Fund's
Advisory Agreement expressly provides such consent.
Investment decisions for the Fund are made independently from those of
other funds and accounts advised by LMFA or Batterymarch. However, the same
security may be held in the portfolios of more than one fund or account. When
two or more accounts simultaneously engage in the purchase or sale of the same
security, the prices and amounts will be equitably allocated to each account. In
some cases, this procedure may adversely affect the price or quantity of the
security available to a particular account. In other cases, however, an
account's ability to participate in large-volume transactions may produce better
executions and prices.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund. The Underwriting Agreement
obligates Legg Mason to promote the sale of Fund shares and to pay certain
expenses in connection with its distribution efforts, including expenses for the
printing and distribution of prospectuses and periodic reports used in
connection with the offering to prospective investors (after the prospectuses
and reports have been prepared, set in type and mailed to existing shareholders
at the Fund's expense), and for supplementary sales literature and advertising
costs.
Fairfield Group, Inc., a wholly owned subsidiary of Legg Mason, Inc.,
with principal offices at 271 Dresher Road, Horsham, Pennsylvania, may act as a
dealer for Navigator Shares pursuant to a Dealer Agreement with Legg Mason. Legg
Mason and LMFA may make payments out of their own assets to Fairfield or others
to support the distribution of Navigator Shares and shareholder servicing.
The Fund has adopted a Distribution and Shareholder Services Plan
("Plan") which, among other things, permits the Fund to pay Legg Mason fees for
its services related to sales and distribution of Primary Shares and the
provision of ongoing services to Primary Class shareholders. Payments are made
only from assets attributable to Primary Shares. Under the Plans, the aggregate
fees may not exceed an annual rate of 1.00% of the Fund's average daily net
assets attributable to Primary Shares Distribution activities for which such
payments may be made include, but are not limited to, compensation to persons
who engage in or support distribution and redemption of Shares, printing of
prospectuses and reports for persons other than existing shareholders,
advertising, preparation and distribution of sales
15
<PAGE>
literature, overhead, travel and telephone expenses, all with respect to Primary
Shares only.
The Plan was approved by the Board of Directors of the Fund including a
majority of the directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or the Underwriting Agreement ("12b-1
Directors") on August 7, 1998. Legg Mason may pay all or a portion of the fee to
its financial advisors.
With respect to Primary Shares, Legg Mason has also agreed to waive its
fees for the Fund as described under "The Funds' Investment Adviser/Manager."
In approving the establishment or continuation of the Plan, in
accordance with the requirements of Rule 12b-1, the directors determined that
there was a reasonable likelihood that the Plan would benefit the Fund and its
Primary Class shareholders. The directors considered, among other things, the
extent to which the potential benefits of the Plan to the Fund's Primary Class
shareholders could offset the costs of the Plan; the likelihood that the Plan
would succeed in producing such potential benefits; the merits of certain
possible alternatives to the Plan; and the extent to which the retention of
assets and additional sales of the Fund's Primary Shares would be likely to
maintain or increase the amount of compensation paid by the Fund to the
Adviser/LMFA.
In considering the costs of the Plan, the directors gave particular
attention to the fact that any payments made by the Fund to Legg Mason under the
Plan would increase the Fund's level of expenses in the amount of such payments.
Further, the directors recognized that the Adviser/LMFA would earn greater
investment advisory/management fees if the Fund's assets were increased, because
such fees are calculated as a percentage of the Fund's assets and thus would
increase if net assets increase. The directors further recognized that there can
be no assurance that any of the potential benefits described below would be
achieved if the Plan was implemented.
Among the potential benefits of the Plan, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
the Fund's Primary Shares and to maintain and enhance the level of services they
provide to the Fund's Primary Class shareholders. These efforts, in turn, could
lead to increased sales and reduced redemptions, eventually enabling the Fund to
achieve economies of scale and lower per share operating expenses. Any reduction
in such expenses would serve to offset, at least in part, the additional
expenses incurred by the Fund in connection with the Plan. Furthermore, the
investment management of the Fund could be enhanced, as net inflows of cash from
new sales might enable its portfolio manager to take advantage of attractive
investment opportunities, and reduced redemptions could eliminate the potential
need to liquidate attractive securities positions in order to raise the funds
necessary to meet the redemption requests.
The Plan will continue in effect only so long as it is approved at
least annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting Primary Shares. Any change in the Plan that would materially increase the
distribution cost to the Fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the Fund's Board of Directors, and the directors will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the Independent Directors will be
committed to the
16
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discretion of such Independent Directors.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105, serves as custodian of the Fund's assets. Boston Financial
Data Services, P.O. Box 953, Boston, Massachusetts 02103, serves as transfer and
dividend-disbursing agent, and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from BFDS for its services. Shareholders who request an
historical transcript of their account will be charged a fee based upon the
number of years researched. The Fund reserves the right, upon 60 days' written
notice, to make other charges to investors to cover administrative costs.
THE FUND'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington,
D.C. 20036, serves as counsel to the Fund.
THE FUND'S INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore, MD 21201,
has been selected by the Directors to serve as independent accountants for the
Fund.
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TABLE OF CONTENTS
PAGE
----
Additional Information About
Investment Limitations and Policies 2
Additional Tax Information 16
Additional Purchase and Redemption
Information 19
Valuation of Fund Shares 21
Performance Information 21
Tax-Deferred Retirement Plans - Primary Shares 28
The Corporation's Directors and Officers 30
The Fund's Investment Adviser/Manager 32
Portfolio Transactions and Brokerage 35
The Fund's Distributor 37
The Fund's Custodian and Transfer and
Dividend-Disbursing Agent 40
The Fund's Legal Counsel 40
The Fund's Independent Accountants 40
Financial Statements 40
Appendix A 41
No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or its distributor. The Prospectuses
and the Statement of Additional Information do not constitute offerings by the
Fund or by the distributor in any jurisdiction in which such offerings may not
lawfully be made.
LEGG MASON WOOD WALKER,
INCORPORATED
- --------------------------------------------------------------------------------
100 LIGHT STREET
P.O. BOX 1476
BALTIMORE, MARYLAND 21203-1476
(410)539-0000 (800)822-5544
<PAGE>
Legg Mason Light Street Trust, Inc.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements -- none
(b) Exhibits
(1) (a) Articles of Incorporation - filed herewith
(2) (a) By-Laws - filed herewith
(3) Voting Trust Agreement - none
(4) Specimen Security -- not applicable
(5) (a) Management Agreement - to be filed
(b) Investment Advisory Agreement - to be filed
(6) (a) Underwriting Agreement - to be filed
(b) Dealer Agreement with respect to Navigator Shares -
to be filed
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Agreement - to be filed
(b) Special Custody Account Agreement - to be filed
(9) (a) Transfer Agency and Service Agreement - to be filed
(b) Credit Agreement -- none
(10) Opinion of Counsel - to be filed
(11) Other opinions, appraisals, rulings and consents -
Accountant's consent - to be filed
(12) Financial statements omitted from Item 23 - none
(13) Agreements for providing initial capital - to be filed
(14) (a) Prototype IRA Plan (1)
(b) Prototype Corporate Simplified Employee Pension
Plan (1)
(c) Prototype SIMPLE Plan(1)
(15) Plan pursuant to Rule 12b-1--to be filed
(16) Schedule for Computation of Performance Quotations -- none
(17) Financial Data Schedule -- none
(18) Plan Pursuant to Rule 18f-3 - to be filed
(1)Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 35 to Legg Mason Cash Reserve Trust's Registration Statement, SEC
File No. 2-62218, filed December 31, 1997.
Item 25. Persons Controlled By or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of August 14, 1998)
- -------------- -----------------------
Shares of Capital Stock,
($.001 par value)
Legg Mason Market Neutral Trust:
Primary Shares 1
Navigator Shares 0
Item 27. Indemnification
<PAGE>
Article ELEVENTH of the Articles of Incorporation provides that to the
maximum extent permitted by applicable law (including Maryland law and the 1940
Act) the directors and officers of the Registrant shall not be liable to the
Registrant or to any of its stockholders for monetary damages. Article ELEVENTH
also provides that no amendment, alteration or repeal of the contents contained
in the preceding sentence or the adoption, alteration or amendment of any other
provision of the Articles or By-Laws inconsistent with Article ELEVENTH shall
adversely affect any limitation of liability of any director or officer of the
Registrant with respect to any act or failure to act which occurred prior to
such amendment, alteration, repeal or adoption.
Section 11.2 of Article ELEVENTH of the Registrant's Articles of
Incorporation provides that the Registrant shall indemnify its present and past
directors, officers, employees and agents, and persons who are serving or have
served at the Registrant's request in similar capacities for other entities to
the maximum extent permitted by applicable law (including Maryland law and the
Investment Company Act of 1940). Section 2-418(b) of the Maryland Corporations
and Associations Code ("Maryland Code") permits the Registrant to indemnify its
directors unless it is established that the act or omission of the director was
material to the matter giving rise to the proceeding, and (a) the act or
omission was committed in bad faith or was the result of active and deliberate
dishonesty; (b) the director actually received an improper personal benefit in
money, property or services; or (c) in the case of a criminal proceeding, the
director had reasonable cause to believe the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements and
reasonable expenses incurred in connection with a proceeding, in accordance with
the Maryland Code. Pursuant to Section 2-418(j) (2) of the Maryland Code, the
Registrant is permitted to indemnify its officers, employees and agents to the
same extent. The provisions set forth above apply insofar as consistent with
Section 17(h) of the 1940 Act, which prohibits indemnification of any director
or officer of the Registrant against any liability of the Registrant or its
shareholders to which such director or officer otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation and By-Laws in accordance with Investment Company
Act Release No. 11330 (September 4, 1980) and successor releases.
Under the Underwriting Agreement, the Fund agrees to indemnify, defend,
and hold the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in the Underwriting Agreement be construed so as to protect the
Distributor against any liability to the Corporation or its shareholders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason or its reckless disregard of its obligations and duties under the
Agreement.
The Underwriting Agreement further provides that the Registrant shall
not indemnify the Distributor for any claims, demands, liabilities and expenses
which the Distributor may incur on account of any wrongful act of the
Distributor or any of its employees or arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the
<PAGE>
Registrant for use in the Registration Statement or arising out of or based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or necessary to
make such information not misleading.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Registrant by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
prohibited as against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections of Manager and Investment Adviser
I. Legg Mason Fund Adviser, Inc. ("LMFA"), the Registrant's investment
manager, is a registered investment adviser incorporated on January 20,
1982. LMFA is engaged primarily in the investment advisory business. LMFA
serves as investment adviser or manager to eighteen open-end investment
companies or portfolios. Information as to the officers and directors of
LMFA is included in its Form ADV filed on June 24, 1998 with the Securities
and Exchange Commission (registration number 801-16958) and is incorporated
herein by reference.
II. Batterymarch Financial Management, Inc. ("Batterymarch"), investment
adviser to Legg Mason Market Neutral Trust, is a registered investment
adviser incorporated on September 19, 1994. Batterymarch is engaged
primarily in the investment advisory business. Information as to the
officers and directors of Batterymarch is included in its Form ADV filed
June 26, 1998 with the Securities and Exchange Commission (registration
number 801-48035) and is incorporated herein by reference.
Item 29. Principal Underwriters
(a) Legg Mason Cash Reserve Trust
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Tax Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Value Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.
Legg Mason Focus Trust, Inc.
(b) The following table sets forth information concerning each
director and officer of the Registrant's principal underwriter, Legg Mason Wood
Walker, Incorporated ("LMWW").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------ -------------
<PAGE>
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Retired Vice Chairman Chairman of the Board
of the Board and Director
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice President and Director
President and
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
F. Barry Bilson Senior Vice None
President and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 Director
<PAGE>
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
Joseph Sullivan Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
W. William Brab Senior Vice None
President
Deepak Chowdhury Senior Vice None
255 Alhambra Circle President
Coral Gables, FL 33134
Harry M. Ford, Jr. Senior Vice None
President
Dennis A. Green Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
One Battery Park Plaza President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
<PAGE>
Seth J. Lehr Senior Vice None
1735 Market St President
Philadelphia, PA 19103
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
Jonathan M. Pearl Senior Vice None
1777 Reisterstown Rd. President
Pikesville, MD 21208
John A. Pliakas Senior Vice None
125 High Street President
Boston, MA 02110
Gail Reichard Senior Vice None
President
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Robert J. Walker, Jr. Senior Vice None
200 Gibraltar Road President
Horsham, PA 19044
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Joseph H. Davis, Jr. Vice President None
1735 Market Street
Philadelphia, PA 19380
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
John R. Gilner Vice President None
<PAGE>
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President and
Treasurer
Mark C. Micklem Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
K. Mitchell Posner Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl W. Riedy, Jr. Vice President None
Jeffrey M. Rogatz Vice President None
Thomas E. Robinson Vice President None
Douglas M. Schmidt Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
William A. Verch Vice President None
<PAGE>
Lewis T. Yeager Vice President None
Joseph F. Zunic Vice President None
- ----------------
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not
an affiliated person of the Registrant or an affiliated
person of such an affiliated person.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 31. Management Services
None.
Item 32. Undertakings
Registrant hereby undertakes to provide each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Light Street Trust,
Inc., has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Baltimore and State
of Maryland, on the 14th day of August, 1998.
LEGG MASON LIGHT STREET TRUST, INC.
by: /s/ Marie K. Karpinski
______________________________
Marie K. Karpinski
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S><C>
/s/ John F. Curley Jr.
________________________ Chairman of the August 14, 1998
John F. Curley, Jr. Board and Director
/s/ Edward A. Taber, III President and Director August 14, 1998
________________________
Edward A. Taber, III
/s/ Richard G. Gilmore Director August 14, 1998
________________________
Richard G. Gilmore*
/s/ Charles F. Haugh Director August 14, 1998
________________________
Charles F. Haugh*
/s/ Arnold L. Lehman Director August 14, 1998
________________________
Arnold L. Lehman*
/s/ Jill E. McGovern Director August 14, 1998
________________________
Jill E. McGovern*
/s/ T.A. Rodgers Director August 14, 1998
________________________
T.A. Rodgers*
/s/ Marie K. Karpinski
________________________ Vice President August 14, 1998
Marie K. Karpinski and Treasurer
</TABLE>
*Signatures affixed by Marie K. Karpinski pursuant to a power of attorney,
dated August 7, 1998, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director of the following investment company:
LEGG MASON LIGHT STREET TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director hereby severally constitute and appoint each of MARIE K. KARPINSKI,
KATHI D. BAIR, ARTHUR J. BROWN and ARTHUR C. DELIBERT my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity, any Registration Statements
on Form N-1A, all Pre-Effective Amendments to any Registration Statements of the
Funds, any and all subsequent Post-Effective Amendments to said Registration
Statements, any supplements or other instruments in connection therewith, to
file the same with the Securities and Exchange Commission and the securities
regulators of appropriate states and territories, and generally to do all such
things in my name and behalf in connection therewith as said attorney-in-fact
deems necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940, all related requirements of
the Securities and Exchange Commission and all requirements of appropriate
states and territories. I hereby ratify and confirm all that said
attorney-in-fact or their substitutes may do or cause to be done by virtue
hereof.
WITNESS my hand on the date set forth below.
SIGNATURE DATE
- --------- ----
/s/ Richard G. Gilmore August 7, 1998
________________________
Richard G. Gilmore
/s/ T.A. Rodgers August 7, 1998
________________________
T. A. Rodgers
/s/ Charles F. Haugh August 7, 1998
________________________
Charles F. Haugh
/s/ Arnold L. Lehman August 7, 1998
________________________
Arnold L. Lehman
/s/ Jill E. McGovern August 7, 1998
________________________
Jill E. McGovern
/s/ Edward A. Taber, III August 7, 1998
________________________
Edward A. Taber, III
/s/ John F. Curley, Jr. August 7, 1998
________________________
John F. Curley, Jr.
ARTICLES OF INCORPORATION
OF
LEGG MASON LIGHT STREET TRUST, INC.
FIRST: The undersigned, Stephanie L. Bourque, whose post office address
is 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036, being at least
eighteen years of age, under and by virtue of the General Laws of the State of
Maryland authorizing the formation of corporations, is acting as sole
incorporator with the intention of forming a corporation.
SECOND: The name of the corporation is LEGG MASON LIGHT STREET TRUST,
INC. (the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are to act as
an open-end management investment company, as contemplated by the Investment
Company Act of 1940, as amended ("1940 Act"), and to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, including,
without limitation:
(a) To hold, invest and reinvest the funds of the Corporation, and
in connection therewith to hold part or all of its funds in
cash, and to purchase, subscribe for or otherwise acquire, to
hold for investment or otherwise, to trade and deal in, write,
sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon,
securities of any corporation, company, association, trust,
firm, partnership, or other organization however or wherever
established or organized, as well as securities created or
issued by any United States or foreign issuer (which term
"issuer" shall, for the purpose of these Articles of
Incorporation, without limiting the generality thereof, be
deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations,
organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as
owner or holder of any securities, all rights, powers and
privileges in respect thereof, including the right to vote
thereon; to aid by further investment any issuer, any
obligation of or interest in which is held by the Corporation
or in the affairs of which the Corporation has any direct or
indirect interest; to guarantee or become surety on any or all
of the contracts, stocks, bonds, notes, debentures and other
obligations of any corporation, company, trust, association or
firm; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value
of any and all such securities.
For the purposes of these Articles of Incorporation, as the
same may be supplemented or amended, the term "securities"
shall be deemed to include, without limiting the generality
thereof, any stocks, Shares, bonds, debentures, bills, notes,
mortgages and any other obligations or evidences of
indebtedness, and any options, certificates, receipts,
warrants, futures or forward contracts, or
<PAGE>
other instruments representing rights to receive, purchase,
subscribe for or sell the same, or evidencing or representing
any other direct or indirect rights or interests therein,
including all rights of equitable ownership therein, or in any
property or assets; and any negotiable or non-negotiable
instruments, including money market instruments, bank
certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all types of repurchase or reverse
repurchase agreements; interest rate protection instruments;
and derivative or synthetic instruments.
(b) To acquire all or any part of the goodwill, rights, property
and business of any person, firm, association or corporation
heretofore or hereafter engaged in any business similar to any
business which the Corporation has the power to conduct, and
to hold, utilize, enjoy and in any manner dispose of the whole
or any part of the rights, property and business so acquired,
and to assume in connection therewith any liabilities of any
such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names and the
like, which may be capable of being used for any of the
purposes of the Corporation; and to use, exercise, develop,
grant licenses in respect of, sell and otherwise turn to
account, the same.
(d) To issue and sell Shares of its own capital stock and
securities convertible into such capital stock in such amounts
and on such terms and conditions, for such purposes and for
such amount or kind of consideration (including without
limitations, securities) now or hereafter permitted by the
laws of the State of Maryland, by the 1940 Act and by these
Articles of Incorporation, as its Board of Directors may, and
is hereby authorized to, determine.
(e) To allocate assets, liabilities and expenses of the
Corporation to a particular series or Class or to apportion
the same between or among two or more series or Classes, as
applicable, provided that any liabilities or expenses incurred
by a particular series or Class shall be payable solely by
that series or Class as provided for in Article SIXTH.
(f) To purchase, repurchase or otherwise acquire, hold, dispose
of, resell, transfer, reissue or cancel (all without the vote
or consent of the stockholders of the Corporation) Shares of
its capital stock in any manner and to the extent now or
hereafter permitted by the laws of the State of Maryland, by
the 1940 Act and by these Articles of Incorporation.
(g) To conduct its business in all branches at one or more offices
in any part of the world, without restriction or limit as to
extent.
(h) To exercise and enjoy, in any states, territories, districts
and United States dependencies and in foreign countries, all
of the powers, rights and privileges
-2-
<PAGE>
granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
(i) To enjoy all rights, powers and privileges of ownership or
interest in all securities held by the Corporation, including
the right to vote and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement,
and enhancement in value of all such securities.
(j) In general, to carry on any other business in connection with
or incidental to its corporate purposes, to do everything
necessary, suitable or proper for the accomplishment of such
purposes or for the attainment of any object or the
furtherance of any power set forth in these Articles of
Incorporation, either alone or in association with others, to
do every other act or thing incidental or appurtenant to or
growing out of or connected with its business or purposes,
objects or powers, and, subject to the foregoing, to have and
exercise all the powers, rights and privileges granted to, or
conferred upon, corporations by the laws of the State of
Maryland as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being Classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power, without limitation:
(1) To acquire (by purchase, lease or otherwise) and to take,
receive, own, hold, use, employ, maintain, develop, dispose of
(by sale or otherwise) and otherwise deal with any real or
personal property, wherever located, and any interest therein.
(2) To make contracts and guarantees, incur liabilities and borrow
money and, in this connection, issue notes or other evidence
of indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with
commodities, indices of commodities or securities, and foreign
exchange, including the purchase and sale of futures
contracts, options on futures contracts related thereto and
forward contracts, subject to any applicable provisions of
law.
-3-
<PAGE>
(4) To sell, lease, exchange, transfer, convey, mortgage, pledge
and otherwise dispose of any or all of its assets.
FIFTH: The post office address of the principal office of the
Corporation in the State of Maryland is 100 Light Street, Baltimore, Maryland,
21202. The name of the resident agent of the Corporation in the State of
Maryland is Charles A. Bacigalupo, whose post office address is 100 Light
Street, Baltimore, Maryland, 21202. The resident agent is a citizen of the State
of Maryland and actually resides therein.
SIXTH: Section 6.1. Capital Stock. The total number of Shares of
capital stock which the Corporation shall have authority to issue is one billion
(1,000,000,000) Shares, of the par value of one tenth of one cent ($.001)
("Shares"), and of the aggregate par value of one million dollars ($1,000,000).
The Board of Directors shall have full power and authority, in its sole
discretion and without obtaining any prior authorization or vote of the
Stockholders, to change in any manner and to create and establish Shares having
such preferences, terms of conversion, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by resolution or
resolutions providing for the issuance of such Shares adopted by the Board of
Directors.
The Shares may be issued by the Board of Directors in such separate and
distinct series ("Series") and Classes ("Classes") as the Board of Directors
shall from time to time create and establish. The Board of Directors is
authorized, from time to time, to divide or combine the Shares into a greater or
lesser number, to classify or reclassify any unissued Shares of the Corporation
into one or more separate Series or Classes of Shares, and to take such other
action with respect to the Shares as the Board of Directors may deem desirable.
In addition, the Board of Directors is hereby expressly granted authority to
increase or decrease the number of Shares of any Series or Class, but the number
of Shares of any Series or Class shall not be decreased by the Board of
Directors below the number of Shares thereof then outstanding. The Board of
Directors, in its discretion without a vote of the Stockholders, may divide the
Shares of any Series into Classes. The Shares of any Series or Class of stock
shall have such preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors.
The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at its discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
Without limiting the authority of the Board of Directors set forth
herein to establish and designate any further Series or Classes, and to classify
and reclassify any unissued Shares, there is hereby established and Classified,
one Series of stock comprising four hundred fifty million (450,000,000) Shares,
to be known as the Legg Mason Market Neutral Trust. Of these four hundred fifty
million (450,000,000) Shares, two hundred fifty million (250,000,000) Shares are
-4-
<PAGE>
hereby established and Classified as Shares of Legg Mason Market Neutral Trust,
Class A and two hundred million (200,000,000) Shares are hereby established and
Classified as Legg Mason Market Neutral Trust, Class Y.
The Class A and Class Y Shares shall represent investment in the same
pool of assets and shall have the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption, except as provided in these Articles of
Incorporation and as set forth below:
(1) The net asset values of Class A Shares and Class Y Shares shall be
calculated separately. In calculating the net asset values,
(a) Each Class shall be charged with the transfer agency fees
and Rule 12b-1 fees (or equivalent fees by any other name)
attributable to that Class, and not with the transfer agency
fees and Rule 12b-1 fees (or equivalent fees by any other
name) attributable to any other Class;
(b) Each Class shall be charged separately with such other
expenses as may be permitted by Securities and Exchange
Commission rule or order and as the Board of Directors shall
deem appropriate;
(c) All other fees and expenses shall be charged to both
Classes, in the proportion that the net assets of that Class
bears to the net assets of the series Legg Mason Market
Neutral Trust, except as the Securities and Exchange
Commission may otherwise require;
(2) Dividends and other distributions shall be paid on Class A Shares
and Class Y Shares at the same time. The amounts of all dividends and
other distributions shall be calculated separately for Class A Shares
and Class Y Shares. In calculating the amount of any dividends or other
distribution,
(a) Each Class shall be charged with the transfer agency fees
and Rule 12b-1 fees (or equivalent fees by any other name)
attributable to that Class, and not with the transfer agency
fees and Rule 12b-1 fees (or equivalent fees by any other
name) attributable to any other Class;
(b) Each Class shall be charged separately with such other
expenses as may be permitted by Securities and Exchange
Commission rule or order and as the board of directors shall
deem appropriate;
(c) All other fees and expenses shall be charged to both
Classes, in the proportion that the net assets of that Class
bears to the net assets of the Legg Mason Market Neutral
Trust, except as the Securities and Exchange Commission may
otherwise require;
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(3) Each Class shall vote separately on matters pertaining only to that
Class, as the directors shall from time to time determine. On all other
matters, all Classes shall vote together and every Share, regardless of
Class, shall have an equal vote with every other Share.
The corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 6.2. Establishment of Series and Classes. The establishment of
any Series or Class of Shares in addition to those established in Section 6.1
hereof shall be effective upon the adoption of a resolution by the Board of
Directors setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series or Class. At any time that
there are no Shares outstanding of any particular Series or Class previously
established and designated, the Directors may by a majority vote abolish that
Series or Class and the establishment and designation thereof.
Section 6.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency, in
such form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
All dividends on Shares of each Series or Class shall be paid only out
of the income belonging to that Series or Class and capital gains distributions
on Shares of each Series or Class shall be paid only out of the capital gains
belonging to that Series or Class. All dividends and distributions on Shares of
each Series or Class shall be distributed pro rata to the holders of that Series
or Class in proportion to the number of Shares of that Series or Class held by
such holders at the date and time of record established for the payment of such
dividends or distributions, except that such dividends and distributions shall
appropriately reflect expenses allocated to a particular Series or Class. In
connection with any dividend or distribution program or procedure the Board of
Directors may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under such
program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable each Series of the Corporation to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to avoid liability of each Series of the
Corporation for Federal income and excise tax in respect of that year. However,
nothing in the foregoing shall limit the authority of the Board of Directors to
make distributions greater than or less than the amount
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necessary to qualify as a regulated investment company and to avoid liability of
any Series of the Corporation for such tax.
Dividends and distributions may be paid in cash, property or Shares, or
a combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 6.7.
Section 6.4. Assets and Liabilities of Series and Classes. All
consideration received by the Corporation for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be referred to as "assets belonging to"
that Series or Class, as the case may be. In addition, any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated between and among one or more of the Series or Classes in such manner
as the Board of Directors, in its sole discretion, deems fair and equitable.
Each such allocation shall be conclusive and binding upon the Stockholders of
all Series or Classes for all purposes, and shall be referred to as assets
belonging to that Series or Class. The assets belonging to a particular Series
or Class shall be so recorded upon the books of the Corporation. The assets
belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class, as the case may be. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which are
not readily identifiable as belonging to any particular Series or Class shall be
allocated between or among any one or more of the Series or Classes in such a
manner as the Board of Directors in its sole discretion deems fair and
equitable. Each such allocation shall be conclusive and binding upon the
Stockholders of all Series or Classes for all purposes.
Section 6.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his name on the
books of the Corporation; provided, however, that when required by the 1940 Act
or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of such Series or Class only, and each
holder of Shares thereof shall be entitled to votes equal to the number of full
and fractional Shares of the Series or Class standing in his name on the books
of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares of capital stock of the Corporation outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of
business at a Stockholders' meeting, except that where holders of any Series or
Class vote as a Series or Class, one-third of the aggregate number of Shares of
that Series or Class outstanding and entitled to vote shall constitute a quorum
for the transaction of business by that Series or Class.
Section 6.6. Redemption by Stockholders. Each holder of Shares shall
have the right at such times as may be permitted by the Corporation to require
the Corporation to redeem all or
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any part of his Shares at a redemption price per Share equal to the net asset
value per Share as of such time as the Board of Directors shall have prescribed
by resolution, minus any applicable sales charge or redemption or repurchase
fee. In the absence of such resolution, the redemption price per Share shall be
the net asset value next determined (in accordance with Section 6.7) after
acceptance of a request for redemption in proper form less such charges as are
determined by the Board of Directors and described in the Corporation's
registration statement under the Securities Act of 1933, except that Shares may
be redeemed by an underwriter at (a) the net asset value next determined after
such requests are received by a dealer with whom such underwriter has a sales
agreement or (b) the net asset value determined at a later time. The Board of
Directors may specify conditions, prices, and places of redemption, and may
specify binding requirements for the proper form or forms of requests for
redemption. The Corporation may require Stockholders to pay a sales charge to
the Corporation, the underwriter or any other person designated by the Board of
Directors upon redemption or repurchase of Shares of any Series or Class, in
such amount as shall be determined from time to time by the Directors. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of net asset
value, or may be in cash. Notwithstanding the foregoing, the Board of Directors
may postpone payment of the redemption price and may suspend the right of the
holders of Shares to require the Corporation to redeem Shares during any period
or at any time when and to the extent permissible under the 1940 Act.
Section 6.7. Net Asset Value per Share. The net asset value of each
Share of each Series or Class shall be the quotient obtained by dividing the
value of the total assets of the Series or Class, less liabilities and expenses
of that Series or Class, by the total number of Shares of the Series or Class
outstanding. The Board of Directors shall have the power and duty to determine,
in accordance with generally accepted accounting principles, the net income,
total assets and liabilities of the Corporation and the net asset value per
Share of each Series and Class of Shares at such times and by such methods as it
shall determine subject to any restrictions or requirements under the 1940 Act
and the rules, regulations and interpretations thereof promulgated or issued by
the Securities and Exchange Commission or insofar as permitted by any order of
the Securities and Exchange Commission applicable to the Corporation. The Board
of Directors may delegate such power and duty to any one or more of the
directors and officers of the Corporation, to the Corporation's investment
adviser, to the custodian or depository of the Corporation's assets, or to
another agent or contractor of the Corporation.
Section 6.8. Redemption by the Corporation. The Board of Directors may
cause the corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than two thousand dollars ($2,000). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his Shares to two thousand dollars ($2,000). Upon redemption of Shares pursuant
to this Section, the Corporation shall promptly cause payment of the full
redemption price, in any permissible form, to be made to the holder of Shares so
redeemed. The Board of Directors may by a majority vote establish from time to
time amounts less than two thousand dollars ($2,000) at which the Corporation
will redeem Shares pursuant to this Section.
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<PAGE>
SEVENTH: Section 7.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 7.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
EIGHTH: Except as otherwise required by the 1940 Act, a majority of all
the votes cast at a Stockholders' meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting.
Notwithstanding any provision of law requiring a greater proportion than a
majority of the vote thereon as a separate Class or Series (or of any Class or
Series entitled to vote thereon as a separate Class or Series) to take or
authorize any action, the Corporation is hereby authorized in accordance with
the authority granted by Section 2-104(b)(5) of the Maryland General Corporation
Law, to take such action upon the concurrence of a majority of the aggregate
number of Shares entitled to vote thereon (or of a majority of the aggregate
number of Shares of a Class or Series entitled to vote thereon as a separate
Class or Series). The right to cumulate votes in the election of directors is
expressly prohibited.
NINTH: Section 9.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be vested
in and exercised by the Board of Directors. The number of directors constituting
the Board of Directors shall be such number as may from time to time be fixed in
or in accordance with the By-Laws of the Corporation, provided that if there is
no stock outstanding, the number of directors may be less than three but not
less than one, and further provided that if there is stock outstanding and so
long as there are less than three Stockholders, the number of directors may be
less than three but not less than the number of Stockholders. Except as provided
in the By-Laws, the election of directors may be conducted in
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any way approved at the meeting (whether of stockholders or directors) at which
the election is held, provided that such election shall be by ballot whenever
requested by any person entitled to vote. The name of the person who shall act
as initial director until stock is issued to more than one stockholder or the
first meeting of stockholders, whichever shall occur earlier, and until her
successor has been duly chosen and qualified is Marie K. Karpinski.
Section 9.2. By-Laws. Except as may otherwise be provided in the
By-Laws, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend and repeal By-Laws or to adopt new By-Laws of the
Corporation, without any action on the part of the Stockholders; but the By-Laws
made by the Board of Directors and the power so conferred may be altered or
repealed by the Stockholders.
Section 9.3. Inspection of Records. The Board of Directors shall have
the power to determine whether and to what extent, and at what times and places,
and under what conditions and regulation, the accounts and books of the
Corporation (other than the stock ledger), or any of them, shall be open to
inspection by stockholders. No stockholders shall have any right to inspect any
account, book, or document of the Corporation, except to the extent permitted by
statute or the By-Laws.
TENTH: Section 10.1. The Board of Directors may in its discretion from
time to time enter into an exclusive or nonexclusive distribution contract or
contracts providing for the sale of Shares whereby the Corporation may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such Shares (such other party being herein sometimes
called the "underwriter"), and in either case on such terms and conditions as
may be prescribed in the By-Laws, if any, and such further terms and conditions
as the Board of Directors may in its discretion determine not inconsistent with
the provisions of these Articles of Incorporation. Such contract may also
provide for the repurchase of Shares of the Corporation by such other party or
parties as agent of the Corporation. The Board of Directors may also in its
discretion from time to time enter into an investment advisory or management
contract or contracts whereby the other party to such contract shall undertake
to furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 10.2. Any contract of the character described in Section 10.1
or for services as administrator, custodian, transfer agent or disbursing agent
or related services may be entered into with any corporation, firm, trust or
association, although any one or more of the directors or officers of the
Corporation may be an officer, director, trustee, stockholder or member of such
other party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Corporation under or by reason of
said contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was reasonable and fair
and not inconsistent with the provisions of this Article TENTH. The same person
(including a firm, corporation, trust, or association) may be the other party to
any or all of the contracts entered into
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pursuant to Section 10.1 above, and any individual may be financially interested
or otherwise affiliated with persons who are parties to any or all of the
contracts mentioned in this Section 10.2.
ELEVENTH: Section 11.1. To the maximum extent permitted by applicable
law (including Maryland law and the 1940 Act) as currently in effect or as it
may hereafter be amended, no director or officer of the Corporation shall be
liable to the Corporation or its stockholders for money damages.
Section 11.2. To the maximum extent permitted by applicable law
(including Maryland law and the 1940 Act) currently in effect or as it may
hereafter be amended, the Corporation shall indemnify and advance expenses to
its present and past directors, officers, or employees, and persons who are
serving or have served at the request of the Corporation as a director, officer,
employee, partner, trustee or agent, of or in similar capacities, for other
entities. The Board of Directors may determine that the Corporation shall
provide information or advance expenses to an agent.
Section 11.3. Repeal or Modifications. No repeal or modification of
this Article ELEVENTH by the stockholders of the Corporation, or adoption or
modification of any other provision of the Articles of Incorporation or By-Laws
inconsistent with this Article ELEVENTH, shall repeal or narrow any limitation
on (1) the liability of any director, officer or employee of the Corporation or
(2) right of indemnification available to any person covered by these provisions
with respect to any act or omission which occurred prior to such repeal,
modification or adoption.
TWELFTH: The Corporation reserves the right from time to time to make
any amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at any meeting of
the stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon. The Board of Directors may, without a Shareholder
vote, order the filing of Articles Supplementary increasing or decreasing the
aggregate number of Shares or the number of Shares of any Series or Class that
the Corporation has authority to issue, establishing new Series or Classes and
describing the Shares thereof.
IN WITNESS WHEREOF, the undersigned incorporator of LEGG MASON LIGHT
STREET TRUST, INC. has executed the foregoing Articles of Incorporation and
hereby acknowledges the same to be her act and further acknowledges that, to the
best of her knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 5th day of August, 1998.
/s/ Stephanie L. Bourque
______________________________
Stephanie L. Bourque
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BYLAWS
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
Section 1.01 Name: The name of the Corporation is Legg Mason Light
Street Trust, Inc.
Section 1.02 Principal Offices: The principal office of the Corporation
in the State of Maryland shall be located in the City of Baltimore. The
Corporation may establish and maintain such other offices and places of business
as the board of directors may, from time to time, determine. Except as provided
in Section 2.10, the board of directors may keep the books of the Corporation at
any office of the Corporation or at any other place within the United States as
it may from time to time determine.
Section 1.03 Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of the
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the board of directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01 Annual Meetings: There shall be no stockholder's
meetings for the election of directors and the transaction of other business
except as required by law or as hereinafter provided.
Section 2.02 Special Meetings: Special meetings of the stockholders may
be called at any time by the chairman of the board, the president, any vice
president, or a majority of the board of directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 25% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding 12 months.
Section 2.03 Place of Meetings: All stockholders' meetings shall be
held at the principal office of the Corporation, except that the board of
directors may fix a different place of meeting, which shall be specified in each
notice or waiver of notice of the meeting.
Section 2.04 Notice of Meetings: The secretary shall cause notice of
the place, date and hour, and, in the case of a special meeting or as otherwise
required by law, the purpose or purposes for which the meeting is called, to be
mailed, not less than 10 nor more than 90 days before the date of the meeting,
to each stockholder entitled to vote at such meeting, at his address as it
appears on the records of the Corporation at the time of such mailing. Notice of
any stockholders' meeting need not be given to any stockholder who shall sign a
written waiver of such notice whether before or after the time of such meeting,
which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
<PAGE>
Section 2.05 Voting - In General: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time,
all matters shall be decided by a vote of the majority of the votes validly cast
at a meeting at which a quorum is present. The vote upon any question shall be
by ballot whenever requested by any person entitled to vote, but, unless such a
request is made, voting may be conducted in any way approved by the meeting.
At any meeting at which there is an election of directors, the chairman
of the meeting may, and upon the request of the holders of 10% of the stock
entitled to vote at such election shall, appoint two inspectors of election who
shall first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed as an inspector.
Section 2.06 Stockholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock of the appropriate series of shares
("Series") or class of shares ("Class") of the Corporation standing in his name
on the books of the Corporation on such record date and outstanding at the time
of the meeting. If no record date has been fixed by the board of directors for
the determination of stockholders entitled to notice of or to vote at a meeting,
the record date for the meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 30 days before the meeting, whichever is the closer
date to the meeting; or, (b) if notice is waived by all stockholders, at the
close of business on the tenth day next preceding the day on which the meeting
is held.
Section 2.07 Voting - Proxies: A stockholder may vote the stock he owns
of record by written proxy executed by the stockholder himself or by his duly
authorized attorney in fact. No proxy shall be voted after eleven months from
its date unless it provides for a longer period. Each proxy shall be dated, but
need not be sealed, witnessed or acknowledged. Proxies shall be delivered to an
inspector of election or, if no inspector has been appointed, then to the
secretary of the Corporation, or person acting as secretary of the meeting,
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives from any one of them written
notice to the contrary and a copy of the instrument or order which so provides.
A proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid unless challenged at or prior to its exercise. A proxy in the form
of a telegram, datagram or telex shall not be valid; however, a mechanical or
electronic facsimile of an otherwise valid proxy shall be valid.
Section 2.08 Quorum: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by proxy,
of stockholders entitled to cast one-third of all the votes entitled to be cast
thereat shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 2.09 Absence of Quorum: In the absence of a quorum, the holders
or proxies of a majority of the shares present at the meeting in person or by
proxy and entitled to vote thereat, or, if no stockholder entitled to vote is
present thereat in person or by proxy, any officer present thereat entitled to
preside or act as secretary of such meeting, may adjourn the meeting without
determining the date of the new meeting or from time to time, without further
notice, to a date not more than 120 days after the original record date. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a quorum is present.
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Section 2.10 Stock Ledger and List of Stockholders: It shall be the
duty of the secretary or assistant secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent. Such stock ledger may be in written form or any
other form capable of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom has been a
stockholder of record of the Corporation for at least the six months next
preceding such request, and who own in the aggregate 5% or more of the
outstanding capital stock of the Corporation, may, in person or by agent, upon
written request, inspect and copy during usual business hours the corporation's
stock ledger at its principal office in Maryland; and may submit (if the
Corporation at the time of the request does not maintain a duplicate stock
ledger at its principal office in Maryland) a written request to any officer of
the Corporation or its resident agent in Maryland for a list of the stockholders
of the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office in Maryland a list containing
the names and addresses of all stockholders of the Corporation and the number of
shares of each class held by each stockholder, certified as correct by an
officer of the Corporation, by its stock transfer agent, or by its registrar.
Notwithstanding the foregoing, whenever ten or more shareholders of record who
have been such for at least six months preceding such request, and who own in
the aggregate either shares having a net asset value of at least $25,000 or at
least one percent of the outstanding shares, whichever is less, shall apply to
the secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a special
meeting of shareholders to vote upon the removal of one or more directors, and
including with the application a form of communication and request which they
wish to transmit, the Fund shall, within five business days after receipt of
such application, either: (1) afford to such applicants access to a list of the
names and addresses of all shareholders as recorded on the books of the Fund; or
(2) inform the applicants as to the approximate cost of mailing to them the
proposed communication and form of request, and, upon the written request of the
applicants, accompanied by a tender of the material to be mailed and of
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record; provided, however, that the Fund may
avail itself of any of the rights afforded to a common law trust pursuant to
Section 16(c) of the Investment Company Act of 1940.
Section 2.11 Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Number and Term of Office: The board of directors shall
consist of seven directors, which number may be increased or decreased by a
resolution of a majority of the entire board of directors; provided that the
number of directors shall not be less than three nor more than twenty; and
further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is a stock
outstanding and so long as there are less than three stockholders, the number of
directors may be less than three but not less than the number of stockholders.
Each director (whenever selected) shall hold office until his successor is
elected and qualified or until his earlier death, resignation or removal.
Section 3.02 Qualification of Directors: After stock has been issued to
more than one person, at least one of the members of the board of directors
shall be a person who is not an "interested person" of the Corporation, as
defined in the Investment Company Act of 1940, as amended.
Section 3.03 Election of Directors: The initial director or directors
of the Corporation shall be that person or those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected by the stockholders on
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a date fixed by the board of directors. A plurality of all the votes validly
cast at a meeting at which a quorum is present in person or by proxy is
sufficient to elect a director.
Section 3.04 Removal of Directors: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, and at the same meeting a
duly qualified person may be elected in his stead by a plurality of the votes
validity cast.
Section 3.05 Vacancies and Newly Created Directorships: If any
vacancies shall occur in the board of directors by reason of death, resignation,
removal or otherwise, or if the authorized number of directors shall be
increased, the directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a
majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire board of directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders shall be held promptly and in any event within 60 days (unless
the Securities and Exchange Commission shall by rule or order extend such
period) for the purpose of electing directors to fill any existing vacancies in
the board of directors.
Section 3.06 General Powers:
(a) The property, affairs and business of the Corporation shall be
managed by or under the direction of the board of directors, which may exercise
all the powers of the Corporation except those powers vested solely in the
stockholders of the Corporation by statute, by the Articles of Incorporation, or
by these By-Laws.
(b) All acts done by any meeting of the directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07 Power to Issue and Sell Stock: The board of directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the board of directors shall deem advisable, subject to the provisions of
Articles Sixth and Seventh of the Articles of Incorporation.
Section 3.08 Power to Declare Dividends:
(a) The board of directors, from time to time as it may deem advisable,
may declare and pay dividends in stock, cash or other property of the
Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The board of directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
i) the Corporation's accumulated undistributed net income
(determined in accordance with good accounting practice and
the rules and regulations of the Securities
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and Exchange Commission then in effect) and not including
profits or losses realized upon the sale of securities or
other properties; or
ii) the Corporation's net income so determined for the current
or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Securities and
Exchange Commission may prescribe.
Section 3.09 Annual and Regular Meetings The annual meeting of the
board of directors for choosing officers and transacting other proper business
shall be held at such time and place as the board may determine. The board of
directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place, which need not be in the State of
Maryland. Except as otherwise provided under the Investment Company Act of 1940,
notice of such annual and regular meetings need not be given, provided that
notice of any change in the time or place of such meetings shall be sent
promptly, in the manner provided for notice of special meetings, to each
director not present at the meeting at which such change was made. Except as
otherwise provided under the Investment Company Act of 1940, as amended, members
of the board of directors or any committee designated thereby may participate in
a meeting of such board or committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time; and participation by such
means shall constitute presence in person at a meeting.
Section 3.10 Special Meetings: Special meetings of the board of
directors shall be held whenever called by the chairman of the board, the
president (or, in the absence or disability of the president, by any vice
president), the treasurer, or two or more directors, at the time and place
(which need not be in the State of Maryland) specified in the respective notices
or waivers of notice of such meetings.
Section 3.11 Notice: Except as otherwise provided, notice of any
special meeting shall be given by the secretary to each director, by mailing to
him, postage prepaid, addressed to him at his address as registered on the books
of the Corporation or, if not so registered, at his last known address, a
written or printed notification of such meeting at least three days before the
meeting or by delivering such notice to him at least two days before the
meeting, or by sending such notice to him at least 24 hours before the meeting,
by prepaid telegram, addressed to him at his said registered address, if any, or
if he has no such registered address, at his last known address.
Section 3.12 Waiver of Notice: No notice of any meeting need be given
to any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
Section 3.13 Quorum and Voting: At all meetings of the board of
directors the presence of one-half or more of the number of directors then in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no fewer than two directors (unless the Corporation, at
the time, has only one director). In the absence of a quorum, a majority of the
directors present may adjourn the meeting, from time to time, until a quorum
shall be present. The action of a majority of the directors present at a meeting
at which a quorum is present shall be the action of the board of directors
unless the concurrence of a greater proportion is required for such action by
law, by the Articles of Incorporation or by these By-Laws.
Section 3.14 Compensation: Each director may receive such remuneration
for his services as shall be fixed from time to time by resolution of the board
of directors.
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Section 3.15 Action Without a Meeting: Except as otherwise provided
under the Investment Company Act of 1940, as amended, any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting if written consents thereto are signed by all members of the
board and such written consents are filed with the records of the meetings of
the board.
Section 3.16 Chairman of the Board: The board of directors, at its
first meeting and thereafter at its annual meeting, shall elect from among the
directors a chairman of the board, who shall serve at the pleasure of the board
of directors. If the board of directors does not elect a chairman at any annual
meeting, it may do so at any subsequent regular or special meeting. The chairman
of the board shall hold office until the next annual meeting of the board of
directors and until his successor shall have been chosen and qualified. If the
office of chairman of the board shall become vacant for any reason, the board of
directors may fill such vacancy at any regular or special meeting. The chairman
of the board shall preside at all stockholders' meetings and at all meetings of
the board of directors and shall have such powers and perform such duties as may
be assigned to him from time to time by the board of directors. The chairman of
the board shall not be considered an officer of the Corporation by reason of
holding said position.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01 How Constituted: By resolution adopted by the board of
directors, the board may designate an executive committee, consisting of not
less than three nor more than five directors. The board may also designate
additional committees consisting of at least two directors. Each member of a
committee shall be a director and shall hold office during the pleasure of the
board. The chairman of the board, if any, and the president shall be members of
the executive committee.
Section 4.02 Powers of the Executive Committee: Unless otherwise
provided by resolution of the board of directors, when the board of directors is
not in session the executive committee shall have and may exercise all powers of
the board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by the full board of directors,
except the power to declare a dividend, to authorize the issuance of stock, to
recommend to stockholders any matter requiring stockholders' approval, to amend
the By-Laws, or to approve any merger or share exchange which does not require
shareholder approval.
Section 4.03 Proceedings, Quorum and Manner of Acting: In the absence
of an appropriate resolution of the board of directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of such rules, the proceedings,
quorum and manner of acting of a committee shall be governed by the rules
applicable to the full board of directors. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the board of directors to act in
the place of such absent member.
Section 4.04 Other Committees: The board of directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or another committee thereof.
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ARTICLE V
OFFICERS
Section 5.01 General: The officers of the Corporation shall be a
president, a secretary and a treasurer, and may include one or more vice
presidents, assistant secretaries or assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.10
hereof.
Section 5.02. Election, Term of Office and Qualifications: The officers
of the Corporation (except those appointed pursuant to Section 5.10 hereof)
shall be elected by the board of directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not elected at
any annual meeting, such officers may be elected at any subsequent regular or
special meeting of the board. Except as provided in Sections 5.03, 5.04 and 5.05
hereof, each officer chosen by the board of directors shall hold office until
the next annual meeting of the board of directors and until his successor shall
have been chosen and qualified. Any person may hold one or more offices of the
Corporation except that the president may not hold the office of vice president,
and provided further that a person who holds more than one office may not act in
more than one capacity to execute, acknowledge or verify an instrument required
by law to be executed, verified or acknowledged by more than one officer. No
officer need be a director.
Section 5.03. Resignation: Any officer may resign his office at any
time by delivering a written resignation to the board of directors, the
president, the secretary, or any assistant secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 5.04. Removal: Any officer may be removed from office whenever
in the board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the board of directors given at a regular
meeting or any special meeting called for such purpose. In addition, any officer
or agent appointed in accordance with the provisions of Section 5.10 hereof may
be removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the board of directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the board of directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.10
hereof, by any officer upon whom such power shall have been conferred by the
board of directors.
Section 5.06. President. The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the board,
shall preside at all stockholders' meetings and at all meetings of the board of
directors. Subject to the supervision of the board of directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Subject to the
provisions of Section 7.01 and except as the board of directors may otherwise
order, he may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts or agreements. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the board of
directors.
Section 5.07. Vice President. The board of directors may from time to
time designate and elect one or more vice presidents who shall have such powers
and perform such duties as from time to time may be assigned to them by the
board of directors or the president. At the request or in the absence or
disability of the president, the vice president or, if there are two or more
vice presidents, then the senior of the vice presidents present and able to act)
may perform all of the duties of the president and, when so acting, shall have
all the powers of and be subject to all the restrictions upon the president.
Section 5.08. Treasurer and Assistant Treasurers: The treasurer shall
be the principal financial and accounting officer of the Corporation. He shall
deliver all funds and securities of the Corporation
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which may come into his hands to such bank or trust company as the board of
directors shall employ as Custodian. He shall prepare annually a full and
correct statement of the affairs of the Corporation, including a balance sheet
and a financial statement of operations for the preceding fiscal year, which
shall be filed at the Corporation's principal office within 120 days after the
end of the fiscal year. The treasurer shall furnish such other reports regarding
the business and condition of the Corporation as the board of directors may from
time to time require and perform such duties additional to the foregoing as the
board of directors may from time to time designate.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.09. Secretary and Assistant Secretaries: The secretary shall
attend to the giving and serving of all notices of the Corporation and shall act
as secretary at, and record all proceedings of, the meetings of the stockholders
and directors in the books to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
board of directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable times
be open to inspection by any director. At every meeting of the stockholders, he
shall receive and take charge of and/or canvass all proxies and/or ballots, and
shall decide all questions affecting the qualification of voters, the validity
of proxies and the acceptance or rejection of votes, except that the chairman
may assign such duties to inspectors of election pursuant to Section 2.05
hereof. He shall perform such other duties as appertain to his office or as may
be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.10. Subordinate Officers: The board of directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The board of
directors from time to time may delegate to one or more officers or agents the
power to appoint and remove any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Section 5.11. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the board of directors, except that the board of directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.0 hereof.
Section 5.12 Surety Bonds: The board of directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the board of
directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. Employment of Custodian: The Corporation shall at all
times employ a bank or trust company organized under the laws of the U.S. or one
of the states thereof and having capital, surplus and undivided profits of at
least two million dollars ($2,000,000) as custodian with authority as its
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agent, but subject to such restrictions, limitations and other requirements, if
any, as may be contained in these By-Laws:
(1) to hold the securities owned by the Corporation and deliver the
same upon written order or oral order, if confirmed in writing, or by
such electro-mechanical or electronic devices as are agreed to by the
Corporation and the custodian, if such procedures have been authorized
in writing by the Corporation;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking department or elsewhere as the
Directors may direct; and
(3) to disburse such moneys upon orders or vouchers; and the
Corporation may also employ such custodian as its agent;
(4) to keep the books and accounts of the Corporation and furnish
clerical and accounting services thereto; and
(5) to compute, if authorized to do so by the Directors, the net asset
value of any Series in accordance with the provisions of the Articles
of Incorporation;
all upon such basis of compensation as may be agreed upon between the Directors
and the custodian. If so directed by a vote of a majority of the outstanding
shares of the Corporation entitled to vote, the custodian shall deliver and pay
over all property of the Corporation held by it as specified in such vote.
The Directors may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Directors, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act.
Section 6.02. Use of Central Securities Handling System: Subject to
such rules, regulations and orders as the Commission may adopt, the Directors
may direct the custodian to deposit all or any part of the securities owned by
the Corporation in a system for the central handling of securities established
by a national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Corporation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Sections 5.07,
6.03, 7.02 and 8.03 hereof, all deeds, documents, transfers, contracts,
agreements and other instruments requiring execution by the Corporation shall be
signed by the president or a vice president and by the treasurer or secretary or
an assistant treasurer or an assistant secretary, or as the board of directors
may otherwise, from time to time, authorize. Any such authorization may be
general or confined to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
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otherwise authorized by the board of directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or such
nominee and only by the treasurer or president or a vice president or by such
other person or persons as shall be authorized by the board of directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the
board of directors, the president or any vice president shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The board of directors may by resolution from time to time confer like powers
upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Certificates of Stock: Certificates of stock shall not
be issued.
Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of any Series or Class of the Corporation shall
be made on the books of the Corporation by the holder of record thereof (in
person or by his attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) as
prescribed by the board of directors.
(b) The Corporation shall be entitled to treat the holder of record of
any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the statues of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The board of directors
may, from time to time, appoint or remove transfer agents or registrars of
shares of any Series or Class of the Corporation.
Section 8.04. Transfer Regulations: Except as provided in the Articles
of Incorporation, the shares of any Series of the Corporation may be freely
transferred, subject to the charging of customary transfer fees, and the board
of directors may, from time to time, adopt rules and regulations with reference
to the method of transfer of the shares of any Series or Class of the
Corporation.
Section 8.05. Fixing of Record Date: The board of directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken, except as otherwise provided by law.
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ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall,
unless otherwise ordered by the board of directors, be twelve calendar months
ending on the 31st day of March in each year.
Section 9.02. Accountant:
(a) The Corporation shall employ an independent accountant or firm of
independent accountants as its accountant to examine the account of the
Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the board of directors and to the stockholders.
(b) A majority of the members of the board of directors who are not
"interested persons" (as such term is defined in the Investment Company Act of
1940, as amended) of the Corporation shall select the accountant at any meeting
held within 90 days before or after the beginning of the fiscal year of the
Corporation or before the annual stockholders' meeting (if any) in that year.
Such selection shall be submitted for ratification or rejection at the next
succeeding stockholders' meeting, when and if such meeting is held. If such
meeting shall reject such selection, the accountant shall be selected by
majority vote of the Corporation's outstanding voting securities, either at the
meeting at which the rejection occurred or at a subsequent meeting of
stockholders called for that purpose.
(c) Any vacancy occurring between meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
board of directors who are not such interested persons.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding'), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually incurred,
and judgments, fines, penalties and amounts paid in settlement in connection
with such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions shall
apply with respect to indemnification of the Corporation's directors, officers,
and investment adviser (as defined in the Investment Company act of 1940, as
amended):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for any
liability arising by reason of such person's willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office or reckless disregard of his duties under any contract or
agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the proceeding was
brought (a) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (b) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
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(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (a) the vote of
a majority of a quorum of the directors of the Corporation
who are neither "interested persons" of the Corporation as
defined in the Investment Company act of 1940, as amended,
nor parties to the Proceeding, or (b) if a majority of a
quorum of directors described above so directs, or if such
quorum is not obtainable, based upon a written opinion by
independent legal counsel, that such person was not liable
by reason of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will be paid by
the Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses unless it is
ultimately determined that he or she is entitled to
indemnification, if:
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation
who are neither "interested persons" of the Corporation as
defined in the Investment Company act of 1940, as amended,
nor parties to the proceeding, or independent legal
counsel in a written opinion, shall determine, based on a
review of readily available facts, that there is reason to
believe that such person will be found to be entitled to
indemnification.
Section 10.02. Insurance of Officers, Directors, Employees and Agents:
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his or her position.
Section 10.03. Non-exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Sections 11.02 and 11.03
hereof, all By-Laws of the Corporation, whether adopted by the board of
directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-Laws may be made, by the affirmative vote of a majority of
either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law.
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Section 11.02. By Stockholders Only:
(a) No amendment of any section of these By-Laws shall be made except
by the stockholders of the Corporation if the By-Laws provide that such section
may not be amended, altered or repealed except by the stockholders.
(b) From and after the issuance of any shares of the capital stock of
the Corporation, no amendment of this Article XI shall be made except by the
stockholders of the Corporation.
Section 11.03. Limitation on Amendment: No amendment to Article X of
these By-Laws shall narrow or eliminate any right to expenses, indemnification
or insurance for any claim or proceeding arising out of conduct occurring prior
to said amendment.
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