As filed with the Securities and Exchange Commission on January 22, 1999.
1933 Act File No. 333-61525
1940 Act File No. 811-08943
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: 1 [X]
----------
Post-Effective Amendment No: [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 1
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 4
How You Can Invest in the Fund 7
How Your Shareholder Account is Maintained 8
How You Can Redeem Your Primary Shares 8
How Net Asset Value is Determined 10
Dividends and Other Distributions 10
Tax Treatment of Dividends and Other Distributions 11
Shareholder Services 11
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 o 539 o 0000 800 o 822 o 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
- --------------------------------------------------------------------------------
Legg Mason
Market Neutral Trust
A Series of
LEGG MASON
LIGHT STREET
TRUST, INC.
Prospectus
, 1999
Primary Shares
- --------------------------------------------------------------------------------
[Legg Mason's Logo appears here]
HOW TO INVEST(SM)
- --------------------------------------------------------------------------------
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.
<PAGE>
LEGG MASON LIGHT STREET TRUST, INC. -- PRIMARY SHARES
<TABLE>
<S> <C>
LEGG MASON MARKET NEUTRAL TRUST
</TABLE>
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 , 1999 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
, 1999
Legg Mason Wood Walker, Incorporated
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 o 539 o 0000
800 o 822 o 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.
<TABLE>
<S> <C>
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
-----
</TABLE>
---------------------
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 and
estimated total operating expenses relating to Primary Shares would have
been 1.90% 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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
-------------------
$30 $93
</TABLE>
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.
U.S. equity funds have grown significantly in recent years. The
average long-term total return of general equity funds as reported by
Lipper Analytical Services, Inc. over the last 25 years ending September
30, 1998 has been 12.64%, although in some years there has been a negative
total return. Because of its market neutral strategy, the performance of
this Fund may not be correlated to that of other U.S. equity funds.
--------------------------------
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 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 will consist 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 more 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 an
attempt 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. However, the Fund will generally sell short securities with a
market value in excess of 90% 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
<PAGE>
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. Most collateral will be deposited
with a single broker, designated as the Fund's "prime broker." 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 but will not exceed 700% per
year. High portfolio turnover (100% or more) 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
For temporary defensive purposes, the Fund may invest without limit in
repurchase agreements and money market instruments, including high-
6
<PAGE>
quality short-term debt securities. The Fund may also invest in these
instruments when cash is temporarily available.
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 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.
The Fund and Legg Mason may reject purchase orders from investors who
have purchased and redeemed or exchanged Fund shares four or more times in
any twelve month period. The Fund will use the "last-in, first-out" method
to determine the twelve month holding period. Under this method, the date
of each redemption or exchange will be compared with the most recent
purchase date of shares held in the account. If this holding period is
less than twelve months, and if the shareholder has purchased and redeemed
or exchanged shares four or more times during this holding period, the
Fund and Legg Mason may
7
<PAGE>
reject future purchase orders from that shareholder.
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, 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.
8
<PAGE>
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;
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 is intended for long-term investors. Short-term "market
timers" who engage in frequent purchases and redemptions affect the Fund's
investment planning and create additional transaction costs which are
borne by all shareholders. For this reason the Fund reserves the right to
impose a redemption fee on the proceeds of shares redeemed or exchanged
within one year of purchase, if that should become necessary in the
judgment of the Board of Directors.
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
9
<PAGE>
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 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
10
<PAGE>
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 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
11
<PAGE>
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 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. In
addition, the Fund and Legg Mason may reject purchase orders from
investors who have purchased and sold Fund shares (including purchases and
sales through exchange) four or more times in any twelve month period. See
page 7. 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.
12
<PAGE>
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 nineteen investment company
portfolios which had aggregate assets under management of approximately
$14.8 billion as of December 31, 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 December 31, 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
A Batterymarch investment team is 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
13
<PAGE>
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 with 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 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
14
<PAGE>
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 25% 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.
15
<PAGE>
- --------------------------------------------------------------------------------
THE
NAVIGATOR
CLASS
OF THE
LEGG MASON MARKET
NEUTRAL TRUST
A SERIES OF THE
LEGG MASON
LIGHT STREET
TRUST INC.
--------------
- --------------------------------------------------------------------------------
Prospectus
[ ], 1999
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.
721 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 Fund's logo appears here]
HOW TO INVEST(SM)
<PAGE>
Navigator Market Neutral Trust
Prospectus dated [ ], 1999
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 [ ], 1999 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.
Table of Contents
<TABLE>
<S> <C>
Expenses 2
Performance Information 2
Investment Objectives and Policies 3
How To Purchase and Redeem Shares 5
How Shareholder Accounts are
Maintained 7
How Net Asset Value is Determined 7
Dividends and Other Distributions 7
</TABLE>
<TABLE>
<S> <C>
Tax Treatment of Dividends and
Other Distributions 8
Shareholder Services 8
The Fund's Management and Investment
Advisers 9
The Fund's Distributor 10
Description of The Corporation
and its Shares 10
</TABLE>
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
<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)
<TABLE>
<S> <C>
Management fees 1.20%A
12b-1 fees None
Other expenses 0.80%
---------
Total operating expenses 2.00%A
=========
</TABLE>
--------------------
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 and
estimated total operating expenses relating to Navigator Shares would
have been 1.90% and 2.70% of average net assets.
For further information concerning the Fund's expenses, please
see "The Fund's Management and Investment Adviser."
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.
<TABLE>
<CAPTION>
1 Year 3 Years
-------- --------
<S> <C>
$20 $63
</TABLE>
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.
-------------------------------------------------------
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.
U.S. equity funds have grown significantly in recent years. The
average long-term total return of general equity funds as reported by
Lipper Analytical Services, Inc. over the last 25 years ending September
30, 1998 has been 12.64%, although in some years there has been a
negative total return.
Because of its market neutral strategy, the performance of this
Fund may not be correlated to that of other U.S. equity funds.
2
<PAGE>
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 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 will consist 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 more 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 an
attempt 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
3
<PAGE>
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. However, the Fund will generally sell short
securities with a market value in excess of 90% 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. Most collateral will
be deposited with a single broker, designated as the Fund's "prime
broker." 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 but will not
exceed 700% per year. High portfolio turnover (100% or more) 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
4
<PAGE>
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
For temporary defensive purposes, the Fund may invest without
limit in repurchase agreements and money market instruments, including
high-quality short-term debt securities. The Fund may also invest in
these instruments when cash is temporarily available.
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 721
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."
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.
The Fund and Legg Mason may reject purchase orders from investors
who have purchased
5
<PAGE>
and redeemed or exchanged Fund shares four or more times in any twelve
month period. The Fund will use the "last-in, first-out" method to
determine the twelve month holding period. Under this method, the date
of each redemption or exchange will be compared with the most recent
purchase date of shares held in the account. If this holding period is
less than twelve months, and if the shareholder has purchased and
redeemed or exchanged shares four or more times during this holding
period, the Fund and Legg Mason may reject future purchase orders from
that shareholder.
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 is intended for long-term investors. Short-term "market
timers" who engage in frequent purchases and redemptions affect the
Fund's investment planning and create additional transaction costs
which are borne by all shareholders. For this reason the Fund reserves
the right to impose a redemption fee on the proceeds of shares redeemed
or exchanged within one year of purchase, if that should become
necessary in the judgment of the Board of Directors.
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 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
6
<PAGE>
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 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., 721 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 divi-
7
<PAGE>
dends 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 4.
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 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., 721 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
8
<PAGE>
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." 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.
In addition, the Fund and Legg Mason may reject purchase orders from
investors who have purchased and sold Fund shares (including purchases
and sales through exchange) four or more times in any twelve month
period. See page 5. Some Institutional Clients may not offer all of the
Navigator 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.
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 under federal and
state law, governmental fees and expenses incurred in connection with
industry organizations.
LMFA
LMFA acts as adviser or manager to nineteen investment company
portfolios which had aggregate assets under management of approximately
$14.8 billion as of December 31, 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
December 31, 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
A Batterymarch investment team is 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
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<PAGE>
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.
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.
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 25% 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.
10
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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
[ ] [ ], 1999
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 [ ] , 1999), 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 long-term capital
appreciation while minimizing exposure to general U.S. equity market volatility.
It seeks to achieve its objective primarily by investing in a 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. With respect to 75% of total assets, invest more than 5% of its total
assets (taken at market value) in securities of any one issuer or purchase more
than 10% of the voting securities of any one issuer (other than, in each case,
securities of the U.S. Government, its agencies and instrumentalities, and
securities issued by other investment companies);
3. Invest 25% or more of its total assets (taken at market value) in
securities of issuers having their principal business activities in the same
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. Engage in the business of underwriting 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.
2
<PAGE>
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 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
3
<PAGE>
moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class."
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.
4
<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
<PAGE>
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.
The Fund reserves the right to impose a redemption fee on the proceeds
of shares redeemed within one year of purchase. The redemption fee would be paid
to the Fund to reimburse the Fund for transaction costs it incurs in entering
into coordinated long and short positions and liquidating them in order to fund
redemptions. The fee would not be paid to either LMFA or Legg Mason.
7
<PAGE>
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 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:
P(1+T)n = 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.
8
<PAGE>
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., 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
9
<PAGE>
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 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 $[82.1] billion as of December 31, 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
10
<PAGE>
$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; 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
11
<PAGE>
Mason Fund Adviser, Inc. and Western Asset Management Company (each a registered
investment 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.
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. 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
December 31, of the previous year.
The following table provides certain information relating to the
compensation of the Fund's directors for the calendar year ended December 31,
1998. The Fund has no retirement plan for its directors.
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------- ------------------------------- ------------------------------
Name of Person and Position Aggregate Compensation From Total Compensation From Fund
Fund* and Fund Complex Paid to
Directors*
- ---------------------------------- ------------------------------- ------------------------------
<S> <C> <C>
John F. Curley, Jr. -
Chairman of the Board and None None
Director
- ---------------------------------- ------------------------------- ------------------------------
Arnold L. Lehman - Director $0 $30,600
- ---------------------------------- ------------------------------- ------------------------------
Jill E. McGovern - Director $0 $35,100
- ---------------------------------- ------------------------------- ------------------------------
Richard G. Gilmore - Director $0 $35,100
- ---------------------------------- ------------------------------- ------------------------------
T.A. Rodgers - Director $0 $35,100
- ---------------------------------- ------------------------------- ------------------------------
Edward A. Taber - President and None None
Director
- ---------------------------------- ------------------------------- ------------------------------
</TABLE>
* Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1998.
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 January 19, 1999.
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
13
<PAGE>
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 December 28, 1998, 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 January 19,
1999.
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, 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.
Most of the Fund's brokerage transactions are carried out through a
single broker, designated as the Fund's "prime broker." The Fund may place its
trades with any one of a number of executing brokers. However, the prime broker
maintains an account with each executing broker, through which the Fund's trades
are processed. When the Fund sells a security short, the prime broker borrows
the security on the Fund's behalf, and the Fund posts collateral for the benefit
of the prime broker.
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<PAGE>
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 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.
15
<PAGE>
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 721 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 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
16
<PAGE>
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 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.
FINANCIAL STATEMENTS
Audited financial statements reflecting the initial seed capital of the
Fund are included on the following page.
17
<PAGE>
LEGG MASON LIGHT STREET TRUST, INC.:
LEGG MASON MARKET NEUTRAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 15, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash $100,000
Receivable from Legg Mason Fund
Adviser, Inc. $ 90,000
Deferred offering costs $ 33,000
--------
Total Assets $223,000
========
Payable to Legg Mason Fund Adviser,
Inc. $123,000
--------
Total Liabilities $123,000
========
Net Assets - Offering and redemption price of $10.00 per
share with 10,000 shares outstanding (450,000,000
shares par value $.001 per share authorized) $100,000
========
---------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JANUARY 15, 1999
Expenses $ 90,000
Expenses in excess of the expense limit ($90,000)
---------
Net Income $ 0
=========
</TABLE>
NOTES TO FINANCIAL STATEMENTS
A. Legg Mason Light Street Trust, Inc. ("Corporation") was organized on August
5, 1998. Legg Mason Market Neutral Trust ("Fund") has had no operations other
than those matters related to their organization and registration as an
investment company under the Investment Company Act of 1940 and the sale of its
shares. The Fund has two classes of shares, Primary Shares which are subject to
a Rule 12b-1 distribution fee and Navigator Shares which are offered only to
certain institutional investors and are not subject to a Rule 12b-1 distribution
fee. Legg Mason Fund Adviser, Inc. ("LMFA"), a wholly owned subsidiary of Legg
Mason, Inc. (a financial services holding company), has provided the initial
capital for the Fund by purchasing 10,000 shares of the Primary Class at $10.00
per share. Such shares were acquired for investment and can be disposed of only
by redemption. Legg Mason Wood Walker, Incorporated ("LMWW"), a wholly owned
subsidiary of Legg Mason, Inc. and a member of the New York Stock Exchange, acts
as the distributor of the Fund's shares.
B. Organization costs of the Fund have been expensed as incurred. Offering costs
have been deferred and will be expensed over a twelve-month period beginning the
day operations commence. Under the terms of the investment management agreement,
LMFA is required to bear any expenses through July 31, 1999, including
organization costs, which would cause the Fund's ratio of expenses to average
net assets to exceed a certain set percentage (the "percentage"). Thereafter,
through July 31, 2002, the Fund is required to reimburse LMFA for these
expenses, provided that average net assets have grown or expenses have declined
sufficiently to allow reimbursement without causing the Fund's ratio of expenses
to average net assets to exceed the percentage. At January 15, 1999,
organization costs of $90,000 of the Fund have been borne by LMFA and under the
arrangement, are subject to reimbursement by the Fund through January 15, 2002.
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Shareholders and Directors of
Legg Mason Light Street Trust, Inc.
In our opinion, the accompanying statement of assets and liabilities
and the statement of operations present fairly, in all material respects, the
financial position of Legg Mason Light Street Trust, Inc. (which includes Legg
Mason Market Neutral Trust, hereafter referred to as the "Fund") at January 15,
1999, and the results of its operations for the fiscal period presented, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statements presentation. We believe that our
audit provided a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 19, 1999
18
<PAGE>
TABLE OF CONTENTS
PAGE
Additional Information About
Investment Limitations and Policies
Additional Tax Information
Additional Purchase and Redemption
Information
Valuation of Fund Shares
Performance Information
Tax-Deferred Retirement Plans - Primary Shares
The Corporation's Directors and Officers
The Fund's Investment Adviser/Manager
Portfolio Transactions and Brokerage
The Fund's Distributor
The Fund's Custodian and Transfer and
Dividend-Disbursing Agent
The Fund's Legal Counsel
The Fund's Independent Accountants
Financial Statements
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
19
<PAGE>
Legg Mason Light Street Trust, Inc.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements - The audited financial statements for the initial
seed capital are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
<S> <C>
(b) Exhibits
(1) (a) Articles of Incorporation (1)
(2) (a) By-Laws (1)
(3) Voting Trust Agreement - none
(4) Specimen Security -- not applicable
(5) (a) Management Agreement -filed herewith
(b) Investment Advisory Agreement - filed herewith
(6) (a) Underwriting Agreement - filed herewith
(b) Dealer Agreement with respect to Navigator Shares - (3)
(i) Schedule A and B to Dealer Agreement - filed herewith
(7) Bonus, profit sharing or pension plans - none
(8) (a) Form of Custodian Agreement - filed herewith (subject to
amendment)
(9) (a) Form of Transfer Agency and Service Agreement - filed
herewith
(b) Credit Agreement -- none
(10) Opinion of Counsel - filed herewith
(11) Other opinions, appraisals, rulings and consents - Accountant's
consent - filed herewith
(12) Financial statements omitted from Item 23 - none
(13) Agreements for providing initial capital - filed herewith
(14) (a) Prototype IRA Plan (2)
(b) Prototype Corporate Simplified Employee Pension Plan (2)
(c) Prototype SIMPLE Plan(2)
(15) Plan pursuant to Rule 12b-1--filed herewith
(16) Schedule for Computation of Performance Quotations -- none
(17)(27) Financial Data Schedule - filed herewith
(18) Plan Pursuant to Rule 18f-3 - filed herewith
</TABLE>
(1)Incorporated herein by reference to corresponding Exhibit of the initial
Registration Statement, SEC File No. 333-61525, filed August 14, 1998.
(2)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.
(3) Incorporated by reference from the corresponding exhibit of Post-Effective
Amendment No. 5 to the registration statement of Legg Mason Investors Trust,
Inc., SEC File No. 33-62174, filed July 31, 1996.
Item 25. Persons Controlled By or Under Common Control with Registrant
None.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of January 19, 1999)
- -------------- ---------------------------
Shares of Capital Stock,
($.001 par value)
Legg Mason Market Neutral Trust:
Primary Shares 1
Navigator Shares 0
Item 27. Indemnification
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
<PAGE>
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 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.
<PAGE>
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").
<TABLE>
<CAPTION>
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ----------------- ------------------ ----------
<S> <C> <C>
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Retired Vice Chairman Chairman of the
of the Board 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
President and Director
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
Lewis T. Yeager Vice President None
Joseph F. Zunic Vice President None
</TABLE>
- ----------
* 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 Pre-effective Amendment No. 1 to the 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 22nd day of
January, 1999.
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
Pre-effective Amendment No. 1 to the 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> <C>
/s/ John F. Curley, Jr. Chairman of the January 22, 1999
- --------------------------- Board and Director
John F. Curley, Jr.*
/s/ Edward A. Taber, III President and Director January 22, 1999
- ---------------------------
Edward A. Taber, III*
/s/ Richard G. Gilmore Director January 22, 1999
- ---------------------------
Richard G. Gilmore*
/s/ Arnold L. Lehman Director January 22, 1999
- ---------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern Director January 22, 1999
- ---------------------------
Jill E. McGovern*
/s/ T.A. Rodgers Director January 22, 1999
- ---------------------------
T.A. Rodgers*
/s/ Marie K. Karpinski Vice President January 22, 1999
- --------------------------- and Treasurer
Marie K. Karpinski
</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/ 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.
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT ("Agreement") is made this 28th day of
December, 1998, by and between Legg Mason Light Street Trust, Inc., a Maryland
corporation (the "Corporation"), on behalf of Legg Mason Market Neutral Trust (
"Fund"), and Legg Mason Fund Adviser, Inc., a Maryland corporation (the
"Manager").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), currently consisting of one portfolio; and
WHEREAS, the Corporation wishes to retain the Manager to provide
investment advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Corporation hereby appoints the Manager as manager of the Fund
for the period and on the terms set forth in this Agreement. The Manager accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Manager with such other documents and information with regard
to its affairs as the Manager may from time to time reasonably request.
3. (a) Subject to the supervision of the Corporation's Board of
Directors, the Manager shall regularly provide the Fund with investment
research, advice, management and supervision and shall furnish a continuous
investment program for the Fund's portfolio of securities consistent with the
Fund's investment goals and policies. The Manager shall determine from time to
time what securities will be purchased, retained or sold by the Fund, and shall
implement those decisions, all subject to the provisions of the Corporation's
Articles of Incorporation and By-Laws, the 1940 Act, the applicable rules and
regulations of the Securities and Exchange Commission, and other applicable
federal and state law, as well as the investment goals and policies of the Fund.
The Manager will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers the Manager will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Manager may,
in its discretion, purchase and sell portfolio securities from and to brokers
and dealers who provide the Fund with research, analysis, advice and similar
services, and the Manager may pay to these brokers, in return for research and
analysis, a higher commission or spread than may be charged by other brokers.
The Manager shall also provide advice and recommendations with respect to other
aspects of the business and affairs of the Fund, and shall perform such other
functions of management and supervision as may be directed by the Board of
Directors of the Corporation
(b) The Fund hereby authorizes any entity or person associated with the
Manager which is a member of a national securities exchange to effect or execute
any transaction on the exchange for the
<PAGE>
account of the Fund which is permitted by Section 11(a) of the Securities
Exchange Act of 1934 or Rule 11a2-2(T) thereunder, and the Fund hereby consents
to the retention by such person associated with the Manager of compensation for
such transactions, including compensation in accordance with Rule
11a2-2(T)(a)(2)(iv).
4. The Manager may enter into a contract ("Investment Advisory
Agreement") with an investment adviser in which the Manager delegates to such
investment adviser any or all of its duties specified in Paragraph 3 above,
provided that such Investment Advisory Agreement imposes on the investment
adviser bound thereby all duties and conditions to which the Manager is subject
hereunder, and further provided that such Investment Advisory Agreement meets
all requirements of the 1940 Act and rules thereunder.
5. (a) The Manager, at its expense, shall supply the Board of Directors
and officers of the Corporation with all statistical information and reports
reasonably required by them and reasonably available to the Manager and shall
furnish the Fund with office facilities, including space, furniture and
equipment and all personnel reasonably necessary for the operation of the Fund.
The Manager shall maintain or oversee the maintenance of all books and records
with respect to the Fund's securities transactions and the keeping of the Fund's
books of account in accordance with all applicable federal and state laws and
regulations. In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Manager hereby agrees that any records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Manager further agrees to
arrange for the preservation of the records required to be maintained by Rule
31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940
Act. The Manager shall authorize and permit any of its directors, officers and
employees, who may be elected as directors or officers of the Fund, to serve in
the capacities in which they are elected.
(b) Other than as herein specifically indicated, the Manager shall not
be responsible for the Fund's expenses. Specifically, the Manager will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Manager hereunder, for any of the
following expenses of the Fund, which expenses shall be borne by the Fund:
organizational expenses of the Fund; advisory fees; distribution fees; interest;
taxes; governmental fees; fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; the
cost (including brokerage commissions or charges, if any) of securities
purchased or sold by the Fund and any losses in connection therewith; fees of
custodians, transfer agents, registrars or other agents; legal expenses;
expenses relating to the redemption or repurchase of the Fund's shares; expenses
of registering and qualifying the Fund's shares for sale under applicable
federal and state law; expenses of preparing, setting in print, printing and
distributing prospectuses, reports, notices and dividends to the Fund's
shareholders; costs of stationery; costs of stockholders and other meetings of
the Fund; directors' fees; audit fees; travel expenses of officers, directors
and employees of the Corporation, if any; and the Corporation's pro rata portion
of premiums on any fidelity bond and other insurance covering the Corporation
and its officers and directors. For the period ending July 31, 1999, the Manager
shall pay any of the Fund's expenses, including organizational expenses but
excluding interest, taxes, brokerage commissions and extraordinary expenses of
the Fund which exceed, in the aggregate, an annual rate of 3.00% of the Fund's
average daily net assets attributable to the Primary Class of shares and an
annual rate of 2.00% of the Fund's average daily net assets attributable to the
Navigator Class of shares ("Expense Limit"); provided, however, that in order to
determine the Manager's liability for the Fund's expenses over the Expense
Limit, the amount of allowable year-to-date expenses shall be computed daily by
pro-rating the Expense Limit based on the number of days elapsed within the
fiscal year of the Fund ("Pro Rated Limitation"). The Pro Rated Limitation shall
be compared to the expenses of the Fund recorded through the prior day in order
to produce the allowable expenses to be recorded for the current day ("Allowable
Expenses"). If the Fund's management fee and other expenses for the current day
exceed the Allowable Expenses, the management fee for the current day shall be
-2-
<PAGE>
reduced by such excess ("Unaccrued Fees"). In the event the excess exceeds the
amount due as the management fee, the Manager shall be responsible to the Fund
for the additional excess ("Other Expenses Exceeding Limit"). If at any time up
through and including July 31, 1999, the Fund's management fee and other
expenses for the current day are less than the Allowable Expenses, the
differential shall be due to the Manager as payment of cumulative Unaccrued Fees
(if any) or as payment for cumulative Other Expenses Exceeding Limit (if any).
If cumulative Unaccrued Fees or cumulative Other Expenses Exceeding Limit remain
at July 31, 1999, these amounts shall be paid to the Manager in the future
provided that: (1) such payment shall be made to the Manager neither later than
the end of the third fiscal year after the Unaccrued Fees or Other Expenses
Exceeding Limit was incurred nor, in any event, after July 31, 2002; and (2)
such payment shall only be made to the extent that it does not result in the
Fund's aggregate expenses exceeding an expense limit of 3.00% of its average
daily net assets attributable to the Primary Class of shares or an expense limit
of 2.00% of its average daily net assets attributable to the Navigator Class of
shares.
(c) The Manager may voluntarily agree to an additional expense
limitation (any such additional expense limitation hereinafter referred to as an
"Additional Expense Limitation"), at the same or a different level and for the
same or a different period of time beyond July 31, 1999 (any such additional
period being hereinafter referred to as an "Additional Period") provided,
however, that: (1) the calculations and methods of payment shall be as described
above; (2) no payment for cumulative Unaccrued Fees or cumulative Other Expenses
Exceeding Limit shall be made to the Manager more than three years after the end
of an Additional Period; and (3) payment for cumulative Unaccrued Fees or
cumulative Other Expenses Exceeding Limit after the expiration of the Additional
Period shall only be made to the extent it does not result in the Fund's
aggregate expenses exceeding the Additional Expense Limitation to which the
unpaid amounts relate.
6. No director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such director,
officer or employee while he is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This paragraph
shall not apply to directors, executive committee members, consultants and other
persons who are not regular members of the Manager's or any affiliated company's
staff.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Manager, including the services of any
consultants retained by the Manager, the Fund shall pay the Manager, as promptly
as possible after the last day of each month, a fee, computed daily at an annual
rate of 1.90% of the average daily net assets of the Fund. The first payment of
the fee shall be made as promptly as possible at the end of the month succeeding
the effective date of this Agreement. If this Agreement is terminated as of any
date not the last day of a month, such fee shall be paid as promptly as possible
after such date of termination, shall be based on the average daily net assets
of the Fund in that period from the beginning of such month to such date of
termination, and shall be that proportion of such average daily net assets as
the number of business days in such period bears to the number of business days
in such month. The average daily net assets of the Fund shall in all cases be
based only on business days and be computed as of the time of the regular close
of business of the New York Stock Exchange, or such other time as may be
determined by the Board of Directors of the Corporation. Each such payment shall
be accompanied by a report prepared either by the Fund or by a reputable firm of
independent accountants which shall show the amount properly payable to the
Manager under this Agreement and the detailed computation thereof.
8. The Manager assumes no responsibility under this Agreement other than
to render the services called for hereunder, in good faith, and shall not be
responsible for any action of the Board of Directors of the Corporation in
following or declining to follow any advice or recommendations of the Manager;
provided, that nothing in this Agreement shall protect the Manager against any
liability to the Fund or its shareholders to which it would otherwise be subject
by reason of willful misfeasance, bad faith,
-3-
<PAGE>
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a director,
officer, or employee of the Corporation or the Fund, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, nor to limit or restrict the right of the Manager to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
10. As used in this Agreement, the term "net assets" shall have the
meaning ascribed to it in the Articles of Incorporation of the Corporation and
the terms "assignment," "interested person," and "majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of the
1940 Act, subject to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
11. This Agreement will become effective with respect to the Fund on the
date first written above, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of the Fund in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided herein, will continue in effect for two years from the above written
date. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive annual periods ending on the same date
of each year, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval.
12. This Agreement is terminable with respect to the Fund without
penalty by the Corporation's Board of Directors, by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act), or by
the Manager, on not less than sixty (60) days' notice to the other party and
will be terminated upon the mutual written consent of the Manager and the
Corporation. This Agreement shall terminate automatically in the event of its
assignment by the Manager and shall not be assignable by the Corporation without
the consent of the Manager.
13. In the event this Agreement is terminated by either party or upon
written notice from the Manager at any time, the Corporation hereby agrees that
it will eliminate from its corporate name any reference to the name of "Legg
Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part so long as this Agreement is effective or until such
notice is given.
14. The Manager agrees that for services rendered to the Fund, or
indemnity due in connection with service to the Fund, it shall look only to
assets of the Fund for satisfaction and that it shall have no claim against the
assets of any other Fund.
15. Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
16. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver,
-4-
<PAGE>
discharge or termination is sought, and no material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Fund's outstanding voting securities.
17. This Agreement embodies the entire agreement and understanding
between the parties hereto, and supersedes all prior agreements and
understandings relating to the subject matter hereof. Should any part of this
Agreement be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding on and shall inure to the benefit of the parties
hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON LIGHT STREET TRUST, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
------------------------ --------------------------------
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Kathi D. Bair By: /s/ Jennifer W. Murphy
------------------------ --------------------------------
-5-
INVESTMENT ADVISORY AGREEMENT
LEGG MASON LIGHT STREET TRUST, INC.
AGREEMENT made this 28th day of December, 1998 by and between Legg Mason
Fund Adviser, Inc. ("Manager"), a Maryland corporation, and Batterymarch
Financial Management, Inc. ("Adviser"), a Maryland corporation, each of which is
registered as an investment adviser under the Investment Advisers Act of 1940.
WHEREAS, Manager is the manager of the Legg Mason Market Neutral Trust
("Fund"), a series of Legg Mason Light Street Trust, Inc. (the "Corporation"),
an open-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, Manager wishes to retain Adviser to provide it with certain
investment advisory services in connection with Manager's management of the
Fund; and
WHEREAS, Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment. Manager hereby appoints Adviser as investment adviser
for the Fund for the period and on the terms set forth in this Agreement.
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
2. Delivery of Documents. Manager has furnished the Adviser with copies
properly certified or authenticated of each of the following:
(a) The Corporation's Articles of Incorporation, as filed with
the State Department of Assessments and Taxation of the State of
Maryland on August 5, 1998 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles"):
(b) The Corporation's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Corporation's Board of Directors
authorizing the appointment of Adviser as investment adviser and
approving this Agreement;
(d) The Corporation's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, and the 1940 Act (File No.
333-61525) as filed with the Securities and Exchange Commission on
August 14, 1998, including all exhibits thereto, relating to shares of
common stock of the Fund, par value $.001 per share (herein called
"Shares") and all amendments thereto;
(e) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are
herein called the "Prospectus"); and
(f) The Fund's most recent statement of additional information
(such statement of additional information, as presently in effect and
all amendments and supplements thereto are herein called the "Statement
of Additional Information").
<PAGE>
The Manager will furnish the Adviser from time to time with copies of all
amendments of or supplements to the foregoing.
3. Investment Advisory Services. (a) Subject to the supervision of the
Corporation's Board of Directors and the Manager, the Adviser shall regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund's portfolio of
securities consistent with the Fund's investment objective, policies and
limitations as stated in the Fund's current Prospectus and Statement of
Additional Information. The Adviser shall determine from time to time what
securities will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objective, policies, and limitations of the Fund.
The Adviser will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers, the Adviser will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Adviser may,
in its discretion, purchase and sell portfolio securities from and to brokers
and dealers who provide the Fund with research, analysis, advice and similar
services, and the Adviser may pay to these brokers, in return for research and
analysis, a higher commission than may be charged by other brokers. In no
instance will portfolio securities be purchased from or sold to the Adviser or
any affiliated person thereof except in accordance with the rules, regulations
or orders promulgated by the Securities and Exchange Commission pursuant to the
1940 Act. The Adviser shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by the Adviser.
(b) The Adviser will maintain or oversee the maintenance of all books
and records with respect to the securities transactions of the Fund in
accordance with all applicable federal and state laws and regulations, and will
furnish the Board of Directors of the Corporation with such periodic and special
reports as the Board or the Manager reasonably may request.
(c) The Corporation has authorized any entity or person associated with
the Adviser which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Corporation which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 or Rule
11a2-2(T) thereunder, and the Corporation hereby consents to the retention by
such person associated with the Adviser of compensation for such transactions,
including compensation, in accordance with Rule 11a2-2(T)(a)(2)(iv).
4. Services Not Exclusive. The Adviser's services hereunder are not
deemed to be exclusive, and the Adviser shall be free to render similar services
to others. It is understood that persons employed by the Adviser to assist in
the performance of its duties hereunder might not devote their full time to such
service. Nothing herein contained shall be deemed to limit or restrict the right
of the Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other business or to render services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all books and records which
it maintains for the Fund are property of the Fund and further agrees to
surrender promptly to the Fund or its agents any of such records upon the Fund's
request. The Adviser further agrees to preserve for the period prescribed by
Rule 31a-2 under the 1940 Act, any such records required to be maintained by
Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund.
-2-
<PAGE>
7. Compensation. For the services which the Adviser will render to the
Manager and the Fund under this Agreement, the Manager will pay the Adviser a
fee, computed daily and paid monthly, at an annual rate equal to 78.9% of the
fee received by the Manager from the Fund, net of any waivers or reimbursements
by the Manager of its fee. Fees due to the Adviser hereunder shall be paid
promptly to the Adviser by the Manager following its receipt of fees from the
Fund. If this Agreement is terminated as of any date not the last day of a
calendar month, a final fee shall be paid promptly after the date of termination
and shall be based on the percentage of days of the month during which the
contract was still in effect.
8. Limitation of Liability. The Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Manager or by the
Fund in connection with the performance of this Agreement; provided, that
nothing in this Agreement shall protect the Adviser against any liability to the
Manager, the Fund or its shareholders for 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 by it of its
obligations or duties under this Agreement.
9. Definitions. As used in this Agreement, the terms "securities" and
"net assets" shall have the meanings ascribed to them in the Articles of
Incorporation of the Corporation; and the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
10. Duration and Termination. This Agreement will become effective
December 28, 1998, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of the Fund in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided for herein, shall continue in effect until December 28, 2000.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods, provided that such continuance is specifically
approved at least annually (i) by the Corporation's Board of Directors or (ii)
by a vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance is also
approved by a majority of the Corporation's Directors who are not interested
persons (as defined in the 1940 Act) of the Corporation or of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable without penalty, by vote of the
Corporation's Board of Directors, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund, by the Manager or by the
Adviser, on not less than 60 days' notice to the Fund and/or the other
party(ies) and will be terminated immediately upon any termination with respect
to the Fund of the Management Agreement between Manager and the Fund dated
December 28, 1998 or upon the mutual written consent of the Adviser, the
Manager, and the Fund. Termination of this Agreement with respect to the Fund
shall in no way affect continued performance with regard to any other portfolio
of the Corporation. This Agreement will automatically and immediately terminate
in the event of its assignment.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and
-3-
<PAGE>
in no way define or delimit any of the provisions hereof or otherwise affect
their constitution or effect. Should any part of this Agreement be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Kathi D. Bair By: /s/ Jennifer W. Murphy
--------------------------- -------------------------------
Attest: BATTERYMARCH FINANCIAL
MANAGEMENT, INC.
By: /s/ Philip E. Channen By: /s/ Francis Tracy
----------------------------- --------------------------------
-4-
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 28th day of December, 1998 by and
between Legg Mason Light Street Trust, Inc., a Maryland corporation
("Corporation"), on behalf of Legg Mason Market Neutral Trust ("Fund"), and Legg
Mason Wood Walker, Inc., a Maryland corporation ("Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered its shares of common stock
of the Fund for sale to the public under the Securities Act of 1933 (the "1933
Act") and filed appropriate notices under various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the shares of
common stock of the Fund ("Shares") and to furnish certain other services to the
Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of Shares of the Fund, and
the Distributor accepts the appointment. The Distributor, as exclusive agent for
the Corporation, upon the commencement of operations of the Fund and subject to
applicable federal and state law and the Articles of Incorporation and By-Laws
of the Corporation, shall: (i) promote the Fund; (ii) solicit orders for the
purchase of the Shares subject to such terms and conditions as the Corporation
may specify; and (iii) accept orders for the purchase of the Shares on behalf of
the Corporation (collectively, "Distribution Services"). The Distributor shall
comply with all applicable federal and state laws and offer the Shares of the
Fund on an agency or "best efforts" basis under which the Corporation shall
issue only such Shares as are actually sold. The Distributor shall have the
right to use any list of shareholders of the Corporation or the Fund or any
other list of investors which it obtains in connection with its provision of
services under this Agreement; provided, however, that the Distributor shall not
sell or knowingly provide such list or lists to any unaffiliated person without
the consent of the Corporation's Board of Directors.
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Conduct Rule
2830 of the National Association of Securities Dealers, Inc. ("NASD")
(collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeeping and sub-accounting
services, as well as Shareholder Services, the form of such agreements to be as
mutually agreed upon and approved by the Corporation and the Distributor. In
making such arrangements, the Distributor shall act only as principal and not as
agent for the Corporation. No such dealer or other entity is authorized to act
as agent for the Corporation in connection with the offering or sale of Shares
to the
<PAGE>
public or otherwise, except for the limited purpose of determining the time as
of which Shares are to be priced, and then only if the agreement expressly
provides in writing that it shall so act.
3. The public offering price of the Shares of the Fund shall be the net
asset value per share (as determined by the Corporation) of the outstanding
Shares of the Fund plus any applicable sales charge as described in the
Registration Statement of the Corporation. The Corporation shall furnish the
Distributor with a statement of each computation of public offering price and of
the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Fund a distribution fee and a service fee at the rates and under the terms
and conditions of the Plan of Distribution ("Plan") adopted by the Corporation
with respect to the Fund, as such Plan is in effect from time to time, and
subject to any further limitations on such fees as the Corporation's Board of
Directors may impose. The Distributor may reallow any or all of the sales
charge, distribution fee and service fee that it has received under this
Agreement to such dealers or sub-accountants as it may from time to time
determine; provided, however, that unless permitted under the rules of the NASD,
the Distributor may not reallow to any dealer for Shareholder Services an amount
in excess of 0.25% of the average annual net asset value of the shares with
respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall
mean the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to such Series filed by the Corporation as
part of the Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representative or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares with
the Securities and Exchange Commission, state and other regulatory bodies, and
to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Fund shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to the Fund's
communications with persons who are shareholders of the Fund.
8. The Corporation 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
-2-
<PAGE>
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 this 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 of its reckless disregard of its
obligations and duties under this Agreement, and further provided that the
Corporation shall not indemnify the Distributor for conduct as set forth in
paragraph 9.
9. The Distributor agrees to indemnify, defend and hold the Corporation,
its several officers and directors, and any person who controls the Corporation
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 Corporation, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, 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 Corporation 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. As
used in this paragraph, the term "employee" shall not include a corporate entity
under contract to provide services to the Corporation or any Series, or any
employee of such a corporate entity, unless such person is otherwise an employee
of the Corporation.
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of the Fund, or limit the offering of Shares, by written
notice to the Distributor at its principal office.
11. The Corporation shall not issue certificates representing Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify, by telex or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
-3-
<PAGE>
15. The Distributor shall prepare reports for the Corporation's Board of
Directors on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
16. As used in this Agreement, the terms "assignment," "interested
person" and "majority of the outstanding voting securities" shall have the
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
17. This Agreement will become effective with respect to the Fund on the
date first written above and, unless sooner terminated as provided herein, will
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to the Fund for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the
Corporation's Board of Directors or (ii) by a vote of a majority of the
outstanding voting securities of the Fund (as defined the in 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Corporation's Directors who are not interested persons (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval.
18. This Agreement is terminable, without penalty by the Corporation's
Board of Directors, by vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act), or by the Distributor, on not less
than 60 days' notice to the other party and will be terminated upon the mutual
written consent of the Distributor and the Corporation. This Agreement will also
automatically and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged or
terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON LIGHT STREET TRUST, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
------------------------ -----------------------------
Attest: LEGG MASON WOOD WALKER, INC.
By: /s/ Kathi D. Bair By: /s/ Marie K. Karpinski
------------------------ -----------------------------
-4-
SCHEDULE A
COMPANIES SUBJECT TO DEALER AGREEMENT
WITH RESPECT TO THE
NAVIGATOR CLASS OF THE LEGG MASON FUNDS
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Light Street Trust, Inc.
-1-
<PAGE>
SCHEDULE B
FUNDS SUBJECT TO DEALER AGREEMENT
WITH RESPECT TO THE
NAVIGATOR CLASS OF THE LEGG MASON FUNDS
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason U.S. Government Intermediate-Term Portfolio (a series of Legg Mason
Income Trust, Inc.)
Legg Mason Investment Grade Income Portfolio (a series of Legg Mason Income
Trust, Inc.)
Legg Mason High Yield Portfolio (a series of Legg Mason Income Trust, Inc.)
Legg Mason Global Government Trust (a series of Legg Mason Global Trust Inc.)
Legg Mason International Equity Trust (a series of Legg Mason Global Trust,
Inc.)
Legg Mason Emerging Markets Trust (a series of Legg Mason Global Trust, Inc.)
Legg Mason American Leading Companies Trust (a series of Legg Mason Investors
Trust, Inc.)
Legg Mason Balanced Trust (a series of Legg Mason Investors Trust, Inc.)
Legg Mason Maryland Tax-Free Income Trust (a series of Legg Mason Tax-Free
Income Fund)
Legg Mason Pennsylvania Tax-Free Income Trust (a series of Legg Mason Tax-Free
Income Fund)
Legg Mason Tax-Free Intermediate-Term Income Trust (a series of Legg Mason
Tax-Free Income Fund)
Legg Mason Market Neutral Trust (a series of Legg Mason Light Street Trust,
Inc.)
-2-
DRAFT -- FOR DISCUSSION PURPOSES ONLY
CUSTODIAN CONTRACT
Between
LEGG MASON LIGHT STREET TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
CUSTODIAN CONTRACT
This Contract between Legg Mason Light Street Trust, Inc., a
corporation organized and existing under the laws of the State of Maryland,
having its principal place of business at 100 Light Street, Baltimore, Maryland
21202 hereinafter called the "FUND", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"CUSTODIAN,"
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one (1) series,
the Legg Mason Market Neutral Trust (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "PORTFOLIO(S)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("DOMESTIC SECURITIES") and securities it desires to be held outside the United
States ("FOREIGN SECURITIES") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("SHARES") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedule A hereto but only in accordance with the
provisions of Section 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies (each, a "U.S. SECURITIES SYSTEM") and (b)
commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("DIRECT PAPER") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "DIRECT PAPER
SYSTEM") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("DIRECT PAPER SYSTEM ACCOUNT") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee
2
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
name of any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to Section 1;
or for exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "STREET DELIVERY" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned
by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") and a member of The
3
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("TRANSFER
AGENT") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("PROSPECTUS"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Section 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
4
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a Portfolio
may be deposited by it to its credit as Custodian in the Banking Department
of the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of each applicable Portfolio be approved by vote of a majority of
the Board of Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
5
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a U.S.
Securities System, in accordance with the conditions set forth in
Section 2.10 hereof; (c) in the case of a purchase involving the
Direct Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt of
a confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Section 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Section 4 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6
<PAGE>
DRAFT--FOR DISCUSSION PURPOSES ONLY
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "U.S. SECURITIES SYSTEM" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and regulations,
if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an
account ("ACCOUNT") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
7
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on behalf of
the Portfolio copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Section 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the U.S.
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be entitled
to be subrogated to the rights of the Custodian with respect to any
claim against the U.S. Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage if and
to the extent that the Portfolio has not been made whole for any such
loss or damage.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("ACCOUNT") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the U.S. Securities System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the
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rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance by
the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities
and Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("FOREIGN SUB-CUSTODIANS"). Upon receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of the Fund's Board of Directors, the Custodian and
the Fund may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper Instructions,
the Fund may instruct the Custodian to cease the employment of any one or
more such sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"FOREIGN SECURITIES", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or in
a book-entry system for the central handling of securities located outside
of the United States (each a "FOREIGN SECURITIES SYSTEM") only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof (Foreign Securities Systems and
U.S. Securities Systems are collectively referred to herein as the
"SECURITIES SYSTEMS"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5
hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Fund which are maintained in such account shall identify by
book-entry those securities and other non-cash property belonging to the
Fund and (ii) the Custodian shall require that securities and other
non-cash property so held by the foreign sub-custodian be held separately
from any assets of the foreign sub-custodian or of others.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall provide that: (a) the assets of each Portfolio
will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a Portfolio,
the identity of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7
of this Contract shall apply, mutatis mutandis to the foreign securities of
the Fund held outside the United States by foreign sub-custodians. (b)
Notwithstanding any provision of this Contract to the contrary, settlement
and payment for securities received for the account of each applicable
Portfolio and delivery of securities maintained for the account of each
applicable Portfolio may be effected in accordance with the customary
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser
thereof or to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer. (c) Securities maintained in the
custody of a foreign sub-custodian may be maintained in the
12
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
name of such entity's nominee to the same extent as set forth in Section
2.3 of this Contract, and the Fund agrees to hold any such nominee harmless
from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this paragraph
3.10, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund for any
loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolios assets
to the extent necessary to obtain reimbursement.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or in the case of any foreign
sub-custodian not the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars or the equivalent thereof) or that
its shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking institution which is
a "bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by
paragraph 1 of this Contract. (b) Cash held for each Portfolio of the Fund
in the United Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch, which account
shall be subject to the direction of the Custodian, State Street London
Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or any
state or political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will
14
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
provide timely notification to the Fund on behalf of each such Portfolio and the
Transfer Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing signed
or initialed by one or more person or persons as the Board of Directors shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
instructions are consistent with any security procedures agreed to by the Fund
and the Custodian, including but not limited to, the security procedures
selected by the Fund on the Funds Transfer Addendum to this Contract. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
15
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
16
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
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If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio=s assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.11 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors has approved the initial use of
the Direct Paper System by such Portfolio; provided further, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund on behalf of one or more of
the Portfolios may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
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DRAFT -- FOR DISCUSSION PURPOSES ONLY
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor
20
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
of this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Articles of Incorporation
of the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Legg Mason Market Neutral Trust with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Notices.
21
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered prepaid registered mail or by
telex, cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: Legg Mason Light Street Trust, Inc.
100 Light Street, 29th Floor
Baltimore, Maryland 21202
Attention: Kathi Bair
Telephone: 410-454-2744
Telecopy:
To the Custodian: State Street Bank and Trust Company
1776 Heritage Drive, JAB/4SW
North Quincy, Massachusetts 02171
Attention: Mark A. Manzoni
Telephone: 617-985-6834
Telecopy: 617-537-6355
Such notice, instruction or other instrument shall be deemed to have
been served in the case of a registered letter at the expiration of five
business days after posting, in the case of cable twenty-four hours after
dispatch and, in the case of telex, immediately on dispatch and if delivered
outside normal business hours it shall be deemed to have been received at the
next time after delivery when normal business hours commence and in the case of
cable, telex or telecopy on the business day after the receipt thereof. Evidence
that the notice was properly addressed, stamped and put into the post shall be
conclusive evidence of posting.
22. Data Access Service Addendum
The Fund and the Custodian agree to be bound by the terms of the Data
Access Services Addendum attached hereto.
23. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and
22
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
holdings of beneficial owners of securities of that issuer held by the bank
unless the beneficial owner has expressly objected to disclosure of this
information. In order to comply with the rule, the Custodian needs the Fund to
indicate whether the Fund authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose stock the Fund owns.
If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or do
not check either "yes" or "no" below, the Custodian is required by the rule to
treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consent or object by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
23
<PAGE>
DRAFT -- FOR DISCUSSION PURPOSES ONLY
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the ____ day of ________________, 199_.
LEGG MASON LIGHT STREET TRUST, INC. FUND SIGNATURE ATTESTED TO BY:
By: _________________________ By: ____________________
Name: _________________________ Name: ____________________
Title: _________________________ Title: ____________________
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: ____________________ By: ____________________
Name: Ronald E. Logue Name: ____________________
Title: Executive Vice President Title: ____________________
<PAGE>
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
----------------------------------------------------
AGREEMENT between Legg Mason Light Street Trust, Inc. (the "Customer") and
State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets of
the Customer pursuant to a certain Custodian Agreement (the "Custodian
Agreement") dated as of ________________, 199_;
WHEREAS, State Street has developed and utilizes proprietary accounting and
other systems, including State Street's proprietary Multicurrency HORIZON(SM)
Accounting System, in its role as custodian of the Customer, and maintains
certain Customer-related data ("Customer Data") in databases under the control
and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain Data Access
Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
(a) System. Subject to the terms and conditions of this Agreement,
State Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZON(SM) Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports and information, solely on computer hardware,
system software and telecommunication links as listed in Attachment B (the
"Designated Configuration") of the Customer, or certain third parties approved
by State Street that serve as investment advisors or investment managers or in
other service capacities to the Customer such as the Customer's independent
auditors (each, an "Investment Advisor"), solely with respect to the Customer,
or on any designated substitute or back-up equipment configuration with State
Street's written consent, such consent not to be unreasonably withheld.
(b) Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody by
State Street or (ii) transmit accounting or other information (such transactions
are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Agreement.
<PAGE>
(c) Additional Services. State Street may from time to time agree to
make available to the Customer additional Systems that are not described in the
attachments to this Agreement. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Agreement shall govern, the Customer's access to and use of any additional
System made available by State Street and/or accessed by the Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Agreement, the Customer will have
access, through the Data Access Services, to Customer Data and to functions of
State Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the Data Access
Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or the Investment Advisor located
in Baltimore, Maryland ("Designated Location").
b. Designated Configuration; Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable both
parties to perform their respective obligations under this Agreement. State
Street agrees to use commercially reasonable efforts to maintain the System so
that it remains serviceable, provided, however, that State Street does not
guarantee or assure uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access Services
only for the processing of securities transactions, the keeping of books of
account for the Customer and accessing data for purposes of reporting and
analysis. The Customer shall not, and shall cause its employees and agents not
to (i) permit any third party to use the System or the Data Access Services,
(ii) sell, rent, license or otherwise use the System or the Data Access Services
in the operation of a service bureau or for any purpose other than as expressly
authorized under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle without the prior
written consent of State Street, (iv) allow access to the System or the Data
Access Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Customer) transmitted from State Street's databases, including
data from third party sources, available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned System
shutdown, the Customer's access to services performed by the System or to Data
Access Services at the
<PAGE>
Designated Location may be transferred to a different location only upon the
prior written consent of State Street. In the event of an emergency or System
shutdown, the Customer may use any back-up site included in the Designated
Configuration or any other back-up site agreed to by State Street, which
agreement will not be unreasonably withheld. The Customer may secure from State
Street the right to access the System or the Data Access Services through
computer and telecommunications facilities or devices complying with the
Designated Configuration at additional locations only upon the prior written
consent of State Street and on terms to be mutually agreed upon by the parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street, the
Customer shall not modify, enhance or otherwise create derivative works based
upon the System, nor shall the Customer reverse engineer, decompile or otherwise
attempt to secure the source code for all or any part of the System.
g. Security Procedures. The Customer shall comply with data access operating
standards and procedures and with user identification or other password control
requirements and other security procedures as may be issued from time to time by
State Street for use of the System on a remote basis and to access the Data
Access Services. The Customer shall have access only to the Customer Data and
authorized transactions agreed upon from time to time by State Street and, upon
notice from State Street, the Customer shall discontinue remote use of the
System and access to Data Access Services for any security reasons cited by
State Street; provided, that, in such event, State Street shall, for a period
not less than 180 days (or such other shorter period specified by the Customer)
after such discontinuance, assume responsibility to provide accounting services
under the terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of the
System and the Data Access Services by the Customer and the Investment Advisor
to ensure compliance with this Agreement. The on-site inspections shall be upon
prior written notice to the Customer and the Investment Advisor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Customer shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Customer agrees that it will hold such
Proprietary Information in the strictest confidence and secure and protect it in
a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access
<PAGE>
to the System unless it has first received from the Investment Advisor an
undertaking with respect to State Street's Proprietary Information in the form
of Attachment C to this Agreement. The Customer shall use all commercially
reasonable efforts to assist State Street in identifying and preventing any
unauthorized use, copying or disclosure of the Proprietary Information or any
portions thereof or any of the logic, formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall advise
State Street immediately in the event the Customer learns or has reason to
believe that any person to whom the Customer has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and the Customer will, at its expense, co-operate with
State Street in seeking injunctive or other equitable relief in the name of the
Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of any
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the termination of
this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer agrees that
any liability of State Street to the Customer or any third party arising out of
State Street's provision of Data Access Services or the System under this
Agreement shall be limited to the amount of fees paid to State Street for such
services. In no event shall State Street be liable to the Customer or any other
party for any special, indirect, punitive or consequential damages even if
advised of the possibility of such damages. No action, regardless of form,
arising out of this Agreement may be brought by the Customer more than two years
after the Customer has knowledge that the cause of action has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which State Street may obtain certain
data included in the System or the Data Access Services are solely responsible
for the contents of such data, and State Street shall have no liability for
claims arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer, the
Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
<PAGE>
e. Force Majeure. Neither party shall be liable for any costs or damages due to
delay or nonperformance under this Agreement arising out of any cause or event
beyond such party's control, including without limitation, cessation of services
hereunder or any damages resulting therefrom to the other party, or the Customer
as a result of work stoppage, power or other mechanical failure, computer virus,
natural disaster, governmental action, or communication disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use by
the Customer of the Data Access Services or the System, including any loss
incurred by State Street resulting from a security breach at the Designated
Location or committed by the Customer's employees or agents or the Investment
Advisor and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services and
related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time between the parties (the "Fee Schedule"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Agreement, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by the Customer. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated State
Street training facility or at the Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for the
technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. The Customer shall have the following responsibilities
in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely
acquisition and maintenance of the hardware and software that
attach to the Designated Configuration in order to use the
Data Access Services at the Designated Location.
<PAGE>
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the date of its
execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Either party may terminate this Agreement (i) for
any reason by giving the other party at least one-hundred and eighty days' prior
written notice in the case of notice of termination by State Street to the
Customer or thirty days' notice in the case of notice from the Customer to State
Street of termination; or (ii) immediately for failure of the other party to
comply with any material term and condition of the Agreement by giving the other
party written notice of termination. In the event the Customer shall cease doing
business, shall become subject to proceedings under the bankruptcy laws (other
than a petition for reorganization or similar proceeding) or shall be
adjudicated bankrupt, this Agreement and the rights granted hereunder shall, at
the option of State Street, immediately terminate with notice to the Customer.
This Agreement shall in any event terminate as to any Customer within 90 days
after the termination of the Custodian Agreement applicable to such Customer.
c. Termination of the Right to Use. Upon termination of this Agreement for any
reason, any right to use the System and access to the Data Access Services shall
terminate and the Customer shall immediately cease use of the System and the
Data Access Services. Immediately upon termination of this Agreement for any
reason, the Customer shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either party terminates this Agreement or the Custodian Agreement
for any reason other than the Customer's breach, State Street shall provide the
Data Access Services for a period of time and at a price to be agreed upon by
the parties.
11. MISCELLANEOUS
a. Assignment; Successors. This Agreement and the rights and obligations of the
Customer and State Street hereunder shall not be assigned by either party
without the prior written consent of the other party, except that State Street
may assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
<PAGE>
b. Survival. All provisions regarding indemnification, warranty, liability and
limits thereon, and confidentiality and/or protection of proprietary rights and
trade secrets shall survive the termination of this Agreement.
c. Entire Agreement. This Agreement and the attachments hereto constitute the
entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This Agreement is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Agreement or any other agreement
between the parties hereto except to the extent that any such agreement
specifically refers to the Data Access Services or the System. No single waiver
of any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall be held
to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
<PAGE>
ATTACHMENT A
Multicurrency HORIZON(SM) Accounting System
System Product Description
--------------------------
I. The Multicurrency HORIZON(SM) Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided
information services products.
II. HORIZON(R) Gateway. HORIZON(R) Gateway provides customers with the ability
to (i) generate reports using information maintained on the Multicurrency
HORIZON(R) Accounting System which may be viewed or printed at the customer's
location; (ii) extract and download data from the Multicurrency HORIZON(R)
Accounting System; and (iii) access previous day and historical data. The
following information which may be accessed for these purposes: 1) holdings; 2)
holdings pricing; 3) transactions, 4) open trades; 5) income; 6) general ledger
and 7) cash.
III. SaFiRe(SM). SaFiRe(SM) is designed to provide the customer with the ability
to prepare its own financial reports by permitting the customer to access
customer information maintained on the Multicurrency HORIZON(R) Accounting
System, to organize such information in a flexible reporting format and to have
such reports printed on the customer's desktop or by its printing provider.
<PAGE>
ATTACHMENT B
*DESIGNATED CONFIGURATION
<PAGE>
ATTACHMENT C
UNDERTAKING
The Undersigned understands that in the course of its employment as
Investment Advisor to Legg Mason Light Street Trust, Inc. (the "Customer") it
will have access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZON(SM) Accounting System and other information systems
(collectively, the "System").
The Undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
LEGG MASON FUND ADVISER, INC.
By:______________________________
Title:___________________________
Date:____________________________
<PAGE>
UNDERTAKING
The Undersigned understands that in the course of its employment as
independent accountants for Legg Mason Light Street Trust, Inc. (the "Customer")
it will have access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZON(SM) Accounting System and other information systems
(collectively, the "System").
The Undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
PricewaterhouseCoopers LLP
By:_____________________________
Title:__________________________
Date:___________________________
<PAGE>
ATTACHMENT D
SUPPORT
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's Multicurrency HORIZON(SM) Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (i) for use on any computer equipment
or telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Agreement.
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER ADDENDUM
OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit
Client's (as named below) account(s) upon the receipt of a payment order in
compliance with the selected Security Procedure chosen for funds transfer and in
the amount of money that State Street has been instructed to transfer. State
Street shall execute payment orders in compliance with the Security Procedure
and with the Client's instructions on the execution date provided that such
payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment orders and
communications received after this time will be deemed to have been received on
the next business day.
2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it
has designated on the Selection Form was selected by the Client from Security
Procedures offered by State Street. The Client shall restrict access to
confidential information relating to the Security Procedure to authorized
persons as communicated in writing to State Street. The Client must notify State
Street immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Client's authorized
personnel. State Street shall verify the authenticity of all instructions
according to the Security Procedure.
3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
4. REJECTION: State Street reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of State Street's receipt of such payment
order; (b) if initiating such payment order would cause State Street, in State
Street's sole judgment, to exceed any volume, aggregate dollar, network, time,
credit or similar limits upon wire transfers which are applicable to State
Street; or (c) if State Street, in good faith, is unable to satisfy itself that
the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the Security Procedure provided that such requests are received
in a timely manner affording State Street reasonable opportunity to act.
However, State Street assumes no liability if the request for amendment or
cancellation cannot be satisfied.
6. ERRORS: State Street shall assume no responsibility for failure to detect any
erroneous payment order provided that State Street complies with the payment
order instructions as received and State Street complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility
for lost interest with respect to the refundable amount of any unauthorized
payment order, unless State Street is notified of the unauthorized payment order
within thirty (30) days of notification by State Street of the acceptance of
such payment order. In no event shall State Street be liable for special,
indirect or consequential damages, even if advised of the possibility of such
damages and even for failure to execute a payment order.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a
Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the New England Clearing House Association, State Street will act as an
Originating Depository Financial Institution and/or Receiving Depository
Institution, as the case may be, with respect to such entries. Credits given by
State Street with respect to an ACH credit entry are provisional until State
Street receives final settlement for such entry from the Federal Reserve Bank.
If State Street does not receive such final settlement, the Client agrees that
State Street shall receive a refund of the amount credited to the Client in
connection with such entry, and the party making payment to the Client via such
entry shall not be deemed to have paid the amount of the entry.
9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment
orders shall ordinarily be provided within 24 hours notice which may be
delivered through State Street's proprietary information systems, such as, but
not limited to Horizon and GlobalQuest(R), or by facsimile or callback. The
Client must report any objections to the execution of a payment order within 30
days.
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER ADDENDUM
SECURITY PROCEDURE(S) SELECTION FORM
- ------------------------------------
Please select one or more of the funds transfer security procedures indicated
below.
[ ]SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a
cooperative society owned and operated by member financial institutions that
provides telecommunication services for its membership. Participation is limited
to securities brokers and dealers, clearing and depository institutions,
recognized exchanges for securities, and investment management institutions.
SWIFT provides a number of security features through encryption and
authentication to protect against unauthorized access, loss or wrong delivery of
messages, transmission errors, loss of confidentiality and fraudulent changes to
messages. SWIFT is considered to be one of the most secure and efficient
networks for the delivery of funds transfer instructions.
SELECTION OF THIS SECURITY PROCEDURE WOULD BE MOST APPROPRIATE FOR EXISTING
SWIFT MEMBERS.
[ ]STANDING INSTRUCTIONS
Standing Instructions may be used where funds are transferred to a broker on the
Client's established list of brokers with which it engages in foreign exchange
transactions. Only the date, the currency and the currency amount are variable.
In order to establish this procedure, State Street will send to the Client a
list of the brokers that State Street has determined are used by the Client. The
Client will confirm the list in writing, and State Street will verify the
written confirmation by telephone. Standing Instructions will be subject to a
mutually agreed upon limit. If the payment order exceeds the established limit,
the Standing Instruction will be confirmed by telephone prior to execution.
[ ]REMOTE BATCH TRANSMISSION
Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data
communications between the Client and State Street. Security procedures include
encryption and or the use of a test key by those individuals authorized as
Automated Batch Verifiers.
CLIENTS SELECTING THIS OPTION SHOULD HAVE AN EXISTING FACILITY FOR COMPLETING
CPU-CPU TRANSMISSIONS. THIS DELIVERY MECHANISM IS TYPICALLY USED FOR HIGH-VOLUME
BUSINESS.
[ ]GLOBAL HORIZON INTERCHANGE(SM) FUNDS TRANSFER SERVICE
Global Horizon Interchange Funds Transfer Service (FTS) is a State Street
proprietary microcomputer-based wire initiation system. FTS enables Clients to
electronically transmit authenticated Fedwire, CHIPS or internal book transfer
instructions to State Street. THIS DELIVERY MECHANISM IS MOST APPROPRIATE FOR
CLIENTS WITH A LOW-TO-MEDIUM NUMBER OF TRANSACTIONS (5-75 PER DAY), ALLOWING
CLIENTS TO ENTER, BATCH, AND REVIEW WIRE TRANSFER INSTRUCTIONS ON THEIR PC PRIOR
TO RELEASE TO STATE STREET.
[ ]TELEPHONE CONFIRMATION (CALLBACK)
Telephone confirmation will be used to verify all non-repetitive funds transfer
instructions received via untested facsimile or phone. This procedure requires
Clients to designate individuals as authorized initiators and authorized
verifiers. State Street will verify that the instruction contains the signature
of an authorized person and prior to execution, will contact someone other than
the originator at the Client's location to authenticate the instruction.
SELECTION OF THIS ALTERNATIVE IS APPROPRIATE FOR CLIENTS WHO DO NOT HAVE THE
CAPABILITY TO USE OTHER SECURITY PROCEDURES.
[ ]REPETITIVE WIRES
For situations where funds are transferred periodically (minimum of one
instruction per calendar quarter) from an existing authorized account to the
same payee (destination bank and account number) and only the date and currency
amount are variable, a repetitive wire may be implemented. Repetitive wires will
be subject to a mutually agreed upon limit. If the payment order exceeds the
established limit, the instruction will be confirmed by telephone prior to
execution. Telephone confirmation is used to establish this process. Repetitive
wire instructions must be reconfirmed annually.
THIS ALTERNATIVE IS RECOMMENDED WHENEVER FUNDS ARE FREQUENTLY TRANSFERRED
BETWEEN THE SAME TWO ACCOUNTS.
[ ]TRANSFERS INITIATED BY FACSIMILE
The Client faxes wire transfer instructions directly to State Street Mutual Fund
Services. Standard security procedure requires the use of a random number test
key for all transfers. Every six months the Client receives test key logs from
State Street. The test key contains alpha-numeric characters, which the Client
puts on each document faxed to State Street. This procedure ensures all wire
instructions received via fax are authorized by the Client.
WE PROVIDE THIS OPTION FOR CLIENTS WHO WISH TO BATCH WIRE INSTRUCTIONS AND
TRANSMIT THESE AS A GROUP TO STATE STREET MUTUAL FUND SERVICES ONCE OR SEVERAL
TIMES A DAY.
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER ADDENDUM
[ ]AUTOMATED CLEARING HOUSE (ACH)
State Street receives an automated transmission or a magnetic tape from a Client
for the initiation of payment (credit) or collection (debit) transactions
through the ACH network. The transactions contained on each transmission or tape
must be authenticated by the Client. Clients using ACH must select one or more
of the following delivery options:
[ ]GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE
Transactions are created on a microcomputer, assembled into batches and
delivered to State Street via fully authenticated electronic transmissions in
standard NACHA formats.
[ ]Transmission from Client PC to State Street Mainframe with Telephone Callback
[ ]Transmission from Client Mainframe to State Street Mainframe with Telephone
Callback
[ ]Transmission from DST Systems to State Street Mainframe with Encryption
[ ]Magnetic Tape Delivered to State Street with Telephone Callback
State Street is hereby instructed to accept funds transfer instructions only via
the delivery methods and security procedures indicated. The selected delivery
methods and security procedure(s) will be effective____________ for payment
orders initiated by our organization.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
- ---------------------------------------- -------------------------------
Name Name
- ---------------------------------------- -------------------------------
Address Address
- ---------------------------------------- -------------------------------
City/State/Zip Code City/State/Zip Code
- ---------------------------------------- -------------------------------
Telephone Number Telephone Number
- ---------------------------------------- -------------------------------
Facsimile Number Facsimile Number
- ----------------------------------------
SWIFT Number
- ----------------------------------------
Telex Number
<PAGE>
[STATE STREET LOGO]
FUNDS TRANSFER ADDENDUM
INSTRUCTION(S)
TELEPHONE CONFIRMATION
- ----------------------
FUND Legg Mason Light Street Trust, Inc.
------------------------------------------------------
INVESTMENT ADVISER Legg Mason Fund Advisor, Inc.
---------------------------------------
AUTHORIZED INITIATORS
Please Type or Print
PLEASE PROVIDE A LISTING OF FUND OFFICERS OR OTHER INDIVIDUALS ARE CURRENTLY
AUTHORIZED TO INITIATE WIRE TRANSFER INSTRUCTIONS TO STATE STREET:
NAME TITLE (Specify whether position SPECIMEN SIGNATURE
is with Fund or Investment
Adviser)
- -------------------- -------------------------- ------------------------
- -------------------- -------------------------- ------------------------
- -------------------- -------------------------- ------------------------
- -------------------- -------------------------- ------------------------
- -------------------- -------------------------- ------------------------
AUTHORIZED VERIFIERS
Please Type or Print
PLEASE PROVIDE A LISTING OF FUND OFFICERS OF OTHER INDIVIDUALS WHO WILL BE
CALLED BACK TO VERIFY THE INITIATION OF REPETITIVE WIRES OF $10 MILLION OR MORE
AND ALL NON REPETITIVE WIRE INSTRUCTIONS:
NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY)
- -------------------- -------------------------- --------------------------
- -------------------- -------------------------- --------------------------
- -------------------- -------------------------- --------------------------
- -------------------- -------------------------- --------------------------
- -------------------- -------------------------- --------------------------
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON LIGHT STREET TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Terms of Appointment and Duties...............................................1
2. Third Party Administrators for Defined Contribution Plans.....................4
3. Fees and Expenses.............................................................5
4. Representations and Warranties of the Transfer Agent..........................5
5. Representations and Warranties of the Fund....................................5
6. Wire Transfer Operating Guidelines............................................6
7. Data Access and Proprietary Information.......................................7
8. Indemnification...............................................................9
9. Standard of Care.............................................................10
10. Year 2000....................................................................10
11. Confidentiality..............................................................11
12. Covenants of the Fund and the Transfer Agent.................................11
13. Termination of Agreement.....................................................12
14. Assignment and Third Party Beneficiaries.....................................12
15. Subcontractors...............................................................13
16. Miscellaneous................................................................13
17. Additional Funds.............................................................14
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of ___, 1999, by and between LEGG MASON LIGHT
STREET TRUST, INC., a Maryland corporation, having its principal office and
place of business at 100 Light Street, Baltimore, Maryland 21202 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Transfer Agent").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in one (1) series, such
series shall be named in the attached Schedule A which may be amended by the
parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 17, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Transfer
Agent as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Transfer Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment and Duties
1.1 TRANSFER AGENCY SERVICES. Subject to the terms and conditions
set forth in this Agreement, the Fund, on behalf of the
Portfolios, hereby employs and appoints the Transfer Agent to
act as, and the Transfer Agent agrees to act as its transfer
agent for the Fund's authorized and issued shares of its common
stock, $ par value, ("Shares"), dividend disbursing agent,
custodian of certain retirement plans and agent in connection
with any accumulation, open-account or similar plan provided to
the shareholders of each of the respective Portfolios of the
Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable
Portfolio, including without limitation any periodic investment
plan or periodic withdrawal program. In accordance with
procedures established from time to time by agreement between
the Fund on behalf of each of the Portfolios, as applicable and
the Transfer Agent, the Transfer Agent agrees that it will
perform the following services:
<PAGE>
(a) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Articles of
Incorporation of the Fund (the "Custodian");
(b) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(c) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation thereof to the Custodian;
(d) In respect to the transactions in items (a), (b) and (c) above, the
Transfer Agent shall execute transactions directly with broker-dealers
authorized by the Fund;
(e) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(f) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(g) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(h) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Transfer Agent
of indemnification satisfactory to the Transfer Agent and protecting the
Transfer Agent and the Fund, and the Transfer Agent at its option, may
issue replacement certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(i) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(j) Record the issuance of Shares of the Fund and maintain pursuant to
SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund
which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Transfer Agent shall also provide the Fund
on a regular basis with the total number of Shares which are authorized
and issued and outstanding and shall have no obligation, when recording
the issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
1.2 ADDITIONAL SERVICES. In addition to, and neither in lieu nor in
contravention of, the services set forth in the above paragraph, the
Transfer Agent shall perform the following services:
(a) OTHER CUSTOMARY SERVICES. Perform the customary services of a
transfer agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plan (including without limitation
any periodic investment plan or periodic withdrawal program), including
but not limited
2
<PAGE>
to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing Shareholder proxies, Shareholder reports and prospectuses
to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect
to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing Shareholder
account information.
(b) CONTROL BOOK (ALSO KNOWN AS "SUPER SHEET"). Maintain a daily record
and produce a daily report for the Fund of all transactions and receipts
and disbursements of money and securities and deliver a copy of such
report for the Fund for each business day to the Fund no later than 9:00
AM Eastern Time, or such earlier time as the Fund may reasonably
require, on the next business day.
(c) "BLUE SKY" REPORTING. The Fund shall (i) identify to the Transfer
Agent in writing those transactions and assets to be treated as exempt
from blue sky reporting for each State; and (ii) verify the
establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Transfer Agent for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and providing a
system which will enable the Fund to monitor the total number of Shares
sold in each State.
(d) NATIONAL SECURITIES CLEARING CORPORATION (THE "NSCC"). (i) accept
and effectuate the registration and maintenance of accounts through
Networking and the purchase, redemption, transfer and exchange of shares
in such accounts through Fund/SERV (networking and Fund/SERV being
programs operated by the NSCC on behalf of NSCC's participants,
including the Fund), in accordance with, instructions transmitted to and
received by the Transfer Agent by transmission from NSCC on behalf of
broker-dealers and banks which have been established by, or in
accordance with the instructions of authorized persons, as hereinafter
defined on the dealer file maintained by the Transfer Agent; (ii) issue
instructions to Fund's banks for the settlement of transactions between
the Fund and NSCC (acting on behalf of its broker-dealer and bank
participants); (iii) provide account and transaction information from
the affected Fund's records on DST Systems, Inc. computer system TA2000
("TA2000 System") in accordance with NSCC's Networking and Fund/SERV
rules for those broker-dealers; and (iv) maintain Shareholder accounts
on TA2000 System through Networking.
(e) NEW PROCEDURES. New procedures as to who shall provide certain of
these services in Section 1 may be established in writing from time to
time by agreement between the Fund and the Transfer Agent. The Transfer
Agent may at times perform only a portion of these services and the Fund
or its agent may perform these services on the Fund's behalf.
3
<PAGE>
(f) ADDITIONAL TELEPHONE SUPPORT SERVICES. If the parties elect to have
the Transfer Agent provide additional telephone support services under
this Agreement, the parties will agree to such services, fees and
sub-contracting as stated in Schedule 1.2(f) entitled "Telephone Support
Services" attached hereto.
2. Third Party Administrators for Defined Contribution Plans
2.1 The Fund may decide to make available to certain of its customers, a
qualified plan program (the "Program") pursuant to which the customers
("Employers") may adopt certain plans of deferred compensation ("Plan or
Plans") for the benefit of the individual Plan participant (the "Plan
Participant"), such Plan(s) being qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code") and administered by
third party administrators which may be plan administrators as defined
in the Employee Retirement Income Security Act of 1974, as amended)(the
"TPA(s)").
2.2 In accordance with the procedures established in the initial Schedule
2.1 entitled "Third Party Administrator Procedures", as may be amended
by the Transfer Agent and the Fund from time to time ("Schedule 2.1"),
the Transfer Agent shall:
(a) Treat Shareholder accounts established by the Plans in the name of
the Trustees, Plans or TPAs as the case may be as omnibus accounts;
(b) Maintain omnibus accounts on its records in the name of the TPA or
its designee as the Trustee for the benefit of the Plan; and
(c) Perform all services under Section 1 as transfer agent of the Funds
and not as a record-keeper for the Plans.
2.3 Transactions identified under Section 2 of this Agreement shall be
deemed exception services ("Exception Services") when such transactions:
(a) Require the Transfer Agent to use methods and procedures other than
those usually employed by the Transfer Agent to perform services under
Section 1 of this Agreement;
(b) Involve the provision of information to the Transfer Agent after the
commencement of the nightly processing cycle of the TA2000 System; or
(c) Require more manual intervention by the Transfer Agent, either in
the entry of data or in the modification or amendment of reports
generated by the TA2000 System than is usually required by
non-retirement plan and pre-nightly transactions.
3. Fees and Expenses
3.1 FEE SCHEDULE. For the performance by the Transfer Agent pursuant to this
Agreement, the Fund agrees to pay the Transfer Agent an annual maintenance
fee for each Shareholder account as set forth in the attached fee schedule
("Schedule 3.1"). Such fees and out-of-pocket expenses and advances
identified under Section 3.2 below may be changed from time to time
subject to mutual written agreement between the Fund and the Transfer
Agent.
4
<PAGE>
3.2 OUT-OF-POCKET EXPENSES. In addition to the fee paid under Section 3.1
above, the Fund agrees to reimburse the Transfer Agent for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, mailing and tabulating proxies,
records storage, or advances incurred by the Transfer Agent for the
items set out in Schedule 3.1 attached hereto. In addition, any other
expenses incurred by the Transfer Agent at the request or with the
consent of the Fund, will be reimbursed by the Fund.
3.3 POSTAGE. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to the
Transfer Agent by the Fund at least seven (7) days prior to the mailing
date of such materials.
3.4 INVOICES. The Fund agrees to pay all fees and reimbursable expenses
within thirty (30) days following the receipt of the respective billing
notice, except for any fees or expenses which are subject to good faith
dispute. In the event of such a dispute, the Fund may only withhold that
portion of the fee or expense subject to the good faith dispute. The
Fund shall notify the Transfer Agent in writing within twenty-one (21)
calendar days following the receipt of each billing notice if the Fund
is disputing any amounts in good faith. If the Fund does not provide
such notice of dispute within the required time, the billing notice will
be deemed accepted by the Fund.
4. Representations and Warranties of the Transfer Agent
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
4.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
5. Representations and Warranties of the Fund
The Fund represents and warrants to the Transfer Agent that:
5.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of Maryland.
5.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
5
<PAGE>
5.3 All corporate proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as amended is
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
6. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
Code
6.1 The Transfer Agent is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that the Transfer Agent has been
instructed to transfer. The Transfer Agent shall execute payment orders
in compliance with the Security Procedure and with the Fund instructions
on the execution date provided that such payment order is received by
the customary deadline for processing such a request, unless the payment
order specifies a later time. All payment orders and communications
received after this the customary deadline will be deemed to have been
received the next business day.
6.2 The Fund acknowledges that the Security Procedure it has designated on
the Fund Selection Form was selected by the Fund from security
procedures offered by the Transfer Agent. The Fund shall restrict access
to confidential information relating to the Security Procedure to
authorized persons as communicated to the Transfer Agent in writing. The
Fund must notify the Transfer Agent immediately if it has reason to
believe unauthorized persons may have obtained access to such
information or of any change in the Fund's authorized personnel. The
Transfer Agent shall verify the authenticity of all Fund instructions
according to the Security Procedure.
6.3 The Transfer Agent shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
6.4 The Transfer Agent reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of the Transfer Agent's
receipt of such payment order; (b) if initiating such payment order
would cause the Transfer Agent, in the Transfer Agent's sole judgement,
to exceed any volume, aggregate dollar, network, time, credit or similar
limits which are applicable to the Transfer Agent; or (c) if the
Transfer Agent, in good faith, is unable to satisfy itself that the
transaction has been properly authorized.
6
<PAGE>
6.5 The Transfer Agent shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance with
the Security Procedure provided that such requests are received in a
timely manner affording the Transfer Agent reasonable opportunity to
act. However, the Transfer Agent assumes no liability if the request for
amendment or cancellation cannot be satisfied.
6.6 The Transfer Agent shall assume no responsibility for failure to detect
any erroneous payment order provided that the Transfer Agent complies
with the payment order instructions as received and the Transfer Agent
complies with the Security Procedure. The Security Procedure is
established for the purpose of authenticating payment orders only and
not for the detection of errors in payment orders.
6.7 The Transfer Agent shall assume no responsibility for lost interest with
respect to the refundable amount of any unauthorized payment order,
unless the Transfer Agent is notified of the unauthorized payment order
within thirty (30) days of notification by the Transfer Agent of the
acceptance of such payment order. In no event (including failure to
execute a payment order) shall the Transfer Agent be liable for special,
indirect or consequential damages, even if advised of the possibility of
such damages.
6.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Transfer Agent will act as an Originating Depository
Financial Institution and/or receiving depository Financial Institution,
as the case may be, with respect to such entries. Credits given by the
Transfer Agent with respect to an ACH credit entry are provisional until
the Transfer Agent receives final settlement for such entry from the
Federal Reserve Bank. If the Transfer Agent does not receive such final
settlement, the Fund agrees that the Transfer Agent shall receive a
refund of the amount credited to the Fund in connection with such entry,
and the party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
6.9 Confirmation of Transfer Agent's execution of payment orders shall
ordinarily be provided within twenty four (24) hours notice of which may
be delivered through the Transfer Agent's proprietary information
systems, or by facsimile or call-back. Fund must report any objections
to the execution of an order within thirty (30) days.
7. Data Access and Proprietary Information
7.1 The Fund acknowledges that the databases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Transfer Agent as
part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Transfer Agent on databases under
the control and ownership of the Transfer Agent or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Transfer Agent or other third party. In no
event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all
7
<PAGE>
Proprietary Information as proprietary to the Transfer Agent and further
agrees that it shall not divulge any Proprietary Information to any
person or organization except as may be provided hereunder. Without
limiting the foregoing, the Fund agrees for itself and its employees and
agents to:
(a) Use such programs and databases (i) solely on the Fund's computers,
or (ii) solely from equipment at the location agreed to between the Fund
and the Transfer Agent and (iii) solely in accordance with the Transfer
Agent's applicable user documentation;
(b) Refrain from copying or duplicating in any way (other than in the
normal course or performing processing on the Fund's computer(s)), the
Proprietary Information;
(c) Refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Transfer Agent's instructions;
(d) Refrain from causing or allowing information transmitted from the
Transfer Agent's computer to the Fund's terminal to be retransmitted to
any other computer terminal or other device except as expressly
permitted by the Transfer Agent (such permission not to be unreasonably
withheld);
(e) Allow the Fund to have access only to those authorized transactions
as agreed to between the Fund and the Transfer Agent; and
(f) Honor all reasonable written requests made by the Transfer Agent to
protect at the Transfer Agent's expense the rights of the Transfer Agent
in Proprietary Information at common law, under federal copyright law
and under other federal or state law.
7.2 Proprietary Information shall not include all or any portion of any of
the foregoing items that: (i) are or become publicly available without
breach of this Agreement; (ii) are released for general disclosure by a
written release by the Transfer Agent; or (iii) are already in the
possession of the receiving party at the time or receipt without
obligation of confidentiality or breach of this Agreement.
7.3 The Fund acknowledges that its obligation to protect the Transfer
Agent's Proprietary Information is essential to the business interest of
the Transfer Agent and that the disclosure of such Proprietary
Information in breach of this Agreement would cause the Transfer Agent
immediate, substantial and irreparable harm, the value of which would be
extremely difficult to determine. Accordingly, the parties agree that,
in addition to any other remedies that may be available in law, equity,
or otherwise for the disclosure or use of the Proprietary Information in
breach of this Agreement, the Transfer Agent shall be entitled to seek
and obtain a temporary restraining order, injunctive relief, or other
equitable relief against the continuance of such breach.
7.4 If the Fund notifies the Transfer Agent that any of the Data Access
Services do not operate in material compliance with the most recently
issued user documentation for such services, the Transfer Agent shall
endeavor in a timely manner to correct such failure. Organizations from
which the Transfer Agent may obtain certain data included in the
8
<PAGE>
Data Access Services are solely responsible for the contents of such
data and the Fund agrees to make no claim against the Transfer Agent
arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT EXPRESSLY
DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
7.5 If the transactions available to the Fund include the ability to
originate electronic instructions to the Transfer Agent in order to: (i)
effect the transfer or movement of cash or Shares; or (ii) transmit
Shareholder information or other information, then in such event the
Transfer Agent shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further inquiry
as long as such instruction is undertaken in conformity with security
procedures established by the Transfer Agent from time to time.
7.6 Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Section 7. The obligations of this
Section shall survive any earlier termination of this Agreement.
8. Indemnification
8.1 The Transfer Agent shall not be responsible for, and the Fund shall
indemnify and hold the Transfer Agent harmless from and against, any and
all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) All actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct;
(b) The Fund's lack of good faith, negligence or willful misconduct;
(c) The reliance upon, and any subsequent use of or action taken or
omitted, by the Transfer Agent, or its agents or subcontractors on: (i)
any information, records, documents, data, stock certificates or
services, which are received by the Transfer Agent or its agents or
subcontractors by machine readable input, facsimile, CRT data entry,
electronic instructions or other similar means authorized by the Fund,
and which have been prepared, maintained or performed by the Fund or any
other person or firm on behalf of the Fund including but not limited to
any previous transfer agent or registrar; (ii) any instructions or
requests of the Fund or any of its officers; (iii) any instructions or
opinions of legal counsel with respect to any matter arising in
connection with the
9
<PAGE>
services to be performed by the Transfer Agent under this Agreement
which are provided to the Transfer Agent after consultation with such
legal counsel; or (iv) any paper or document, reasonably believed to be
genuine, authentic, or signed by the proper person or persons;
(d) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be registered
or in violation of any stop order or other determination or ruling by
any federal or any state agency with respect to the offer or sale of
such Shares;
(e) The negotiation and processing of any checks including without
limitation for deposit into the Fund's demand deposit account maintained
by the Transfer Agent; or
(f) Upon the Fund's request entering into any agreements required by the
National Securities Clearing Corporation (the "NSCC") for the
transmission of Fund or Shareholder data through the NSCC clearing
systems.
8.2 In order that the indemnification provisions contained in this Section 8
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Transfer Agent, the Transfer Agent shall
promptly notify the Fund of such assertion, and shall keep the Fund
advised with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Transfer Agent in the
defense of such claim or to defend against said claim in its own name or
in the name of the Transfer Agent. The Transfer Agent shall in no case
confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Transfer Agent except with the Fund's
prior written consent.
9. Standard of Care
9.1 The Transfer Agent shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to errors
unless said errors are caused by its negligence, bad faith, or willful
misconduct or that of its employees, except as provided in Section 9.2
below.
9.2 In the case of Exception Services as defined in Section 2.3 herein, the
Transfer Agent shall be held to a standard of gross negligence and
encoding and payment processing errors shall not be deemed negligence.
10. Year 2000
The Transfer Agent will take reasonable steps to ensure that its
products (and those of its third-party suppliers) reflect the available
technology to offer products that are Year 2000 ready, including, but
not limited to, century recognition of dates, calculations that
correctly compute same century and multi century formulas and date
values, and interface
10
<PAGE>
values that reflect the date issues arising between now and the next
one-hundred years, and if any changes are required, the Transfer Agent
will make the changes to its products at a price to be agreed upon by
the parties and in a commercially reasonable time frame and will require
third-party suppliers to do likewise.
11. Confidentiality
11.1 The Transfer Agent and the Fund agree that they will not, at any time
during the term of this Agreement or after its termination, reveal,
divulge, or make known to any person, firm, corporation or other
business organization, any customers' lists, trade secrets, cost figures
and projections, profit figures and projections, or any other secret or
confidential information whatsoever, whether of the Transfer Agent or of
the Fund, used or gained by the Transfer Agent or the Fund during
performance under this Agreement. The Fund and the Transfer Agent
further covenant and agree to retain all such knowledge and information
acquired during and after the term of this Agreement respecting such
lists, trade secrets, or any secret or confidential information
whatsoever in trust for the sole benefit of the Transfer Agent or the
Fund and their successors and assigns. In the event of breach of the
foregoing by either party, the remedies provided by Section 7.3 shall be
available to the party whose confidential information is disclosed. The
above prohibition of disclosure shall not apply to the extent that the
Transfer Agent must disclose such data to its sub-contractor or Fund
agent for purposes of providing services under this Agreement.
11.2 In the event that any requests or demands are made for the inspection of
the Shareholder records of the Fund, other than request for records of
Shareholders pursuant to standard subpoenas from state or federal
government authorities (i.e., divorce and criminal actions), the
Transfer Agent will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such
inspection. The Transfer Agent expressly reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised by
counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person or if required by law or court order.
12. Covenants of the Fund and the Transfer Agent
12.1 The Fund shall promptly furnish to the Transfer Agent the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Transfer Agent and the execution
and delivery of this Agreement; and
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.
12.2 The Transfer Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping account
of, such certificates, forms and devices.
11
<PAGE>
12.3 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Transfer Agent agrees that all
such records prepared or maintained by the Transfer Agent relating to
the services to be performed by the Transfer Agent hereunder are the
property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
13. Termination of Agreement
13.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
13.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses or costs associated with the movement of records and material
will be borne by the Fund. Additionally, the Transfer Agent reserves the
right to charge for any other reasonable expenses associated with such
termination and a charge equivalent to the average of three (3) months'
fees. Payment of such expenses or costs shall be in accordance with
Section 3.4 of this Agreement.
13.3 Upon termination of this Agreement, each party shall return to the other
party all copies of confidential or proprietary materials or information
received from such other party hereunder, other than materials or
information required to be retained by such party under applicable laws
or regulations.
14. Assignment and Third Party Beneficiaries
14.1 Except as provided in Section 15.1 below and the Additional Telephone
Support Services Schedule 1.2(f) attached, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party. Any attempt to do so in
violation of this Section shall be void. Unless specifically stated to
the contrary in any written consent to an assignment, no assignment will
release or discharge the assignor from any duty or responsibility under
this Agreement.
14.2 Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits in this
Agreement to anyone other than the Transfer Agent and the Fund, and the
duties and responsibilities undertaken pursuant to this Agreement shall
be for the sole and exclusive benefit of the Transfer Agent and the
Fund. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
14.3 This Agreement does not constitute an agreement for a partnership or
joint venture between the Transfer Agent and the Fund. Other than as
provided in Section 15.1 and Schedule 1.2(f), neither party shall make
any commitments with third parties that are binding on the other party
without the other party's prior written consent.
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<PAGE>
15. Subcontractors
15.1 The Transfer Agent may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended, (ii) a BFDS subsidiary duly
registered as a transfer agent or (iii) a BFDS affiliate duly registered
as a transfer agent; provided, however, that the Transfer Agent shall be
fully responsible to the Fund for the acts and omissions of BFDS or its
subsidiary or affiliate as it is for its own acts and omissions.
15.2 Nothing herein shall impose any duty upon the Transfer Agent in
connection with or make the Transfer Agent liable for the actions or
omissions to act of unaffiliated third parties such as by way of example
and not limitation, Airborne Services, Federal Express, United Parcel
Service, the U.S. Mails, the NSCC and telecommunication companies,
provided, if the Transfer Agent selected such company, the Transfer
Agent shall have exercised due care in selecting the same.
16. Miscellaneous
16.1 AMENDMENT. This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors of the Fund.
16.2 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of
The Commonwealth of Massachusetts.
16.3 FORCE MAJEURE. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting
from such failure to perform or otherwise from such causes.
16.4. CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be liable
to the other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
16.5 SURVIVAL. All provisions regarding indemnification, warranty, liability,
and limits thereon, and confidentiality and/or protections of
proprietary rights and trade secrets shall survive the termination of
this Agreement.
16.6 SEVERABILITY. If any provision or provisions of this Agreement shall be
held invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
16.7 PRIORITIES CLAUSE. In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement
and any Schedules or attachments hereto, the terms and conditions
contained in this Agreement shall take precedence.
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16.8 WAIVER. No waiver by either party or any breach or default of any of the
covenants or conditions herein contained and performed by the other
party shall be construed as a waiver of any succeeding breach of the
same or of any other covenant or condition.
16.9 MERGER OF AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
16.10 COUNTERPARTS. This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
16.11 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, exhibits,
attachments and amendments hereto may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other
similar process. The parties hereto each agree that any such
reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement, facsimile
or further reproduction shall likewise be admissible in evidence.
16.12 NOTICES. All notices and other communications as required or permitted
hereunder shall be in writing and sent by first class mail, postage
prepaid, addressed as follows or to such other address or addresses of
which the respective party shall have notified the other.
(a) If to State Street Bank and Trust Company, to:
State Street Bank and Trust Company
c/o Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, Massachusetts 02171
Attention: Legal Department
Facsimile: (617) 483-2287
(b) If to the Fund, to:
Legg Mason Light Street Trust, Inc.
Attention: Marie K. Karpinski
100 Light Street
Baltimore, Maryland 21202
Facsimile: ( )
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the attached Schedule A with respect to which it desires to
have the Transfer Agent render
14
<PAGE>
services as transfer agent under the terms hereof, it shall so notify
the Transfer Agent in writing, and if the Transfer Agent agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
LEGG MASON LIGHT STREET TRUST, INC.
BY:
----------------------------------
Marie K. Karpinski
Vice President and Treasurer
ATTEST:
- --------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
---------------------------------
Executive Vice President
ATTEST:
- ---------------------------------
16
<PAGE>
SCHEDULE A
Legg Mason Market Neutral Trust
LEGG MASON LIGHT STREET TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:_________________________________ BY:________________________________
17
<PAGE>
SCHEDULE 1.2(F)
ADDITIONAL TELEPHONE SUPPORT FEES AND SERVICES
Dated ____________
I. SERVICES
1. Transfer Agent and Telephone Support Functions
a. Answer telephone inquiries from [XXX 8 a.m. to 8 p.m. Boston time Monday
through Friday EXCEPT Christmas Day XXX][XXX OTHER HOLIDAY COVERAGE
AVAILABLE? XXX] from [XXX existing customers and prospective customers
XXX] of the Fund [XXX for sales literature XXX] in accordance with the
telephone script provided by the Fund.
b. Answer questions pertaining thereto the extent that such questions are
answerable based upon the information supplied to the Transfer Agent by
the Fund.
c. [XXX As the Fund and the Transfer Agent may agree in writing, the
Transfer Agent will receive calls and take written transaction requests
from shareholders of the Fund. Transfer Agent transactions include: [XXX
telephone redemptions, account maintenance, exchanges, transfers,
confirmed purchases, account balances and general inquiries XXX]. Some
transactions may result in research which will be done by the Fund.
Other calls may be referred directly to the Fund. Fax any referrals to
[XXX name of company XXX] on the same day the telephone call is received
XXX];
2. Incorporate new information into the above referenced script upon
written instructions from the Fund;
3. Maintain prospect detail information for six (6) months thereafter,
provide such information to the Fund in the form that the Fund may
reasonably request;
4. Send all literature orders for information from BFDS/DST [XXX [how?] [to
whom?] XXX] a minimum of [XXX one XXX] transmission per day;
5. Provide the Fund with a [XXX daily/weekly/monthly XXX] telephone report
detailing the calls received during the [XXX day/week/month XXX];
6. [XXX Provide the Fund with monthly conversion reports as selected by the
Fund from DST's standard report package. XXX]
7. TARGET SERVICE LEVELS: Average speed of answer is fifteen (15) seconds,
abandon rate of no more than 2%, and an overall service level of 85%.
The averages will be calculated on a weekly basis.
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<PAGE>
II. SUBCONTRACTORS
1. The Transfer Agent may, without further consent on the part of the Fund,
subcontract ministerial telephone support services for the performance
hereof.
III. FEES
LEGG MASON LIGHT STREET TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:_______________________________ BY:______________________________
19
<PAGE>
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated ____________
1. On each Business Day, the TPA(s) shall receive, on behalf of and as
agent of the Fund(s), Instructions (as hereinafter defined) from the
Plan. Instructions shall mean as to each Fund (i) orders by the Plan for
the purchases of Shares, and (ii) requests by the Plan for the
redemption of Shares; in each case based on the Plan's receipt of
purchase orders and redemption requests by Participants in proper form
by the time required by the term of the Plan, but not later than the
time of day at which the net asset value of a Fund is calculated, as
described from time to time in that Fund's prospectus. Each Business Day
on which the TPA receives Instructions shall be a "Trade Date".
2. The TPA(s) shall communicate the TPA(s)'s acceptance of such
Instructions, to the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which it
accepted Instructions for the purchase and redemption of Shares, (TD+1),
the TPA(s) shall notify the Transfer Agent of the net amount of such
purchases or redemptions, as the case may be, for each of the Plans. In
the case of net purchases by any Plan, the TPA(s) shall instruct the
Trustees of such Plan to transmit the aggregate purchase price for
Shares by wire transfer to the Transfer Agent on (TD+1). In the case of
net redemptions by any Plan, the TPA(s) shall instruct the Fund's
custodian to transmit the aggregate redemption proceeds for Shares by
wire transfer to the Trustees of such Plan on (TD+1). The times at which
such notification and transmission shall occur on (TD+1) shall be as
mutually agreed upon by each Fund, the TPA(s), and the Transfer Agent.
4. The TPA(s) shall maintain separate records for each Plan, which record
shall reflect Shares purchased and redeemed, including the date and
price for all transactions, and Share balances. The TPA(s) shall
maintain on behalf of each of the Plans a single master account with the
Transfer Agent and such account shall be in the name of that Plan, the
TPA(s), or the nominee of either thereof as the record owner of Shares
owned by such Plan.
5. The TPA(s) shall maintain records of all proceeds of redemptions of
Shares and all other distributions not reinvested in Shares.
6. The TPA(s) shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that Plan
as of the statement closing date, purchases and redemptions of Shares by
the Plan during the period covered by the statement, and the dividends
and other distributions paid to the Plan on Shares during the statement
period (whether paid in cash or reinvested in Shares).
<PAGE>
7. The TPA(s) shall, at the request and expense of each Fund, transmit to
the Plans prospectuses, proxy materials, reports, and other information
provided by each Fund for delivery to its shareholders.
8. The TPA(s) shall, at the request of each Fund, prepare and transmit to
each Fund or any agent designated by it such periodic reports covering
Shares of each Plan as each Fund shall reasonably conclude are necessary
to enable the Fund to comply with state Blue Sky requirements.
9. The TPA(s) shall transmit to the Plans confirmation of purchase orders
and redemption requests placed by the Plans; and
10. The TPA(s) shall, with respect to Shares, maintain account balance
information for the Plan(s) and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses,
proxy materials, periodic reports and other materials relating to each
Fund be furnished to Participants in which event the Transfer Agent or
each Fund shall mail or cause to be mailed such materials to
Participants. With respect to any such mailing, the TPA(s) shall, at the
request of the Transfer Agent or each Fund, provide at the TPA(s)'s
expense complete and accurate set of mailing labels with the name and
address of each Participant having an interest through the Plans in
Shares.
LEGG MASON LIGHT STREET TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:__________________________________ BY:_____________________________
SCHEDULE 3.1
FEES
<PAGE>
Dated ____________
LEGG MASON LIGHT STREET TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:_________________________________ BY:_________________________________
ARTHUR C. DELIBERT
(202) 778-9042
[email protected]
January 20, 1999
Legg Mason Light Street Trust, Inc.
100 Light Street
Baltimore, MD 21202
Dear Sir or Madam:
Legg Mason Light Street Trust, Inc. (the "Company") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated August 5, 1998. You have requested our opinion regarding certain matters
in connection with the Company's issuance of shares of common stock ("Shares")
in its series designated as Legg Mason Market Neutral Trust, which has two
classes, Class A and Class Y.
We have, as counsel, participated in various corporate and other
matters relating to the Company. We have examined certified copies of the
Articles of Incorporation and By-Laws, the minutes of meetings of the directors
and other documents relating to the organization and operation of the Company,
and we are generally familiar with its business affairs. Based upon the
foregoing, it is our opinion that the unissued Shares designated as Legg Mason
Market Neutral Trust, which are currently being registered, may be legally and
validly issued from time to time in accordance with the Company's Articles of
Incorporation and By-Laws; and, when so issued, will be legally issued, fully
paid and nonassessable by the Company.
We hereby consent to the filing of this opinion in connection with
Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form
N-1A (File No. 333-61525) being filed with the Securities and Exchange
Commission. We also consent to the reference to our firm under the caption
"Counsel" in the Prospectuses and "The Fund's Legal Counsel" in the Statement of
Additional Information filed as part of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
/s/ ARTHUR C. DELIBERT
-------------------------------
Arthur C. Delibert
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 1 (File No.
333-61525) under the Securities Act of 1933 and Pre-Effective Amendment No. 1
(File No. 811-08943) under the Investment Company Act of 1940 to the
Registration Statement on Form N-1A of Legg Mason Light Street Trust, Inc. of
our report for Legg Mason Market Neutral Trust dated January 19, 1999 on our
audit of the financial statements as of January 15, 1999 and for the respective
period then ended.
We also consent to the reference to our firm under the caption "The Fund's
Independent Accountants" in the Statement of Additional Information.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
January 22, 1999
Exhibit 13
Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476, Baltimore, Maryland 21203-1476
410-539-0000
January 15, 1999
Legg Mason Light Street Trust, Inc.
100 Light Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Please be advised that the 10,000 shares of Legg Mason Light Street Trust,
Inc. which we have today purchased from you in the aggregate amount of $100,000
were purchased as an investment with no present intention of redeeming or
selling such shares and we do not have any intention of redeeming or selling
such shares.
Very truly yours,
LEGG MASON FUND ADVISER, INC.
By: /s/ Jennifer W. Murphy
Jennifer W. Murphy
Chief Operating Officer
DISTRIBUTION PLAN OF
LEGG MASON LIGHT STREET TRUST, INC.
WHEREAS, Legg Mason Light Street Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established one Series
of shares of common stock of the Corporation: Legg Mason Market Neutral Trust
(the "Fund");
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the1940 Act on the following
terms and conditions:
1. A. The Fund shall pay to Legg Mason, as compensation for Legg Mason's
services as principal underwriter of the Fund's Class A Shares (known as
"Primary Shares"), a distribution fee at the rate of 0.75% on an annualized
basis of the average daily net assets attributable to Primary Shares of the
Fund, such fee to be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
B. The Fund shall pay to Legg Mason, as compensation for ongoing
services provided to the investors in Primary Shares of the Fund, a service fee
at the rate of 0.25% on an annualized basis of the average daily net assets
attributable to Primary Shares of the Fund, such fees to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
C. The Corporation may pay a distribution or service fee to Legg
Mason at a lesser rate than the fees specified in paragraphs 1.A and 1.B,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 3 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Conduct Rule 2830 of the National Association of
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Corporation's shares, the amounts paid hereunder shall not exceed
those limitations, including permissible interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Fund and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall take effect on December 28, 1998 and shall continue
in effect for successive periods of one year from its execution for so long as
such continuance is specifically approved at least annually together with any
related agreements, by votes of a majority of both (a) the Board of
<PAGE>
Directors of the Corporation and (b) those Directors who are not "interested
persons" of the Corporation, as defined in the 1940 Act, and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Plan and such related
agreements; and only if the Directors who approve the Plan taking effect have
reached the conclusion required by Rule 12b-1(e) under the 1940 Act.
4. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Corporation's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 4, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 4, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Legg Mason's performance of its obligations under
the underwriting agreement, dated December 28, 1998, by and between the
Corporation and Legg Mason, with respect to the Fund, that are not deemed
"service activities." As used herein, "distribution activities" also include
sub-accounting or recordkeeping services provided by an entity if the entity is
compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides appropriate
services. Nothing in the foregoing is intended to or shall cause there to be any
implication that compensation for such services must be made only pursuant to a
plan of distribution under Rule 12b-1. "Service activities" shall mean
activities covered by the definition of "service fee" contained in Conduct Rule
2830 of the NASD, including the provision by Legg Mason of personal, continuing
services to investors in the Corporation's shares. Overhead and other expenses
of Legg Mason related to its "distribution activities" or "service activities,"
including telephone and other communications expenses, may be included in the
information regarding amounts expended for such distribution or service
activities, respectively.
5. This Plan may be terminated with respect to the Fund at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding voting securities of the Fund.
6. After the issuance of Primary Shares of the Fund, this Plan may not
be amended to increase materially the amount of distribution fees provided for
in paragraph 1.A. hereof or the amount of service fees provided for in paragraph
1.B. hereof unless such amendment is approved by a vote of at least a majority
of the outstanding securities, as defined in the 1940 Act, of the Fund, and no
material amendment to the Plan shall be made unless such amendment is approved
in the manner provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
8. The Corporation shall preserve copies of this Plan and any
related agreements for a period of not less than six years from the date of
expiration of the Plan or agreement, as the case may be, the first two years in
an easily accessible place; and shall preserve copies of each report made
pursuant to paragraph 4 hereof for a period of not less than six years from the
date of such report, the first two years in an easily accessible place.
-2-
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
as of the day and year set forth below:
Date: December 28, 1998 LEGG MASON LIGHT STREET TRUST, INC.
Attest: By: /s/Marie K. Karpinski
------------------------------
By: /s/ Kathi D. Bair
----------------------------
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Marie K. Karpinski
----------------------------
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
Legg Mason Light Street Trust, Inc. hereby adopts this Multiple Class
Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"), on behalf of Legg Mason Market Neutral Trust (the "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
1. Primary Class Shares. Primary Class shares of the Fund are offered and sold
without imposition of an initial sales charge or a contingent deferred sales
charge.
Primary Class shares of the Fund are available to all investors except
those qualified to purchase Navigator Class shares.
Primary Class shares of the Fund are subject to an annual distribution
fee of up to 0.75% of the average daily net assets of the Primary Class shares
of the Fund and an annual service fee of 0.25% of the average daily net assets
of the Primary Class shares of the Fund under a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
2. Navigator Class Shares. Navigator Class shares are offered and sold
without imposition of an initial sales charge or a contingent deferred sales
charge and are not subject to any service or distribution fees.
Navigator Class shares of the Fund are available for purchase only by:
(i) institutional clients of the Fairfield Group, Inc. ("Fairfield") for
investment of their own funds and funds for which they act in a fiduciary
capacity; (ii) clients of Legg Mason Trust Company ("Trust Company") for which
Trust Company exercises discretionary investment management responsibility;
(iii) qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million; and (iv) any qualified retirement plan of Legg
Mason, Inc. or any of its affiliates. Navigator Class shares are also available
for purchase by exchange, as described below.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
Certain expenses may be attributable to a particular Class of shares of
the Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) legal, printing and postage expenses related to preparing
and distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a
specific Class;
(2) Blue Sky fees incurred by a specific Class of shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required
to support the shareholders of a specific Class of shares;
<PAGE>
(5) Directors' fees incurred as a result of issues relating to
a specific Class of shares;
(6) litigation expenses or other legal expenses relating to a
specific Class of shares;
(7) transfer agent fees and shareholder servicing expenses
identified as being attributable to a specific Class; and
(8) such other expenses actually incurred in a different
amount by a Class or related to a Class' receipt of
services of a different kind or to a different degree than
another Class.
C. EXCHANGE PRIVILEGES:
Primary Class and Navigator Class shares of the Fund may be exchanged
for shares of the corresponding Class of other Legg Mason funds, or may be
acquired through an exchange of shares of the corresponding Class of other Legg
Mason funds.
Legg Mason U.S. Government Money Market Portfolio, Legg Mason Cash
Reserve Trust and Legg Mason Tax Exempt Trust (collectively referred to as "Legg
Mason Money Market Funds") currently offer only one class of shares. So long as
a Legg Mason Money Market Fund offers only a single class of shares, Primary
Class and Navigator Class shares of the Fund may be exchanged for shares of that
Legg Mason Money Market Fund, or may be acquired through an exchange of shares
of that Money Market Fund. An investor exchanging from a Legg Mason Money Market
Fund may exchange only into the class of shares the investor is eligible to
purchase.
These exchange privileges may be modified or terminated by the Fund in
certain instances, and exchanges may be made only into funds that are legally
available for sale in the investor's state of residence.
D. CLASS DESIGNATION:
Subject to approval by the Board of Directors, the Fund may alter the
nomenclature for the designations of one or more of its Classes of shares.
E. ADDITIONAL INFORMATION:
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that none
of the terms set forth in any such prospectus shall be inconsistent with the
terms of the Classes contained in this Plan. The prospectus for the Fund
contains additional information about the Classes and the Fund's multiple class
structure.
F. DATE OF EFFECTIVENESS:
This Multiple Class Plan is effective on December 28, 1998, provided
that this Plan shall not become effective with respect to the Fund unless such
action has first been approved by the vote of a majority of the Board of
Directors of Legg Mason Light Street Trust, Inc. and by vote of a majority of
those directors who are not interested persons.
December 28, 1998
-2-
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