LEGG MASON LIGHT STREET TRUST INC, 497, 2000-03-03

LEGG MASON LIGHT STREET TRUST INC
497, 2000-03-03

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Legg Mason Light Street Trust, Inc.

Legg Mason Market Neutral Trust

PRIMARY CLASS SHARES PROSPECTUS February 28, 2000

logo

The Art of Investing SM

As with all mutual funds, the Securities and Exchange Commission has not passed
upon the adequacy of this prospectus, nor has it approved or disapproved these
securities. It is a criminal offense to state otherwise.

<PAGE>

T A B L E O F C O N T E N T S

A b o u t t h e f u n d:

xx Investment objective

xx Principal risks

xx Fees and expenses of the fund

xx Management

A b o u t y o u r i n v e s t m e n t:

xx How to invest

xx How to sell your shares

xx Account policies

xx Services for investors

xx Distributions and taxes

xx Financial highlights

<PAGE>

Legg Mason Market Neutral Trust

[icon] I N V E S T M E N T O B J E C T I V E

Investment objective: Long-term capital appreciation while minimizing exposure
to general U.S. equity market volatility.

Principal investment strategies:

The fund's investment adviser seeks to achieve this investment objective 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 fund seeks to have
approximately equal dollar amounts invested in long and short positions.

The fund takes a long position when the adviser purchases a security for cash
outright and it takes a short position when it borrows a security from a third
party and sells it at the then current market price. By buying and selling short
different stocks, the adviser seeks to minimize the effects of general movements
in the U.S. stock market on the fund's performance. The adviser anticipates that
if prices of securities in the fund's long portfolio increase more than prices
of securities in its short portfolio in the aggregate, then the fund's shares
will increase in value. The adviser also expects that if prices of securities in
the fund's short portfolio increase more than the prices of securities in its
long portfolio in the aggregate, then the fund's shares will decrease in value.

The portfolio is diversified and represents a broad sector of the U.S. equity
market. Certain characteristics of the long positions as a whole (e.g. industry
sector weightings, market capitalizations, and dollar amounts) are expected to
closely match the characteristics of the short positions as a whole. For these
purposes, the U.S. equity market consists of those equity securities listed on
the New York Stock Exchange, the American Stock Exchange and Nasdaq.

The adviser's bottom-up quantitative approach models the disciplines of a
fundamental investor. The adviser screens a broad universe of stocks for an
historical record of liquidity. The resulting universe is analyzed in detail
using the adviser's proprietary, multi-factor stock selection model, which
encompasses both quantitative and qualitative approaches and includes analysis
of cash flow, earnings growth, expectations, value, technicals and corporate
signals. The stock selection model is run daily, ranking each stock in the
investable universe of approximately 2,000 liquid stocks on a sector-neutral
basis and is designed so that no single dimension or set of factors dominates.

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. The interest
will contribute to the fund's return.

For temporary defensive purposes or when cash is temporarily available, the fund
may invest without limit in repurchase agreements and money market instruments,
including high-quality short-term debt securities. On the occasions, if any,
that the fund invests substantially in repurchase agreements and money market
instruments, the fund may not be pursuing its principal investment strategies
and the fund may not achieve its investment objective.

<PAGE>

[icon] P R I N C I P A L R I S K S

In general:

Investors could lose money by investing in the fund. There is no assurance that
the fund will meet its investment objective. As with all mutual funds, an
investment in this fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.

Market risk:

Prices of equity securities generally fluctuate more than those of other
securities, such as debt securities. The fund may experience a substantial or
complete loss on an individual stock; losses on short positions are potentially
unlimited.

Style risk:

The proprietary model used by the adviser to evaluate securities and securities
markets is based on the adviser's understanding of the interplay of market
factors and does not assure successful investment. The markets, or the prices of
individual securities, will, at times, be affected by factors not accounted for
by the model.

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, the adviser 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 characterizations 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.

An investment in the fund is also subject to the risk of poor stock selection by
the adviser. For example, the stocks that the adviser buys may not outperform
stocks that the adviser sells short, and thereby the fund would not be
successful in achieving its objective. Further, since the adviser 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.

Portfolio turnover:

The fund will likely experience very substantial turnover of securities.
Although the rate of the fund's portfolio turnover may vary significantly from
time to time depending on economic and market volatility, 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 300% to 600% 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
increase the likelihood that the fund will realize capital gains, including net
short-term capital gains (that is, gains from positions held for not more than
one year), distribution of which is taxed to shareholders at ordinary income tax
rates rather than at more favorable long-term capital gain tax rates. It is
anticipated that most of the fund's capital gains, if any, will be short-term.

<PAGE>

Short sales:

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 any particular time or at an acceptable price.

There is also 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. At most times, in excess of 90% of the fund's securities may be pledged
as collateral for securities sold short. Most collateral will be deposited with
a custodian or 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. In proposing a prime broker, the adviser considered the broker's
creditworthiness, among other factors. The fund has also taken steps to reduce
its exposure to the creditworthiness of its prime broker. However, there can be
no assurance that the fund will avoid losses or delays if the prime broker
experiences financial problems.

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 price of the previous reported trade. 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 the
adviser'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. The adviser will generally
attempt to execute short sales before 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 on securities sold short are theoretically
unlimited because the fund's loss on a short sale arises from increases in the
value of the security sold short. Losses on long positions, which arise from
decreases in the value of the security, however, are limited by the fact that a
security's value cannot drop below zero.

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.

As of the date of this prospectus, the fund has not been in operation for a full
calendar year; therefore, no performance information is presented.

<PAGE>

[icon] F E E S A N D E X P E N S E S O F T H E F U N D .

The tables below describe the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets so they lower the fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
The fees shown are current fees. The fees and expenses are shown as a percentage
of average net assets.

Annual Fund Operating Expenses

(expenses that are deducted from fund assets)

- ------------------------------------------ -----------------------------
Market Neutral Trust(a)
- ------------------------------------------ -----------------------------
Management fees 1.90%(b)
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Distribution and Service (12b-1) fees 1.00%
- ------------------------------------------ -----------------------------
Other expenses 3.80%
- ------------------------------------------ -----------------------------
Total Annual Fund Operating Expenses 6.70%
- ------------------------------------------ -----------------------------
Fee Waivers and Expense Reimbursement 3.70%(b)
- ------------------------------------------ -----------------------------
Net Annual Fund Operating Expenses 3.00%
- ------------------------------------------ -----------------------------

(a) The fund commenced operations on February 16, 1999.
(b) The manager has contractually agreed to waive fees and reimburse other
expenses so that Primary Class share expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an annual
rate of 3.00% of average daily net assets until February 28, 2001.

Example:

This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. Actual returns may be higher or lower than 5% per
year.

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Market Neutral Trust -
Primary Class shares $303 $1,647 $2,945 $6,003
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<PAGE>

[icon] M A N A G E M E N T

Management and advisers:

Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202 provides the fund with investment management and administrative services
and oversees the fund's relationships with outside service providers, such as
the sub-adviser, custodian, transfer agent, accountants, and lawyers. Under its
management agreement with the fund, the fund pays LMFA a fee calculated daily
and paid monthly of 1.90% of the average daily net assets of the fund. LMFA has
agreed to waive fees and reimburse certain expenses of the fund and the fund has
agreed to reimburse LMFA for such waivers under certain circumstances.

LMFA acts as manager or adviser to investment companies with aggregate assets of
approximately $21 billion as of December 31, 1999.

LMFA has delegated investment advisory responsibilities to Batterymarch
Financial Management, Inc., 200 Clarendon Street, Boston, Massachusetts 02116.
Batterymarch is responsible for the actual investment management of this fund,
which includes making investment decisions and placing orders to buy or sell
particular securities.

LMFA pays Batterymarch a monthly fee of 78.9% of the fee it receives from the
fund, or 1.50% of the fund's average daily net assets. Fees paid to Batterymarch
are net of any waivers. 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 totaled approximately $6.6 billion as of December 31, 1999.

Portfolio management:

A Batterymarch investment team is responsible for the day-to-day management of
the fund.

Distributor of the fund's shares:

Legg Mason Wood Walker, Inc. ("Distributor") distributes the fund's shares. The
fund has adopted a plan that allows it to pay distribution fees and shareholder
service fees for the sale of its shares and for services provided to
shareholders. Under the plan, the fund may pay the Distributor an annual fee
equal to 0.75% of the fund's average daily net assets and an annual service fee
equal to 0.25% of its average daily net assets attributable to Primary Class
shares.

Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.

The Distributor may enter into agreements with other brokers to sell Primary
Class shares of the fund. The Distributor pays these brokers up to 90% of the
distribution and service fee that it receives from the fund for those sales.

LMFA, Batterymarch and the Distributor are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.

<PAGE>

[icon] H O W T O I N V E S T

To open a regular account or a retirement account with the fund, contact a Legg
Mason financial adviser or other entity that has entered into an agreement with
the fund's distributor to sell shares of the Legg Mason family of funds. A Legg
Mason financial adviser will explain the shareholder services available from the
fund and answer any questions you may have. The minimum initial investment is
$1,000 and the minimum for each purchase of additional shares is $100, except as
noted below.

Retirement accounts include traditional IRAs, spousal IRAs, education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. Contact your Legg Mason
financial adviser or other entity offering the funds to discuss which one might
be appropriate for you.

Once your account is open, you may use the following methods to add to your
account:

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In Person Give your financial adviser a check for $100 or more payable to the
fund

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Mail Mail your check, payable to the fund, for $100 or more to your
financial adviser

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Telephone Call Legg Mason Funds Investors Services at 1-800-822-544 or your
or Wire financial adviser to transfer available cash balances in your
brokerage account or to transfer money from your bank directly to
Legg Mason. Wire transfers may be subject to a service charge by
your bank.

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Future First Contact your Legg Mason financial adviser to enroll in Legg Mason's
Systematic Future First Systematic Investment Plan. Under this plan, you may
Investment arrange for automatic monthly investments in the fund of $50 or
Plan more. The fund's transfer agent will transfer funds monthly from
your Legg Mason account or from your checking account to purchase
shares of that fund.

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Automatic Arrangements may be made with some employers and financial
Investments institutions for regular automatic monthly investments of $50 or
more in shares of the fund. You may also reinvest dividends from
certain unit investment trusts in shares of the fund.

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Call your financial adviser or another entity offering the fund for sale with
any questions regarding the investment options above.

Certain investment methods may be subject to lower minimum initial and
additional investments.

Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.

<PAGE>

Purchase orders received by your financial adviser or the entity offering the
fund before the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) will be processed at the fund's net asset value as of the close of
the exchange on that day. The fund is open for business every day the New York
Stock Exchange is open. The New York Stock Exchange is closed on all national
holidays and Good Friday. Orders received after the close of the exchange will
be processed at the fund's net asset value as of the close of the exchange on
the next day the exchange is open. Payment must be made within three business
days to Legg Mason.

<PAGE>

[icon] H O W T O S E L L Y O U R S H A R E S

Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions imposed by those entities. You should
consult their program literature for further information.

Any of the following methods may be used to sell your shares:

- --------------------------------------------------------------------------------

Telephone Call your Legg Mason financial adviser or entity offering the fund
and request a redemption. 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.

Proceeds will be credited to your brokerage account or a check
will be sent to you, at your direction, at no charge to you. Wire
requests will be subject to a fee of $18. Be sure that your
financial adviser has your bank account information on file.

The fund will follow reasonable procedures to ensure the validity
of any telephone redemption request, such as requesting
identifying information from callers or employing identification
numbers. Unless you specify that you do not wish to have telephone
redemption privileges, you may be held responsible for any
fraudulent telephone order.

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Mail Send a letter to the fund requesting redemption of your shares.
The letter should be signed by all of the owners of the account
and their signatures guaranteed without qualification. You may
obtain a signature guarantee from most banks or securities
dealers.

- --------------------------------------------------------------------------------

Your order will be processed promptly and you will generally receive the
proceeds within a week. Fund shares will be sold at the next net asset value
calculated after your redemption request is received by your Legg Mason
financial adviser or another entity.

Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of distributions on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.

Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.

The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.

<PAGE>

[icon] A C C O U N T P O L I C I E S

Calculation of net asset value:

Net asset value per Primary Class share is determined daily as of the close of
the New York Stock Exchange, on every day the exchange is open. To calculate the
fund's Primary Class share price, the fund's assets attributable to Primary
Class shares are valued and totaled, liabilities attributable to Primary Class
shares are subtracted, and the resulting net assets are divided by the number of
Primary Class shares outstanding. The fund's securities are valued on the basis
of market quotations or, lacking such quotations, at fair value as determined
under procedures established by the 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. The fund will value its foreign
securities, if any, in U.S. dollars on the basis of the then-prevailing exchange
rates.

Other:

Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason.

If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. The fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.

The fund reserves the right to:

o Reject any order for shares or suspend the offering of shares for a period
of time.

o Change its minimum investment amounts.

o Delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions. The fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the SEC.

<PAGE>

[icon] S E R V I C E S F O R I N V E S T O R S

For further information regarding any of the services below, please contact your
financial adviser or other entity offering the fund for sale.

Confirmations and account statements:

You will receive from Legg Mason a confirmation after each transaction involving
Primary Class shares (except a reinvestment of dividends, capital gain
distributions and purchases made through the Future First Systematic Investment
Plan or through automatic investments). Legg Mason or the entity through which
you invest will send you account statements monthly unless there has been no
activity in the account, in which case a statement will be sent to you
quarterly. Legg Mason will send you statements quarterly if you participate in
the Future First Systematic Investment Plan or if you purchase shares through
automatic investments.

Systematic withdrawal plan:

If you are purchasing or already own shares with a net asset value of $5,000 or
more, you may elect to make systematic withdrawals from the fund. The minimum
amount for each withdrawal is $50. If you are making withdrawals from the fund
pursuant to the systematic withdrawal plan, then you should not be purchasing
shares of the fund at the same time.

Exchange privilege:

Primary Class shares of this fund may be exchanged for Primary Class shares of
any of the other Legg Mason funds, except Legg Mason Opportunity Trust, provided
these funds are eligible for sale in your state of residence. You can request an
exchange in writing or by phone. Be sure to read the current prospectus for any
fund into which you are exchanging.

There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, an exchange of a
fund's shares will be treated as a sale of the shares, and any gain on the
transaction may be subject to tax.

The fund reserves the right to:

o Terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year.

o Terminate or modify the exchange privilege after 60 days' written notice to
shareholders.

<PAGE>

[icon] D I S T R I B U T I O N S A N D T A X E S

The fund declares and pays dividends from net investment income to holders of
Primary Class shares quarterly. The fund also distributes any net capital gains
to its shareholders annually.

Your dividends and other distributions will be automatically reinvested in
additional Primary Class shares of the fund unless you elect to receive them in
cash. If you wish to begin receiving dividends and/or other distributions in
cash, you must notify the fund at least 10 days before the next dividend and/or
other distribution is to be paid.

If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.

Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional shares of the fund. Dividends from investment company
taxable income (which includes net investment income and net short-term capital
gains) are taxable as ordinary income. Distributions of the fund's net capital
gain, if any, are taxable as long-term capital gain, regardless of how long you
have held your fund shares.

The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.

A tax statement is sent to you after the end of each year detailing the tax
status of your distributions.

The fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number. The fund will also withhold 31% of all dividends and capital gain
distributions payable to such shareholders who are otherwise subject to backup
withholding.

Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.

<PAGE>

[icon] F I N A N C I A L H I G H L I G H T S

The financial highlights table is intended to help you understand the fund's
financial performance since inception. Total return represents the rate that an
investor would have earned (or lost) on an investment in the fund, assuming
reinvestment of all dividends and distributions. The information has been
audited by the fund's independent accountants, PricewaterhouseCoopers LLP, whose
report, along with the fund's financial statements, is incorporated by reference
into the Statement of Additional Information (see back cover) and is included in
the annual report. The annual report is available upon request by calling
toll-free 1-800-822-5544.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET NEUTRAL TRUST - PRIMARY CLASS SHARES
- -------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations Distributions
- -------------------------------------------------------------------------------------------------------------------------
Net From From Net
For the Net Asset Net Realized & Net Realized
Period Ended Value, Investment Unrealized Total From Investment Gain on Total Net Asset
Oct. 31, Beginning Income Gain (Loss) Investment Income Investments Distributions Value, End
of Period (Loss) On Operations of Period
Investments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999A $10.00 $.11B $(.43) $(.32) $(.08) $ -- $(.08) $9.60
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
For the Total Expenses to Net Investment Portfolio Net Assets,
Period Return Average Net Income (Loss) Turnover End of Period
Ended (%) Assets (%) to Average Net Rate (Thousands--$)
Oct. 31, Assets (%)

- --------------------------------------------------------------------------------
1999 (3.20)%B,C 3.00%B,D 1.70%B,D 481.5%D $17,513
- --------------------------------------------------------------------------------

A For the period February 16, 1999 (commencement of operations) to October
31, 1999.
B Net of fees waived pursuant to a voluntary expense limitation of 3.00% of
average daily net assets through February 28, 2001. If no fees had been
waived by Legg Mason Fund Adviser, Inc., the annualized ratio of expenses
to average net assets for the period, including dividend expense for
securities sold short, would have been 6.70%.
C Not annualized.
D Annualized.

<PAGE>

L e g g M a s o n M a r k e t N e u t r a l T r u s t

The following additional information about the fund is available upon request
and without charge:

Statement of Additional Information (SAI) - the SAI is filed with the Securities
and Exchange Commission (SEC) and is hereby incorporated by reference into (is
considered part of) this prospectus. The SAI provides further information and
additional details about the fund and its policies.

Annual and Semi-Annual Reports - Additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. These reports provide detailed information about the fund's
portfolio holdings and operating results.

To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmason.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476

Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the SEC's Internet
site at http://www.sec.gov. Investors may also obtain this information, after
paying a duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.

LMF- SEC file number: 811-8943

<PAGE>

Legg Mason Light Street Trust, Inc.

Legg Mason Market Neutral Trust

NAVIGATOR CLASS SHARES PROSPECTUS February 28, 2000

logo

The Art of Investing SM

<PAGE>

T A B L E O F C O N T E N T S

A b o u t t h e f u n d:

1 Investment objective

3 Principal risks

7 Fees and expenses of the fund

8 Management

A b o u t y o u r i n v e s t m e n t:

10 How to invest

12 How to sell your shares

13 Account policies

15 Services for investors

17 Distributions and taxes

<PAGE>

Legg Mason Market Neutral Trust

[icon] I N V E S T M E N T O B J E C T I V E

Investment objective: Long-term capital appreciation while minimizing exposure
to general U.S. equity market volatility.

Principal investment strategies:

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. The interest
will contribute to the fund's return.

For temporary defensive purposes or when cash is temporarily available, the fund
may invest without limit in repurchase agreements and money market instruments,
including high-quality short-term debt securities. On the occasions, if any,
that the fund invests substantially in repurchase agreements and money market
instrument, the fund may not be pursuing its principal investment strategies and
the fund may not achieve its investment objective.

<PAGE>

[icon] P R I N C I P A L R I S K S

In general

Market risk -

Style risk -

An investment in the fund is also subject to the risk of poor stock selection by
the adviser. For example, the stocks that the adviser buys may not outperform
stocks that the adviser sells short, and thereby the fund would not be
successful in achieving its objective. Further, 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, in which case, the fund's losses may
exceed those of other mutual funds.

Portfolio turnover -

The fund will likely experience very substantial turnover of securities.
Although the rate of the fund's portfolio turnover may vary significantly from
time to time depending on economic and market volatility, 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 300% to 500% 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
increase the likelihood that the fund will realize capital gains, including net
short-term capital gains (that is, gains from positions held for not more than
one year), distribution of which is taxed to shareholders at ordinary income tax
rates rather than at more favorable long-term capital gain tax rates. It is
anticipated that most of the fund's capital gains, if any, will be short-term.

Short sales -

<PAGE>

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 any particular time or at an acceptable price.

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. At most times, in excess of 90% of the fund's long securities positions
may be pledged as collateral for securities sold short. Most collateral will be
deposited with a custodian or 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. In proposing a prime broker, the adviser considered the
broker's creditworthiness, among other factors. The fund has also taken steps to
reduce its exposure to the creditworthiness of its prime broker. However, there
can be no assurance that the fund will avoid losses or delays if the prime
broker experiences financial problems.

As of the date of this prospectus, the fund has not been in operation for a full
calendar year; therefore, no performance information is presented.

<PAGE>

[icon] F E E S A N D E X P E N S E S O F T H E F U N D

The tables below describe the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets so they lower the fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
The fees and expenses are shown as a percentage of average net assets.

Annual Fund Operating Expenses

(expenses that are deducted from fund assets)

- ------------------------------------------ -----------------------------
Market Neutral Trust
- ------------------------------------------ -----------------------------
Management fees 1.90%(b)
- ------------------------------------------ -----------------------------
Distribution and Service (12b-1) fees None
- ------------------------------------------ -----------------------------
Other expenses 3.80%(a)
- ------------------------------------------ -----------------------------
Total Annual Fund Operating Expenses 5.70%
- ------------------------------------------ -----------------------------
Fee Waivers and Expense Reimbursement 3.70%(b)
- ------------------------------------------ -----------------------------
Net Annual Fund Operating Expenses 2.00%
- ------------------------------------------ -----------------------------

(a) "Other expenses" are based on estimated expenses for the fiscal year
ending October 31, 2000.

(b) The manager has contractually agreed to waive fees so that Navigator
Class share expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) do not exceed an annual rate of 2.00% of
average daily net assets until February 28, 2001.

Example:

- -------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------
Market Neutral Trust,
Navigator Class shares $203 $1369 $2519 $5323
- -------------------------------------------------------------------

<PAGE>

[icon] M A N A G E M E N T

Management and advisers:

LMFA acts as manager or adviser to investment companies with aggregate assets of
approximately $21 billion as of December 31, 1999.

Portfolio management:

A Batterymarch investment team is responsible for the day-to-day management of
the fund.

Distributor of the fund's shares:

Legg Mason Wood Walker, Inc. ("Distributor") distributes the fund's shares
pursuant to an Underwriting Agreement. The Underwriting Agreement obligates the
Distributor to pay certain expenses in connection with offering fund shares,
including compensation to its financial advisers, the printing and distribution
of prospectuses, statements of additional information and shareholder reports
(after these have been printed and mailed to existing shareholders at the fund's
expense), supplementary sales literature and advertising materials.

The Distributor and the manager may pay non-affiliated entities out of their own
assets to support the distribution of Navigator Class shares and shareholder
servicing.

LMFA, Batterymarch and the Distributor are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.

<PAGE>

[icon] H O W T O I N V E S T

Navigator Class shares are currently offered for sale only to:

o Institutional Clients of Legg Mason Trust Company for which they exercise
discretionary investment management responsibility and accounts of the
customers with such Institutional Clients ("Customers").

o Qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million.

o Any qualified retirement plan having net assets of at least $300 million.

o Clients of Bartlett & Co. who, as of December 19, 1996, were shareholders
of Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and for whom
Bartlett acts as an ERISA fiduciary.

o Any qualified retirement plan of Legg Mason, Inc. or of any of its
affiliates.

o Certain institutions who were clients of Fairfield Group, Inc. as of
February 28, 1999 for investment of their own monies and monies for which
they act in a fiduciary capacity.

o Shareholders of Class Y shares of Bartlett Europe Fund or Bartlett
Financial Services Fund on October 5, 1999.

o Any open-end management investment company advised or managed by LMFA or by
any person controlling, controlled by, or under common control with LMFA.

Eligible investors may purchase Navigator Class shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 and the minimum
for each purchase of additional shares is $100. Institutional Clients may set
different minimums for their Customers' investments in accounts invested in
Navigator Class shares.

Customers of certain Institutional Clients that have omnibus accounts with the
fund's transfer agent can purchase shares through those Institutions. The
distributor may pay such Institutional Clients for account servicing.
Institutional Clients may charge their Customers for services provided in
connection with the purchase and redemption of shares. Information concerning
these services and any applicable charges will be provided by the Institutional
Clients. This Prospectus should by read by Customers in connection with any such
information received by Institutional Clients. Any such fees, charges or
requirements imposed by Institutional Clients will be in addition to the fees
and requirements of this Prospectus.

Certain institutions that have agreements with Legg Mason or the fund may be
authorized to accept purchase and redemption orders on their behalf. Once the
authorized institution accepts the order, you will receive the next determined
net asset value. You should consult with your institution to determine the time
by which it must receive your order to get that day's share price. It is the
institution's responsibility to transmit your order to the fund in a timely
fashion.

Purchase orders received by Legg Mason before the close of the New York Stock
Exchange ("Exchange") (normally 4:00 p.m., Eastern time) will be processed at
the fund's net asset value as of the close of the Exchange on that day. The fund
is open for business every day the Exchange is open. The Exchange is closed on
all national holidays and Good Friday. Orders received after the close of the
exchange will be processed at the fund's net asset value as of the close of the
exchange on the next day the exchange is open. Payment must be made within three
business days to the selling organization.

<PAGE>

[icon] H O W T O S E L L Y O U R S H A R E S

To redeem your shares by telephone:

o Call 1-800-822-5544

Please have available the number of shares (or dollar amount) to be redeemed and
the account number.

The fund will follow reasonable procedures to ensure the validity of any
telephone redemption request, such as requesting identifying information from
callers or employing identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held responsible for
any fraudulent telephone order.

Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the Institution.

Redemption orders received by Legg Mason before the close of the exchange will
be transmitted to the fund's transfer agent. Your order will be processed at
that day's net asset value. Redemption orders received by Legg Mason after the
close of the exchange will be processed at the closing net asset value on the
next day the exchange is open.

Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration within a
week. You may also have your telephone redemption requests paid by a direct wire
to a previously designated domestic commercial bank account

Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of dividends on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.

The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.

<PAGE>

[icon] A C C O U N T P O L I C I E S

Calculation of Net Asset Value:

Net asset value per Navigator Class share is determined daily as of the close of
the New York Stock Exchange on every day the Exchange is open. To calculate the
fund's Navigator Class share price, the fund's assets attributable to Navigator
Class shares are valued and totaled, liabilities attributable to Navigator Class
shares are subtracted, and the resulting net assets are divided by the number of
Navigator Class shares outstanding. The fund's securities are valued on the
basis of market quotations or, lacking such quotations, at fair value as
determined under procedures established by the 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. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange rates.

Other:

Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.

The fund reserves the right to:

o Reject any order for shares or suspend the offering of shares for a period
of time.

o Change its minimum investment amounts.

<PAGE>

[icon] S E R V I C E S F O R I N V E S T O R S

Confirmations And Account Statements:

Confirmations will be sent to Institutional Clients after each transaction
involving Navigator Class shares which will include the total number of shares
being held in safekeeping by the transfer agent. The transfer agent will send
confirmations of each purchase and redemption transaction (except a reinvestment
of dividends or capital gain distributions). Beneficial ownership of shares by
Customer accounts will be recorded by the Institutional Client and reflected in
their regular account statements.

Exchange Privilege:

Navigator Class shares of this fund may be exchanged for shares of the Legg
Mason Money Market Funds or Navigator Class shares of any of the other Legg
Mason funds, provided these funds are eligible for sale in your state of
residence. You can request an exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging.

The fund reserves the right to:

o Terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year.

o Terminate or modify the exchange privilege after 60 days' written notice to
shareholders.

Some Institutional Clients may not offer all of the Navigator Funds for
exchange.

<PAGE>

[icon] D I S T R I B U T I O N S A N D T A X E S

The fund declares and pays dividends from net investment income to holders of
Navigator Class shares quarterly. The fund also distributes any net capital
gains to its shareholders annually.

Your dividends and other distributions will be automatically reinvested in
additional Navigator Class shares of the fund unless you elect to receive them
in cash. If you wish to begin receiving dividends and/or other distributions in
cash, you must notify the fund at least 10 days before the next dividend and/or
other distribution is to be paid.

Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Navigator Class shares of the fund. Dividends from
investment company taxable income (which includes net investment income and net
short term capital gains) are taxable as ordinary income. Distributions of the
fund's net capital gain, if any, are taxable as long-term capital gain,
regardless of how long you have held your fund shares.

The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.

A tax statement is sent to you after the end of each year detailing the tax
status of your distributions.

Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.

<PAGE>

L e g g M a s o n M a r k e t N e u t r a l T r u s t

The following additional information about the fund is available upon request
and without charge:

Statement of Additional Information (SAI) -The SAI is filed with the Securities
and Exchange Commission (SEC) and is hereby incorporated by reference into (is
considered part of) this prospectus. The SAI provides further information and
additional details about the fund and its policies.

Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR database
on the SEC's Internet site at http://www.sec.gov. Investors may also obtain this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.

LMF- SEC file number: 811-8943

<PAGE>

LEGG MASON LIGHT STREET TRUST, INC.:

Legg Mason Market Neutral Trust

PRIMARY CLASS SHARES and NAVIGATOR CLASS SHARES

STATEMENT OF ADDITIONAL INFORMATION

February 28, 2000

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Class shares or for
Navigator Class shares (both dated February 28, 2000), as appropriate, which
have been filed with the Securities and Exchange Commission ("SEC"). Copies of
either the annual reports or the Prospectuses are available without charge from
the fund's distributor, Legg Mason Wood Walker, Incorporated at 1-800-822-5544.

Legg Mason Wood Walker,
Incorporated
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544

<PAGE>

TABLE OF CONTENTS

Page

DESCRIPTION OF THE FUND.................................................3
FUND POLICIES...........................................................3
INVESTMENT STRATEGIES AND RISKS.........................................4
ADDITIONAL TAX INFORMATION..............................................6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................8
VALUATION OF FUND SHARES...............................................10
PERFORMANCE INFORMATION................................................10
TAX-DEFERRED RETIREMENT PLANS - PRIMARY CLASS SHARES...................13
MANAGEMENT OF THE FUND.................................................14
THE FUND'S INVESTMENT ADVISER/MANAGER..................................16
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................18
THE FUND'S DISTRIBUTOR.................................................19
CAPITAL STOCK INFORMATION..............................................21
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT........21
THE FUND'S LEGAL COUNSEL...............................................21
THE FUND'S INDEPENDENT ACCOUNTANTS.....................................21
FINANCIAL STATEMENTS...................................................21
APPENDIX A.............................................................22

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 this 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.

<PAGE>

DESCRIPTION OF THE FUND

Legg Mason Light Street Trust, Inc. ("Light Street Trust" or
"Corporation") is a diversified open-end management investment company that was
established as a Maryland corporation on August 5, 1998. Legg Mason Market
Neutral Trust ("Market Neutral Trust" or "fund") is a separate series of Light
Street Trust.

FUND POLICIES

Market Neutral Trust's investment objective is long-term capital
appreciation while minimizing exposure to general U.S. equity market volatility.

In addition to the investment objective of the fund described in the
Prospectuses, 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, as amended ("1940 Act").

<PAGE>

The foregoing limitations may be changed by "the vote of a majority of
the outstanding voting securities" of the fund, a term defined in the 1940 Act
to mean the vote (a) of 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the fund are present, or (b) of more than 50% of the outstanding voting
securities of the fund, whichever is less.

Except as otherwise stated, if a fundamental or non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later increase or decrease in percentage 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. The fund will monitor the level of borrowing and
illiquid securities in its portfolio and will make necessary adjustments to
maintain the required asset coverage and adequate liquidity.

Unless otherwise stated, the fund's investment policies and limitations
are not fundamental, and can be changed without shareholder approval.

INVESTMENT STRATEGIES AND RISKS

This section supplements the information in the Prospectuses concerning
the investments the fund may make and the techniques the fund may use. The fund,
unless otherwise stated, may employ several investment strategies, including but
not limited to:

Ratings of Debt Obligations
- ---------------------------

The fund may invest in convertible securities and, for temporary
defensive purposes, high quality short-term debt obligations rated investment
grade. Moody's Investors Service, Inc. ("Moody's"), Standard & Poors ("S&P") and
other nationally recognized or foreign statistical rating organizations are
private organizations that provide ratings of the credit quality of debt
obligations. A description of the ratings assigned to corporate debt obligations
by Moody's and S&P is included in Appendix A. A fund may consider these ratings
in determining whether to purchase, sell or hold a security. Ratings issued by
Moody's or S&P represent only the opinions of those agencies and are not
guarantees of credit quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. Credit rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than the rating indicates.

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
Corporation'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

<PAGE>

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, or
if qualified institutional buyers become disinterested for a time, 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
non-convertible 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 as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class."

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.

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.

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

<PAGE>

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.

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.

ADRs
- ----

The fund may invest in U.S.-dollar-denominated American Depository
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 issuers stock, the fund may
reduce currency risks during the settlement period for either purchases or
sales. For purposes of the fund's investment policies and limitations, ADRs are
considered to have the same classification as the securities underlying them.
ADRs may be sponsored or unsponsored; issuers of securities underlying
unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. Accordingly, there may be less information available
about such issuers than there is with respect to domestic companies and issuers
of securities underlying sponsored ADRs. 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.

Senior Securities
- -----------------

The 1940 Act prohibits the issuance of senior securities by a
registered open-end fund with one exception. The fund may borrow from banks
provided that immediately after any such borrowing there is an asset coverage of
at least 300% for all borrowings of the fund. Borrowing for temporary purposes
only and in an amount not exceeding 5% of the value of the total assets of the
fund at the time the borrowing is made is not deemed to be an issuance of a
senior security.

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.

<PAGE>

General
- -------

For federal tax purposes, the fund is treated as a separate
corporation. To continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
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) the fund
must derive at least 90% of its gross income each taxable year 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 RlCs 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.

By qualifying for treatment as a RIC, the fund (but not its
shareholders) will be relieved of federal income tax on the part of its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. If the fund failed to qualify for treatment as a RIC for any
taxable year, (1) it would be taxed at corporate rates on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (2) the shareholders would treat all those
distributions, including distributions of net capital gain, as dividends (that
is, ordinary income) to the extent of the fund's earnings and profits. In
addition, the fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.

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 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.

<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 position, 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 identical
property. In addition, if the appreciated financial position is itself a short
sale, acquisition of the underlying property or substantially identical property
will be deemed a constructive sale. The foregoing will not apply, however, to
any transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end of
that year and the fund holds the appreciated financial position unhedged for 60
days after that closing (i.e., at no time during that 60-day period is the
fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale, or granting an option to buy substantially identical
stock or securities).

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The fund offers two classes of shares, known as Primary Class shares
and Navigator Class shares. Primary Class shares are available from Legg Mason
and certain of its affiliates, as well as from certain institutions having
agreements with Legg Mason. As of the date of this Statement of Additional
Information, Navigator Class shares of the fund are not offered for sale.
Navigator Class shares will be offered for sale only to Institutional Clients of
Legg Mason Trust Company for which they exercise discretionary investment
management responsibility and accounts of the customers with such Institutional
Clients, to qualified retirement plans managed on a discretionary basis and
having net assets of at least $200 million, to clients of Bartlett & Co., who as
of December 19, 1996, were shareholders of Bartlett Short-Term Bond Fund or
Bartlett Fixed Income Fund and for whom Bartlett acts as an ERISA fiduciary, to
Class Y shareholders of Bartlett Europe Fund or Bartlett Financial Services Fund
on October 5, 1999, to any qualified retirement plan of Legg Mason, Inc. or of
any of its affiliates and to certain institutions who were clients of Fairfield
Group, Inc. as of February 28, 1999. Navigator Class shares may not be purchased
by individuals directly, but Institutional Clients may purchase shares for
Customer Accounts maintained for individuals. Primary Class shares are available
to all other investors.

Future First Systematic Investment Plan and
Transfer of Funds from Financial Institutions
- ---------------------------------------------

If you invest in Primary Class shares, the Prospectus for those shares
explains that you may buy Primary Class shares through the Future First
Systematic Investment Plan. Under this plan you may arrange for automatic
monthly investments in Primary Class 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 Class 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 Class shares may also buy Primary Class 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:

<PAGE>

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 Class 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 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 Class 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 Class shares
in your account must be automatically reinvested in Primary Class 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 fund reserves the right to modify or terminate the wire or
telephone redemption services described in the Prospectuses at any time.

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

<PAGE>

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 for redemption 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.

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 Day, and Christmas Day. 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

The following performance information relates to Primary Class shares.
As of the date of this Statement of Additional Information, Navigator Class
shares of the fund have no performance history.

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

<PAGE>

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the fund are assumed to have been
reinvested at net asset value on the reinvestment dates during the period.

The cumulative total return of Primary Class shares of the fund for the
period of February 16, 1999 (commencement of operations) to October 31, 1999 was
- -3.20%.

The following table shows the value, as of the end of the fiscal year,
of a hypothetical investment of $10,000 made in Primary Class shares of the fund
at the class's commencement of operations on February 16, 1999. The table
assumes that all dividends and other distributions are reinvested in the fund.
It includes the effect of all charges and fees applicable to shares the fund has
paid. (There are no fees for investing and reinvesting in the fund, and there
are no redemption fees.) It does not include the impact of any income taxes that
an investor would pay on such distributions.

- --------------------------------------------------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1999* $9600 $80.17 $9680.17
- --------------------------------------------------------------------------------

* February 16, 1999 (commencement of sale of Primary Class shares) to October
31, 1999.

If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of October 31, 1999 would have
been $9600 and the investor would have received a total of $80.17 in
distributions.

From time to time the fund may compare the performance of a Class to
the performance of other investment companies, groups of investment companies,
various market indices, or 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 and 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.

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

<PAGE>

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.

The fund may also compare its performance to that of a 3-month U.S.
Treasury bill ("T-bill"). Unlike the fund, T-bills are backed by the full faith
and credit of the United States, have a fixed rate of return and a short
duration, have no risk of losing capital and little or no potential for
appreciation.

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 independent third parties such as
lbbotson Associates, Frontier Analytics, Inc. to compare the returns of various
capital markets and to show the value of a hypothetical investment in a capital
market. Typically, different indices are used to calculate the performance of
common stocks, corporate and government bonds and Treasury bills.

The fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500, and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.

The fund may also include in advertising biographical information on
key investment and managerial personnel.

The fund may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should 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 $104.2 billion as of December
31, 1999.

<PAGE>

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 CLASS SHARES

In general, income earned through the investment of assets of IRAs and
qualified retirement plans is not taxed to their beneficiaries until the income
is distributed to them. Primary Class share investors who are considering
establishing an IRA or a 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 IRAs and those plans with respect to
Primary Class shares through regular payroll deductions may be arranged with a
Legg Mason or affiliated financial adviser and your employer. Additional
information with respect to IRAs and those plans is available upon request from
any Financial Adviser or Service Provider.

Traditional IRA. Certain Primary Class share investors may obtain tax
advantages by establishing an IRA. 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.
However, 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 SIMPLE, 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 Class 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 April 1 following the calendar year in which
you attain age 701/2. Distributions made before age 591/2, in addition to being
taxable, generally are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability, where the distribution is rolled over
into another qualified plan or certain other situations.

Roth IRA. A shareholder whose adjusted gross income (or combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
IRAs may be converted to a Roth IRA; 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 591/2
(or certain other conditions apply).

<PAGE>

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 $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 a qualified family
member).

Simplified Employee Pension Plan - SEP
- --------------------------------------

Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Class 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 Class share
investors should consult their plan administrator or tax adviser for further
information.

MANAGEMENT OF THE FUND

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,
their dates of birth 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 in the 1940 Act. The 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, President and
Director; President and/or Chairman of the Board and Director/Trustee of all
Legg Mason retail funds. Retired: Vice Chairman and Director of Legg Mason Wood
Walker, Inc. and Legg Mason, Inc.; Director of Legg 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.

ARNOLD L. LEHMAN [7/18/44], Director; 200 Eastern Parkway, Brooklyn,
NY. Director, The Brooklyn Museum of Art; Director/Trustee of all Legg
Mason retail funds. Formerly: Director, 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 all Legg Mason retail 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).

<PAGE>

RICHARD G. GILMORE [6/9/27], Director; 10310 Tamo Shander Place,
Bradenton, Florida. 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 all Legg Mason retail 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.

T.A. RODGERS [10/22/34], Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting).
Director/Trustee of all Legg Mason retail funds. Formerly: Director and Vice
President of Corporate Development, Polk Audio, Inc. (manufacturer of audio
components).

EDWARD A. TABER III* [8/25/43], Director; Senior Executive Vice
President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Chairman and
Director of Legg Mason Fund Adviser, Inc. and Director of Western Asset
Management Company (each a registered investment adviser); President and/or
Director/Trustee of all Legg Mason retail funds except Legg Mason Tax Exempt
Trust. Formerly: Executive Vice President of T. Rowe Price-Fleming
International, Inc. (1986-1992) and Director of the Taxable Income Division at
T. Rowe Price Associates, Inc. (1973-1992).

G. PETER O'BRIEN [10/13/45], Director; Trustee of Colgate University;
Director/Trustee of all Legg Mason retail funds except Legg Mason Income Trust,
Inc., and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity
Capital Markets Group of Merrill Lynch & Co. (1971-1999).

The executive officers of the Corporation, other than those who also
serve as directors, are:

MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer; Treasurer
of LMFA; Vice President and Treasurer of all Legg Mason retail funds; Vice
President of Legg Mason.

WM. SHANE HUGHES* [4/24/68], Secretary; employee of Legg Mason since
May 1997. Formerly: Senior Associate of C.W. Amos and Co. (a regional public
accounting firm).

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, O'Brien, 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.

On December 31, 1999, the directors and officers of the Corporation
beneficially owned in the aggregate less than __% of the fund's outstanding
shares.

COMPENSATION TABLE
- ------------------

The following table provides certain information relating to the
compensation of the fund's directors for the calendar year ended December 31,
1999. The fund has no retirement plan for its directors.

<PAGE>

- --------------------------------------------------------------------------------
Total Compensation From
Name of Person Aggregate Compensation Fund and Fund Complex
and Position From Fund Paid to Directors*
- --------------------------------------------------------------------------------
John F. Curley, Jr. - None None
Chairman of the Board
and Director
- --------------------------------------------------------------------------------
Arnold L. Lehman - $900 $41,100
Director
- --------------------------------------------------------------------------------
Jill E. McGovern - $900 $41,100
Director
- --------------------------------------------------------------------------------
Richard G. Gilmore - $900 $41,100
Director
- --------------------------------------------------------------------------------
T.A. Rodgers - $900 $41,100
Director
- --------------------------------------------------------------------------------
Edward A. Taber - None None
President and Director
- --------------------------------------------------------------------------------
G. Peter O'Brien - $600 $15,000
Director
- --------------------------------------------------------------------------------

* Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1999. There are twelve open-end investment companies in
the Legg Mason Complex (with a total of twenty-four funds).

THE FUND'S INVESTMENT ADVISER/MANAGER

Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, 100
Light Street, Baltimore, Maryland 21202, is a wholly owned subsidiary of Legg
Mason, Inc., which is also the parent of Legg Mason Wood Walker, Inc. ("Legg
Mason"). LMFA serves as manager to the fund under a Management Agreement between
Legg Mason Light Street Trust, Inc., on behalf of the fund, and LMFA
("Management Agreement").

The Management Agreement provides that, subject to overall direction by
the fund's Board of Directors, LMFA manages or oversees the investment and other
affairs of the fund. LMFA is responsible for managing the fund consistent with
the fund's investment objective and policies described in its Prospectuses and
this Statement of Additional Information. LMFA also 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, the 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 non-recurring expenses as may

<PAGE>

arise, including litigation to which the fund 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 Class shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) in excess of 3.00% of average net assets attributable to Primary Class
shares until February 28, 2001. LMFA has agreed to waive its fees for expenses
related to Navigator Class shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 2.00% of average net assets attributable to
Navigator Class shares until February 28, 2001.

For the period February 16, 1999 (commencement of operations) to
October 31, 1999, LMFA waived $222,000 in management fees for the fund under the
agreement. For the same period, the fund paid management fees of $0.

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 Financial Management, Inc. ("Adviser"), 200 Clarendon
Street, Boston, Massachusetts 02116, an affiliate of Legg Mason, serves as
investment adviser to the fund pursuant to an Investment Advisory Agreement
between Batterymarch and LMFA ("Advisory Agreement").

Under the Advisory Agreement, the Adviser 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 78.9% of the
fee received by LMFA from the fund or 1.50% of the fund's average daily net
assets. Fees paid to Batterymarch are net of any waivers by LMFA.

For the period February 16, 1999 (commencement of operations) to
October 31, 1999, Batterymarch received $0 for its services to the fund.

Under the Advisory Agreement and Management Agreement, LMFA and the
Adviser 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.

<PAGE>

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. For the period February 16, 1999 (commencement of operations)
to October 31, 1999, the fund's annualized portfolio turnover rate was 481.5%.

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.

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. For the period February 16, 1999 (commencement of operations)
through December 31, 1999, the fund paid $318,260 in brokerage commissions.

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

<PAGE>

purchase securities during the existence of an underwriting if Legg Mason is the
sole underwriter for those securities.

Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg
Mason from executing transactions on an exchange for its affiliates, such as the
fund, unless the affiliate expressly consents by written contract. The fund's
Advisory Agreement expressly provides such consent.

Investment decisions for the fund are made independently from those of
other funds and accounts advised by LMFA or Batterymarch. However, the same
security may be held in the portfolios of more than one fund or account. When
two or more accounts simultaneously engage in the purchase or sale of the same
security, the prices and amounts will be equitably allocated to each account. In
some cases, this procedure may adversely affect the price or quantity of the
security available to a particular account. In other cases, however, an
account's ability to participate in large-volume transactions may produce better
executions and prices.

THE FUND'S DISTRIBUTOR

Legg Mason acts as distributor of the fund's shares pursuant to an
Underwriting Agreement with the fund. The Underwriting Agreement obligates Legg
Mason to promote the sale of fund shares and to pay certain expenses in
connection with its distribution efforts, including expenses for the printing
and distribution of prospectuses and periodic reports used in connection with
the offering to prospective investors (after the prospectuses and reports have
been prepared, set in type and mailed to existing shareholders at the fund's
expense), and for supplementary sales literature and advertising costs.

The fund has adopted a Distribution Plan ("Plan") which, among other
things, permits the fund to pay Legg Mason fees for its services related to
sales and distribution of Primary Class shares and the provision of ongoing
services to Primary Class shareholders. Payments are made only from assets
attributable to Primary Class shares. Under the Plan, the aggregate fees may not
exceed an annual rate of 1.00% of the fund's average daily net assets
attributable to Primary Class 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 Class shares only.

The Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by
a vote of the Board of Directors, including a majority of the directors who are
not "interested persons" of the Corporation 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"). In approving the
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 Class shares
would be likely to maintain or increase the amount of compensation paid by the
fund to 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 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.

<PAGE>

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 Class shares and to maintain and enhance the level of
services they provide to the fund's Primary Class shareholders. These efforts,
in turn, could lead to increased sales and reduced redemptions, eventually
enabling the fund to achieve economies of scale and lower per share operating
expenses. Any reduction in such expenses would serve to offset, at least in
part, the additional expenses incurred by the fund in connection with the Plan.
Furthermore, the investment management of the fund could be enhanced, as net
inflows of cash from new sales might enable its portfolio manager to take
advantage of attractive investment opportunities, and reduced redemptions could
eliminate the potential need to liquidate attractive securities positions in
order to raise the funds necessary to meet the redemption requests.

As compensation for its services and expenses, Legg Mason receives from
the fund an annual distribution fee equivalent to 0.75% of its average daily net
assets attributable to Primary Class shares and a service fee equivalent to
0.25% of its average daily net assets attributable to Primary Class shares in
accordance with the Plan. All distribution and service fees are calculated daily
and paid monthly.

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 Class 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.

For the period February 16, 1999 (commencement of operations) to
October 31, 1999, Legg Mason incurred the following expenses in connection with
distribution and shareholder services:

Compensation to Sales Personnel $35,000

Advertising $134,000

Printing and Mailing of Prospectuses
to Prospective Shareholders $48,000

Other $163,000
--------
Total $380,000

The amounts in "Other" reflect the allocation of certain items of overhead,
using assumptions believed by Legg Mason to be reasonable.

<PAGE>

CAPITAL STOCK INFORMATION

The Articles of Incorporation of the Corporation authorize issuance of
450 million shares of common stock, par value $0.001 per share, of Legg Mason
Market Neutral Trust, 200 million shares of common stock, par value $.001 per
share, of Legg Mason Real Estate Trust, and 200 million shares of par value
$.001 per share of Legg Mason Classic Valuation Fund. The fund has two
authorized classes of shares: Primary Class shares and Navigator Class shares.

Each share in the fund is entitled to one vote for the election of
directors and any other matter submitted to a shareholder vote. Fractional
shares have fractional voting rights. Voting rights are not cumulative. All
shares in the fund are fully paid and nonassessable and have no preemptive or
conversion rights.

Shareholder 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 certain
amendments to the plan of distribution pursuant to Rule 12b-1), at the request
of 25% or more of the shares entitled to vote as set forth in the bylaws of Legg
Mason Light Street Trust, Inc.; or as the Board of Directors from time to time
deems appropriate.

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 ("BFDS"), P.O. Box 953, Boston, Massachusetts 02103 (as agent for
State Street Bank and Trust Company) 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

The Statement of Net Assets as of October 31, 1999; the Statement of
Operations for the period ended October 31, 1999; the Statement of Changes in
Net Assets for the period ended October 31 1999; the Financial Highlights for
the period presented; the Notes to Financial Statements and the Report of
Independent Public Accountants, each with respect to Market Neutral Trust, are
included in the Corporation's annual report for the period ended October 31,
1999, and are hereby incorporated by reference in this Statement of Additional
Information.

<PAGE>

APPENDIX A

RATINGS OF SECURITIES

Description of Moody's Investors Service, Inc.("Moody's") corporate bond
ratings:
- ------------------------------------------------------------------------

Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.

A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa-Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

<PAGE>

Description of Standard & Poor's ("S&P") corporate bond ratings:
- ----------------------------------------------------------------

AAA-An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA -An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

A-An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB-An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB-An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B-An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

CCC-An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC-An obligation rated CC is currently highly vulnerable to nonpayment.

C-A subordinated debt or preferred stock obligation rated C is
currently highly vulnerable to nonpayment. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A C also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.

D-An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Plus (+) or minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

r-This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;

<PAGE>

obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

N.R.-This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.