LEGG MASON LIGHT STREET TRUST INC, 485APOS, 2000-12-19

LEGG MASON LIGHT STREET TRUST INC
485APOS, 2000-12-19

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As filed with the Securities and Exchange Commission on December 19, 2000.

1933 Act File No. 333-61525
1940 Act File No. 811-08943

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 7 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 8

LEGG MASON LIGHT STREET TRUST, INC.
(Exact Name of Registrant as Specified in Charter)

100 Light Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000

Copies to:

MARC R. DUFFY. ESQ. ARTHUR C. DELIBERT, ESQ.
Legg Mason Wood Walker, Incorporated Kirkpatrick & Lockhart LLP
100 Light Street 1800 Massachusetts Ave., NW
Baltimore, Maryland 21202 Second Floor
(Name and Address of Agent for Service) Washington, D.C. 20036-1800

It is proposed that this filing will become effective:

[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on _______, pursuant to Rule 485(b)
[X ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on _______, pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on _______, pursuant to Rule 485(a)(ii)

If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

Legg Mason Light Street Trust, Inc.

Contents of Registration Statement

This registration statement consists of the following papers and documents:

Cover Sheet

Contents of Registration Statement

Legg Mason Classic Valuation Fund
Part A - Primary Class Prospectus

Legg Mason Classic Valuation Fund
Part A -Institutional Class Prospectus

Legg Mason Classic Valuation Fund
Part B - Statement of Additional Information
Primary and Institutional Class Shares

Part C - Other Information

Signature Page

Exhibits

<PAGE>

Legg Mason Classic Valuation Fund

PRIMARY CLASS PROSPECTUS February 19, 2001

logo

As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or 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:

1 Investment objective

2 Principal risks

3 Performance

4 Fees and expenses of the fund

5 Management

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

6 How to invest

8 How to sell your shares

9 Account policies

10 Services for investors

11 Distributions and taxes

12 Financial Highlights

<PAGE>

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

Legg Mason Classic Valuation Fund:

Investment objective: long-term growth of capital.

Principal investment strategies:

The fund invests primarily in equity securities, such as common stock, that, in
the adviser's opinion, offer the potential for capital growth. The adviser seeks
to identify undervalued or out-of-favor companies that are likely to return to
their normal value. The adviser considers normal value to be a stock's
historical average price-to-current earnings, price-to-book, price-to-cash-flow,
or price-to-sales ratios. The adviser considers stocks trading at a discount to
these historical averages and at a discount to the market to be undervalued. In
order to identify those undervalued securities that the adviser believes can
return to their normal values, the adviser combines two investment techniques:
it quantitatively screens characteristics to identify stocks that are
undervalued, then it fundamentally analyzes stocks to identify those that it
believes have the ability to return to their normal value. From a universe of
about 8,000 publicly traded companies, the adviser uses quantitative screens to
identify a sub-universe of about 400 to 500 stocks of companies that typically
have market capitalizations of greater than $950 million and have low
price-to-current earnings, low price-to-book, low price-to-cash-flow, or low
price-to-sales ratios. The adviser continues the initial screening to identify
those companies that it believes are priced well below their historic values or
the current values of similar companies in the same industry. From that group of
approximately 150 stocks, the adviser applies a fundamental analysis in order to
select approximately 70 to 90 securities for the portfolio. The adviser's
fundamental analysis focuses on understanding the risks of a company's business
and identifying companies that have the best potential of returning to their
normal value or a normal value relative to their industries.

The adviser typically sells a security when, in the adviser's assessment, it is
no longer undervalued compared to its normal market value or its ability to
return to that level of value has deteriorated.

The fund may invest in money market securities for temporary defensive purposes,
or when cash is temporarily available. If the fund invests substantially in such
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:

There is no assurance that the fund will meet its investment objective;
investors could lose money by investing in the fund. 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:

Stock prices generally fluctuate more than those of other securities, such as
debt securities. Market risk, the risk that prices of securities will go down
because of the interplay of market forces, may affect a single issuer, industry
or sector of the economy or may affect the market as a whole. The fund may
experience a substantial or complete loss on an individual stock.

Value style risk:

The value approach to investing involves the risk that those stocks may remain
undervalued. Value stocks as a group may be out of favor and underperform the
overall equity market for a long period of time, while the market concentrates
on "growth" stocks.

Value funds often concentrate much of their investments in certain industries,
and thus will be more susceptible to factors adversely affecting issuers within
that industry than would a more diversified portfolio of securities.

Investment models:

The proprietary models used by the adviser to evaluate securities or securities
markets are based on the adviser's understanding of the interplay of market
factors and do not assure successful investment. The markets, or the prices of
individual securities, may be affected by factors not foreseen in developing the
models.

<PAGE>

[icon] P E R F O R M A N C E

The information below provides an indication of the risks of investing in the
fund by comparing the fund's performance with a broad measure of market
performance. Annual returns assume reinvestment of dividends and distributions.
Historical performance of the fund does not necessarily indicate what will
happen in the future.

YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 (%)

2000 ______

DURING THE PAST CALENDAR YEAR:

Quarter Ended Total Return
------------- ------------

Best quarter:
Worst quarter:

In the following table, the average annual return for the year ended December
31, 2000 is compared with the Standard & Poor's 500 Index ("S&P 500"), a
broad-based unmanaged index of common stocks, commonly used to measure general
stock market activity.

1 Year Life of Fund
------ ------------

Classic Valuation (a)
S&P 500 (b)

(a) November 8, 1999 (commencement of operations) to December 31, 2000.
(b) For the period November 30, 1999 to December 31, 2000.

<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 table below describes 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.

Annual Fund Operating Expenses
(expenses that are deducted from fund assets)

--------------------------------------------------------------------------------
Primary Class Shares
--------------------------------------------------------------------------------
Management fees(a) 0.75%
--------------------------------------------------------------------------------
Distribution and service (12b-1) fees 1.00%
--------------------------------------------------------------------------------
Other expenses 4.23%
--------------------------------------------------------------------------------
Total annual fund operating expenses 5.98%
--------------------------------------------------------------------------------
Fee waivers and expense reimbursement 3.98%
--------------------------------------------------------------------------------
Net annual fund operating expenses 2.00%
--------------------------------------------------------------------------------

(a) 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 2.00% of average daily net assets until February 28, 2002.

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.

--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Classic Valuation Fund- $203 $1,227 $2,252 $4,816
Primary Class shares
--------------------------------------------------------------------------------

<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, is the manager of the fund. As manager, LMFA is responsible for
investment management and administrative services and for overseeing the fund's
relationships with outside service providers, such as the sub-adviser,
custodian, transfer agent, accountants, and lawyers. LMFA has been registered as
an investment adviser since 1982.

Brandywine Asset Management, Inc. ("Brandywine"), 201 North Walnut Street,
Wilmington, Delaware 19801, is the investment adviser to the fund. As adviser,
Brandywine is responsible for the investment management of the fund, including
the responsibility for making investment decisions and placing orders to buy,
sell or hold a particular security. LMFA pays Brandywine a monthly fee of 60% of
the fee it receives from the fund. Fees paid to Brandywine are net of any
waivers. Brandywine acts as investment adviser to investment companies with
aggregate assets of $________ million as of December 31, 2000.

For its services during the fiscal year ended October 31, 2000, LMFA waived all
management fees for this fund.

Portfolio management:

The portfolio is managed by a team of analysts and managers at Brandywine led by
W. Anthony Hitschler, Scott L. Kuensell and Alexander Cutler. Mr. Hitschler has
been President and CIO of Brandywine since 1986. Prior to founding Brandywine,
Mr. Hitschler was with Provident Capital Management, and served as President and
Chief Executive Officer of that company for nine years. Mr. Kuensell is
currently a Managing Director of Brandywine. Prior to joining Brandywine in
1995, Mr. Kuensell was with Wertheim and Company for fifteen years serving as a
Director and manager of the Philadelphia office. He is responsible for portfolio
management and research for Brandywine's domestic clients. Mr. Cutler is
currently a Managing Director of Brandywine. Since joining Brandywine in 1994,
Mr. Cutler has shared responsibility for portfolio management and research for
all of Brandywine's equity products.

Distributor of the fund's shares:

Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, is the distributor of the fund's shares. The fund has
adopted a plan under Rule 12b-1 that allows it to pay distribution fees and/or
shareholder service fees for the sale of its Primary Class shares and for
services provided to Primary Class shareholders. Under the plan, the fund may
pay Legg Mason an annual distribution 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. The fees are calculated daily
and paid monthly.

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.

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

LMFA, Brandywine and Legg Mason 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, contact a Legg Mason
Financial Advisor, Legg Mason Funds Investor Services ("FIS"), or another entity
that has entered into an agreement with the fund's distributor to sell shares of
the fund. The minimum initial investment is $1,000 and the minimum for each
purchase of additional shares is $100.

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.

Certain investment methods (for example, through certain retirement plans) may
be subject to lower minimum initial and additional investments. Arrangements may
also be made with some employers and financial institutions for regular
automatic monthly investments of $50 or more in shares of the fund. Contact your
financial adviser or FIS with any questions regarding your investment options.

Once your account is open, you may use the following methods to purchase shares
of the fund:

--------------------------------------------------------------------------------
In Person Give your financial adviser a check for $100 or more
payable to the fund.
--------------------------------------------------------------------------------
Mail Mail your check, payable to the fund, for $100 or more
to your financial adviser or to Legg Mason Funds
Investor Services at P.O. Box 17023, Baltimore, MD
21297-0356.
--------------------------------------------------------------------------------
Telephone or Call your financial adviser or FIS at 1-800-822-5544
Wire to transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
--------------------------------------------------------------------------------
Internet or FIS clients may purchase shares of the fund through
TeleFund Legg Mason's Internet site at
http://www.leggmasonfunds.com or through a telephone
account management service "TeleFund" at
1-877-6-LMFUNDS.
--------------------------------------------------------------------------------
Future First Contact a Legg Mason Financial Advisor to enroll in
Systematic Legg Mason's Future First Systematic Investment Plan.
Investment Plan Under this plan, you may arrange for automatic monthly
investments in a fund of $50 or more. The transfer
agent will transfer funds monthly from your Legg Mason
account or from your checking/savings account to
purchase shares of the desired fund.
--------------------------------------------------------------------------------
Automatic Arrangements may be made with some employers and
Investments financial 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.
--------------------------------------------------------------------------------

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, FIS or other authorized
entity before the close of regular trading on 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. 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.

Institutional Class shares, which are not subject to a Rule 12b-1 fee, are
offered through a separate prospectus only to certain investors.

<PAGE>

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

You may use any of the following methods to sell shares of the fund:

--------------------------------------------------------------------------------
Telephone Call your financial adviser or FIS at 1-800-822-5544 or
entity offering the fund to 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 $12. Be sure
that your financial adviser has your bank account information
on file.

--------------------------------------------------------------------------------
Internet or FIS clients may request a redemption of fund shares through
TeleFund Legg Mason's Internet site at http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
--------------------------------------------------------------------------------
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. Redemption requests for shares valued at $10,000
or more or when the proceeds are to be paid to someone other
than the accountholder may require a signature guarantee.
You may obtain a signature guarantee from most banks or
securities dealers.
--------------------------------------------------------------------------------

The fund will follow reasonable procedures to ensure the validity of any
telephone or Internet redemption request, such as requesting identifying
information from users 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.

Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser, FIS or other entity
offering the fund.

Redemption orders will be processed promptly following receipt of an order in
proper form. You will generally receive the proceeds within a week. Payment of
the proceeds of redemption 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.

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

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 Exchange, on every day the Exchange is open. The Exchange is normally closed
on all national holidays and Good Friday. To calculate the fund's Primary Class
share price, the fund's assets attributable to that class of 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 policies approved
by the Board of Directors. The fund may use fair value pricing instead of market
quotations to value a security if the fund believes that, because of special
circumstances, doing so would more accurately reflect the price the fund could
realize on the current sale of the security.

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. The fund will value its foreign securities in
U.S. dollars on the basis of the then-prevailing exchange rates. Fixed income
securities generally are valued using market quotations or independent pricing
services that use prices provided by market makers or estimates of market
values. Securities with remaining maturities of 60 days or less are valued at
amortized cost.

To the extent that the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.

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.

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, and

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 Securities and
Exchange Commission ("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 or capital gain
distributions and purchases made through the Future First Systematic Investment
Plan or investments made through automatic investments or withdrawals made
through the Systematic Withdrawal Plan). Legg Mason or the entity through which
you invest will send you account statements monthly unless there has been no
activity in the account. 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. You should not purchase shares of the fund
when you are a participant in the plan.

Exchange privilege:

Primary Class shares may be exchanged for Primary 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.

There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. An exchange of the 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 dividends and distributions of any net capital gains to
holders of Primary Class shares annually.

Your dividends and other distributions will be automatically reinvested in
additional Primary Class shares of the fund unless you elect to receive
dividends and/or other distributions in cash. To change your election, you must
notify the distributing fund at least ten days before the next dividend and/or
other distribution is to be paid. You may also request that your dividends and
distributions be reinvested in shares of another eligible Legg Mason fund.

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 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 its 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 other distributions. This 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.

Investment Operations

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
For the Year Net Net Realized &
Ended October 31, Investment Unrealized Gain Total From
Classic Valuation - Net Asset Value, Income (Loss) On Investment
Primary Shares Beginning of Year (Loss) Investments Operations
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 A $ 10.00 $ .01 B $ 1.58 $ 1.59 C
-----------------------------------------------------------------------------------------------------
</TABLE>

Distributions
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
For the Year In Excess From Net In Excess of
Ended October 31, From Net of Net Realized Net Realized Net Asset
Classic Valuation - Investment Investment Gain/(Loss) on Gain on Total Value,
Primary Shares Income/(Loss) Income Investments Investments Distributions End of Year
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 A $ - $ - $ - $ - $ - $ 11.59
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Ratios/Supplemental Data
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Net Investment
For the Year Expenses Income/(Loss)
Ended October 31, to Average to Average Portfolio Net assets,
Classic Valuation - Total Return Net Assets Net Assets Turnover Rate End of Year
Primary Shares % % % % (thousands - $)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 A 15.90 C 2.00 B,D .22 B,D 73.02 $ 9,569
</TABLE>

A For the period November 8, 1999 (commencement of operations ) to October 31,
2000.

B Net of fees waived pursuant to contractual expense limitations of 2.00 % of
average daily net assets until December 31, 2000. If no fees had been waived
by Legg Mason Fund Adviser Inc., the annualized ratio of expenses to average
net assets for the period ended October 31, 2000, would have been 5.98%.

C Not annualized.

D Annualized.

<PAGE>

L e g g M a s o n C l a s s i c V a l u a t i o n F u n d

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 SEC and is
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. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.

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.leggmasonfunds.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 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-169 SEC file number: 811-8943

<PAGE>

Legg Mason Classic Valuation Fund

INSTITUTIONAL CLASS PROSPECTUS February 19, 2001

logo

<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

2 Principal risks

3 Performance

4 Fees and expenses of the fund

5 Management

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

6 How to invest

8 How to sell your shares

10 Account policies

11 Services for investors

12 Distributions and taxes

<PAGE>

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

Legg Mason Classic Valuation Fund:

Investment objective: long-term growth of capital.

Principal investment strategies:

<PAGE>

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

In general:

Market risk:

Value style risk:

Investment models:

<PAGE>

[icon] P E R F O R M A N C E

The fund offers Primary Class and Institutional Class shares. Primary Class
shares are offered through a separate prospectus. As of the date of this
prospectus, the Institutional Class shares had not yet commenced operations;
therefore the returns presented below are for Primary Class shares. Both classes
of shares are invested in the same portfolio of securities, and the annual
returns for each class of shares would differ only to the extent that the
Institutional Class would pay lower expenses, and therefore would generally be
expected to have higher returns than Primary Class shares. The information below
provides an indication of the risks of investing in the fund by comparing the
fund's performance with a broad measure of market performance. Annual returns
assume reinvestment of dividends and distributions. Historical performance of
the fund does not necessarily indicate what will happen in the future.

PRIMARY CLASS SHARES

Year by year total return as of December 31 (%)

2000 _______

During the past calendar year:

Quarter Ended Total Return
------------- ------------

Best quarter:
Worst quarter:

1 Year Life of Class
------ -------------

Classic Valuation - Primary Class shares (a)
S&P 500 (b)

(a) November 8, 1999 (commencement of operations of Primary Class shares)
to December 31, 2000.

(b) For the period November 30, 1999 to December 31, 2000.

<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

Annual fund operating expenses - Institutional Class shares

(expenses that are deducted from fund assets)

--------------------------------------------------------------------------------
Institutional Class Shares
--------------------------------------------------------------------------------
Management Fees 0.75%
--------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses(a) 4.23%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 4.98%
--------------------------------------------------------------------------------
Fee waivers and expense reimbursement (b) 3.98%
--------------------------------------------------------------------------------
Net annual fund operating expenses 1.00%
--------------------------------------------------------------------------------

(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 and reimburse other
expenses so that Institutional Class share expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) do not exceed an annual
rate of 1.00% of average daily net assets until February 28, 2002.

Example:

--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Classic Valuation,
Institutional Class $102 $936 $1,788 $3,995
--------------------------------------------------------------------------------

<PAGE>

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

Management and advisers:

For its services during the fiscal year ended October 31, 2000, LMFA waived all
management fees for this fund.

Portfolio management:

Distributor of the fund's shares:

Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, distributes the fund's shares pursuant to an
Underwriting Agreement. The Underwriting Agreement obligates Legg Mason 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.

Legg Mason and LMFA may pay non-affiliated entities out of their own assets to
support the distribution of Institutional Class shares and shareholder
servicing.

LMFA, Brandywine and Legg Mason 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

Institutional Class shares are currently offered for sale only to institutional
investors who have at least $100 million in investable assets and who invest at
least $1 million in the fund. Institutional Class shares are also offered to
Institutional Clients of Legg Mason Trust, fsb for which the trust company
exercises discretionary investment management responsibility and accounts of the
customers with such Institutional Clients ("Customers").

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

Prior to or concurrent with the initial purchase of Institutional Class shares,
each investor must open an account for the fund by completing and signing an
application and mailing it to Legg Mason Institutional Funds at the following
address: P.O. Box 17635, Baltimore, Maryland 21297-1635.

Eligible investors may purchase Institutional Class shares by contacting Legg
Mason Institutional Funds directly. Institutional Clients may set different
minimums for their Customers' investments in accounts invested in Institutional
Class shares.

Purchase orders, together with payment in one of the forms described in the
following paragraphs, received by Legg Mason Institutional Funds or Boston
Financial Data Services ("BFDS" or the "Transfer Agent") before the close of
regular trading on 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. 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.

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. Orders received by certain retirement plans and other financial
intermediaries by the close of the Exchange and communicated to Legg Mason
Institutional Funds by 9:00 a.m., Eastern time, on the following business day
will be processed at the net asset value determined on the prior business day.
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.

Purchases of Institutional Class shares can be made by wiring federal funds to
State Street Bank and Trust Company. Before wiring federal funds, the investor
must first telephone Legg Mason Institutional Funds at 1-888-425-6432 to receive
instructions for wire transfer. On the telephone, the following information will
be required: shareholder name; name of the person authorizing the transaction;
shareholder account number; name of the fund and class of shares to be
purchased; amount being wired; and name of the wiring bank.

Funds should be wired through the Federal Reserve System to:

State Street Bank and Trust Company
[ABA #011-000-028]
[DDA #99014649]
Legg Mason [insert name of fund]
[Insert account name and number]

The wire should state that the funds are for the purchase of shares of a
specific fund and share class and include the account name and number.

Shares may also be purchased and paid for by the contribution of eligible
portfolio securities, subject in each case to approval by the investment
adviser. Approval will depend on, among other things, the nature and quality of
the securities offered and the current needs of the fund in question. Securities
offered in payment for shares will be valued in the same way and at the same
time the fund values its portfolio securities for purpose of determining net

<PAGE>

asset values. (See "Net Asset Value" below.) Investors who wish to purchase fund
shares through the contribution of securities should contact Legg Mason
Institutional Funds at 1-888-425-6432 for instructions. Investors should also
realize that at the time of contribution they may be required to recognize a
gain or loss for tax purposes on securities contributed. The fund has full
discretion to reject any securities offered as payment for shares.

Any shares purchased or received as a distribution will be credited directly to
the investor's account.

Additional investments may be made at any time at the relevant net asset value
for that class by following the procedures outlined above. Investors should
always furnish a shareholder account number when making additional purchases.

Purchases will be made in full and fractional shares. In the interest of economy
and convenience, certificates for shares will not be issued.

The fund and Legg Mason, the fund's distributor, reserve the right, in their
sole discretion, to suspend the offering of shares or to reject any purchase
order, in whole or in part, when, in the judgment of management, such suspension
or rejection is in the best interests of the fund; to waive the minimum initial
investment for certain investors, and to redeem shares if information provided
in the Application should prove to be incorrect in any manner judged by the fund
to be material (e.g., in a manner such as to render the shareholder ineligible
to purchase shares of the fund). In addition, the fund and Legg Mason reserve
the right to waive the minimum investable assets requirement in their sole
discretion. The fund may suspend the offering of shares at any time and resume
it any time thereafter.

Shares of the fund may not be qualified or registered for sale in all states.
Prospective investors should inquire as to whether shares of a particular fund
are available for offer and sale in their state of residence. Shares of the fund
may not be offered or sold in any state unless registered or qualified in that
jurisdiction or unless an exemption from registration or qualification is
available.

Purchases and sales of fund shares should be made for long-term investment
purposes. The fund reserves the right to restrict purchases of shares (including
exchanges) when it determines that a pattern of frequent purchases and sales
made in response to short-term fluctuations in share price appears evident.

Shares of the fund are available for purchase by retirement plans, including
401(k) plans, 403(b) plans and Individual Retirement Accounts ("IRAs"). The
administrator of a plan or employee benefits office can provide participants or
employees with detailed information on how to participate in the plan and how to
elect the fund as an investment option. Participants in a retirement or savings
plan may be permitted to elect different investment options, alter the amounts
contributed to the plan, or change how contributions are allocated among
investment options in accordance with the plan's specific provisions.

For questions about participant accounts, participants should contact their
employee benefits office, the plan administrator, or the organization that
provides recordkeeping services for the plan. Investors who purchase shares
through retirement plans should be aware that the plan administrator may
aggregate purchase and redemption orders of participants in the plan. Therefore,
there may be a delay between the time the investor places an order with the plan
administrator and the time the order is forwarded to the Transfer Agent for
execution.

Account Registration Changes

Changes in registration or account privileges must be made in writing to Legg
Mason Institutional Funds. Signature guarantees may be required. See "Signature
Guarantee" below. All correspondence must include the account number and must be
sent to:

Legg Mason Institutional Funds
P.O. Box 17635
Baltimore, Maryland 21297-1635

<PAGE>

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

Shares may be redeemed through three methods: (1) by sending a written request
for redemption to Legg Mason Institutional Funds, P.O. Box 17635, Baltimore,
Maryland 21297-1635, (2) by calling 1-888-425-6432, or (3) by wire communication
with the Transfer Agent. In each case, the investor should first notify Legg
Mason Institutional Funds at 1-888-425-6432 of the intention to redeem. No
charge is made for redemptions. Shareholders who wish to be able to redeem by
telephone or wire communication must complete an authorization form in advance.
Redemptions over $10,000,000 may be initiated by telephone, but must be
confirmed in writing prior to processing.

Upon receipt of a request for redemption as described below (a request "in good
order") before the close of the Exchange on any day the Exchange is open, the
Transfer Agent will redeem fund shares at that day's net asset value per share.
Requests for redemption received by the Transfer Agent after the close of the
Exchange will be executed at the net asset value next determined. However,
orders received by certain retirement plans and other financial intermediaries
by the close of the Exchange and communicated to the Transfer Agent by 9:00
a.m., Eastern time, on the following business day will be effected at the net
asset value determined on the prior business day.

Requests for redemption should indicate:

1) the number of shares or dollar amount to be redeemed and the investor's
shareholder account number;

2) the investor's name and the names of any co-owner of the account, using
exactly the same name or names used in establishing the account;

3) proof of authorization to request redemption on behalf of any co-owner of
the account (please contact Legg Mason Institutional Funds for further
details); and

4) the name, address, and account number to which the redemption payment
should be sent.

Other supporting legal documents, such as copies of the trust instrument or
power of attorney, may be required from corporations or other organizations,
fiduciaries or persons other than the shareholder of record making the request
for redemption. If you have a question concerning the sale or redemption of
shares, please contact Legg Mason Institutional Funds by calling 1-888-425-6432.

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

Payment of the proceeds of redemptions normally will be made by wire one
business day after receipt of a redemption request in good order. However, the
fund reserves the right to postpone the payment date when the Exchange is
closed, when trading is restricted, or during periods as permitted by federal
securities laws, or to take up to seven days to make payment upon redemption if
the fund could be adversely affected by immediate payment. 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.
Shareholders who receive a redemption in kind may incur costs to dispose of such
securities.

Signature guarantee:

When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his or her signature and guaranteed by any of the
following entities: U.S. banks, foreign banks having a U.S. correspondent bank,
credit unions, savings associations, U.S. registered securities dealers and

<PAGE>

brokers, municipal securities dealers and brokers, government securities dealers
and brokers, national securities exchanges, registered securities associations
and clearing agencies (each an "Eligible Guarantor Institution"). The fund and
its agents reserve the right to reject any signature guarantee pursuant to
written signature guarantee standards or procedures, which may be revised in the
future to permit them to reject signature guarantees from Eligible Guarantor
Institutions that do not, based on credit guidelines, satisfy such written
standards or procedures. The fund may change the signature guarantee
requirements from time to time without prior notice to shareholders.

<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 Institutional Class share is determined daily as of the
close of the Exchange, on every day the Exchange is open. The Exchange is
normally closed on all national holidays and Good Friday. To calculate the
fund's Institutional Class share price, the fund's assets attributable to that
class are valued and totaled, liabilities attributable to Institutional Class
shares are subtracted, and the resulting net assets are divided by the number of
Institutional 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 policies approved by the Board of Directors. The fund may use
fair value pricing instead of market quotations to value a security if the fund
believes that because of special circumstances, doing so would more accurately
reflect the price the fund could realize on a current sale of the security.

Where a security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by the
fund's adviser to be the primary market. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange rates.
Fixed income securities generally are valued using market quotations or
independent pricing services that use prices provided by market makers or
estimates of market values. Securities with remaining maturities of 60 days or
less are valued at amortized cost.

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.

<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 Institutional 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:

Institutional Class shares of the fund may be exchanged for shares of the Legg
Mason Cash Reserve Trust or for shares of the same class 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 and provided that the investor
meets the eligibility criteria of that class of that fund and the value of
exchanged shares is at least $1,000,000. 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 the
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; and

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

Some Institutional Clients and retirement plan administrators may not offer all
of the Institutional Class shares 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 dividends and distributions of any net capital gains to
holders of Institutional Class shares annually.

Your dividends and other distributions will be automatically reinvested in
additional Institutional 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 ten days before the
next dividend and/or other distribution is to be paid. You may also request that
your dividends and distributions be reinvested in shares of another eligible
Legg Mason fund.

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 Institutional 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 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 C l a s s i c V a l u a t i o n F u n d

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

To request the SAI or any reports to shareholders, or to obtain more
information:

o call toll-free 1-888-425-6432
o write to us at: Legg Mason Institutional Funds
100 Light Street, P.O. Box 17635
Baltimore, Maryland 21297-1635

SEC file number: 811-8943

13
<PAGE>

LEGG MASON LIGHT STREET TRUST, INC.

LEGG MASON CLASSIC VALUATION FUND

PRIMARY CLASS AND INSTITUTIONAL CLASS SHARES

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 19, 2001

This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus for Primary Class shares or the
Prospectus for Institutional Class shares of the fund (both dated February 19,
2001), which have been filed with the Securities and Exchange Commission
("SEC"). The fund's annual report is incorporated by reference into this
Statement of Additional Information. A copy of either the Prospectuses or the
annual report may be obtained without charge from the fund's distributor, Legg
Mason Wood Walker, Incorporated, ("Legg Mason") (address and telephone numbers
listed below).

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......................................................1
FUND POLICIES................................................................1
INVESTMENT STRATEGIES AND RISKS..............................................2
ADDITIONAL TAX INFORMATION..................................................14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................18
VALUATION OF FUND SHARES....................................................20
PERFORMANCE INFORMATION.....................................................20
TAX-DEFERRED QUALIFIED PLANS - PRIMARY CLASS SHARES.........................22
THE FUND'S INVESTMENT ADVISER/MANAGER.......................................27
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................28
THE FUND'S DISTRIBUTOR......................................................29
CAPITAL STOCK INFORMATION...................................................31
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT.............32
THE FUND'S LEGAL COUNSEL....................................................32
THE FUND'S INDEPENDENT ACCOUNTANTS..........................................32
FINANCIAL STATEMENTS........................................................32
Appendix A.................................................................A-1

No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offerings made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the fund or its distributor. The Prospectus and this
Statement of Additional Information do not constitute offerings by 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") is a diversified
open-end investment company that was established as a Maryland corporation on
August 5, 1998. Legg Mason Classic Valuation Fund ("Classic Valuation Fund" or
"the fund") is a series of Light Street Trust.

FUND POLICIES

Classic Valuation Fund's investment objective is to seek long-term
growth of capital.

The following information supplements the information concerning the
fund's investment objective, policies and limitations found in the Prospectuses.
The fund has adopted certain fundamental investment limitations that cannot be
changed except by vote of its shareholders.

Classic Valuation Fund may not:

1. Borrow money, except that the fund may borrow money in an amount
not exceeding 331/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);

2. Issue senior securities, except as permitted under the 1940 Act;

3. Underwrite the securities of other issuers except insofar as the
fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;

4. Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);

5. With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at market value) in securities of any one issuer, other than
the U.S. Government, its agencies and instrumentalities, or purchase more than
10% of the voting securities of any one issuer;

6. Purchase or sell physical commodities; however, this policy shall
not prevent the fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and other
financial instruments;

7. Lend any security or make any loan if, as a result, more than
331/3% of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase agreements;

8. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the 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.

The foregoing limitations may be changed with respect to the fund 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.

The following are some of the non-fundamental limitations that the fund
currently observes. The fund may not:

<PAGE>

1. Sell securities short (unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short) or
purchase securities on margin, except that (i) this policy does not prevent the
fund from entering into short positions in foreign currency, futures contracts,
options, forward contracts, swaps, caps, floors, collars and other financial
instruments, (ii) the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and (iii) the fund may make margin payments
in connection with futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments; or

2. Acquire additional securities if its borrowings exceed 5% of its
total assets.

Except as otherwise stated, if a fundamental or non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later increase or decrease in percentage resulting from a change in
value of portfolio securities, in the net asset value of the fund, or in the
number of securities an issuer has outstanding, will not be considered to be
outside the limitation.

Unless otherwise stated, the investment policies and limitations
contained in this Statement of Additional Information are not fundamental, and
can be changed without shareholder approval.

INVESTMENT STRATEGIES AND RISKS

The fund may use any of the following instruments or techniques, among
others.

Foreign Securities
------------------

The fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from fluctuations
in currency exchange rates, revaluation of currencies, future political and
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers, and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory practices and requirements comparable to those
applicable to domestic issuers. These risks are intensified when investing in
countries with developing economies and securities markets, also known as
"emerging markets." Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation, confiscatory taxation, withholding taxes and limitations on
the use or removal of funds or other assets.

The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary
periods when assets of the fund are uninvested and no return is earned thereon.
The inability of the fund to make intended security purchases due to settlement
problems could cause the fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result in losses to the fund due to subsequent declines in value of the
portfolio security or, if the fund has entered into a contract to sell the
security, could result in liability to the purchaser.

Since the fund may invest in securities denominated in currencies other
than the U.S. dollar and since the fund may hold foreign currencies, the fund
may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rates between such currencies and the U.S. dollar.
Changes in the currency exchange rates may influence the value of the fund's
shares, and also may affect the value of dividends and interest earned by the
fund and gains and losses realized by the fund. Exchange rates are determined by
the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments, other economic and
financial conditions, government intervention, speculation and other factors.

<PAGE>

In addition to purchasing foreign securities, the fund may invest in
ADRs. Generally, ADRs, in registered form, are denominated in U.S. dollars and
are designed for use in the domestic market. Usually issued by a U.S. bank or
trust company, ADRs are receipts that demonstrate ownership of the underlying
securities. 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. The fund may also invest in GDRs, which
are receipts, often denominated in U.S. dollars, issued by either a U.S. or
non-U.S. bank evidencing its ownership of the underlying foreign securities.

Although not a fundamental policy subject to shareholder vote, the
adviser currently anticipates the fund will invest no more than 15% of its total
assets in foreign securities either directly or through ADRs or GDRs.

Illiquid Securities
-------------------

The fund may invest up to 15% 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
to the fund has determined are liquid pursuant to guidelines established by the
fund's Board of Directors. Due to the absence of an active trading market, the
fund may have difficulty valuing or disposing of illiquid securities promptly.

Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, or pursuant to an exemption from registration. The fund may be
required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.

SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to the fund, acting
pursuant to guidelines established by the fund's Board of Directors, may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated, or
if qualified institutional buyers become disinterested for a time, restricted
securities in the fund's portfolio may adversely affect the fund's liquidity.

Debt Securities
---------------

The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times of
rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater are
such variations.

Generally, debt securities rated below BBB by Standard & Poor's
("S&P"), or below Baa by Moody's Investors Service, Inc. ("Moody's"), and
unrated securities of comparable quality, offer a higher current yield than that
provided by higher grade issues, but also involve higher risks. Debt securities
rated C by Moody's and S&P are bonds on which no interest is being paid and
which can be regarded as having extremely poor prospects of ever attaining any
real investment standing. However, debt securities, regardless of their ratings,
generally have a higher priority in the issuer's capital structure than do
equity securities.

Lower-rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the

<PAGE>

financial condition of the issuers. Highly leveraged issuers may also experience
financial stress during periods of rising interest rates. Lower-rated debt
securities are also sometimes referred to as "junk bonds."

The market for lower-rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At certain
times in the past, the prices of many lower-rated debt securities declined,
indicating concerns that issuers of such securities might experience financial
difficulties. At those times, the yields on lower-rated debt securities rose
dramatically reflecting the risk that holders of such securities could lose a
substantial portion of their value as a result of the issuer's financial
restructuring or default. There can be no assurance that such declines will not
recur.

The market for lower-rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit the
fund's ability to sell such securities at fair value. Judgment plays a greater
role in pricing such securities than is the case for securities having more
active markets. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may also decrease the values and liquidity of
lower-rated debt securities, especially in a thinly traded market.

The ratings of S&P and Moody's represent the opinions of those
agencies. Such ratings are relative and subjective, and are not absolute
standards of quality. Unrated debt securities are not necessarily of lower
quality than rated securities, but they may not be attractive to as many buyers.
A description of the ratings assigned to corporate debt obligations by Moody's
and S&P is included in Appendix A.

In addition to ratings assigned to individual bond issues, the adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which the fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial conditions of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
may be a wide variation in the quality of bonds, both within a particular
classification and between classifications. A bond issuer's obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer; litigation
or other conditions may also adversely affect the power or ability of bond
issuers to meet their obligations for the payment of principal and interest.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by the fund's adviser to determine, to
the extent possible, that the planned investment is sound.

Preferred Stock (The fund does not currently intend to invest in preferred
--------------- stock)

The fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of the adviser, the preferred
stock is more attractively priced in light of the risks involved. Preferred
stock pays dividends at a specified rate and generally has preference over
common stock in the payment of dividends and the liquidation of the issuer's
assets but is junior to the debt securities of the issuer in those same
respects. Unlike interest payments on debt securities, dividends on preferred
stock are generally payable at the discretion of the issuer's board of
directors. Shareholders may suffer a loss of value if dividends are not paid.
The market prices of preferred stocks are subject to changes in interest rates
and are more sensitive to changes in the issuer's creditworthiness than are the
prices of debt securities. Under normal circumstances, preferred stock does not
carry voting rights.

Convertible Securities (The fund does not currently intend to invest in
---------------------- 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

<PAGE>

or similar issuers, but lower than the yield of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible securities but rank senior to common stock in a fund'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.

If an investment grade security purchased by the fund is subsequently
given a rating below investment grade, the adviser will consider that fact in
determining whether to retain that security in the fund's portfolio, but is not
required to dispose of it.

Corporate Debt Securities (The fund does not currently intend to invest in
--------------------------- corporate debt securities)

Corporate debt securities are bonds or notes issued by corporations and
other business organizations, including business trusts, in order to finance
their credit needs. Corporate debt securities include commercial paper which
consists of short-term (usually from 1 to 270 days) unsecured promissory notes
issued by corporations in order to finance their current operations.

Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price of
some commodity. These securities may be convertible into preferred or common
equity, or may be bought as part of a unit containing common stock. In selecting
corporate debt securities for the fund, the adviser reviews and monitors the
creditworthiness of each issuer and issue. The adviser also analyzes interest
rate trends and specific developments which it believes may affect individual
issuers.

When-Issued Securities (The fund does not currently intend to invest in
---------------------- when-issued securities)

The fund may enter into commitments to purchase securities on a
when-issued basis. Such securities are often the most efficiently priced and
have the best liquidity in the bond market. When the fund purchases securities
on a when-issued basis, it assumes the risks of ownership at the time of the
purchase, not at the time of receipt. However, the fund does not have to pay for
the obligations until they are delivered to it. This is normally seven to 15
days later, but could be longer. Use of this practice would have a leveraging
effect on the fund. Typically, no interest accrues to the purchaser until the
security is delivered.

To meet its payment obligation under a when-issued commitment, the fund
will establish a segregated account with its custodian and maintain cash or
appropriate liquid securities, in an amount at least equal in value to the
fund's commitments to purchase when-issued securities.

The fund may sell the securities underlying a when-issued purchase,
which may result in capital gains or losses.

Covered Call Options (The fund does not currently intend to invest in covered
-------------------- call options)

The fund may write covered call options on securities in which it is
authorized to invest. Because it can be expected that a call option will be
exercised if the market value of the underlying security increases to a level

<PAGE>

greater than the exercise price, the fund might write covered call options on
securities generally when the adviser believes that the premium received by the
fund will exceed the extent to which the market price of the underlying security
will exceed the exercise price. The strategy may be used to provide limited
protection against a decrease in the market price of the security, in an amount
equal to the premium received for writing the call option less any transaction
costs. Thus, in the event that the market price of the underlying security held
by the fund declines, the amount of such decline will be offset wholly or in
part by the amount of the premium received by the fund. If, however, there is an
increase in the market price of the underlying security and the option is
exercised, the fund would be obligated to sell the security at less than its
market value. The fund would give up the ability to sell the portfolio
securities used to cover the call option while the call option was outstanding.
In addition, the fund could lose the ability to participate in an increase in
the value of such securities above the exercise price of the call option because
such an increase would likely be offset by an increase in the cost of closing
out the call option.

If the fund desires to close out its obligation under a call option it
has sold, it will have to purchase an offsetting option. The value of an option
position will reflect, among other things, the current market price of the
underlying security, futures contract or currency, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security, and general market
conditions. Accordingly, when the price of the security rises toward the strike
price of the option, the cost of offsetting the option will negate to some
extent the benefit to the fund of the price increase of the underlying security.
For this reason, the successful use of options as an income strategy depends
upon the adviser's ability to forecast the direction of price fluctuations in
the underlying market or market sector.

The fund may write exchange-traded options. The ability to establish
and close out positions on the exchange is subject to the maintenance of a
liquid secondary market. Although the fund intends to write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. With respect to options written by the
fund, the inability to enter into a closing transaction may result in material
losses to the fund. For example, because the fund must maintain a covered
position with respect to any call option it writes on a security, the fund may
not sell the underlying security during the period it is obligated under such
option. This requirement may impair the fund's ability to sell a portfolio
security or make an investment at a time when such a sale or investment might be
advantageous.

The fund will not enter into an options position that exposes it to an
obligation to another party unless it owns an offsetting ("covering") position
in securities or other options. The fund will comply with guidelines established
by the SEC with respect to coverage of these strategies by mutual funds, and, if
the guidelines so require, will set aside cash and/or appropriate liquid
securities in a segregated account with its custodian in the amount prescribed,
as marked-to-market daily. Securities positions used for cover and securities
held in a segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.

Indexed Securities (The fund does not currently intend to invest in indexed
------------------ securities)

Indexed securities are securities whose prices are indexed to the
prices of securities indexes, currencies or other financial statistics. Indexed
securities typically are debt securities or deposits whose value at maturity
and/or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities fluctuates (either directly or
inversely, depending upon the instrument) with the performance of the index,
security, currency or other instrument to which they are indexed and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the security, and their value may substantially decline if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations and certain U.S. government agencies. The U.S.
Treasury recently began issuing securities whose principal value is indexed to

<PAGE>

the Consumer Price Index (also known as "Treasury Inflation-Protection
Securities"). The fund will only purchase indexed securities of issuers which
its adviser determines present minimal credit risks and will monitor the
issuer's creditworthiness during the time the indexed security is held. The
adviser will use its judgment in determining whether indexed securities should
be treated as short-term instruments, bonds, stock or as a separate asset class
for purposes of the fund's investment allocations, depending on the individual
characteristics of the securities. The fund currently does not intend to invest
more than 5% of its net assets in indexed securities. Indexed securities may
fluctuate according to a multiple of changes in the underlying instrument and,
in that respect, have a leverage-like effect on the fund.

Stripped Securities (The fund does not currently intend to invest in stripped
------------------- securities)

Stripped securities are created by separating bonds into their
principal and interest components and selling each piece separately (commonly
referred to as IOs and POs). Stripped securities are more volatile than other
fixed income securities in their response to changes in market interest rates.
The value of some stripped securities moves in the same direction as interest
rates, further increasing their volatility.

Zero Coupon Bonds (The fund does not currently intend to invest in zero coupon
----------------- bonds)

Zero coupon bonds do not provide for cash interest payments but instead
are issued at a significant discount from face value. Each year, a holder of
such bonds must accrue a portion of the discount as income. Because the fund is
required to pay out substantially all of its income each year, including income
accrued on zero coupon bonds, the fund may have to sell other holdings to raise
cash necessary to make the payout. Because issuers of zero coupon bonds do not
make periodic interest payments, their prices can be very volatile when market
interest rates change.

Closed-end Investment Companies (The fund does not currently intend to invest in
------------------------------- closed-end investment companies)

The fund may invest in the securities of closed-end investment
companies. Such investments may involve the payment of substantial premiums
above the net asset value of such issuers' portfolio securities, and the total
return on such investments will be reduced by the operating expenses and fees of
such investment companies, including advisory fees. The fund will invest in such
funds, when, in the adviser's judgment, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.

Futures and Options (The fund does not currently intend to invest in futures and
------------------- options)

The fund can invest in futures and options transactions, including puts
and calls. Because such investments "derive" their value from the value of the
underlying security, index, or interest rate on which they are based, they are
sometimes referred to as "derivative" securities. Such investments involve risks
that are different from those presented by investing directly in the securities
themselves. While utilization of options, futures contracts and similar
instruments may be advantageous to the fund, if the adviser is not successful in
employing such instruments in managing the fund's investments, the fund's
performance will be worse than if the fund did not make such investments.

The fund may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated with
ownership of the securities in which it invests. For example, the fund may sell
a stock index futures contract in anticipation of a general market or market
sector decline that could adversely affect the market value of the fund's
portfolio. To the extent that the fund's portfolio correlates with a given stock
index, the sale of futures contracts on that index would reduce the risks
associated with a market decline and thus provide an alternative to the
liquidation of securities positions. The fund may sell an interest rate futures
contract to offset price changes of debt securities it already owns. This
strategy is intended to minimize any price changes in the debt securities the
fund owns (whether increases or decreases) caused by interest rate changes,

<PAGE>

because the value of the futures contract would be expected to move in the
opposite direction from the value of the securities owned by the fund.

The fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the fund plans to
acquire at a future date. The purchase of such options is analogous to the
purchase of call options on an individual debt security that can be used as a
temporary substitute for a position in the security itself. The fund may
purchase put options on stock index futures contracts. This is analogous to the
purchase of protective put options on individual stocks where a level of
protection is sought below which no additional economic loss would be incurred
by the fund. The fund may purchase and write options in combination with each
other to adjust the risk and return of the overall position. For example, the
fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract.

The fund may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the value of
the put option would be expected to rise and off set all or a portion of the
fund's resulting losses in its stock holdings. However, option premiums tend to
decrease over time as the expiration date nears. Therefore, because of the costs
of the option (in the form of premium and transaction costs), the fund would
expect to suffer a loss in the put option if prices do not decline sufficiently
to offset the deterioration in the value of the option premium.

The fund may write put options as an alternative to purchasing actual
securities. If stock prices rise, the fund would expect to profit from a written
put option, although its gain would be limited to the amount of the premium it
received. If stock prices remain the same over time, it is likely that the fund
will also profit, because it should be able to close out the option at a lower
price. If stock prices fall, the fund would expect to suffer a loss.

By purchasing a call option, the fund would attempt to participate in
potential price increases of the underlying stock, with results similar to those
obtainable from purchasing a futures contract, but with risk limited to the cost
of the option if stock prices fell. At the same time, the fund can expect to
suffer a loss if stock prices do not rise sufficiently to offset the cost of the
option.

The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, the fund would seek to mitigate the
effects of a price decline. At the same time, when writing call options the fund
would give up some ability to participate in security price increases.

The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and also
require different skills from the advisers in managing the fund's portfolio.
While utilization of options, futures contracts and similar instruments may be
advantageous to the fund, if the adviser is not successful in employing such
instruments in managing the fund's investments or in predicting interest rate
changes, the fund's performance will be worse than if the fund did not make such
investments. It is possible that there will be imperfect correlation, or even no
correlation, between price movements of the investments being hedged and the
options or futures used. It is also possible that the fund may be unable to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or that the fund may need to sell a portfolio
security at a disadvantageous time, due to the need for the fund to maintain
"cover" or to segregate securities in connection with hedging transactions and
that the fund may be unable to close out or liquidate its hedge position. In
addition, the fund will pay commissions and other costs in connection with such
investments, which may increase the fund's expenses and reduce its yield. The
fund's current policy is to limit options and futures transactions to those
described above. The fund may purchase and write both over-the-counter and
exchange-traded options.

<PAGE>

The fund will not enter into any futures contracts or related options
if the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the fund has purchased would
exceed 5% of the fund's total assets. The fund will not purchase futures
contracts or related options if, as a result, more than 20% of the fund's total
assets would be so invested.

Futures Contracts
-----------------

The fund may from time to time purchase or sell futures contracts. In
the purchase of a futures contract, the purchaser agrees to buy a specified
underlying instrument at a specified future date. In the sale of a futures
contract, the seller agrees to sell the underlying instrument at a specified
future date. The price at which the purchase or sale will take place is fixed at
the time the contract is entered into. Some currently available contracts are
based on specific securities, such as U.S. Treasury bonds or notes, and some are
based on indexes of securities such as S&P 500. Futures contracts can be held
until their delivery dates, or can be closed out before then, if a liquid
secondary market is available. A futures contract is closed out by entering into
an opposite position in an identical futures contract (for example, by
purchasing a contract on the same instrument and with the same delivery date as
a contract the party had sold) at the current price as determined on the futures
exchange.

As the purchaser or seller of a futures contract, the fund would not be
required to deliver or pay for the underlying instrument unless the contract is
held until the delivery date. However, the fund would be required to deposit
with its custodian, in the name of the futures broker (known as a futures
commission merchant, or "FCM"), a percentage of the contract's value. This
amount, which is known as initial margin, generally equals 10% or less of the
value of the futures contract. Unlike margin in securities transactions, initial
margin on futures contracts does not involve borrowing to finance the futures
transactions. Rather, initial margin is in the nature of a good faith deposit or
performance bond, and would be returned to the fund when the futures position is
terminated, after all contractual obligations have been satisfied. Initial
margin may be maintained either in cash or appropriate liquid securities.

The value of a futures contract tends to increase and decrease with the
value of the underlying instrument. The purchase of a futures contract will tend
to increase exposure to positive and negative price fluctuations in the
underlying instrument in the same manner as if the underlying instrument had
been purchased directly. By contrast, the sale of a futures contract will tend
to offset both positive and negative market price changes.

As the contract's value fluctuates, payments known as variation margin
or maintenance margin are made to or received from the FCM. If the contract's
value moves against the fund (i.e., the fund's futures position declines in
value), the fund may be required to make payments to the FCM, and, conversely,
the fund may be entitled to receive payments from the FCM if the value of the
fund's futures position increases. This process is known as "marking-to-market"
and takes place on a daily basis. Variation margin does not involve borrowing to
finance the futures transactions, but rather represents a daily settlement of
the fund's obligations to or from a clearing organization.

Options on Securities, Indexed Securities and Futures Contracts
---------------------------------------------------------------

Purchasing Put or Call Options. By purchasing a put (or call) option,
the fund obtains the right (but not the obligation) to sell (or buy) the
underlying instrument at a fixed strike price. The option's underlying
instrument may be a specific security, an indexed security or a futures
contract. The option may give the fund the right to sell (or buy) only on the
option's expiration date, or may be exercisable at any time up to and including
that date. In return for this right, the fund pays the current market price for
the option (known as the option premium).

The fund may terminate its position in an option it has purchased by
allowing the option to expire, closing it out in the secondary market at its
current price, if a liquid secondary market exists, or by exercising it. If the
option is allowed to expire, the fund will lose the entire premium paid.

<PAGE>

Writing Put or Call Options. By writing a put (or call) option, the
fund takes the opposite side of the transaction from the option's purchaser (or
seller). In return for receipt of the premium, the fund assumes the obligation
to pay the strike price for the option's underlying instrument (or to sell or
deliver the option's underlying instrument) if the other party to the option
chooses to exercise it. When writing an option on a futures contract, the fund
will be required to make margin payments to an FCM as described above for
futures contracts.

Before exercise, the fund may seek to terminate its position in an
option it has written by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for an option the fund has
written, however, the fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.

Over-The-Counter and Exchange-Traded Options
--------------------------------------------

The fund may purchase and write both over-the-counter ("OTC") and
exchange-traded options. Exchange-traded options in the United States are issued
by a clearing organization affiliated with the exchange on which the option is
listed which, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between the fund and its
contra-party with no clearing organization guarantee. Thus, when the fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make/take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the fund, as well as the loss of the expected benefit of the transaction.
Currently, options on debt securities are primarily traded on the OTC market.
Exchange markets for options on debt securities exist, but the ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market.

The fund may invest up to 15% of its assets in illiquid securities. The
term "illiquid securities" includes purchased OTC options. Assets used as cover
for OTC options written by the fund also will be deemed illiquid securities,
unless the OTC options are sold to qualified dealers who agree that the fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option subject
to this procedure would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.

Cover for Options and Futures Strategies
----------------------------------------

The fund will not use leverage in its hedging strategies involving
options and futures contracts. The fund will hold securities, options or futures
positions whose values are expected to offset ("cover") its obligations under
the transactions. The fund will not enter into hedging strategies involving
options and futures contracts that expose the fund to an obligation to another
party unless it owns either (i) an offsetting ("covered") position in
securities, options or futures contracts or (ii) has cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. The fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by mutual funds and, if the
guidelines so require, will set aside cash and/or appropriate liquid securities
in a segregated account with its custodian in the amount prescribed. Securities,
options or futures contracts used for cover and securities held in a segregated
account cannot be sold or closed out while the strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of the fund's
assets could impede the portfolio management or the fund's ability to meet
redemption requests or other current obligations.

Risks of Futures and Related Options Trading
--------------------------------------------

Successful use of futures contracts and related options depends upon
the ability of the adviser to assess movements in the direction of overall
securities and interest rates, which requires different skills and techniques
than assessing the value of individual securities. Moreover, futures contracts

<PAGE>

relate not to the current price level of the underlying instrument, but to the
anticipated price level at some point in the future; trading of stock index
futures may not reflect the trading of the securities that are used to formulate
the index or even actual fluctuations in the index itself. There is, in
addition, the risk that movements in the price of the futures contract will not
correlate with the movements in the prices of the securities being hedged. Price
distortions in the marketplace, such as result from increased participation by
speculators in the futures market, may also impair the correlation between
movements in the prices of futures contracts and movements in the prices of the
hedged securities. If the price of the futures contract moves less than the
price of securities that are subject to the hedge, the hedge will not be fully
effective; however, if the price of the securities being hedged has moved in an
unfavorable direction, the fund normally would be in a better position than if
it had not hedged at all. If the price of securities being hedged has moved in a
favorable direction, this advantage may be partially offset by losses on the
futures position.

Options have a limited life and thus can be disposed of only within a
specific time period. Positions in futures contracts may be closed out only on
an exchange or board of trade that provides a secondary market for such futures
contracts. Although the fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market, there is no assurance that such a market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position and, in the event of adverse price movements, the fund would
continue to be required to make variation margin payments.

Purchasers of options on futures contracts pay a premium in cash at the
time of purchase which, in the event of adverse price movements, could be lost.
Sellers of options on futures contracts must post initial margin and are subject
to additional margin calls that could be substantial in the event of adverse
price movements. In addition, the fund's activities in the futures markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.

The exchanges may impose limits on the amount by which the price of a
futures contract or related option is permitted to change in a single day. If
the price of a contract moves to the limit for several consecutive days, the
fund may be unable during that time to close its position in that contract and
may have to continue making payments of variation margin. The fund may also be
unable to dispose of securities or other instruments being used as "cover"
during such a period.

Risks of Options Trading
------------------------

The success of the fund's option strategies depends on many factors,
the most significant of which is the adviser's ability to assess movements in
the overall securities and interest rate markets.

The exercise price of the options may be below, equal to or above the
current market value of the underlying securities or indexes. Purchased options
that expire unexercised have no value. Unless an option purchased by the fund is
exercised or unless a closing transaction is effected with respect to that
position, the fund will realize a loss in the amount of the premium paid and any
transaction costs.

A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although the
fund intends to purchase or write only those exchange-traded options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Closing transactions with respect to OTC options may be effected only by
negotiating directly with the other party to the option contract. Although the
fund will enter into OTC options with dealers capable of entering into closing
transactions with the fund, there can be no assurance that the fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the contra-party, the fund may be unable to
liquidate or exercise an OTC option, and could suffer a loss of its premium.
Also, the contra-party, although solvent, may refuse to enter into closing
transactions with respect to certain options, with the result that the fund
would have to exercise those options which it has purchased in order to realize

<PAGE>

any profit. With respect to options written by the fund, the inability to enter
into a closing transaction may result in material losses to the fund. For
example, because the fund must maintain a covered position with respect to any
call option it writes on a security or index, the fund may not sell the
underlying security or currency (or invest any cash, government securities or
short-term debt securities used to cover an index option) during the period it
is obligated under the option. This requirement may impair the fund's ability to
sell a portfolio security or make an investment at a time when such a sale or
investment might be advantageous.

Options on indexes are settled exclusively in cash. If the fund writes
a call option on an index, the fund will not know in advance the difference, if
any, between the closing value of the index on the exercise date and the
exercise price of the call option itself, and thus will not know the amount of
cash payable upon settlement. In addition, a holder of an index option who
exercises it before the closing index value for that day is available runs the
risk that the level of the underlying index may subsequently change.

The fund's activities in the options markets may result in higher
portfolio turnover rates and additional brokerage costs.

Additional Limitations on Futures and Options
---------------------------------------------

As a non-fundamental policy, the fund will write a put or call on a
security only if (a) the security underlying the put or call is permitted by the
investment policies of the fund, and (b) the aggregate value of the securities
underlying the calls or obligations underlying the puts determined as of the
date the options are sold does not exceed 25% of the fund's net assets.

Under regulations adopted by the Commodity Futures Trading Commission
("CFTC"), futures contracts and related options may be used by the fund (a) for
hedging purposes, without quantitative limits, and (b) for other purposes to the
extent that the amount of margin deposit on all such non-hedging futures
contracts owned by the fund, together with the amount of premiums paid by the
fund on all such non-hedging options held on futures contracts, does not exceed
5% of the market value of the fund's net assets.

The foregoing limitations, as well as those set forth in the prospectus
regarding the fund's use of futures and related options transactions, do not
apply to options attached to, or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options, such as rights, certain debt securities and indexed
securities.

The above limitations on the fund's investments in futures contracts
and options may be changed as regulatory agencies permit. However, the fund will
not modify the above limitations to increase its permissible futures and options
activities without supplying additional information, as appropriate, in a
current Prospectus or Statement of Additional Information.

Forward Currency Contracts
--------------------------

The fund may use forward currency contracts to protect against
uncertainty in the level of future exchange rates. The fund will not speculate
with forward currency contracts or foreign currencies.

The fund may enter into forward currency contracts with respect to
specific transactions. For example, when the fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
fund anticipates the receipt in a foreign currency of dividend or interest
payments on a security that it holds, the fund may desire to "lock-in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such payment, as
the case may be, by entering into a forward contract for the purchase or sale,
for a fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. The fund will thereby be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the currency exchange rates during the period between

<PAGE>

the date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.

The fund also may use forward currency contracts in connection with
portfolio positions to lock-in the U.S. dollar value of those positions or to
shift the fund's exposure to foreign currency fluctuations from one country to
another. For example, when the adviser believes that the currency of a
particular foreign country may suffer a substantial decline relative to the U.S.
dollar or another currency, it may enter into a forward currency contract to
sell the amount of the former foreign currency approximating the value of some
or all of the fund's securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used.

At or before the maturity date of a forward currency contract requiring
the fund to sell a currency, the fund may either sell a portfolio security and
use the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the fund will obtain, on the same maturity
date, the same amount of the currency that it is obligated to deliver.
Similarly, the fund may close out a forward currency contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The fund would realize a gain or loss as a result of entering into
such an offsetting forward currency contract under either circumstance to the
extent the exchange rate or rates between the currencies involved moved between
the execution dates of the first contract and the offsetting contract.

The precise matching of the forward contract amount and the value of
the securities involved will not generally be possible because the future value
of such securities in a foreign currency will change as a consequence of market
movements in the value of those securities between the date the forward currency
contract is entered into and the date it matures. Accordingly, it may be
necessary for the fund to purchase additional foreign currency on the spot
(i.e., cash) market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency the fund is
obligated to deliver under the forward contract and the decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the fund is obligated to deliver under the forward contract.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward currency contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the fund to sustain losses
on these contracts and transaction costs. The fund may enter into forward
contracts or maintain a net exposure to such contracts only if (1) the
consummation of the contracts would not obligate the fund to deliver an amount
of foreign currency in excess of the value of the fund's portfolio securities or
other assets denominated in that currency or (2) the fund maintains cash, U.S.
government securities or other appropriate liquid securities in a segregated
account in an amount not less than the value of the fund's total assets
committed to the consummation of the contract.

The cost to the fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The fund will deal only with banks, broker/dealers or other financial
institutions which the adviser deems to be of high quality and to present
minimum credit risk. The use of forward currency contracts does not eliminate
fluctuations in the prices of the underlying securities the fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
forward currency contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase.

Although the fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign

<PAGE>

exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
fund at one rate, while offering a lesser rate of exchange should the fund
desire to resell that currency to the dealer.

Portfolio Lending
-----------------

The fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash or equivalent collateral, equal to
at least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the fund. During the time portfolio securities
are on loan, the borrower will pay the fund an amount equivalent to any
dividends or interest paid on such securities, and the fund may invest the cash
collateral and earn income, or it may receive an agreed upon amount of interest
income from the borrower who has delivered equivalent collateral. These loans
are subject to termination at the option of the fund or the borrower. The fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The fund does not have
the right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment. The risks of securities lending are similar to those of repurchase
agreements. The fund presently does not intend to lend more than 5% of its
portfolio securities at any given time.

Repurchase Agreements
---------------------

When cash is temporarily available, or for temporary defensive
purposes, the fund may invest without limit in repurchase agreements and money
market instruments, including high-quality short-term debt securities. 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 fund's 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 15% 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.

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.

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 apply to them.

<PAGE>

General
-------

To continue to qualify for treatment as a registered 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 and net gains from certain foreign currency transactions)
("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 foreign currencies, or other income (including gains from options,
futures or forward currency contracts) derived with respect to its business of
investing in securities or foreign currencies ("Income Requirement"); (2) at the
close of each quarter of the fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with those other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the fund's total assets and that does not represent
more than 10% of the issuer's outstanding voting securities; and (3) at the
close of each quarter of the fund's taxable year, not more than 25% of the value
of its total assets may be invested in the securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer.

By qualifying for treatment as a RIC, the fund (but not its
shareholders) will be relieved of federal income tax on the part of the
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.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.

<PAGE>

Passive Foreign Investment Companies
------------------------------------

The fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, the fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain on
disposition of that stock (collectively "PFIC income"), plus interest thereon,
even if the fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent it distributes that income to its shareholders.

If the fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain --
which the fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if the QEF did not
distribute those earnings and gain to the fund. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.

The fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over the
fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
fund for prior taxable years thereunder. The fund's adjusted basis in each
PFIC's stock subject to the election would be adjusted to reflect the amounts of
income included and deductions taken thereunder.

Options, Futures, Forward Currency Contracts and Foreign Currencies
-------------------------------------------------------------------

The use of hedging instruments, such as writing (selling) and
purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the amount, character and timing of recognition of the gains and losses the fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations) --
and gains from options, futures and forward currency contracts derived by the
fund with respect to its business of investing in securities or foreign
currencies -- will qualify as permissible income under the Income Requirement.

Certain futures and foreign currency contracts in which the fund may
invest will be subject to section 1256 of the Code ("section 1256 contracts").
Any section 1256 contracts the fund holds at the end of each taxable year, other
than contracts with respect to which the fund has made a "mixed straddle
election," must be "marked-to-market" (that is, treated as having been sold at
that time for their fair market value), with the result that unrealized gains or
losses will be treated as though they were realized. Sixty percent of any net
gain or loss recognized on these deemed sales, and 60% of any net realized gain
or loss on section 1256 contracts actually sold by the fund during the year will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount that the fund must distribute to satisfy the Distribution
Requirement (i.e., with respect to the portion treated as short-term capital
gain), which will be taxable to the shareholders as ordinary income, and to
increase the net capital gain the fund recognizes, without in either case
increasing the cash available to the fund. The fund may elect to exclude certain
transactions from the operation of section 1256, although doing so may have the
effect of increasing the relative proportion of net short-term capital gain
(taxable as ordinary income) and thus increasing the amount of dividends that
must be distributed.

<PAGE>

When a covered call option written (sold) by the fund expires, it will
realize a short-term capital gain equal to the amount of the premium it received
for writing the option. When the fund terminates its obligations under such an
option by entering into a closing transaction, it will realize a short-term
capital gain (or loss), depending on whether the cost of the closing transaction
is less than (or exceeds) the premium received when the option was written. When
a covered call option written by the fund is exercised, it will be treated as
having sold the underlying security, producing long-term or short-term capital
gain or loss, depending on the holding period of the underlying security and
whether the sum of the option price received on the exercise plus the premium
received when the option was written exceeds or is less than the basis of the
underlying security.

Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which the fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options, futures and forward currency contracts are personal
property. Under section 1092, any loss from the disposition of a position in a
straddle generally may be deducted only to the extent the loss exceeds the
unrealized gain on the offsetting position(s) of the straddle; in addition,
these rules may apply to postpone the recognition of loss that otherwise would
be recognized under the mark-to-market rules discussed above. The regulations
under section 1092 also provide certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the fund makes certain elections, the amount, character and timing
of recognition of gains and losses from the affected straddle positions would be
determined under rules that vary according to the elections made. Because only a
few of the regulations implementing the straddle rules have been promulgated,
the tax consequences to the fund of straddle transactions are not entirely
clear.

Other
-----

Dividends and interest received by the fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the total return on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.

If the fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or 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
gain will be recognized at that time. A constructive sale generally consists of
a short sale, an offsetting notional principal contract or a futures or forward
currency contract 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 or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction of
the fund 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).

To the extent the fund recognizes income from a "conversion
transaction," as defined in section 1258 of the Code, all or part of the gain
from the disposition or other termination of a position held as part of the
conversion transaction may be recharacterized as ordinary income. A conversion
transaction generally consists of two or more positions taken with regard to the
same or similar property, where (1) substantially all of the taxpayer's return
is attributable to the time value of its net investment in the transaction and
(2) the transaction satisfies any of the following criteria: (a) the transaction

<PAGE>

consists of the acquisition of property by the taxpayer and a substantially
contemporaneous agreement to sell the same or substantially identical property
in the future; (b) the transaction is a straddle, within the meaning of section
1092 of the Code (see above); (c) the transaction is one that was marketed or
sold to the taxpayer on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as capital
gain; or (d) the transaction is described as a conversion transaction in future
regulations.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The fund offers two classes of shares known as Primary Class and
Institutional Class shares. Other classes of shares may be offered in the
future. Institutional Class shares are available only to institutional investors
who have at least $100 million in investable assets and who invest at least $1
million in the fund. Primary Class shares are available from Legg Mason, certain
of its affiliates and unaffiliated entities having an agreement with Legg Mason.
Institutional Class shares are also offered to Institutional Clients of Legg
Mason Trust, fsb for which they exercise discretionary investment management
responsibility and accounts of the customers with such Institutional Clients.
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:

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

All Legg Mason funds in any Legg Mason account are eligible for the
Systematic Withdrawal Plan ("Plan"). Except for Individual Retirement Accounts
("IRA accounts"), any account with a net asset value of $5000 or more may elect
to make withdrawals of a minimum of $50 on a monthly basis. IRA accounts are not
subject to the $5000 minimum balance requirement. 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. Except IRA accounts, there are
three ways to receive payment of proceeds of redemptions made through the Plan:
(1) Credit to brokerage account - fund shares will be redeemed on the first
business day of each month and credited to the brokerage account on the third
business day; or (2) Check mailed by the funds' transfer agent - fund shares
will be redeemed on the 25th of each month or the next business day and a check

<PAGE>

will be mailed within 3 business days; or (3) ACH to checking or savings account
- redemptions of fund shares may occur on any day of the month and the checking
or savings account will be credited in approximately two business days. Credit
to brokerage account is the only option available to IRA accounts. Redemptions
will be made at the net asset value per share determined as of the close of
regular trading of the Exchange (normally 4:00 p.m., Eastern time) on the day
corresponding to the redemption option designated by the investor. 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 the Exchange on the
next business day. You may change the monthly amount to be paid to you without
charge by notifying Legg Mason or the affiliate with which you have an account.
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 in
which you have an account if you maintain a Systematic Withdrawal Plan, because
you may incur tax liabilities in connection with such purchases and withdrawals.
No fund will 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, telephone
or Internet 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 New York Stock Exchange ("Exchange")
is closed (other than for customary weekend and holiday closings), (ii) when
trading in markets the fund normally utilizes is restricted, or an emergency, as
defined by rules and regulations of the SEC, exists, making disposal of the
fund's investments or determination of its net asset value not reasonably
practicable, or (iii) for such other periods as the SEC by regulation or order
may permit for protection of the fund's shareholders. In the case of any such
suspension, you may either withdraw your request for redemption or receive
payment based upon the net asset value next determined after the suspension is
lifted.

The fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing the fund's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting those securities into cash and
will be subject to fluctuation in the market price of those securities until
they are sold. The fund does not redeem "in kind" under normal circumstances,
but would do so where the adviser determines that it would be in the best
interests of the fund's shareholders as a whole.

Clients of certain institutions that maintain omnibus accounts with the
fund's transfer agent may obtain shares through those institutions. Such
institutions may receive payments from the fund's distributor for account
servicing, and may receive payments from their clients for other services
performed. Investors can purchase shares from Legg Mason without receiving or
paying for such other services.

<PAGE>

VALUATION OF FUND SHARES

Net asset value of the fund share is determined daily for each class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that class, less liabilities
attributable to that class, by the number of shares of that class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving 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. The fund may also use fair value pricing instead
of market quotations to value securities if, because of special circumstances,
the fund believes it would more accurately reflect the price it could realize on
a current sale of the securities. 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 table shows the value, as of the end of the fiscal year,
of a hypothetical investment of $10,000 made in the fund at commencement of
operations of Primary Class shares. The table assumes that all dividends and
other distributions are reinvested in the fund. It includes the effect of all
charges and fees the fund has paid. (There are no fees for investing or
reinvesting in the fund imposed by 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. Performance data is only historical, and is not intended to
indicate the fund's future performance.

Primary Class Shares
--------------------

--------------------------------------------------------------------------------
Value of Original
Shares Plus Shares Value of Shares
Obtained Through Acquired Through
Reinvestment of Capital Reinvestment of
Gain Distributions Income Dividends Total Value
Fiscal Year ($) ($) ($)
--------------------------------------------------------------------------------
2000* $11,590 $0 $11,590
--------------------------------------------------------------------------------
*For the period November 8, 1999 (commencement of operations) to October 31,
2000.

With respect to Primary Class shares if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of October 31, 2000 would have been $11,590 and the investor would
have received a total of $0, in distributions. If the manager had not waived
certain fees during the period, returns would have been lower.

Total Return Calculations
-------------------------

Average annual total return quotes used in the fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
according to the following formula:

<PAGE>

P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period

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

From time to time the fund may compare the performance of a class of
shares to the performance of other investment companies, groups of investment
companies, various market indices, the features or performance of alternative
investments, in advertisements, sales literature and reports to shareholders.
One such market index is the S&P 500, a widely recognized, unmanaged index
composed of the capitalization-weighted average of the prices of 500 of the
largest publicly traded stocks in the U.S. The S&P 500 includes reinvestment of
all dividends. It takes no account of the costs of investing or the tax
consequences of distributions. The fund invests in many securities that are not
included in the S&P 500. 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 that 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 of shares 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 of shares to the
return on certificates of deposit and other forms of bank deposits, and may
quote from organizations that track the rates offered on such deposits. Bank
deposits are insured by an agency of the federal government up to specified
limits. In contrast, fund shares are not insured, the value of fund shares may
fluctuate, and an investor's shares, when redeemed, may be worth more or less
than the investor originally paid for them. Unlike the interest paid on many
certificates of deposit, which remains at a specified rate for a specified
period of time, the return of each class of shares will vary.

Fund advertisements may reference the history of the distributor and
its affiliates, the education, experience, investment philosophy and strategy of
the portfolio manager, and the fact that the portfolio manager engages in value
investing. With value investing, the adviser invests in those securities it
believes to be undervalued in relation to the long-term earning power or asset
value of their issuers. 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

<PAGE>

prices that appear to reflect anticipated favorable developments and that are
therefore subject to correction should any unfavorable developments occur.

Fund advertisements may compare value investing and growth investing.
Unlike value investors, growth investors look for companies that due to their
strong earnings and revenue potential, offer above average growth prospects.

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
Ibbotson Associates and 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 approximately $ 134 billion as of
September 30, 2000.

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 QUALIFIED PLANS - PRIMARY CLASS SHARES

Investors may invest in Primary Class shares of the fund through IRAs
and through SEPs, SIMPLES and other qualified retirement plans (collectively,
"qualified plans"). In general, income earned through the investment of assets
of qualified plans is not taxed to their beneficiaries until the income is
distributed to them. Primary Class share investors who are considering
establishing a qualified plan should consult their attorneys or other tax
advisers with respect to individual tax questions. Please consult your financial
adviser or other entity offering the funds for further information with respect
to these plans.

<PAGE>

Individual Retirement Account - IRAs
------------------------------------

Traditional IRA. Certain Primary Class shareholders 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 in such a plan 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 shareholder 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 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 of the
fund 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 70 1/2. Distributions made before age 59 1/2, in addition to
being taxable, generally are subject to a penalty equal to 10% of the
distribution, except in the case of death or disability, where the distribution
is rolled over into another qualified plan or certain other situations.

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

Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).

Education IRA. Although not technically for retirement savings, an
Education IRA provides a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than $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 of the fund.

<PAGE>

Savings Incentive Match Plan for Employees - SIMPLE
---------------------------------------------------

An employer with no more than 100 employees that does not maintain
another retirement plan 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 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 qualified 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. Investors in Primary Class shares
should consult their plan administrator or tax advisor 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
and their principal occupations during the past five years are set forth below.
An asterisk (*) indicates officers and/or directors who are "interested persons"
of the fund as defined by the 1940 Act. The business address of each director
and officer is 100 Light Street, Baltimore, Maryland 21202, unless otherwise
indicated.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Name, Address, Age Position(s) Held with Fund Principal Occupation(s)
During Past 5 Years
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JOHN F. CURLEY, JR.* Chairman of the Board and President and/or Chairman of the Board and
[7/24/39] Director Director/Trustee of all Legg Mason retail funds;
Retired Vice Chairman and Director of Legg Mason,
Inc. and Legg Mason Wood Walker, Inc.; Formerly:
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.
------------------------------------------------------------------------------------------------------------------------
EDWARD A. TABER III* President and Director President and/or Director/Trustee of all Legg Mason
[8/25/43] retail funds except Legg Mason Tax Exempt Trust,
Senior Executive Vice President of Legg Mason, Inc.
and Legg Mason Wood Walker, Incorporated; Chairman
and Director of Legg Mason Fund Adviser, Inc.;
Director of Legg Mason Funds Management, Inc. and
Western Asset Management Company (each a registered
investment adviser). 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)
------------------------------------------------------------------------------------------------------------------------

<PAGE>

------------------------------------------------------------------------------------------------------------------------
RICHARD G. GILMORE Director Independent Consultant. Director of CSS
[6/9/27] Industries, Inc. (diversified holding company whose
10310 Tam O' Shanter Place subsidiaries are engaged in the manufacture and
Bradenton, Florida 34202 sale of decorative paper products, business forms,
and specialty metal packaging); Director/Trustee of
all Legg Mason retail funds. Formerly: Senior
Vice President, Chief Financial Officer and
Director of Philadelphia Electric Company (now
Exelon Corporation); Executive Vice President and
Treasurer, Girard Bank, and Vice President of its
parent holding company, the Girard Company; and
Director of Finance, City of Philadelphia
------------------------------------------------------------------------------------------------------------------------
ARNOLD L. LEHMAN Director Director of the Brooklyn Museum of Art;
[7/18/44] Director/Trustee of all Legg Mason retail funds.
The Brooklyn Museum of Art Formerly: Director of the Baltimore Museum of Art
200 Eastern Parkway
Brooklyn, New York 11238
------------------------------------------------------------------------------------------------------------------------
JILL E. McGOVERN Director Chief Executive Officer of The Marrow Foundation
[8/29/44] since 1993. Director/Trustee of all Legg Mason
400 Seventh Street NW retail funds. Formerly: Executive Director of the
Washington, DC 20008 Baltimore International Festival (January 1991 -
March 1993); and Senior Assistant to the President
of The Johns Hopkins University (1986-1990)
------------------------------------------------------------------------------------------------------------------------
T.A. RODGERS Director Principal, T.A. Rodgers & Associates (management
[10/22/34] consulting); Director/Trustee of all Legg Mason
2901 Boston Street retail funds. Formerly: Director and Vice
Baltimore, Maryland 21202 President of Corporate Development, Polk Audio,
Inc. (manufacturer of audio components)
------------------------------------------------------------------------------------------------------------------------
G. PETER O'BRIEN Director Trustee of Colgate University, Director of Pinnacle
[10/13/45] Holdings, Inc., Director of Renaissance Capital
118 Riverside Road Greenwich Funds; Vice President of Hill House,
Riverside, CT 06878 Inc.; Director/Trustee of all Legg Mason retail
funds except Legg Mason Income Trust, Inc., and
Legg Mason Tax Exempt Trust, Inc. Formerly:
Managing Director, Equity Capital Markets Group of
Merrill Lynch & Co. (1971-1999)
------------------------------------------------------------------------------------------------------------------------
NELSON A. DIAZ Director Partner, Blank Rome Comisky & McCauley LLP (law
[5/23/47] firm) since 1997. Director/Trustee of all Legg
One Logan Square Mason retail funds except Legg Mason Income Trust,
Philadelphia, PA 19103 Inc. and Legg Mason Tax Exempt Trust, Inc., Trustee
of Temple University and of Philadelphia Museum of
Art. Board member of U.S. Hispanic Leadership
Institute, Democratic National Committee, and
------------------------------------------------------------------------------------------------------------------------

<PAGE>

------------------------------------------------------------------------------------------------------------------------
National Association for Hispanic Elderly.
Formerly: General Counsel, United States
Department of Housing and Urban Development
(1993-1997)
------------------------------------------------------------------------------------------------------------------------
MARIE K. KARPINSKI* Vice President and Treasurer Vice President and Treasurer of Legg Mason Fund
[1/1/49] Adviser, Inc., and Vice President and Treasurer of
all Legg Mason retail funds
------------------------------------------------------------------------------------------------------------------------
MARC R. DUFFY* Vice President and Secretary Employee of Legg Mason since September 1999 and
[1/29/58] Vice President and Secretary of all Legg Mason
retail funds. Formerly: Senior Associate,
Kirkpatrick & Lockhart LLP (1996-1999), Senior
Counsel, Securities and Exchange Commission,
Division of Investment Management (1989-1995)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

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, Diaz 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 of the fund 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 _____________, no persons or entities were known by the fund to own
of record 5% or more of the fund's outstanding shares.

On _____________, the directors and officers of the fund beneficially
owned in the aggregate less than 1% of the fund's outstanding shares.

The following table provides certain information relating to the
compensation of the fund's directors. None of the Legg Mason funds has any
retirement plan for its directors.

COMPENSATION TABLE

--------------------------------------------------------------------------------
Total Compensation
Name of Person and Aggregate Compensation From Fund and Fund
Position From Fund* Complex Paid to Directors**
--------------------------------------------------------------------------------
John F. Curley, Jr. - NONE NONE
Chairman of the Board
and Director
--------------------------------------------------------------------------------
Edward A. Taber, III - NONE NONE
President and Director
--------------------------------------------------------------------------------
Richard G. Gilmore - $900 $43,575
Director
--------------------------------------------------------------------------------
Arnold L. Lehman - $900 $43,575
Director
--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
Total Compensation
Name of Person and Aggregate Compensation From Fund and Fund
Position From Fund* Complex Paid to Directors**
--------------------------------------------------------------------------------
Jill E. McGovern - $900 $43,575
Director
--------------------------------------------------------------------------------
T. A. Rodgers - $900 $43,575
Director
--------------------------------------------------------------------------------
G. Peter O'Brien - $900 $32,700
Director
--------------------------------------------------------------------------------
Nelson A. Diaz - $900 $25,200
Director
--------------------------------------------------------------------------------

* Represents fees paid to each director during the fiscal year ended
October 31, 2000.

** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 2000. There are twelve open-end
investment companies in the Legg Mason Fund Complex (with a total of
twenty-three funds).

THE FUND'S INVESTMENT ADVISER/MANAGER

Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, is
located at 100 Light Street, Baltimore, Maryland 21202. LMFA is a wholly owned
subsidiary of Legg Mason, Inc., which is also the parent of Legg Mason Wood
Walker, Incorporated ("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 Prospectus 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, legal
and audit expenses, insurance expense, shareholder meetings, proxy
solicitations, expenses of registering and qualifying fund shares for sale under
federal and state law, governmental fees and expenses incurred in connection
with membership in investment company organizations. The fund also is liable for
such nonrecurring expenses as may arise, including litigation to which 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. LMFA receives from the fund a management fee at an
annual rate of 0.75% of the average daily net assets of the fund. LMFA has
agreed to pay the fund's expenses related to Primary Class shares (exclusive of

<PAGE>

taxes, interest, brokerage and extraordinary expenses), which exceed, in the
aggregate, an annual rate of 2% of the average net assets attributable to
Primary Class shares, until February 28, 2002.

For the period November 8, 1999 (commencement of operations) to October
31, 2000 LMFA waived all management fees, a total of $33,502.

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.

Brandywine Asset Management, Inc. ("Brandywine"), 201 North Walnut
Street, Wilmington, Delaware, an affiliate of Legg Mason, serves as investment
adviser to the fund pursuant to an Investment Advisory Agreement between
Brandywine and LMFA ("Advisory Agreement"). Under the Advisory Agreement,
Brandywine is responsible, subject to the general supervision of LMFA and the
fund's Board of Directors, for the actual management of the fund's assets,
including responsibility for making decisions and placing orders to buy, sell or
hold a particular security. For Brandywine's services to the fund, LMFA (not the
fund) pays Brandywine a fee, computed daily and payable monthly of 60% of the
fee received by LMFA from the fund, net of any waivers by LMFA. For the period
November 8, 1999 (commencement of operations) to October 31, 2000 LMFA paid no
advisory fees to Brandywine, waiving fees of $20,101.

Under the Advisory Agreement and Management Agreement, LMFA and
Brandywine 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 each 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 or Brandywine, 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.

The fund, LMFA Brandywine, and Legg Mason each has adopted a code of
ethics under Rule 17j-1 of the 1940 Act, which permits personnel covered by the
code to invest in securities that may be purchased or held by the fund, but
prohibits fraudulent, deceptive or manipulative conduct in connection with that
personal investing.

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 November 8, 1999 (commencement of operations) to
October 31, 2000 the portfolio turnover rate for the fund was 73%.

Under the Advisory Agreement with the fund, the fund's 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
fund's 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
fund's adviser may give consideration to research, statistical and other

<PAGE>

services furnished by brokers or dealers to the fund's 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 fund's adviser in connection
with services to clients other than the fund whose brokerage generated the
service. LMFA's and Brandywine's fee is not reduced by reason of its receiving
such brokerage and research services.

From time to time the fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, the fund generally deals with responsible primary market-makers unless a
more favorable execution can otherwise be obtained.

The fund paid total brokerage commissions of $19,204, during the period
November 8, 1999 (commencement of operations) to October 31, 2000. During that
same period, Legg Mason received no brokerage commissions from the fund.

The fund held no shares of its regular broker-dealers as of October 31,
2000.

Except as permitted by SEC rules or orders, the fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. The fund's Board of Directors has adopted procedures in conformity
with Rule 10f-3 under the 1940 Act whereby the fund may purchase securities that
are offered in certain underwritings in which Legg Mason or any of its
affiliated persons is a participant. These procedures, among other things, limit
the fund's investment in the amount of securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated persons
is a participant so that: the fund, together with all other registered
investment companies having the same adviser, may not purchase more than 25% of
the principal amount of the offering of such class. In addition, the fund may
not purchase securities during the existence of an underwriting if Legg Mason is
the sole underwriter for those securities.

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

Investment decisions for the fund are made independently from those of
other funds and accounts advised by LMFA or Brandywine. 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 a
separate 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

<PAGE>

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.

Under the Underwriting 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 Legg Mason.

The fund has adopted a Distribution and Services Plan ("Plan") for
Primary Class shares 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 1.00% of the fund's annual 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.

With respect to Primary Class shares, Legg Mason and LMFA agreed to
waive their fees for the fund, if necessary to achieve the limits described in
"The Fund's Investment Adviser/Manager" above.

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
continuance 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 management fees
if the fund's assets were increased, because such fees are calculated as a
percentage of the fund's assets and thus would increase if net assets increase.
The directors further recognized that there can be no assurance that any of the
potential benefits described below would be achieved if the Plan was
implemented.

Among the potential benefits of the Plan, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
the fund's Primary 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 its 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

<PAGE>

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.

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 candidates for Independent Director
will be committed to the discretion of the Independent Directors.

For the period November 8, 1999 (commencement of operations) to October
31, 2000, Legg Mason waived all distribution and service fees, a total of
$44,669.

For the period November 8, 1999 (commencement of operations) to October
31, 2000, Legg Mason incurred the following expenses in connection with
distribution and shareholder services:

--------------------------------------------------------------------------------
Sales and Commissions $ 20,000
--------------------------------------------------------------------------------
Retail Branch Distribution/Sales Management $ 68,000
--------------------------------------------------------------------------------
Promotion and Advertising/Funds Marketing $583,000
--------------------------------------------------------------------------------
Printing and Mailing of Prospectuses $270,000
--------------------------------------------------------------------------------
Administration and Overhead $ 27,000
--------------------------------------------------------------------------------
Total Expenses $968,000
--------------------------------------------------------------------------------

The foregoing are estimated and do not include all expenses fairly
allocable to Legg Mason's or its affiliates' efforts to distribute the fund's
shares.

CAPITAL STOCK INFORMATION

The Articles of Incorporation of Light Street Trust authorize issuance
of 200 million shares of common stock, par value $0.001 per share of Legg Mason
Real Estate Trust and 200 million shares of par value $0.001 per share of Legg
Mason Classic Valuation Fund. The fund currently offers two classes of shares -
Primary Class shares and Institutional Class shares. Each class represents
interests in the same pool of assets. A separate vote is taken by a class of
shares of the fund if a matter affects just that class of shares.

Each share in the fund is entitled to one vote for the election of
directors and any other matter submitted to a vote of fund shareholders.
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

<PAGE>

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 ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, serves as custodian of the fund's assets. BFDS,
P.O. Box 953, Boston, Massachusetts 02103, as agent for State Street, 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. 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. 20036-1800, serves as counsel to the fund.

THE FUND'S INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore, MD 21201,
serves as independent accountants for the Fund.

FINANCIAL STATEMENTS

The Statement of Net Assets as of October 31, 2000; the Statements of
Operations, Changes in Net Assets, and Financial Highlights for the period ended
October 31, 2000; the Notes to the Financial Statements and the Report of
PricewaterhouseCoopers are included in the October 31, 2000 annual report, 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.

A-1

<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;

A-2

<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.

A-3

<PAGE>

Legg Mason Light Street Trust, Inc.

Part C. Other Information

Item 23. Exhibits

(a) Articles of Incorporation (1)
` (i) Articles of Amendment dated August 12, 1999 (4)
(ii) Articles Supplementary dated August 12, 1999 (4)
(iii)Articles of Amendment dated October 19, 1999 (5)
(iv) Articles of Amendment dated October 12, 2000 - filed herewith
(v) Articles of Amendment dated December 11, 2000 - filed herewith
(b) By-Laws (1)
(c) Instruments defining the rights of security holders with respect to
Legg Mason Light Street Trust, Inc. are contained in the Articles
of Incorporation and subsequent amendments thereto, and Bylaws,
which are incorporated herein by reference as Exhibits (b)(1)(a)
and (b)(2)(a) to Item 24 of Part C of the Initial Registration
Statement, SEC File No. 333-61525, filed August 14, 1998.
(d) (i) Investment Advisory Agreement - Market Neutral (2)
(ii) Investment Advisory Agreement - Classic Valuation -
filed herewith
(iii) Management Agreement - Market Neutral (2)
(iv) Management Agreement - Classic Valuation - filed herewith
(e) (i) Underwriting Agreement - Market Neutral (2)
(ii) Underwriting Agreement - Classic Valuation - filed herewith
(iii) Dealer Agreement with respect to Navigator Shares (3)
(i) Schedules A and B to Dealer Agreement (2)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Contract - filed herewith
(h) (i) Transfer Agency and Service Agreement - filed herewith
(ii) Credit Agreement (6)
(iii) Amendment to Credit Agreement (7)
(i) Opinion of Counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Financial statements omitted from Item 22 - none
(l) Agreement for providing initial capital with respect to the
Registrant (2)
(m) (i) Distribution Plan - Market Neutral (2)
(ii) Distribution Plan pursuant to Rule 12b-1 - Classic Valuation -
filed herewith
(n) (i) Plan Pursuant to Rule 18f-3 - Market Neutral (2)
(ii)Plan Pursuant to Rule 18f-3 - Classic Valuation - filed herewith
(p) Code of Ethics for the fund, its investment adviser and its
principal underwriter (7)

(1) Incorporated herein by reference to corresponding Exhibit of the initial
Registration Statement, SEC File No. 333-61525, filed August 14, 1998.

(2) Incorporated herein by reference to corresponding Exhibit of Pre-Effective
Amendment No. 1 to the Registration Statement, SEC File No. 333-61525,
filed January 22, 1999.

(3) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 5 to Legg Mason Investors Trust, Inc.'s Registration
Statement, SEC File No. 33-62174, filed July 31, 1996.

(4) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 1 to the Registration Statement, SEC File No. 333-61525,
filed August 13, 1999.

<PAGE>

(5) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 3 to the Registration Statement, SEC File No. 333-61525,
filed October 27, 1999.

(6) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 26 to the Registration Statement of Legg Mason Value Trust,
Inc., SEC File No. 2-75766, filed May 28, 1999.

(7) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 2 to the Registration Statement of Legg Mason Investment
Trust, Inc., SEC File No. 333-88715, filed March 28, 2000.

Item 24. Persons Controlled By or Under Common Control with Registrant

None

Item 25. Indemnification

This item is incorporated by reference to Item 27 of Part C of
Pre-Effective Amendment No. 1, SEC File No. 333-61525 filed January
22, 1999.

Item 26. Business and Other Connections of Manager and Investment Adviser

I. Legg Mason Fund Adviser, Inc. ("LMFA") is an investment adviser registered
with the Securities and Exchange Commission under the Investment Advisers Act of
1940. The following is a list of other substantial business activities in which
directors, officers or partners of LMFA have been engaged as director, officer,
employee, partner, or trustee.

Deepak Chowdhury President, LMFA

Raymond A. Mason Director, LMFA
Chairman, President, and CEO, Legg Mason, Inc.
Director, Chairman and President, Legg Mason
Holdings Limited
Director, 3040692 Nova Scotia Company
Director, Legg Mason Canada Holdings Ltd.
Director, Legg Mason UK Holdings Plc
Director, LM Holdings Limited
Chairman and Director, LMFM
Chairman, CEO and Director, LMWW
Director, Batterymarch
Director, Howard Weil
Director, Gray, Seifert
Director, Brandywine
Director, Berkshire
Director, WAMCL
Director, LMRE
Director, LMCM Director, WAM

Philip E. Sachs Vice President, LMFA
Director, LMCM

Timothy C. Scheve Director, LMFA
Executive Vice President, Legg Mason, Inc.
Director and Senior Executive Vice President, LMWW
Director, Legg Mason UK Holdings Plc

<PAGE>

Director, Legg Mason Holdings Limited
Director, 3040692 Nova Scotia Company
Director, Legg Mason Canada Holdings Ltd.
Director, Bartlett
Director, WAMCL
Director, LMFM
Director, LMCM
Director, LMT
Director, WAM

Edward A. Taber III Chairman and Director, LMFA
Senior Executive Vice President/Head of Investment
Management, Legg Mason, Inc.
Director and Vice President, 3040692 Nova Scotia
Company
Director and Vice President, Legg Mason Canada
Holdings Ltd.
Director, Legg Mason Holdings Limited
Director, Legg Mason UK Holdings Plc
Director, LM Holdings Limited
Director and Chairman, LMIA
Director, Batterymarch
Director, Howard Weil
Director, Gray, Seifert
Director, Brandywine
Director, WAMCL
Director, LMCM
Director, LMFM
Director, LMT
Director, WAM

II. Brandywine Asset Management, Inc. ("Brandywine") is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940. The following is a list of other substantial business
activities in which directors, officers or partners of Brandywine have been
engaged as director, officer, employee, partner or trustee.

Raymond A. Mason Director, Brandywine
Chairman, President, and CEO, Legg Mason, Inc.
Director, Chairman and President, Legg Mason Holdings
Limited
Director, 3040692 Nova Scotia Company
Director, Legg Mason Canada Holdings Ltd.
Director, Legg Mason UK Holdings Plc
Director, Legg Mason Holdings Limited
Chairman and Director, LMFA
Chairman and Director, LMFM
Chairman, CEO and Director, LMWW
Director, Batterymarch
Director, Howard Weil
Director, Gray, Seifert
Director, Berkshire
Director, WAMCL
Director, Bartlett
Director, LMRE
Director, LMCM
Director, WAM

<PAGE>

Elisabeth N. Spector Director, Brandywine
Senior Vice President, Legg Mason, Inc.
Director, Vice President and Secretary, Legg Mason
Canada Holdings Ltd.
Vice President and Secretary, 3040692 Nova Scotia
Company
Director, LM Holdings Limited
Director, Batterymarch
Director, Brandywine
Director, Gray, Seifert
Director, WAMCL
Director, WAM

Edward A. Taber III Director, Brandywine
Senior Executive Vice President/Head of Investment
Management, Legg Mason, Inc.
Director and Vice President, 3040692 Nova Scotia
Company
Director and Vice President, Legg Mason Canada
Holdings Ltd.
Director, Legg Mason Holdings Limited
Director, Legg Mason UK Holdings Plc
Director, LM Holdings Limited
Director and Chairman, LMIA
Director, Batterymarch
Director, Howard Weil
Director, Gray, Seifert
Director, Brandywine
Director, Bartlett
Director, WAMCL
Director, LMFA
Director, LMCM
Director, LMFM
Director, LMT
Director, WAM

Francis X. Tracy Director, Brandywine
President, CFO, Treasurer and Secretary, Batterymarch

Bartlett & Co. ("Bartlett")
36 East Fourth Street
Cincinnati, OH 45202

Batterymarch Financial Management, Inc. ("Batterymarch")
200 Clarendon Street
Boston, MA 02116

Berkshire Asset Management, Inc. ("Berkshire")
46 Public Square, Suite 700
Wilkes-Barre, PA 18701

Brandywine Asset Management, Inc. ("Brandywine")
Three Christina Centre, Suite 1200
201 North Walnut Street
Wilmington, DE 19801

<PAGE>

Gray, Seifert & Co., Inc. ("Gray, Seifert")
380 Madison Avenue
New York, NY 10017

Howard, Weil, Labouisse, Friedrichs, Inc. ("Howard Weil")
1100 Poydras Street
New Orleans, LA 70163

Legg Mason Canada Holdings Ltd.
PO Box 7289, Stn "A"
44 Chipman Hill
Saint John, NB E24 456

Legg Mason Capital Management, Inc. ("LMCM")
100 Light Street
Baltimore, MD 21202

Legg Mason Fund Adviser, Inc. ("LMFA")
100 Light Street
Baltimore, MD 21202

Legg Mason Funds Management, Inc. ("LMFM")
100 Light Street
Baltimore, MD 21202

Legg Mason Holdings Limited
155 Bishopsgate
London EC2M 3XG
England

Legg Mason, Inc.
100 Light Street
Baltimore, MD 21202

Legg Mason Real Estate Services, Inc. ("LMRE")
Mellon Bank Center, 12th Floor
1735 Market Street
Philadelphia, PA 19103

Legg Mason Trust, fsb ("LMT")
100 Light Street
Baltimore, MD 21202

Legg Mason UK Holdings Plc
20 Regent Street
London SW1Y 4PZ

Legg Mason Wood Walker, Incorporated ("LMWW")
100 Light Street
Baltimore, MD 21202

<PAGE>

LM Holdings Limited
20 Regent Street
London SW1Y 4PZ

LM Institutional Advisors, Inc. ("LMIA")
100 Light Street
Baltimore, MD 21202

Western Asset Management Company ("WAM")
117 East Colorado Boulevard
Pasadena, CA 91105

Western Asset Management Company Limited ("WAMCL")
155 Bishopsgate
London EC2M 3XG
England

3040692 Nova Scotia Company
Ste 800, 1959 Upper Water Street
PO Box 997
Halifax, N.S. B3J 2X2

Item 27. Principal Underwriters

(a) Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Focus Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.

(b) The following table sets forth information concerning each director and
officer of the Registrant's principal underwriter, Legg Mason Wood
Walker, Incorporated ("LMWW").

Name and Principal Position and Offices Positions and Offices
Business Address* with Underwriter - LMWW with Registrant
-------------------------------------------------------------------------------
Raymond A. Mason Chairman of the Board, Chief None
Executive Officer and Director

James W. Brinkley President, Chief Operating None
Officer and Director

Edmund J. Cashman, Jr. Senior Executive Vice President None

Richard J. Himelfarb Senior Executive Vice President None

<PAGE>

Timothy C. Scheve Senior Executive Vice President None
and Director

Manoochehr Abbaei Executive Vice President None

Robert G. Donovan Executive Vice President None

Thomas P. Mulroy Executive Vice President None
and Director

Robert G. Sabelhaus Executive Vice President None
and Director

F. Barry Bilson Senior Vice President None

D. Stuart Bowers Senior Vice President None

W. William Brab Senior Vice President None

Edwin J. Bradley, Jr. Senior Vice President None

Thomas M. Daly, Jr. Senior Vice President None

Jeffrey W. Durkee Senior Vice President None

Harry M. Ford, Jr. Senior Vice President None

Dennis A. Green Senior Vice President None

Thomas E. Hill Senior Vice President None
218 N. Washington Street
Suite 31
Easton, MD 21601

Arnold S. Hoffman Senior Vice President None
1735 Market Street
Philadelphia, PA 19103

Carl Hohnbaum Senior Vice President None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222

David M. Jernigan Senior Vice President None

William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Laura L. Lange Senior Vice President None

Horace M. Lowman, Jr. Senior Vice President None

<PAGE>

Ira H. Malis Senior Vice President None

Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Jonathan M. Pearl Senior Vice President None

Mark I. Preston Senior Vice President None

Robert F. Price Senior Vice President, General
Counsel and Secretary None

Thomas L. Souders Senior Vice President, Chief
Financial Officer and Treasurer None

Joseph A. Sullivan Senior Vice President None

Joseph E. Timmins III Senior Vice President None

Richard L. Baker Vice President None

William H. Bass, Jr. Vice President None

Nathan S. Betnun Vice President None

Andrew J. Bowden Vice President and Deputy
General Counsel None

Carol A. Brown Vice President None

Scott R. Cousino Vice President None

Thomas W. Cullen Vice President None

Charles J. Daley, Jr. Vice President and Controller None

J. Gregory Driscoll Vice President None

Norman C. Frost, Jr. Vice President None

Keith E. Getter Vice President None

Daniel R. Greller Vice President None

Richard A. Jacobs Vice President None

Edward W. Lister, Jr. Vice President None

Theresa McGuire Vice President None

Julia A. McNeal Vice President None

Gregory B. McShea Vice President None

<PAGE>

Edward P. Meehan Vice President None
12021 Sunset Hills Road
Suite 100
Reston, VA 20190

Thomas C. Merchant Vice President, Deputy General
Counsel and Assistant Secretary None

Paul Metzger Vice President None

Mark C. Micklem Vice President None
1747 Pennsylvania Ave., N.W.
Washington, DC 20006

John A. Moag, Jr. Vice President None

Ann O'Shea Vice President None

Robert E. Patterson Vice President and Deputy
General Counsel None

Gerard F. Petrik, Jr. Vice President None

Douglas F. Pollard Vice President None

Thomas E. Robinson Vice President None

Theresa M. Romano Vice President None

James A. Rowan Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

B. Andrew Schmucker Vice President None
1735 Market Street
Philadelphia, PA 19103

Robert W. Schnakenberg Vice President None

Chris A. Scitti Vice President None

Eugene B. Shepherd Vice President None
1111 Bagby St.
Houston, TX 77002-2510

Lawrence D. Shubnell Vice President None

Jane Soybelman Vice President None

Alexsander M. Stewart Vice President None

Joyce Ulrich Vice President None

<PAGE>

Sheila M. Vidmar Vice President and Deputy
General Counsel None

W. Matthew Zuga Vice President None

Lauri F. Smith Assistant Vice President None

* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.

(c) The Registrant has no principal underwriter, which is not an affiliated
person of the Registrant or an affiliated person of such an affiliated
person.

Item 28. Location of Accounts and Records

State Street Bank and Trust Company and Legg Mason Fund Adviser, Inc.
P. O. Box 1713 100 Light Street
Boston, Massachusetts 02105 Baltimore, Maryland 21202

Item 29. Management Services

None

Item 30. Undertakings

None

<PAGE>

SIGNATURE PAGE

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Legg Mason Light Street Trust, Inc., has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Baltimore and State of Maryland, on
the 19th day of December, 2000.

LEGG MASON LIGHT STREET TRUST, INC.

By:/s/ Marie K. Karpinski
--------------------------------
Marie K. Karpinski
Vice President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7 to the Registration Statement of Registrant has been signed
below by the following persons in the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ John F. Curley, Jr.* Chairman of the Board December 19, 2000
------------------------------- and Director
John F. Curley, Jr.

/s/ Edward A. Taber, III* President and Director December 19, 2000
-------------------------------
Edward A. Taber, III

/s/ Nelson A. Diaz** Director December 19, 2000
-------------------------------
Nelson A. Diaz

/s/ Richard G. Gilmore* Director December 19, 2000
-------------------------------
Richard G. Gilmore

/s/ Arnold L. Lehman* Director December 19, 2000
-------------------------------
Arnold L. Lehman

/s/ Jill E. McGovern* Director December 19, 2000
-------------------------------
Jill E. McGovern

/s/ G. Peter O'Brien* Director December 19, 2000
-------------------------------
G. Peter O'Brien

/s/ T. A. Rodgers* Director December 19, 2000
-------------------------------
T. A. Rodgers

/s/ Marie K. Karpinski Vice President December 19, 2000
------------------------------- and Treasurer
Marie K. Karpinski

*Signatures affixed by Marc R. Duffy pursuant to a power of attorney dated
November 12, 1999, a copy of which is filed herewith.

**Signature affixed by Marc R. Duffy pursuant to a power of attorney dated May
12, 2000, a copy of which is filed herewith.

<PAGE>

POWER OF ATTORNEY

I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' Registration Statements on Form N-1A):

LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.

plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of MARIE K.
KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and ARTHUR C.
DELIBERT my true and lawful attorney-in-fact, with full power of substitution,
and with full power to sign for me and in my name in the appropriate capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration Statements on Form N-1A, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments in connection therewith, to file the same with the Securities and
Exchange Commission and the securities regulators of appropriate states and
territories, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, all related requirements of the Securities and Exchange
Commission and all requirements of appropriate states and territories. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.

WITNESS my hand on the date set forth below.

SIGNATURE DATE

/s/ Edmund J. Cashman, Jr. November 12, 1999
----------------------------------------
Edmund J. Cashman, Jr.

/s/ John F. Curley, Jr. November 12, 1999
----------------------------------------
John F. Curley, Jr.

/s/ Richard G. Gilmore November 12, 1999
----------------------------------------
Richard G. Gilmore

/s/ Arnold L. Lehman November 12, 1999
----------------------------------------
Arnold L. Lehman

/s/ Raymond A. Mason November 12, 1999
----------------------------------------
Raymond A. Mason

/s/ Jill E. McGovern November 12, 1999
----------------------------------------
Jill E. McGovern

/s/ Jennifer W. Murphy November 12, 1999
----------------------------------------
Jennifer W. Murphy

/s/ G. Peter O'Brien November 12, 1999
----------------------------------------
G. Peter O'Brien

/s/ T. A. Rodgers November 12, 1999
----------------------------------------
T. A. Rodgers

/s/ Edward A. Taber, III November 12, 1999
----------------------------------------
Edward A. Taber, III

<PAGE>

POWER OF ATTORNEY

I, the undersigned Director/Trustee of one or more of the following investment
companies:

LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON LIGHT STREET TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON FOCUS TRUST, INC.

plus any other investment company for which Legg Mason Fund Adviser, Inc. or one
of its affiliates acts as investment adviser or manager and for which the
undersigned individual serves as Director/Trustee ("Funds"), hereby severally
constitute and appoint each of MARIE K. KARPINSKI, MARC R. DUFFY, ANDREW J.
BOWDEN, ARTHUR J. BROWN and ARTHUR C. DELIBERT my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity and only for those Funds for
which I serve as Director/Trustee, any Registration Statements of the Funds on
Form N-1A, all Pre-Effective Amendments to any Registration Statements of the
Funds, any and all subsequent Post-Effective Amendments to said Registration
Statements, and any and all supplements or other instruments in connection
therewith, to file the same with the Securities and Exchange Commission and the
securities regulators of appropriate states and territories, and generally to do
all such things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate to comply with the provisions of
the Securities Act of 1933 and the Investment Company Act of 1940, all related
requirements of the Securities and Exchange Commission and all requirements of
appropriate states and territories. I hereby ratify and confirm all that said
attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof.

WITNESS my hand on the date set forth below.

SIGNATURE DATE

/s/ Nelson Diaz May 12, 2000
-----------------------------
Nelson A. Diaz

<PAGE>

Legg Mason Light Street Trust, Inc.
Exhibit Index

Exhibit (a)(iv) Articles of Amendment dated October 12, 2000

Exhibit (a)(v) Articles of Amendment dated December 11, 2000

Exhibit (d)(ii) Investment Advisory Agreement - Classic Valuation Fund

Exhibit (d)(iv) Management Agreement - Classic Valuation Fund

Exhibit (e)(ii) Underwriting Agreement - Classic Valuation Fund

Exhibit (g) Custodian Contract

Exhibit (h)(i) Transfer Agency and Service Agreement

Exhibit (i) Opinion of Counsel

Exhibit (j) Consent of Independent Auditors

Exhibit (m)(ii) Distribution Plan pursuant to Rule 12b-1 - Classic
Valuation Fund

Exhibit (n)(ii) Plan pursuant to Rule 18f-3 - Classic Valuation Fund