As filed with the Securities and Exchange Commission on October 8, 1999
1933 Act File No. 33- [XXXXX]
1940 Act File No. 811-09613
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No:___ [ ]
Post-Effective Amendment No:___ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: __
LEGG MASON INVESTMENT 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:
MARIE K. KARPINSKI ARTHUR J. BROWN, ESQ.
100 Light Street Kirkpatrick & Lockhart LLP
Baltimore, Maryland 21202 1800 Massachusetts Ave., NW
(Name and Address of Second Floor
Agent for Service) Washington, D.C. 20036-1800
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
Title of Securities Being Registered: Shares of common stock, par value
$0.001 per share.
Registrant hereby amends the Registration Statement under the Securities Act of
1933 on such date or dates as may be necessary to delay its effective date until
Registrant shall file a further amendment that specifically states that such
Registration Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), shall determine.
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LEGG MASON INVESTMENT TRUST, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Part A - Prospectus
Legg Mason Opportunity Trust - Primary Shares
Part B - Statement of Additional Information
Legg Mason Opportunity Trust - Primary Shares
Part C - Other Information
Signature Page
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Legg Mason Investment Trust, Inc.
Legg Mason Opportunity Trust
PRIMARY SHARES PROSPECTUS December __, 1999
logo
HOW TO INVEST (SERVICEMARK)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the adequacy of this prospectus, nor has it approved or disapproved these
securities. It is a criminal offense to state otherwise.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
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T A B L E O F C O N T E N T S
A b o u t t h e F u n d:
xx Investment objective
xx Principal risks
xx Fees and expenses of the Fund
xx Management
A b o u t y o u r i n v e s t m e n t:
xx How to invest
xx How to sell your shares
xx Account policies
xx Services for investors
xx Distributions and taxes
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[icon] I N V E S T M E N T O B J E C T I V E
LEGG MASON OPPORTUNITY TRUST:
INVESTMENT OBJECTIVE: Long-term growth of capital
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests in securities that, in the adviser's opinion, offer the
opportunity for long-term capital appreciation. Although not limited to the
following securities, the fund's adviser typically seeks: securities that are
priced at large discounts relative to their intrinsic value; securities of
companies with prospects for accelerating growth in revenues, free cash flows,
or earnings; securities of companies undergoing financial restructurings or
involved in takeover or arbitrage situations; or securities where special
circumstances apply, such as actual or anticipated changes in a company's
management or strategy, a basic change in the industry or regulatory
environment, the prospect of new products or technologies, or the prospect or
effect of the sale of a portion of the business or the entire business.
The fund's adviser exercises a flexible strategy in the selection of securities
not limited by investment style or by the issuer's location, size, or industry
sector. Although the fund will primarily invest in the common stock of U.S.
issuers, the fund may also invest in equities of foreign issuers and in other
U.S. and foreign securities, including securities convertible into common stock,
debt securities, futures, options, derivatives, and other instruments. Further,
the fund may sell securities short.
The fund's adviser may decide to sell securities given a variety of
circumstances, such as when a security no longer appears to offer the potential
for long-term capital appreciation, when a more compelling investment
opportunity arises, or to realize gains or limit losses.
When cash is temporarily available, or for temporary defensive purposes, when
the adviser believes such action is warranted by abnormal market or economic
situations, the fund may invest without limit in cash, money market instruments,
bonds or other debt securities. The fund may not achieve its investment
objective when so invested.
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[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 -
Prices of equity securities generally fluctuate more than those of other
securities. The fund may experience a substantial or complete loss on
individual stocks. Market risk, the risk that stock prices will go down, may
affect a single issuer, an industry or sector of the economy or may affect
the market as a whole.
COMPANY RISK -
The fund invests in securities that often involve certain special
circumstances which offer the opportunity for long-term capital
appreciation. Each of these types of investments may involve greater risks
of loss than investments in securities of well-established companies with a
history of consistent operating patterns. Additionally, investments in
securities of companies being restructured involve special risks, including
difficulty in obtaining information as to the financial condition of such
issuers and the fact that the market prices of such securities are subject to
above-average price volatility. Whereas there is always a risk that the
adviser will not properly assess the potential for an issuer's future growth,
or that the issuer will not realize that potential, this risk is especially
true in connection with these issuers.
FOREIGN SECURITIES RISK -
Investments in foreign securities (including those denominated in U.S.
dollars) involve certain risks not typically associated with investments in
domestic issuers. These risks can include political and economic
instability, foreign taxation issues, differences in accounting, auditing and
financial reporting standards, differences in securities regulation and
trading, fluctuations in foreign currencies, and foreign currency exchange
controls.
SMALL AND MID-SIZED COMPANY STOCKS -
Investing in the securities of small and mid-sized companies involves special
risks. Small companies may have limited product lines, markets or financial
resources, or they may be dependent upon a limited management group. Among
other risks, the prices of securities of small and mid-sized companies
generally are more volatile than those of larger companies; the securities of
small companies generally are less liquid; and small companies generally are
more likely to be adversely affected by poor economic or market conditions.
It is anticipated that some of the portfolio's securities may not be widely
traded, and that the fund's position in such securities may be substantial in
relation to the market for such securities. Accordingly, it may be difficult
for the fund to dispose of such securities quickly at prevailing market
prices.
NON-DIVERSIFICATION RISK -
The fund is non-diversified. The percentage of its assets invested in any
single issuer is not limited by the Investment Company Act of 1940. When the
fund's assets are invested in the securities of a limited number of issuers
or it holds a large portion of its assets in a few issuers, the value of its
shares will be more susceptible to any single economic, political, or
regulatory event than shares of a diversified fund.
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SHORT SALES -
A short sale involves the sale by the fund of a security that it does not
own, i.e., that is borrowed from a third party, with the hope of purchasing
the same security at a later date at a lower price. Such transactions may
involve premiums and/or interest and, therefore, involve the risk that losses
may be exaggerated. There is also the risk that the third party to the short
sale may fail to honor its contract terms, causing a loss to the fund.
YEAR 2000 -
Like other mutual funds (and most organizations around the world), the fund
could be adversely affected by computer problems related to the year 2000.
These could interfere with operations of the fund, its adviser, its
distributor, and its other outside service providers and could impact
companies in which the fund invests.
While no one knows if these problems will have any impact on the fund or on
financial markets in general, the adviser and its affiliates and the other
service providers to the fund have reported that they are taking steps to
protect fund investors. These include efforts to determine that the problem
will not directly affect the systems used by major service providers.
Whether these steps will be effective can only be known for certain after
December 31, 1999.
The fund is newly organized. Because the fund had not commenced operations
prior to the date of this prospectus, the fund does not have any performance
history.
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[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. Other expenses include transfer agency, custody,
professional and registration fees. The Primary Class has no initial sales
charge, but it is subject to a deferred sales charge and 12b-1 fees. The
fees and expenses are calculated as a percentage of average net assets.
The fund currently offers only Primary shares. Other classes of shares may
be offered in the future.
SHAREHOLDER FEES -
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------
PRIMARY CLASS
SHARES
- -------------------------------------------------
Maximum Deferred Sales 1.00%
Charge (Load) (as a % of
net asset value)(a)
- -------------------------------------------------
(a) Applies to shares redeemed within 12 months. This deferred sales charge
is not applicable where the investor's broker-dealer of record notifies the
distributor prior to the time of investment that the broker-dealer waives the
payment otherwise payable to it.
ANNUAL FUND OPERATING EXPENSES -
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- -------------------------------------------------
PRIMARY CLASS
SHARES
- -------------------------------------------------
Management Fees 1.00%
- -------------------------------------------------
Distribution and Service 1.00%
(12b-1) Fees
- -------------------------------------------------
Other Expenses(a) 0.39%
- -------------------------------------------------
Total Annual Fund Operating 2.39%
Expenses
- -------------------------------------------------
Fee Waivers and Expense 0.40%
Reimbursement(b)
- -------------------------------------------------
Net Annual Fund Operating 1.99%
Expenses
- -------------------------------------------------
(a) "Other expenses" are based on estimated expenses for the fiscal
year ending December 31, 2000.
(b) The manager has agreed to waive fees and reimburse other expenses
so that fund expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) do not exceed an annual rate of 1.99% of average
daily net assets for the Primary Class until December 31, 2000. The fund
has agreed to pay the manager for waived fees and reimbursed expenses
provided that payment does not cause the fund's annual operating expenses
to exceed 1.99% of its average net assets and the payment is made within
three years after the year in which the manager earned the fee or incurred
the expense.
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EXAMPLE -
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. Actual returns may be higher or lower than 5% per
year. This example also assumes that the deferred sales charge is imposed on
certain redemptions of Primary shares.
- -----------------------------------------------------
1 YEAR 3 YEARS
- -----------------------------------------------------
Opportunity Trust, Primary $302 $625
Class
- -----------------------------------------------------
You would pay the follwoing expenses if you did not redeem your shares:
- ------------------------------------------------------
1 YEAR 3 YEARS
- ------------------------------------------------------
Opportunity Trust, Primary $202 $625
Class
- ------------------------------------------------------
[icon] M A N A G E M E N T
MANAGEMENT AND ADVISER -
LMM, LLC ("LMM"), 100 Light Street, Baltimore, Maryland 21202, provides the
fund with investment advisory and management services and oversees the fund's
relationship with outside service providers, such as the sub-administrator,
custodian, transfer agent, accountants, and lawyers. Under its advisory and
management agreement with LMM, the fund pays LMM a fee calculated daily and
paid monthly of 1.00% of its average daily net assets up to $100 million and
0.75% of its average daily net assets in excess of $100 million.
LMM has delegated administration responsibilities to Legg Mason Fund Adviser,
Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland 21202. LMM pays LMFA a
fee calculated daily and paid monthly of [XX]% of the fee it receives from
the fund. Fees paid to LMFA are net of any waivers.
LMM is newly organized; however, its employees have been managers or advisers to
investment companies since 1982. LMFA acts as manager or administrator to
investment companies with aggregate assets of $[xx] billion as of [September
30], 1999.
PORTFOLIO MANAGEMENT -
William H. Miller, III, Managing Member of LMM and President of LMFA, is
portfolio manager of the fund. Mr. Miller co-managed Legg Mason Value Trust,
Inc. from its inception in 1982 to November 1990, when he assumed primary
responsibility for its day-to-day management. Prior to April 1, 1997, Mr.
Miller co-managed Legg Mason Total Return Trust, Inc. Mr. Miller has also
been primarily responsible for the day-to-day management of Legg Mason
Special Investment Trust, Inc. since its inception in 1985.
DISTRIBUTOR OF THE FUND'S SHARES -
Legg Mason Wood Walker, Inc. ("Legg Mason"), 100 Light Street, Baltimore,
Maryland 21202, is the distributor of the fund's shares. The fund has adopted a
plan that allows it to pay distribution fees and shareholder service fees for
the sale of its shares and for services provided to shareholders. Under the
plan, the fund may pay the distributor an annual 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 shares.
Because these fees are paid out of the fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
5
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The distributor may enter into agreements with other brokers to sell Primary
shares of the fund. The distributor pays these brokers up to 100% of the
distribution and service fee that it receives from the fund for those sales.
6
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[icon] H O W T O I N V E S T
To open a regular account or a retirement account with the fund, contact a
financial adviser or other entity that has entered into an agreement with the
fund's distributor to sell shares of the Legg Mason family of funds. The
minimum initial investment is $1,000 and the minimum for each purchase of
additional shares is $100, except as noted below.
Retirement accounts include traditional IRAs, spousal IRAs, education IRAs,
Roth IRAs, simplified employee pension plans, savings incentive match plans
for employees and other qualified retirement plans. Contact your financial
adviser or other entity offering the funds to discuss which one might be
appropriate for you.
ONCE YOUR ACCOUNT IS OPEN, YOU MAY USE THE FOLLOWING METHODS TO ADD TO YOUR
ACCOUNT:
------------------------------------------------------------------------
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.
------------------------------------------------------------------------
TELEPHONE OR Call Legg Mason Funds Investors Services at
WIRE 1-800-822-5544 or your financial adviser to transfer
available cash balances in your brokerage account or
to transfer money from your bank directly to the Legg
Mason. Wire transfers may be subject to a service
charge by your bank.
------------------------------------------------------------------------
TRANSFER OF Arrangements may be made with some employers and
FUNDS FROM financial institutions for regular automatic monthly
FINANCIAL investments of $50 or more in shares of the Fund.
INSTITUTIONS
------------------------------------------------------------------------
Call your financial adviser or another entity offering the fund for sale with
any questions regarding the investment options above.
Certain investment methods may be subject to lower minimum initial and
additional investments.
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities.
You should consult their program literature for further information.
Purchase orders received by your financial adviser or the entity offering the
fund before the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) will be processed at the fund's net asset value as of the close
of the exchange on that day. 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.
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[icon] H O W T O S E L L Y O U R S H A R E S
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions imposed by those entities. You should
consult their program literature for further information.
Any of the following methods may be used to sell your shares:
-----------------------------------------------------------------------------
TELEPHONE Call your financial adviser or entity offering the fund and
request a redemption. Please have the following information
ready when you call: the name of the fund, the number of
shares (or dollar amount) to be redeemed and your shareholder
account number.
Proceeds will be credited to your brokerage account or a check
will be sent to you, at your direction, at no charge to you.
Wire requests will be subject to a fee of $18. Be sure that
your financial adviser has your bank account information on
file.
The fund will follow reasonable procedures to ensure the
validity of any telephone redemption request, such as
requesting identifying information from callers or employing
identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
-----------------------------------------------------------------------------
MAIL Send a letter to the fund requesting redemption of your
shares. The letter should be signed by all of the owners of
the account and their signatures guaranteed without
qualification. You may obtain a signature guarantee from most
banks or securities dealers.
-----------------------------------------------------------------------------
Your order will be processed promptly and you will generally receive the
proceeds within a week. Fund shares will be sold at the next net asset value
calculated after your redemption request is received by your financial
adviser or another entity.
Payment of the proceeds of redemptions of shares that were recently purchased
by check or acquired through reinvestment of distributions on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the
check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
The fund has reserved the right under certain conditions to redeem its shares
in kind by distributing portfolio securities in payment for redemptions.
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[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 share is determined daily as of the close of the
New York Stock Exchange, on every day the exchange is open. To calculate the
fund's Primary share price, the fund's assets attributable to that class of
shares are valued and totaled, liabilities attributable to Primary shares are
subtracted, and the resulting net assets are divided by the number of Primary
shares outstanding. The fund's securities are valued on the basis of market
quotations or, lacking such quotations, at fair value as determined under
procedures established by the Board of Directors.
Where a security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by the
adviser to be the primary market. Securities with remaining maturities of 60
days or less are valued at amortized cost. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange
rates. 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.
If your account falls below $500, the fund may ask you to increase your
balance. If, after 60 days, your account is still below $500, the fund may
close your account and send you the proceeds. The fund will not redeem
accounts that fall below $500 solely as a result of a reduction in net asset
value per share.
The fund reserves the right to:
o reject any order for shares or suspend the offering of shares for a
period of time
o change its minimum investment amounts
o delay sending out redemption proceeds for up to seven days. This
generally applies only in cases of very large redemptions, excessive
trading or during unusual market conditions. The fund may delay
redemptions beyond seven days, or suspend redemptions, only as permitted
by the SEC.
9
<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 shares (except a reinvestment of dividends, capital gain distributions
and purchases made through a transfer of funds from a financial institution).
Legg Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account, in which
case a statement will be sent to you quarterly. Legg Mason will send you
statements quarterly if you purchase shares through a transfer of funds from a
financial institutions.
SYSTEMATIC WITHDRAWAL PLAN -
If you are purchasing or already own shares with a net asset value of $5,000
or more, you may elect to make systematic withdrawals from the fund. The
minimum amount for each withdrawal is $50. If you are making withdrawals
from the fund pursuant to the systematic withdrawal plan, then you should not
purchase shares of the fund.
EXCHANGE PRIVILEGE -
Exchange privileges do not apply to the fund's shares.
10
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[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 net capital gains to holders
of Primary shares annually.
Your dividends and other distributions will be automatically reinvested in
additional Primary shares of the fund unless you elect to receive your dividends
and/or other distributions in cash. To change your election, you must notify the
fund at least 10 days before the next dividend and/or other distribution is to
be paid.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
distribution 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 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.
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<PAGE>
L E G G M A S O N O P P O R T U N I T Y T R U S T
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by reference
into (is considered part of) this prospectus. The SAI provides further
information and additional details about the fund and its policies.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmason.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at
the SEC's public reference room in Washington, DC (phone 1-800-SEC-0330).
Reports and other information about the fund are available on the SEC's
Internet site at http://www.sec.gov. Investors may also write to: SEC,
Public Reference Section, Washington, DC 20549-6009. A fee will be charged
for making copies.
LMF- SEC file number:811-09613
12
<PAGE>
LEGG MASON INVESTMENT TRUST, INC.
LEGG MASON OPPORTUNITY TRUST
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER __, 1999
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Primary Shares Prospectus for the Fund (dated
December __, 1999), as appropriate, which has been filed with the Securities and
Exchange Commission ("SEC"). A copy of the Prospectus may be obtained without
charge from the Fund's distributor, Legg Mason Wood Walker, Incorporated ("Legg
Mason"), at 1-800-822-5544.
Legg Mason Wood Walker,
Incorporated
100 Light Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410)539-0000 (800)822-5544
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND........................................................3
FUND POLICIES..................................................................3
INVESTMENT STRATEGIES AND RISKS................................................4
ADDITIONAL TAX INFORMATION....................................................16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................19
VALUATION OF FUND SHARES......................................................20
PERFORMANCE INFORMATION.......................................................21
TAX-DEFERRED RETIREMENT PLANS - [CLASS A SHARES AND] PRIMARY SHARES...........23
MANAGEMENT OF THE FUND........................................................24
THE FUND'S INVESTMENT ADVISER/MANAGER.........................................25
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................26
THE FUND'S DISTRIBUTOR........................................................27
CAPITAL STOCK INFORMATION.....................................................29
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT...............29
THE FUND'S LEGAL COUNSEL......................................................29
THE FUND'S INDEPENDENT ACCOUNTANTS............................................29
Appendix A....................................................................30
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 any fund or
by the distributor in any jurisdiction in which such offerings may not lawfully
be made.
2
<PAGE>
DESCRIPTION OF THE FUND
Legg Mason Investment Trust, Inc. ("Investment Trust" or "Corporation") is
an open-end series investment company that was established as a Maryland
corporation on October __, 1999. Legg Mason Opportunity Trust ("Opportunity
Trust" or "Fund") is a separate non-diversified series of Investment Trust.
FUND POLICIES
OPPORTUNITY TRUST'S investment objective is long-term growth of capital.
In addition to the investment objective described in the Prospectus, the
Fund has adopted the following fundamental investment limitations that cannot be
changed except by vote of its shareholders. The other investment policies and
limitations in the prospectus and herein, which are not designated fundamental,
may be changed by action of the Board of Directors without any vote of its
shareholders.
Opportunity Trust may not:
1. Borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);
2. 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;
3. Engage in the business of underwriting the securities of other issuers,
except insofar as the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, in disposing of a portfolio security;
4. The Fund may not lend any security or make any loan if, as a result,
more than 33 1/3% 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;
5. 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);
6. Issue senior securities, except as permitted under the Investment
Company Act of 1940 ("1940 Act").
The foregoing fundamental limitations may be changed by "the vote of a
majority of the outstanding voting securities" of the Fund, a term defined in
the 1940 Act to mean the vote (a) of 67% or more of the voting securities
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present, or (b) of more than 50% of the outstanding
voting securities of the Fund, whichever is less.
The following are some of the non-fundamental limitations that the Fund
currently observes. The Fund may not:
1. Buy securities on "margin," except for short-term credits necessary for
clearance of portfolio transactions and except that the Fund may make margin
deposits in connection with the use of permitted currency futures contracts and
options on currency futures contracts; or
2. Make short sales of securities or maintain a short position if, when
added together, more than 100% of the value of the Fund's net assets would be
(a) deposited as collateral for the obligation to replace securities borrowed to
3
<PAGE>
effect short sales, and (b) allocated to segregated accounts in connection with
short sales. Short sales "against the box" are not subject to this limitation.
The foregoing non-fundamental limitations may be changed by vote of the
Fund's Board of Directors.
Except as otherwise stated, if a fundamental or non-fundamental percentage
limitation 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 the Prospectus and this Statement of Additional Information are not
fundamental, and can be changed without shareholder approval.
INVESTMENT STRATEGIES AND RISKS
This section supplements the information in the Prospectus concerning the
investments the Fund may make and the techniques the Fund may use. The Fund,
unless otherwise stated, may employ several investment strategies, including but
not limited to:
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
has determined are liquid pursuant to guidelines established by the Fund's Board
of Directors.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, or pursuant to an exemption from registration. The Fund may be
required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.
SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to the Fund, acting
pursuant to guidelines established by the Fund's Board of Directors, may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated,
restricted securities in the Fund's portfolio may adversely affect the Fund's
liquidity.
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.
4
<PAGE>
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.
In addition to purchasing foreign securities, the Fund may invest in
American Depository Receipts ("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 Global Depository Receipts ("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 49% of its total assets
in foreign securities either directly or through ADRs or GDRs.
Debt Securities
- ---------------
The Fund may invest in the debt securities of governmental or corporate
issuers. Corporate debt securities may pay fixed or variable rates of interest.
These securities may be convertible into preferred or common equity, or may be
bought as part of a unit containing common stock.
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. However, debt
securities, regardless of their ratings, generally have a higher priority in the
issuer's capital structure than do equity securities.
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.
5
<PAGE>
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.
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.
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.
Convertible Securities
- ----------------------
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stocks of the same
or similar issuers, but lower than the yield of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible securities but rank senior to common stock in a corporation's
capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
6
<PAGE>
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.
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
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
7
<PAGE>
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
- ------------------
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
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 variety of changes in the underlying instrument and, in
that respect, have a leverage-like effect on the Fund.
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
- -----------------
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 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 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
8
<PAGE>
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, 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 offset 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
9
<PAGE>
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.
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.
10
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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.
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" may include purchased OTC options. Assets used as
cover for illiquid 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
11
<PAGE>
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
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.
12
<PAGE>
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
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.
13
<PAGE>
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
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
14
<PAGE>
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
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 the 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 currently 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 based on guidelines established by
the Fund's Board of Directors.
Repurchase agreements are usually for periods of one week or less, but may
be for longer periods. The Fund will not enter into repurchase agreements of
more than seven days' duration if more than 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. However, the Fund has
adopted standards for the parties with whom it may enter into repurchase
agreements, including monitoring by the Fund's adviser of the creditworthiness
of such parties which the Fund's Board of Directors believes are reasonably
designed to assure that each party presents no serious risk of becoming involved
in bankruptcy proceedings within the time frame contemplated by the repurchase
agreement.
15
<PAGE>
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.
General
- -------
For federal tax purposes, the Fund is treated as a separate corporation.
To qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended ("Code"), the Fund must distribute
annually to its shareholders at least 90% of its investment company taxable
income (generally, net investment income plus any net short-term capital gain
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. If the Fund failed to
qualify for treatment as a RIC for any taxable year, (i) 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 (ii) the
shareholders would treat all those distributions, including distributions of net
capital gain (I.E., the excess of net long-term capital gain over net short-term
capital loss), 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 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.
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.
16
<PAGE>
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.
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.
17
<PAGE>
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 sixty percent 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.
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, the Fund 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
- -----
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
18
<PAGE>
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
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 currently offers one class of shares known as Primary Shares.
Other classes of shares may be offered in the future. Primary Shares are
available from Legg Mason, certain of its affiliates and unaffiliated entities
having an agreement with Legg Mason.
Transfer of Funds from Financial Institutions
- ---------------------------------------------
Investors in Primary Shares may also buy shares through a plan permitting
transfers of funds from a financial institution. Certain financial institutions
may allow the investor, on a pre-authorized basis, to have $50 or more
automatically transferred monthly for investment in shares of the Fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution it is drawn on, the
investor may be subject to extra charges in order to cover collection costs.
These charges may be deducted from the investor's shareholder account.
Systematic Withdrawal Plan
- --------------------------
If you own Primary Shares with a net asset value of $5,000 or more, you
may also elect to make systematic withdrawals from your Fund account of a
minimum of $50 on a monthly basis. The amounts paid to you each month are
obtained by redeeming sufficient shares from your account to provide the
withdrawal amount that you have specified. The Systematic Withdrawal Plan is not
currently available for shares held in an Individual Retirement Account ("IRA"),
Simplified Employee Pension Plan ("SEP"), Savings Incentive Match Plan for
Employees ("SIMPLE") or other qualified retirement plan. You may change the
monthly amount to be paid to you without charge not more than once a year by
notifying Legg Mason or the affiliate with which you have an account.
Redemptions will be made at the Primary Shares' net asset value per share
determined as of the close of regular trading of the New York Stock Exchange
("Exchange") (normally 4:00 p.m., eastern time) ("close of the Exchange") on the
first day of each month. If the Exchange is not open for business on that day,
the shares will be redeemed at the per share net asset value determined as of
the close of regular trading of the Exchange on the preceding business day. The
check for the withdrawal payment will usually be mailed to you on the next
business day following redemption. If you elect to participate in the Systematic
Withdrawal Plan, dividends and other distributions on all Primary Shares in your
account must be automatically reinvested in Primary Shares. You may terminate
the Systematic Withdrawal Plan at any time without charge or penalty. The Fund,
its transfer agent, and Legg Mason also reserve the right to modify or terminate
19
<PAGE>
the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and distributions, the
amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund if you
maintain a Systematic Withdrawal Plan, because you may incur tax liabilities in
connection with such purchases and withdrawals. The Fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Future First Systematic
Investment Plan.
Other Information Regarding Redemption
- --------------------------------------
The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended by the Fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets
the Fund normally utilizes is restricted, or an emergency, as defined by rules
and regulations of the SEC, exists, making disposal of the Fund's investments or
determination of its net asset value not reasonably practicable, or (iii) for
such other periods as the SEC by regulation or order may permit for protection
of the Fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.
The Fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing the Fund's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting those securities into cash and
will be subject to fluctuation in the market price of those securities until
they are sold. The Fund does not redeem "in kind" under normal circumstances,
but would do so where the adviser determines that it would be in the best
interests of the Fund's shareholders as a whole.
VALUATION OF FUND SHARES
Net asset value of a Fund share is determined daily for each Class as of
the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that Class, less liabilities
attributable to that Class, by the number of shares of that Class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas. As described in the Prospectus, securities for
which market quotations are readily available are valued at current market
value. Securities traded on an exchange or the NASDAQ Stock Market securities
are normally valued at last sale prices. Other over-the-counter securities, and
securities traded on exchanges for which there is no sale on a particular day
(including debt securities), are valued at the mean of latest closing bid and
asked prices. Securities with remaining maturities of 60 days or less are valued
at amortized cost. Securities and other assets quoted in foreign currencies will
be valued in U.S. dollars based on the currency exchange rates prevailing at the
time of the valuation. All other securities are valued at fair value as
determined by or under the direction of the Fund's Board of Directors. Premiums
received on the sale of call options are included in the net asset value of each
Class, and the current market value of options sold by the Fund will be
subtracted from net assets of each Class.
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<PAGE>
PERFORMANCE INFORMATION
General
- -------
From time to time the Fund may compare the performance of a Class to the
performance of other investment companies, groups of investment companies,
various market indices, the features or performance of alternative investments,
in advertisements, sales literature, and reports to shareholders. The Fund may
also include calculations, such as hypothetical compounding examples or tax-free
compounding examples, which describe hypothetical investment results in such
communications. Such performance examples will be based on an express set of
assumptions 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.
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:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the Fund are assumed to have been
reinvested at net asset value on the reinvestment dates during the period.
From time to time the Fund may compare the performance of a Class of
Shares in advertising and sales literature to the performance of other
investment companies, groups of investment companies or various market indices.
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 cite rankings and ratings, and compare the return of a
Class with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc., Wiesenberger Investment Company Services, Value
Line, Morningstar, and other services or publications that monitor, compare
and/or rank the performance of investment companies. The Fund may also refer in
such materials to mutual fund performance rankings, ratings, comparisons with
funds having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, FINANCIAL WORLD, MONEY
Magazine, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES.
The Fund may compare the investment return of a Class to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, Fund shares are not insured, the value of Fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
21
<PAGE>
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which remains at a specified rate for a specified period of time,
the return of each Class of Shares will vary.
Fund advertisements may reference the history of the distributor and its
affiliates, the education and experience of the portfolio manager, and the fact
that the portfolio manager engages in certain approaches of investing.
In advertising, the Fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The Fund may use other recognized
sources as they become available.
The Fund may use data prepared by Ibbotson Associates of Chicago, Illinois
("Ibbotson") to compare the returns of various capital markets and to show the
value of a hypothetical investment in a capital market. Ibbotson relies on
different indices to calculate the performance of common stocks, corporate and
government bonds and Treasury bills.
The Fund may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is represented by the
performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The Fund may also include in advertising biographical information on key
investment and managerial personnel.
The Fund may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should 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 $[XX] billion as of [SEPTEMBER 30, 1999].
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.
22
<PAGE>
TAX-DEFERRED RETIREMENT PLANS - PRIMARY SHARES
In general, income earned through the investment of assets of qualified
retirement plans is not taxed to the beneficiaries of those plans until the
income is distributed to them. Primary Share investors who are considering
establishing an IRA, SEP, SIMPLE or other qualified retirement plan should
consult their attorneys or other tax advisers with respect to individual tax
questions. The option of investing in those plans with respect to Primary Shares
through regular payroll deductions may be arranged with an LMM or affiliated
financial advisor and your employer. Additional information with respect to
these plans is available upon request from any Financial Advisor or Service
Provider.
TRADITIONAL IRA. Certain Primary Share investors may obtain tax advantages
by establishing IRAs. Specifically, except as noted below, if neither you nor
your spouse is an active participant in a qualified employer or government
retirement plan, or if either you or your spouse is an active participant and
your adjusted gross income does not exceed a certain level, then each of you may
deduct cash contributions made to an IRA in an amount for each taxable year not
exceeding the lesser of 100% of your earned income or $2,000. A married investor
who is not an active participant in such a plan and files a joint income tax
return with his or her spouse (and their combined adjusted gross income does not
exceed $150,000) is not affected by the spouse's active participant status. In
addition, if your spouse is not employed and you file a joint return, you may
establish a separate IRA for your spouse and contribute up to a total of $4,000
to the two IRAs, provided that the contribution to either does not exceed
$2,000. If your employer's plan qualifies as a SEP, permits voluntary
contributions and meets certain other requirements, you may make voluntary
contributions to that plan that are treated as deductible IRA contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Primary Shares through
non-deductible IRA contributions, up to certain limits, because all dividends
and other distributions on your Fund shares are then not immediately taxable to
you or the IRA; they become taxable only when distributed to you. To avoid
penalties, your interest in an IRA must be distributed, or start to be
distributed, to you not later than the end of the taxable year in which you
attain age 70 1/2. Distributions made before age 59 1/2, in addition to being
taxable, generally are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability, where the distribution is rolled over
into another qualified plan or certain other situations.
ROTH IRA. A shareholder whose adjusted gross income (or combined adjusted
gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
IRAs may be converted to a Roth IRA; these rollover distributions and
conversions are, however, subject to federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).
EDUCATION IRA. Although not technically for retirement savings, an
Education IRA provides a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than the maximum amount allowable ($500)
may be contributed for any year to Education IRAs for the same beneficiary.
Contributions are not deductible and may not be made after the beneficiary
reaches age 18; however, earnings accumulate tax-free, and withdrawals are not
subject to tax if used to pay the qualified higher education expenses of the
beneficiary (or transferred to an Education IRA of a qualified family member).
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<PAGE>
Simplified Employee Pension Plan -- SEP
- ---------------------------------------
Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Shares.
Savings Incentive Match Plan for Employees -- SIMPLE
- ----------------------------------------------------
An employer with no more than 100 employees that does not maintain another
retirement plan may establish a SIMPLE either as separate IRAs or as part of a
Code section 401(k) plan. A SIMPLE, which is not subject to the complicated
nondiscrimination rules that generally apply to qualified retirement plans, will
allow certain employees to make elective contributions of up to $6,000 per year
and will require the employer to make either matching contributions up to 3% of
each such employee's salary or a 2% nonelective contribution.
Withholding at the rate of 20% is required for federal income tax purposes
on certain distributions (excluding, for example, certain periodic payments)
from the foregoing retirement plans (except IRAs and SEPs), unless the recipient
transfers the distribution directly to an "eligible retirement plan" (including
IRAs and other qualified plans) that accepts those distributions. Other
distributions generally are subject to regular wage withholding at the rate of
10% (depending on the type and amount of the distribution), unless the recipient
elects not to have any withholding apply. Primary Share investors should consult
their plan administrator or tax advisor for further information.
MANAGEMENT OF THE FUND
The Corporation's officers are responsible for the operation of the
Corporation under the direction of the Board of Directors. The officers and
directors of the Corporation and their principal occupations during the past
five years are set forth below. An asterisk (*) indicates officers and/or
directors who are "interested persons" of the Fund as defined by the 1940 Act.
The business address of each officer and director is 100 Light Street,
Baltimore, Maryland 21202, unless otherwise indicated.
WILLIAM H. MILLER, III* [_____], Director, [__________]. Mr. Miller is the
Managing Member of LMM LLC ("LLM") and President of Legg Mason Fund Adviser,
Inc. ("LMFA"). Mr. Miller co-managed Legg Mason Value Trust, Inc. from its
inception in 1982 to November 1990, when he assumed primary responsibility for
its day-to-day management. Prior to April 1, 1997, Mr. Miller co-managed Legg
Mason Total Return Trust, Inc. Mr. Miller has also been primarily responsible
for the day-to-day management of Legg Mason Special Investment Trust, Inc. since
its inception in 1985.
JENNIFER W. MURPHY* [_____], Director, [__________].
The executive officers of the Corporation, other than those who also serve
as directors, are:
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer; Treasurer of
LMFA; Vice President and Treasurer of all Legg Mason retail funds; Vice
President of Legg Mason.
W. SHANE HUGHES* [_____], Secretary; Secretary of __ other Legg Mason
funds; employee of Legg Mason since _________.
Officers and directors of the Corporation who are "interested persons" of
the Corporation receive no salary or fees from the Corporation. Each Director of
the Corporation who is not an interested person of the Corporation ("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 __________, 1999, the directors and officers of the Corporation
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 Corporation's directors for the fiscal year ended
__________, 1998. None of the Legg Mason funds has any retirement plan for its
directors.
24
<PAGE>
COMPENSATION TABLE
- ------------------
- --------------------------------------------------------------------------------
NAME OF PERSON AND AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND AND
POSITION FROM FUND FUND COMPLEX PAID TO DIRECTORS*
- --------------------------------------------------------------------------------
William H. Miller, None None
III - Director
- --------------------------------------------------------------------------------
Jennifer W. Murphy None None
- - Director
- --------------------------------------------------------------------------------
* Represents estimated aggregate compensation paid to each director during
the calendar year ended December 31, 2000. There are eleven open-end
investment companies in the Legg Mason Complex (with a total of twenty-one
funds).
THE FUND'S INVESTMENT ADVISER/MANAGER
LMM, a Delaware limited liability company located at 100 Light Street,
Baltimore, Maryland 21202, is 50% owned by Legg Mason, Inc. and 50% owned,
directly or indirectly, by William H. Miller, III. LMM serves as the Fund's
investment adviser and manager under an Investment Advisory and Management
Agreement approved by the Fund's sole shareholder on __________, 1999 ("Advisory
and Management Agreement"). LMFA, a Maryland corporation located at 100 Light
Street, Baltimore, Maryland 21202, is a wholly-owned subsidiary of Legg Mason,
Inc. LMFA serves as sub-administrator to the Fund under a Sub-Administration
Agreement approved by the Fund's sole shareholder on __________, 1999
("Sub-Administration Agreement").
The Advisory and Management Agreement and the Sub-Administration
Agreement were approved by the Fund's Board of Directors, including a majority
of the directors who are not "interested persons" of the Fund, LMM, or LMFA, on
__________, 1999.
The Advisory and Management Agreement provides that, subject to overall
direction by the Fund's Board of Directors, LMM manages or oversees the
investment and other affairs of the Fund. LMM 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. The Advisory and
Management Agreement further provides that LMM is responsible, subject to the
general supervision of the Corporation'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.
LMM receives for its services to the Fund a management fee, calculated
daily and payable monthly. LMM receives from Opportunity Trust a management fee
at an annual rate of 1.00% of the average daily net assets of the Fund up to
$100 million and 0.75% of its average daily net assets in excess of $100
million. LMM has agreed to waive its fees for Opportunity Trust for expenses
related to Primary Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of 1.99% of average net assets attributable to
the shares until December 31, 2000. The Fund has agreed to pay the manager for
waived fees and reimbursed expenses provided that payment does not cause the
Fund's annual operating expenses to exceed 1.99% of its average net assets and
the payment is made within three years after the year in which the manager
earned the fee or incurred the expense.
The Sub-Administration Agreement provides that LMFA is obligated to (a)
furnish the Fund with office space and executive and other personnel necessary
for the operation of the Fund; (b) supervise all aspects of the Fund's
operations; (c) bear the expense of certain informational and purchase and
redemption services to the Fund's shareholders; (d) arrange, but not pay for,
the periodic updating of prospectuses, proxy material, tax returns and reports
to shareholders and state and federal regulatory agencies; and (e) report
regularly to the Fund's officers and directors. LMFA and its affiliates pay all
25
<PAGE>
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 expenses, 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 LMM, the Fund's distributor, compensation of the independent directors,
legal and audit expenses, insurance expenses, shareholder meetings, proxy
solicitations, expenses of registering and qualifying Fund shares for sale under
federal and state law, governmental fees and expenses incurred in connection
with 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.
For LMFA's services to the Fund, LMM (not the Fund) pays LMFA a fee,
computed daily and payable monthly of [XX]% of the fee received by LMM from the
Fund, net of any waivers by LMM.
Under the Advisory and 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].
Under the Advisory and Management Agreement and Sub-Administration
Agreement, LMM and LMFA 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 and Management Agreement and Administration 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 LMM and LMFA, on not less than 60
days' notice to the other party to the agreement, and may be terminated
immediately upon the mutual written consent of all parties to the agreement.
To mitigate the possibility that the Fund will be affected by personal
trading of employees, the corporation and LMM have adopted policies that
restrict securities trading in the personal accounts of portfolio managers and
others who normally come into advance possession of information on portfolio
transactions. These policies comply, in all material respects, with the
recommendations of the Investment Company Institute.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory and Management 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
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
26
<PAGE>
with services to clients other than the Fund whose brokerage generated the
service. LMM's and LMFA's fee is not reduced by reason of its receiving such
brokerage and research services.
From time to time the Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, the Fund generally deals with responsible primary market-makers unless a
more favorable execution can otherwise be obtained.
Except as permitted by SEC rules or orders, the Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. The Fund's Board of Directors has adopted procedures in conformity
with Rule 10f-3 under the 1940 Act whereby the Fund may purchase securities that
are offered in certain underwritings in which Legg Mason or any of its
affiliated persons is a participant. These procedures, among other things, limit
the Fund's investment in the amount of securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated persons
is a participant so that: the Fund, together with all other registered
investment companies having the same adviser, may not purchase more than 25% of
the principal amount of the offering of such class. In addition, the Fund may
not purchase securities during the existence of an underwriting if Legg Mason is
the sole underwriter for those securities.
Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg Mason
from executing transactions on an exchange for its affiliates, such as the Fund,
unless the affiliate expressly consents by written contract. The Fund's Advisory
and Management Agreement expressly provides such consent.
Investment decisions for the Fund are made independently from those of
other funds and accounts advised by LMM. 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 and reports have
been prepared, set in type and mailed to existing shareholders at the Fund's
expense), and for supplementary sales literature and advertising costs.
The Primary Shares are subject to a deferred sales charge payable to Legg
Mason if they are redeemed within 12 months. This deferred sales charge is not
applicable where the investor's broker-dealer of record notifies the distributor
prior to the time of investment that the broker-dealer waives the payment
otherwise payable to it.
The Fund has adopted a Distribution and Shareholder Services Plan ("Plan")
which, among other things, permits the Fund to pay Legg Mason fees for its
services related to sales and distribution of Primary Shares and the provision
of ongoing services to Primary Class shareholders. Payments are made only from
assets attributable to Primary Shares. Under the Plan, the aggregate fees may
not exceed 1.00% of the Fund's annual average daily net assets attributable to
Primary Shares. Distribution activities for which such payments may be made
include, but are not limited to, compensation to persons who engage in or
27
<PAGE>
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.
The Plan was most recently approved by LMM, as sole shareholder of the
Fund on __________, 1999.
With respect to Primary Shares, Legg Mason has also agreed to waive its
fees for the Fund as described under "The Fund's Investment Adviser/Manager."
In approving the establishment or continuation of the Plan, in accordance
with the requirements of Rule 12b-1, the directors determined that there was a
reasonable likelihood that the Plan would benefit the Fund and its Primary Class
shareholders. The directors considered, among other things, the extent to which
the potential benefits of the Plan to the Fund's Primary Class shareholders
could offset the costs of the Plan; the likelihood that the Plan would succeed
in producing such potential benefits; the merits of certain possible
alternatives to the Plan; and the extent to which the retention of assets and
additional sales of the Fund's Primary Shares would be likely to maintain or
increase the amount of compensation paid by the Fund to the LMM and 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 LMM and 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 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.
The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting Primary Shares. Any change in the Plan that would materially increase the
distribution cost to the Fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the Fund's Board of Directors, and the directors will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the Independent Directors will be
committed to the discretion of such Independent Directors.
28
<PAGE>
CAPITAL STOCK INFORMATION
The Articles of Incorporation of Investment Trust authorize issuance of
400 million shares of common stock, par value $0.001 per share, of Legg Mason
Opportunity Trust. The Fund has three authorized classes of shares: Class A
shares, Primary Class shares, and Navigator Class shares. Class A shares and
Navigator Class shares are not being offered at this time.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts
02105, serves as custodian of the Fund's assets. Boston Financial Data Services
("BFDS"), P.O. Box 953, Boston, Massachusetts 02103, serves as transfer and
dividend-disbursing agent, and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from BFDS for its services. Shareholders who request an
historical transcript of their account will be charged a fee based upon the
number of years researched. The Fund reserves the right, upon 60 days' written
notice, to make other charges to investors to cover administrative costs.
THE FUND'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington,
D.C. 20036-1800, serves as counsel to the Fund.
THE FUND'S INDEPENDENT ACCOUNTANTS
[ACCOUNTANT] has been selected by the directors to serve as independent
accountants for Opportunity Trust.
29
<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 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 risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered 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 sometime 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 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 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.
30
<PAGE>
DESCRIPTION OF STANDARD & POOR'S ("S&P") CORPORATE BOND RATINGS:
- ----------------------------------------------------------------
AAA-This is the highest rating assigned by S&P to an obligation and
indicates an extremely strong capacity to pay principal and interest.
AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC-Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
31
<PAGE>
LEGG MASON INVESTMENT TRUST, INC.
Part C. OTHER INFORMATION
-----------------
Item 23. EXHIBITS
--------
(a) Articles of Incorporation - filed herewith
(b) By-Laws - filed herewith
(c) Specimen security -- not applicable
(d) (i) Investment Advisory and Management Agreement - to be filed
(ii) Sub-Administration Agreement - to be filed
(e) Underwriting Agreement - to be filed
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement - to be filed
(h) (i) Transfer Agency and Service Agreement - to be filed
(ii) Credit Agreement - none
(i) Opinion and Consent of Counsel - to be filed
(j) Accountant's consent - to be filed
(k) Financial statements omitted from Item 22 - none
(l) Agreement for providing initial capital with respect to the
Registrant - to be filed
(m) Distribution Plan - to be filed
(n) Financial Data Schedules - not applicable
(o) Plan Pursuant to Rule 18f-3 - to be filed
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
None.
Item 25. INDEMNIFICATION
---------------
Article ELEVENTH of the Articles of Incorporation provides that to the
maximum extent permitted by applicable law (including Maryland law and the 1940
Act) the directors and officers of the Registrant shall not be liable to the
Registrant or to any of its stockholders for monetary damages. Article ELEVENTH
also provides that no repeal or modification of the contents contained in the
preceding sentence or the adoption or modification of any other provision of the
Articles or By-Laws inconsistent with Article ELEVENTH shall adversely affect
any limitation of liability of any director or officer of the Registrant with
respect to any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
Section 11.2 of Article ELEVENTH of the Registrant's Articles of
Incorporation provides that the Registrant shall indemnify its present and past
directors, officers, or employees, and persons who are serving or have served at
the Registrant's request in similar capacities for other entities to the maximum
extent permitted by applicable law (including Maryland law and the Investment
Company Act of 1940). Section 2-418(b) of the Maryland Corporations and
Associations Code ("Maryland Code") permits the Registrant to indemnify its
directors unless it is established that the act or omission of the director was
material to the matter giving rise to the proceeding, and (a) the act or
omission was committed in bad faith or was the result of active and deliberate
dishonesty; (b) the director actually received an improper personal benefit in
money, property or services; or (c) in the case of a criminal proceeding, the
director had reasonable cause to believe the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements and
reasonable expenses incurred in connection with a proceeding, in accordance with
the Maryland Code. Pursuant to Section 2-418(j) (2) of the Maryland Code, the
Registrant is permitted to indemnify its officers, employees and agents to the
same extent. The provisions set forth above apply insofar as consistent with
Section 17(h) of the 1940 Act, which prohibits indemnification of any director
or officer of the Registrant against any liability of the Registrant or its
shareholders to which such director or officer otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Registrant undertakes to carry out all indemnification provisions of its
Articles of Incorporation and By-Laws in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Under the Underwriting Agreement, the Fund agrees to indemnify, defend,
and hold the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in the Underwriting Agreement be construed so as to protect the
Distributor against any liability to the Corporation or its shareholders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason or its reckless disregard of its obligations and duties under the
Agreement.
The Underwriting Agreement further provides that the Registrant shall not
indemnify the Distributor for any claims, demands, liabilities and expenses
which the Distributor may incur on account of any wrongful act of the
Distributor or any of its employees or arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
<PAGE>
writing by the Distributor to the Registrant for use in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement or necessary to make such information not misleading.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be provided to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Registrant by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
prohibited as against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF MANAGER AND INVESTMENT ADVISER
----------------------------------------------------------------
To be filed by amendment.
Item 27. PRINCIPAL UNDERWRITERS
----------------------
(a) Legg Mason Light Street Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Cash Reserve Trust
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Focus Trust, Inc.
Legg Mason Tax-Free Income Fund
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.
<PAGE>
(b) The following table sets forth information concerning each director and
officer of the Registrant's principal underwriter, Legg Mason Wood Walker,
Incorporated ("LMWW").
Position and
Offices with Positions and
Name and Principal Umderwriter - Offices with
Business Address* LMWW Registrant
- --------------------------------------------------------------------------------
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Retired Vice None
Chairman of the
Board
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior None
Executive Vice
President and
Director
Richard J. Himelfarb Senior None
Executive Vice
President and
Director
Edward A. Taber III Senior None
Executive Vice
President and
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
F. Barry Bilson Senior Vice None
President and
Director
Thomas M. Daly, Jr. Senior Vice None
President
Robert G. Donovan Executive Vice None
President and
Director
<PAGE>
Position and
Offices with Positions and
Name and Principal Umderwriter - Offices with
Business Address* LMWW Registrant
- --------------------------------------------------------------------------------
Jeffrey W. Durkee Senior Vice None
President and
Director
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 Director
Arnold S. Hoffman Senior Vice None
1735 Market Street President
Philadelphia, PA 19103
Carl Hohnbaum Senior Vice None
24th Floor Two Oliver President and
Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
Joseph A. Sullivan Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
W. William Brab Senior Vice None
President
Deepak Chowdhury Senior Vice None
255 Alhambra Circle President
Coral Gables, FL 33134
<PAGE>
Position and
Offices with Positions and
Name and Principal Umderwriter - Offices with
Business Address* LMWW Registrant
- --------------------------------------------------------------------------------
Harry M. Ford, Jr. Senior Vice None
President
Dennis A. Green Senior Vice None
President
Seth J. Lehr Senior Vice None
1735 Market St President and
Philadelphia, PA 19103 Director
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
Jonathan M. Pearl Senior Vice None
1777 Reisterstown Rd. President
Pikesville, MD 21208
John A. Pliakas Senior Vice None
125 High Street President
Boston, MA 02110
Robert F. Price Senior Vice None
President and
General Counsel
Timothy C. Scheve Executive Vice None
President and
Treasurer and
Director
Elisabeth N. Spector Senior Vice None
President
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
Andrew J. Bowden Vice President None
and Deputy General
Counsel
D. Stuart Bowers Vice President None
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
<PAGE>
Position and
Offices with Positions and
Name and Principal Umderwriter - Offices with
Business Address* LMWW Registrant
- --------------------------------------------------------------------------------
Charles J. Daley, Jr. Vice President None
and Controller
Joseph H. Davis, Jr. Vice President None
1735 Market Street
Philadelphia, PA 19380
Norman C. Frost, Jr. Vice President None
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
James E. Furletti Vice President None
Robert E. Patterson Vice President None
John A. Moag, Jr. Vice President None
Edward P. Meehan Vice President None
Edward W. Lister, Jr. Vice President None
Gregory B. McShea Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Mark C. Micklem Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
Thomas E. Robinson Vice President None
James A. Rowan Vice President None
Douglas M. Schmidt Vice President None
B. Andrew Schmucker Vice President None
<PAGE>
Position and
Offices with Positions and
Name and Principal Umderwriter - Offices with
Business Address* LMWW Registrant
- --------------------------------------------------------------------------------
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris A. Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
William A. Verch Vice President None
Sheila M. Vidmar Vice President None
and Deputy
General Counsel
Lewis T. Yeager Vice President None
Joseph F. Zunic Vice President None
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of
such an affiliated person.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 29. MANAGEMENT SERVICES
-------------------
None.
<PAGE>
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 Investment Trust,
Inc. has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Baltimore and
State of Maryland, on the 8th day of October, 1999.
Legg Mason Investment Trust, Inc.
By: /s/ Marie K. Karpinski
----------------------
Marie K. Karpinski
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William H. Miller, III
- -------------------------- Director October 8, 1999
William H. Miller, III
/s/ Jennifer W. Murphy
- -------------------------- President and Director October 8, 1999
Jennifer W. Murphy
/s/ Marie K. Karpinski
- -------------------------- Vice President October 8, 1999
Marie K. Karpinski and Treasurer
<PAGE>
Exhibit Index
(a) Articles of Incorporation
(b) Bylaws
ARTICLES OF INCORPORATION
OF
LEGG MASON INVESTMENT TRUST, INC.
FIRST: The undersigned, Sean R. Hunt, whose post office address is 1800
Massachusetts Avenue, N.W., Washington, D.C. 20036, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is LEGG MASON INVESTMENT TRUST, INC.
(the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are to act as an
open-end management investment company, as contemplated by the Investment
Company Act of 1940, as amended ("1940 Act"), and to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, including,
without limitation:
(a) To hold, invest and reinvest the funds of the Corporation, and in
connection therewith to hold part or all of its funds in cash, and
to purchase, subscribe for or otherwise acquire, to hold for
investment or otherwise, to trade and deal in, write, sell, assign,
negotiate, transfer, exchange, lend, pledge or otherwise dispose of
or turn to account or realize upon, securities of any corporation,
company, association, trust, firm, partnership, or other
organization however or wherever established or organized, as well
as securities created or issued by any United States or foreign
issuer (which term "issuer" shall, for the purpose of these Articles
of Incorporation, without limiting the generality thereof, be deemed
to include any persons, firms, associations, partnerships,
corporations, syndicates, combinations, organizations, governments
or subdivisions, agencies or instrumentalities of any government);
and to exercise, as owner or holder of any securities, all rights,
powers and privileges in respect thereof, including the right to
vote thereon; to aid by further investment any issuer, any
obligation of or interest in which is held by the Corporation or in
the affairs of which the Corporation has any direct or indirect
interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations of
any corporation, company, trust, association or firm; and to do any
and all acts and things for the preservation, protection,
improvement and enhancement in value of any and all such securities.
For the purposes of these Articles of Incorporation, as the same may
be supplemented or amended, the term "securities" shall be deemed to
include, without limiting the generality thereof, any stocks,
Shares, bonds, debentures, bills, notes, mortgages and any other
obligations or evidences of indebtedness, and any options,
certificates, receipts, warrants, futures or forward contracts, or
<PAGE>
other instruments representing rights to receive, purchase,
subscribe for or sell the same, or evidencing or representing any
other direct or indirect rights or interests therein, including all
rights of equitable ownership therein, or in any property or assets;
and any negotiable or non-negotiable instruments, including money
market instruments, bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all types of repurchase
or reverse repurchase agreements; interest rate protection
instruments; and derivative or synthetic instruments.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore
or hereafter engaged in any business similar to any business which
the Corporation has the power to conduct, and to hold, utilize,
enjoy and in any manner dispose of the whole or any part of the
rights, property and business so acquired, and to assume in
connection therewith any liabilities of any such person, firm,
association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which
may be capable of being used for any of the purposes of the
Corporation; and to use, exercise, develop, grant licenses in
respect of, sell and otherwise turn to account, the same.
(d) To issue and sell Shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such
terms and conditions, for such purposes and for such amount or kind
of consideration (including without limitations, securities) now or
hereafter permitted by the laws of the State of Maryland, by the
1940 Act and by these Articles of Incorporation, as its Board of
Directors may, and is hereby authorized to, determine.
(e) To allocate assets, liabilities and expenses of the Corporation to a
particular series or Class or to apportion the same between or among
two or more series or Classes, as applicable, provided that any
liabilities or expenses incurred by a particular series or Class
shall be payable solely by that series or Class as provided for in
Article SIXTH.
(f) To purchase, repurchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent
of the stockholders of the Corporation) Shares of its capital stock
in any manner and to the extent now or hereafter permitted by the
laws of the State of Maryland, by the 1940 Act and by these Articles
of Incorporation.
(g) To conduct its business in all branches at one or more offices in
any part of the world, without restriction or limit as to extent.
(h) To exercise and enjoy, in any states, territories, districts and
United States dependencies and in foreign countries, all of the
-2-
<PAGE>
powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or
hereafter in force.
(i) To enjoy all rights, powers and privileges of ownership or interest
in all securities held by the Corporation, including the right to
vote and otherwise act with respect thereto and to do all acts for
the preservation, protection, improvement, and enhancement in value
of all such securities.
(j) In general, to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary,
suitable or proper for the accomplishment of such purposes or for
the attainment of any object or the furtherance of any power set
forth in these Articles of Incorporation, either alone or in
association with others, to do every other act or thing incidental
or appurtenant to or growing out of or connected with its business
or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges granted to,
or conferred upon, corporations by the laws of the State of Maryland
as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being Classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power, without limitation:
(1) To acquire (by purchase, lease or otherwise) and to take, receive,
own, hold, use, employ, maintain, develop, dispose of (by sale or
otherwise) and otherwise deal with any real or personal property,
wherever located, and any interest therein.
(2) To make contracts and guarantees, incur liabilities and borrow money
and, in this connection, issue notes or other evidence of
indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange,
including the purchase and sale of futures contracts, options on
futures contracts and forward contracts, subject to any applicable
provisions of law.
-3-
<PAGE>
(4) To sell, lease, exchange, transfer, convey, mortgage, pledge and
otherwise dispose of any or all of its assets.
FIFTH: The post office address of the principal office of the Corporation
in the State of Maryland is 100 Light Street, Baltimore, Maryland, 21202. The
name of the resident agent of the Corporation in the State of Maryland is Sheila
M. Vidmar, whose post office address is 100 Light Street, Baltimore, Maryland,
21202. The resident agent is a citizen of the State of Maryland and actually
resides therein.
SIXTH: Section 6.1. Capital Stock. The total number of shares of capital
stock which the Corporation shall have authority to issue is one billion
(1,000,000,000) shares, of the par value of one tenth of one cent ($.001)
("Shares"), and of the aggregate par value of one million dollars ($1,000,000).
The Board of Directors shall have full power and authority, in its sole
discretion and without obtaining any prior authorization or vote of the
Stockholders, to change in any manner and to create and establish Shares having
such preferences, terms of conversion, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by resolution or
resolutions providing for the issuance of such Shares adopted by the Board of
Directors.
The Shares may be issued by the Board of Directors in such separate and
distinct series ("Series") and classes ("Classes") as the Board of Directors
shall from time to time create and establish. The Board of Directors is
authorized, from time to time, to divide or combine the Shares into a greater or
lesser number, to classify or reclassify any unissued Shares of the Corporation
into one or more separate Series or Classes of Shares, and to take such other
action with respect to the Shares as the Board of Directors may deem desirable.
In addition, the Board of Directors is hereby expressly granted authority to
increase or decrease the number of Shares of any Series or Class, but the number
of Shares of any Series or Class shall not be decreased by the Board of
Directors below the number of Shares thereof then outstanding. The Board of
Directors, in its discretion without a vote of the Stockholders, may divide the
Shares of any Series into Classes. The Shares of any Series or Class of stock
shall have such preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption as shall be
fixed and determined from time to time by the Board of Directors.
The Corporation may hold as treasury shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at its discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
Without limiting the authority of the Board of Directors set forth herein
to establish and designate any further Series or Classes, and to classify and
reclassify any unissued Shares, there is hereby established and Classified, one
Series of stock comprising four hundred million (400,000,000) Shares, to be
known as the Legg Mason Opportunity Trust. Of these four hundred million
(400,000,000) Shares, one hundred million (100,000,000) Shares are hereby
established and Classified as Shares of Legg Mason Opportunity Trust, Class A,
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two hundred million (200,000,000) Shares are hereby established and Classified
as Shares of Legg Mason Opportunity Trust, Primary Class, and one hundred
million (100,000,000) Shares are hereby established and Classified as Legg Mason
Opportunity Trust, Navigator Class.
The Class A, Primary Class, and Navigator Class Shares shall represent
investment in the same pool of assets and shall have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption, except as
provided in these Articles of Incorporation and as set forth below:
(1) The net asset values of Class A Shares, Primary Class Shares, and
Navigator Class Shares shall be calculated separately. In calculating the
net asset values,
(a) Each Class shall be charged with the transfer agency fees and
Rule 12b-1 fees (or equivalent fees by any other name) attributable
to that Class, and not with the transfer agency fees and Rule 12b-1
fees (or equivalent fees by any other name) attributable to any
other Class;
(b) Each Class shall be charged separately with such other expenses
as may be permitted by Securities and Exchange Commission ("SEC")
rule or order and as the Board of Directors shall deem appropriate;
(c) All other fees and expenses shall be charged to both Classes, in
the proportion that the net assets of that Class bear to the net
assets of the series Legg Mason Opportunity Trust, except as the SEC
may otherwise require;
(2) Dividends and other distributions shall be paid on Class A Shares,
Primary Class Shares, and Navigator Class Shares at the same time. The
amounts of all dividends and other distributions shall be calculated
separately for Primary Class Shares and Navigator Class Shares. In
calculating the amount of any dividends or other distribution,
(a) Each Class shall be charged with the transfer agency fees and
Rule 12b-1 fees (or equivalent fees by any other name) attributable
to that Class, and not with the transfer agency fees and Rule 12b-1
fees (or equivalent fees by any other name) attributable to any
other Class;
(b) Each Class shall be charged separately with such other expenses
as may be permitted by SEC rule or order and as the board of
directors shall deem appropriate;
(c) All other fees and expenses shall be charged to both Classes, in
the proportion that the net assets of that Class bear to the net
assets of the Legg Mason Opportunity Trust, except as the SEC may
otherwise require;
(3) Each Class shall vote separately on matters pertaining only to that
Class, as the directors shall from time to time determine. On all other
matters, all Classes shall vote together and every Share, regardless of
Class, shall have an equal vote with every other Share.
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The corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 6.2. Establishment of Series and Classes. The establishment of any
Series or Class of Shares in addition to those established in Section 6.1 hereof
shall be effective upon the adoption of a resolution by the Board of Directors
setting forth such establishment and designation and the relative rights and
preferences of the Shares of such Series or Class. At any time that there are no
Shares outstanding of any particular Series or Class previously established and
designated, the Directors may by a majority vote abolish that Series or Class
and the establishment and designation thereof.
Section 6.3. Dividends. Dividends and distributions on Shares with respect
to each Series or Class may be declared and paid with such frequency, in such
form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
All dividends on Shares of each Series or Class shall be paid only out of
the income belonging to that Series or Class and capital gains distributions on
Shares of each Series or Class shall be paid only out of the capital gains
belonging to that Series or Class. All dividends and distributions on Shares of
each Series or Class shall be distributed pro rata to the holders of that Series
or Class in proportion to the number of Shares of that Series or Class held by
such holders at the date and time of record established for the payment of such
dividends or distributions, except that such dividends and distributions shall
appropriately reflect expenses allocated to a particular Series or Class. In
connection with any dividend or distribution program or procedure the Board of
Directors may determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under such
program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable each Series of the Corporation to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to avoid liability of each Series of the
Corporation for Federal income and excise tax in respect of that year. However,
nothing in the foregoing shall limit the authority of the Board of Directors to
make distributions greater than or less than the amount necessary to qualify as
a regulated investment company and to avoid liability of any Series of the
Corporation for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 6.7.
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<PAGE>
Section 6.4. Assets and Liabilities of Series and Classes. All
consideration received by the Corporation for the issue or sale of Shares of a
particular Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be referred to as "assets belonging to"
that Series or Class, as the case may be. In addition, any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated between and among one or more of the Series or Classes in such manner
as the Board of Directors, in its sole discretion, deems fair and equitable.
Each such allocation shall be conclusive and binding upon the Stockholders of
all Series or Classes for all purposes, and shall be referred to as assets
belonging to that Series or Class. The assets belonging to a particular Series
or Class shall be so recorded upon the books of the Corporation. The assets
belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class, as the case may be. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which are
not readily identifiable as belonging to any particular Series or Class shall be
allocated between or among any one or more of the Series or Classes in such a
manner as the Board of Directors in its sole discretion deems fair and
equitable. Each such allocation shall be conclusive and binding upon the
Stockholders of all Series or Classes for all purposes.
Section 6.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his name on the
books of the Corporation; provided, however, that when required by the 1940 Act
or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of such Series or Class only, and each
holder of Shares thereof shall be entitled to votes equal to the number of full
and fractional Shares of the Series or Class standing in his name on the books
of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares of capital stock of the Corporation outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of
business at a Stockholders' meeting, except that where holders of any Series or
Class vote as a Series or Class, one-third of the aggregate number of Shares of
that Series or Class outstanding and entitled to vote shall constitute a quorum
for the transaction of business by that Series or Class.
Section 6.6. Redemption by Stockholders. Each holder of Shares shall have
the right at such times as may be permitted by the Corporation to require the
Corporation to redeem all or any part of his Shares at a redemption price per
Share equal to the net asset value per Share as of such time as the Board of
Directors shall have prescribed by resolution, minus any applicable sales charge
or redemption or repurchase fee. In the absence of such resolution, the
redemption price per Share shall be the net asset value next determined (in
accordance with Section 6.7) after acceptance of a request for redemption in
proper form less such charges as are determined by the Board of Directors and
described in the Corporation's registration statement under the Securities Act
of 1933, except that Shares may be redeemed by an underwriter at (a) the net
asset value next determined after such requests are received by a dealer with
whom such underwriter has a sales agreement or (b) the net asset value
determined at a later time. The Board of Directors may specify conditions,
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<PAGE>
prices, and places of redemption, and may specify binding requirements for the
proper form or forms of requests for redemption. The Corporation may require
Stockholders to pay a sales charge to the Corporation, the underwriter or any
other person designated by the Board of Directors upon redemption or repurchase
of Shares of any Series or Class, in such amount as shall be determined from
time to time by the Directors. Payment of the redemption price may be wholly or
partly in securities or other assets at the value of such securities or assets
used in such determination of net asset value, or may be in cash.
Notwithstanding the foregoing, the Board of Directors may postpone payment of
the redemption price and may suspend the right of the holders of Shares to
require the Corporation to redeem Shares during any period or at any time when
and to the extent permissible under the 1940 Act.
Section 6.7. Net Asset Value per Share. The net asset value of each Share
of each Series or Class shall be the quotient obtained by dividing the value of
the total assets of the Series or Class, less liabilities and expenses of that
Series or Class, by the total number of Shares of the Series or Class
outstanding. The Board of Directors shall have the power and duty to determine,
in accordance with generally accepted accounting principles, the net income,
total assets and liabilities of the Corporation and the net asset value per
Share of each Series and Class of Shares at such times and by such methods as it
shall determine subject to any restrictions or requirements under the 1940 Act
and the rules, regulations and interpretations thereof promulgated or issued by
the SEC or insofar as permitted by any order of the SEC applicable to the
Corporation. The Board of Directors may delegate such power and duty to any one
or more of the directors and officers of the Corporation, to the Corporation's
investment adviser, to the custodian or depository of the Corporation's assets,
or to another agent or contractor of the Corporation.
Section 6.8. Redemption by the Corporation. The Board of Directors may
cause the corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than two thousand dollars ($2,000). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his Shares to two thousand dollars ($2,000). Upon redemption of Shares pursuant
to this Section, the Corporation shall promptly cause payment of the full
redemption price, in any permissible form, to be made to the holder of Shares so
redeemed. The Board of Directors may by a majority vote establish from time to
time amounts less than two thousand dollars ($2,000) at which the Corporation
will redeem Shares pursuant to this Section.
SEVENTH: Section 7.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
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<PAGE>
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 7.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the Bylaws they shall
be deemed to include fractions of Shares, where the context does not clearly
indicate that only full Shares are intended.
EIGHTH: Except as otherwise required by the 1940 Act, a majority of all
the votes cast at a Stockholders' meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting.
Notwithstanding any provision of law requiring a greater proportion than a
majority of the vote thereon as a separate Class or Series (or of any Class or
Series entitled to vote thereon as a separate Class or Series) to take or
authorize any action, the Corporation is hereby authorized in accordance with
the authority granted by Section 2-104(b)(5) of the Maryland General Corporation
Law, to take such action upon the concurrence of a majority of the aggregate
number of Shares entitled to vote thereon (or of a majority of the aggregate
number of Shares of a Class or Series entitled to vote thereon as a separate
Class or Series). The right to cumulate votes in the election of directors is
expressly prohibited.
NINTH: Section 9.1. Board of Directors. All corporate powers and authority
of the Corporation (except as otherwise provided by statute, by these Articles
of Incorporation, or by the Bylaws of the Corporation) shall be vested in and
exercised by the Board of Directors. The number of directors constituting the
Board of Directors shall be such number as may from time to time be fixed in or
in accordance with the Bylaws of the Corporation, provided that if there is no
stock outstanding, the number of directors may be less than three but not less
than one, and further provided that if there is stock outstanding and so long as
there are less than three Stockholders, the number of directors may be less than
three but not less than the number of Stockholders. Except as provided in the
Bylaws, the election of directors may be conducted in any way approved at the
meeting (whether of stockholders or directors) at which the election is held,
provided that such election shall be by ballot whenever requested by any person
entitled to vote. The names of the persons who shall act as initial directors
until stock is issued to more than one stockholder or the first meeting of
stockholders, whichever shall occur earlier, and until their successor has been
duly chosen and qualified are William H. Miller, III and Jennifer W. Murphy.
Section 9.2. Bylaws. Except as may otherwise be provided in the Bylaws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal Bylaws or to adopt new Bylaws of the Corporation,
without any action on the part of the Stockholders; but the Bylaws made by the
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Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
Section 9.3. Inspection of Records. The Board of Directors shall have the
power to determine whether and to what extent, and at what times and places, and
under what conditions and regulation, the accounts and books of the Corporation
(other than the stock ledger), or any of them, shall be open to inspection by
stockholders. No stockholders shall have any right to inspect any account, book,
or document of the Corporation, except to the extent permitted by statute or the
Bylaws.
TENTH: Section 10.1. The Board of Directors may in its discretion from
time to time enter into an exclusive or nonexclusive distribution contract or
contracts providing for the sale of Shares whereby the Corporation may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such Shares (such other party being herein sometimes
called the "underwriter"), and in either case on such terms and conditions as
may be prescribed in the Bylaws, if any, and such further terms and conditions
as the Board of Directors may in its discretion determine not inconsistent with
the provisions of these Articles of Incorporation. Such contract may also
provide for the repurchase of Shares of the Corporation by such other party or
parties as agent of the Corporation. The Board of Directors may also in its
discretion from time to time enter into an investment advisory or management
contract or contracts whereby the other party to such contract shall undertake
to furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 10.2. Any contract of the character described in Section 10.1 or
for services as administrator, custodian, transfer agent or disbursing agent or
related services may be entered into with any corporation, firm, trust or
association, although any one or more of the directors or officers of the
Corporation may be an officer, director, trustee, stockholder or member of such
other party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Corporation under or by reason of
said contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was reasonable and fair
and not inconsistent with the provisions of this Article TENTH. The same person
(including a firm, corporation, trust, or association) may be the other party to
any or all of the contracts entered into pursuant to Section 10.1 above, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 10.2.
ELEVENTH: Section 11.1. To the maximum extent permitted by applicable law
(including Maryland law and the 1940 Act) as currently in effect or as it may
hereafter be amended, no director or officer of the Corporation shall be liable
to the Corporation, its stockholders, or any other party for money damages.
Section 11.2. To the maximum extent permitted by applicable law (including
Maryland law and the 1940 Act) currently in effect or as it may hereafter be
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amended, the Corporation shall indemnify and advance expenses to its present and
past directors, officers, or employees, and persons who are serving or have
served at the request of the Corporation as a director, officer, employee,
partner, trustee or agent, of or in similar capacities, for other entities. The
Board of Directors may determine that the Corporation shall provide information
or advance expenses to an agent.
Section 11.3. Repeal or Modifications. No repeal or modification of this
Article ELEVENTH by the stockholders of the Corporation, or adoption or
modification of any other provision of the Articles of Incorporation or Bylaws
inconsistent with this Article ELEVENTH, shall repeal or narrow any limitation
on (1) the liability of any director, officer or employee of the Corporation or
(2) right of indemnification available to any person covered by these provisions
with respect to any act or omission which occurred prior to such repeal,
modification or adoption.
TWELFTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation now or hereafter required by law to
be adopted by stockholders of the Corporation may be adopted at any meeting of
the stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon. The Board of Directors may, without a Shareholder
vote, order the filing of Articles Supplementary increasing or decreasing the
aggregate number of Shares or the number of Shares of any Series or Class that
the Corporation has authority to issue, establishing new Series or Classes and
describing the Shares thereof and may take any other action now or hereafter
permitted by law without a shareholder vote.
IN WITNESS WHEREOF, the undersigned incorporator of LEGG MASON INVESTMENT
TRUST, INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 8th day of October, 1999.
/s/ Sean R. Hunt
---------------------------------
Sean R. Hunt
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BYLAWS
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL
-------------------------------------------------
Section 1.01. NAME: The name of the Corporation is Legg Mason Investment
Trust, Inc. ("Fund").
Section 1.02. PRINCIPAL OFFICES: The principal office of the Corporation
in the State of Maryland shall be located in the City of Baltimore. The
Corporation may establish and maintain such other offices and places of business
as the board of directors may, from time to time, determine. Except as provided
in Section 2.10, the board of directors may keep the books of the Corporation at
any office of the Corporation or at any other place within the United States as
it may from time to time determine.
Section 1.03. SEAL: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of the
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the board of directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
------------
Section 2.01. ANNUAL MEETINGS: There shall be no stockholders' meetings
for the election of directors and the transaction of other business except as
required by law or as hereinafter provided.
Section 2.02. SPECIAL MEETINGS: Special meetings of the stockholders may
be called at any time by the chairman of the board, the president, any vice
president, or a majority of the board of directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than twenty five percent of all the
shares entitled to be voted at such meeting, provided that (a) such request
shall state the purposes of such meeting and the matters proposed to be acted
on, and (b) the stockholders requesting such meeting shall have paid to the
Corporation the reasonably estimated cost of preparing and mailing the notice
thereof, which the secretary shall determine and specify to such stockholders.
No special meeting need be called upon the request of the holders of shares
entitled to vote less than a majority of all the shares entitled to be voted at
such meeting to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
twelve months.
<PAGE>
Section 2.03. PLACE OF MEETINGS: All stockholders' meetings shall be held
at the principal office of the Corporation, except that the board of directors
may fix a different place of meeting, which shall be specified in each notice or
waiver of notice of the meeting.
Section 2.04. NOTICE OF MEETINGS: The secretary shall cause notice of the
place, date and hour, and, in the case of a special meeting or as otherwise
required by law, the purpose or purposes for which the meeting is called, to be
mailed, not less than ten nor more than ninety days before the date of the
meeting, to each stockholder entitled to vote at such meeting, at his address as
it appears on the records of the Corporation at the time of such mailing. Notice
of any stockholders' meeting need not be given to any stockholder who shall sign
a written waiver of such notice whether before or after the time of such
meeting, which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
Section 2.05. VOTING - IN GENERAL: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these Bylaws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time,
("1940 Act") all matters shall be decided by a vote of the majority of the votes
validly cast at a meeting at which a quorum is present. The vote upon any
question shall be by ballot whenever requested by any person entitled to vote,
but, unless such a request is made, voting may be conducted in any way approved
by the meeting.
At any meeting at which there is an election of directors, the chairman of
the meeting may, and upon the request of the holders of ten percent of the stock
entitled to vote at such election shall, appoint two inspectors of election who
shall first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of Director shall be
appointed as an inspector.
Section 2.06. STOCKHOLDERS ENTITLED TO VOTE: If, pursuant to Section 8.05
hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock of the appropriate series of shares
("Series") or class of shares ("Class") of the Corporation standing in his name
on the books of the Corporation on such record date and outstanding at the time
of the meeting. If no record date has been fixed by the board of directors for
the determination of stockholders entitled to notice of or to vote at a meeting,
the record date for the meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day thirty days before the meeting, whichever is the
closer date to the meeting; or, (b) if notice is waived by all stockholders, at
the close of business on the tenth day next preceding the day on which the
meeting is held.
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Section 2.07. VOTING - PROXIES: A stockholder may vote the stock he owns
of record by written proxy executed by the stockholder himself or by his duly
authorized attorney in fact. No proxy shall be voted after eleven months from
its date unless it provides for a longer period. Each proxy shall be dated, but
need not be sealed, witnessed or acknowledged. Proxies shall be delivered to an
inspector of election or, if no inspector has been appointed, then to the
secretary of the Corporation, or person acting as secretary of the meeting,
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives from any one of them written
notice to the contrary and a copy of the instrument or order which so provides.
A proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid unless challenged at or prior to its exercise. A proxy in the form
of a telegram, datagram or telex shall not be valid; however, a mechanical or
electronic facsimile of an otherwise valid proxy shall be valid.
Section 2.08. QUORUM: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by proxy,
of stockholders entitled to cast one third of all the votes entitled to be cast
thereat shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 2.09. ABSENCE OF QUORUM: In the absence of a quorum, the holders
or proxies of a majority of the shares present at the meeting in person or by
proxy and entitled to vote thereat, or, if no stockholder entitled to vote is
present thereat in person or by proxy, any officer present thereat entitled to
preside or act as secretary of such meeting, may adjourn the meeting without
determining the date of the new meeting or from time to time, without further
notice, to a date not more than 120 days after the original record date. Any
business that might have been transacted at the meeting originally called may be
transacted at any such adjourned meeting at which a quorum is present.
Section 2.10. STOCK LEDGER AND LIST OF STOCKHOLDERS: It shall be the duty
of the secretary or assistant secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder of
record of the Corporation for at least the six months next preceding such
request, and who own in the aggregate five percent or more of the outstanding
capital stock of the Corporation, may, in person or by agent, upon written
request, inspect and copy during usual business hours the corporation's stock
ledger at its principal office in Maryland; and may submit (if the Corporation
at the time of the request does not maintain a duplicate stock ledger at its
principal office in Maryland) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within twenty days after such a request, there shall be
prepared and filed at the Corporation's principal office in Maryland a list
containing the names and addresses of all stockholders of the Corporation and
the number of shares of each class held by each stockholder, certified as
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correct by an officer of the Corporation, by its stock transfer agent, or by its
registrar. Notwithstanding the foregoing, whenever ten or more shareholders of
record who have been such for at least six months preceding such request, and
who own in the aggregate either shares having a net asset value of at least
twenty five thousand dollars ($25,000) or at least one percent of the
outstanding shares, whichever is less, shall apply to the secretary in writing,
stating that they wish to communicate with other shareholders with a view to
obtaining signatures to a request for a special meeting of shareholders to vote
upon the removal of one or more directors, and including with the application a
form of communication and request which they wish to transmit, the Fund shall,
within five business days after receipt of such application, either: (1) afford
to such applicants access to a list of the names and addresses of all
shareholders as recorded on the books of the Fund; or (2) inform the applicants
as to the approximate cost of mailing to them the proposed communication and
form of request, and, upon the written request of the applicants, accompanied by
a tender of the material to be mailed and of reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all shareholders of
record; provided, however, that the Fund may avail itself of any of the rights
afforded to a common law trust pursuant to Section 16(c) of the 1940 Act.
Section 2.11. ACTION WITHOUT MEETING: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.01. NUMBER AND TERM OF OFFICE: The board of directors shall
initially consist of two directors until such time that either of the initial
directors resigns. Thereafter, the board of directors shall consist of seven
directors, which number may be increased or decreased by a resolution of a
majority of the entire board of directors; provided that the number of directors
shall not be less than three nor more than twenty; and further provided that if
there is no stock outstanding the number of directors may be less than three but
not less than one, and if there is a stock outstanding and so long as there are
less than three stockholders, the number of directors may be less than three but
not less than the number of stockholders. Each director (whenever selected)
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal.
Section 3.02. QUALIFICATION OF DIRECTORS: After stock has been issued to
more than one person, at least one of the members of the board of directors
shall be a person who is not an "interested person" of the Corporation, as
defined in the 1940 Act.
Section 3.03. ELECTION OF DIRECTORS: The initial director or directors of
the Corporation shall be that person or those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected by the stockholders on a
date fixed by the board of directors. A plurality of all the votes validly cast
at a meeting at which a quorum is present in person or by proxy is sufficient to
elect a director.
Section 3.04. REMOVAL OF DIRECTORS: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, and at the same meeting a
duly qualified person may be elected in his stead by a plurality of the votes
validity cast.
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Section 3.05. VACANCIES AND NEWLY CREATED DIRECTORSHIPS: If any vacancies
shall occur in the board of directors by reason of death, resignation, removal
or otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
directors then in office, although less than a quorum, except that a newly
created directorship may be filled only by a majority vote of the entire board
of directors, provided that in either case immediately after filling such
vacancy, at least two-thirds of the directors then holding office shall have
been elected to such office by the stockholders of the Corporation. In the event
that at any time, other than the time preceding the first stockholders' meeting,
less than a majority of the directors of the Corporation holding office at that
time were so elected by the stockholders, a meeting of the stockholders shall be
held promptly and in any event within sixty days (unless the Securities and
Exchange Commission ("SEC") shall by rule or order extend such period) for the
purpose of electing directors to fill any existing vacancies in the board of
directors.
Section 3.06. GENERAL POWERS:
--------------
(a) The property, affairs and business of the Corporation shall be managed
by or under the direction of the board of directors, which may exercise all the
powers of the Corporation except those powers vested solely in the stockholders
of the Corporation by statute, by the Articles of Incorporation, or by these
Bylaws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. POWER TO ISSUE AND SELL STOCK: The board of directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the board of directors shall deem advisable, subject to the provisions of
Articles Sixth and Seventh of the Articles of Incorporation.
Section 3.08. POWER TO DECLARE DIVIDENDS: The board of directors, from
time to time as it may deem advisable, may declare and pay dividends in stock,
cash or other property of the Corporation, out of any source available for
dividends, to the stockholders according to their respective rights and
interests in accordance with the provisions of the Articles of Incorporation.
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Section 3.09. ANNUAL AND REGULAR MEETINGS: The annual meeting of the board
of directors for choosing officers and transacting other proper business shall
be held at such time and place as the board may determine. The board of
directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place, which need not be in the State of
Maryland. Except as otherwise provided under the 1940 Act, members of the board
of directors or any committee designated thereby may participate in a meeting of
such board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time; and participation by such means
shall constitute presence in person at a meeting.
Section 3.10. SPECIAL MEETINGS: Special meetings of the board of directors
shall be held whenever called by the chairman of the board, the president (or,
in the absence or disability of the president, by any vice president), the
treasurer, or two or more directors, at the time and place (which need not be in
the State of Maryland) specified in the respective notices or waivers of notice
of such meetings.
Section 3.11. NOTICE:
(a) Except as otherwise provided under the 1940 Act, notice of such annual
and regular meetings need not be given, provided that notice of any change in
the time or place of such meetings shall be sent promptly, in the manner
provided for notice of special meetings, to each director not present at the
meeting at which such change was made.
(b) Except as otherwise provided, notice of any special meeting shall be
given by the secretary to each director, by mailing to him, postage prepaid,
addressed to him at his address as registered on the books of the Corporation
or, if not so registered, at his last known address, a written or printed
notification of such meeting at least three days before the meeting or by
delivering such notice to him at least two days before the meeting, or by
sending such notice to him at least twenty four hours before the meeting, by
prepaid telegram, addressed to him at his said registered address, if any, or if
he has no such registered address, at his last known address.
Section 3.12. WAIVER OF NOTICE: No notice of any meeting need be given to
any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
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Section 3.13. QUORUM AND VOTING: At all meetings of the board of directors
the presence of one-half or more of the number of directors then in office shall
constitute a quorum for the transaction of business, provided that there shall
be present no fewer than two directors (unless the Corporation, at the time, has
only one director). In the absence of a quorum, a majority of the directors
present may adjourn the meeting, from time to time, until a quorum shall be
present. The action of a majority of the directors present at a meeting at which
a quorum is present shall be the action of the board of directors unless the
concurrence of a greater proportion is required for such action by law, by the
Articles of Incorporation or by these Bylaws.
Section 3.14. COMPENSATION: Each director may receive such remuneration
for his services as shall be fixed from time to time by resolution of the board
of directors.
Section 3.15. ACTION WITHOUT A MEETING: Except as otherwise provided under
the 1940 Act, any action required or permitted to be taken at any meeting of the
board of directors may be taken without a meeting if written consents thereto
are signed by all members of the board and such written consents are filed with
the records of the meetings of the board.
Section 3.16. CHAIRMAN OF THE BOARD: The board of directors, at its first
meeting and thereafter at its annual meeting, shall elect from among the
directors a chairman of the board, who shall serve at the pleasure of the board
of directors. If the board of directors does not elect a chairman at any annual
meeting, it may do so at any subsequent regular or special meeting. The chairman
of the board shall hold office until the next annual meeting of the board of
directors and until his successor shall have been chosen and qualified. If the
office of chairman of the board shall become vacant for any reason, the board of
directors may fill such vacancy at any regular or special meeting. The chairman
of the board shall preside at all stockholders' meetings and at all meetings of
the board of directors and shall have such powers and perform such duties as may
be assigned to him from time to time by the board of directors. The chairman of
the board shall not be considered an officer of the Corporation by reason of
holding said position.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 4.01. HOW CONSTITUTED: By resolution adopted by the board of
directors, the board may designate an executive committee, consisting of not
less than three nor more than five directors. The board may also designate
additional committees consisting of at least two directors. Each member of a
committee shall be a director and shall hold office during the pleasure of the
board. The chairman of the board, if any, and the president shall be members of
the executive committee.
Section 4.02. POWERS OF THE EXECUTIVE COMMITTEE: Unless otherwise provided
by resolution of the board of directors, when the board of directors is not in
session the executive committee shall have and may exercise all powers of the
board of directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by the full board of directors,
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except the power to declare a dividend, to authorize the issuance of stock, to
recommend to stockholders any matter requiring stockholders' approval, to amend
the Bylaws, or to approve any merger or share exchange which does not require
shareholder approval.
Section 4.03. PROCEEDINGS, QUORUM AND MANNER OF ACTING: In the absence of
an appropriate resolution of the board of directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall not
be less than two directors. In the absence of such rules, the proceedings,
quorum and manner of acting of a committee shall be governed by the rules
applicable to the full board of directors. In the absence of any member of any
such committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the board of directors to act in
the place of such absent member.
Section 4.04. OTHER COMMITTEES: The board of directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the board of directors, but shall not
exercise any power which may lawfully be exercised only by the board of
directors or another committee thereof.
ARTICLE V
OFFICERS
--------
Section 5.01. GENERAL: The officers of the Corporation shall be a
president, a secretary and a treasurer, and may include one or more vice
presidents, assistant secretaries or assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.10
hereof.
Section 5.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS: The officers of
the Corporation (except those appointed pursuant to Section 5.10 hereof) shall
be elected by the board of directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not elected at any annual
meeting, such officers may be elected at any subsequent regular or special
meeting of the board. Except as provided in Sections 5.03, 5.04 and 5.05 hereof,
each officer chosen by the board of directors shall hold office until the next
annual meeting of the board of directors and until his successor shall have been
chosen and qualified. Any person may hold one or more offices of the Corporation
except that the president may not hold the office of vice president, and
provided further that a person who holds more than one office may not act in
more than one capacity to execute, acknowledge or verify an instrument required
by law to be executed, verified or acknowledged by more than one officer. No
officer need be a director.
Section 5.03. RESIGNATION: Any officer may resign his office at any time
by delivering a written resignation to the board of directors, the president,
the secretary, or any assistant secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 5.04. REMOVAL: Any officer may be removed from office whenever in
the board's judgment the best interest of the Corporation will be served
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thereby, by the vote of a majority of the board of directors given at a regular
meeting or any special meeting called for such purpose. In addition, any officer
or agent appointed in accordance with the provisions of Section 5.10 hereof may
be removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the board of directors.
Section 5.05. VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the board of directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.10
hereof, by any officer upon whom such power shall have been conferred by the
board of directors.
Section 5.06. PRESIDENT: The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the board,
shall preside at all stockholders' meetings and at all meetings of the board of
directors. Subject to the supervision of the board of directors, he shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers, employees and agents. Subject to the
provisions of Section 7.01 and except as the board of directors may otherwise
order, he may sign in the name and on behalf of the Corporation all deeds,
bonds, contracts or agreements. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the board of
directors.
Section 5.07. VICE PRESIDENT: The board of directors may from time to time
designate and elect one or more vice presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the board of
directors or the president. At the request or in the absence or disability of
the president, the vice president or, if there are two or more vice presidents,
then the senior of the vice presidents present and able to act) may perform all
of the duties of the president and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the president.
Section 5.08. TREASURER AND ASSISTANT TREASURERS: The treasurer shall be
the principal financial and accounting officer of the Corporation. He shall
deliver all funds and securities of the Corporation which may come into his
hands to such bank or trust company as the board of directors shall employ as
Custodian. He shall prepare annually a full and correct statement of the affairs
of the Corporation, including a balance sheet and a financial statement of
operations for the preceding fiscal year, which shall be filed at the
Corporation's principal office within 120 days after the end of the fiscal year.
The treasurer shall furnish such other reports regarding the business and
condition of the Corporation as the board of directors may from time to time
require and perform such duties additional to the foregoing as the board of
directors may from time to time designate.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
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Section 5.09. SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
attend to the giving and serving of all notices of the Corporation and shall act
as secretary at, and record all proceedings of, the meetings of the stockholders
and directors in the books to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation, and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
board of directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable times
be open to inspection by any director. At every meeting of the stockholders, he
shall receive and take charge of and/or canvass all proxies and/or ballots, and
shall decide all questions affecting the qualification of voters, the validity
of proxies and the acceptance or rejection of votes, except that the chairman
may assign such duties to inspectors of election pursuant to Section 2.05
hereof. He shall perform such other duties as appertain to his office or as may
be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign and, in the absence of the
secretary, may perform all the duties of the secretary.
Section 5.10. SUBORDINATE OFFICERS: The board of directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the board of directors may determine. The board of
directors from time to time may delegate to one or more officers or agents the
power to appoint and remove any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Section 5.11. REMUNERATION: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the board of directors, except that the board of directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5 hereof.
Section 5.12. SURETY BONDS: The board of directors may require any officer
or agent of the Corporation to execute a bond (including, without limitation,
any bond required by the 1940 Act, and the rules and regulations of the SEC) to
the Corporation in such sum and with such surety or sureties as the board of
directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE VI
CUSTODY OF SECURITIES
---------------------
Section 6.01. EMPLOYMENT OF CUSTODIAN: The Corporation shall at all times
employ a bank or trust company organized under the laws of the U.S. or one of
the states thereof and having capital, surplus and undivided profits of at least
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two million dollars ($2,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in these Bylaws:
(1) to hold the securities owned by the Corporation and deliver the same
upon written order or oral order, if confirmed in writing, or by
such electro-mechanical or electronic devices as are agreed to by
the Corporation and the custodian, if such procedures have been
authorized in writing by the Corporation;
(2) to receive and receipt for any moneys due to the Corporation and
deposit the same in its own banking department or elsewhere as the
Directors may direct; and
(3) to disburse such moneys upon orders or vouchers; and the Corporation
may also employ such custodian as its agent;
(4) to keep the books and accounts of the Corporation and furnish
clerical and accounting services thereto; and
(5) to compute, if authorized to do so by the Directors, the net asset
value of any Series in accordance with the provisions of the
Articles of Incorporation;
all upon such basis of compensation as may be agreed upon between the Directors
and the custodian. If so directed by a vote of a majority of the outstanding
shares of the Corporation entitled to vote, the custodian shall deliver and pay
over all property of the Corporation held by it as specified in such vote.
The Directors may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Directors, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least two million dollars ($2,000,000) or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act.
Section 6.02. USE OF CENTRAL SECURITIES HANDLING SYSTEM: Subject to such
rules, regulations and orders as the Commission may adopt, the Directors may
direct the custodian to deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Corporation.
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ARTICLES VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
----------------------------------------------
Section 7.01. GENERAL: Subject to the provisions of Sections 5.07, 7.02,
and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the board of directors may otherwise,
from time to time, authorize. Any such authorization may be general or confined
to specific instances.
Section 7.02. CHECKS, NOTES, DRAFTS, ETC.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the board of directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or such
nominee and only by the treasurer or president or a vice president or by such
other person or persons as shall be authorized by the board of directors.
Section 7.03. VOTING OF SECURITIES: Unless otherwise ordered by the board
of directors, the president or any vice president shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The board of directors may by resolution from time to time confer like powers
upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
-------------
Section 8.01. CERTIFICATES OF STOCK: Certificates of stock shall not
be issued.
Section 8.02. TRANSFER OF CAPITAL STOCK:
-------------------------
(a) Transfers of shares of any Series or Class of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
or by his attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) as
prescribed by the board of directors.
(b) The Corporation shall be entitled to treat the holder of record of any
share of stock as the absolute owner thereof for all purposes, and accordingly
shall not be bound to recognize any legal, equitable or other claim or interest
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in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statues of the State of Maryland.
Section 8.03. TRANSFER AGENTS AND REGISTRARS: The board of directors may,
from time to time, appoint or remove transfer agents or registrars of shares of
any Series or Class of the Corporation.
Section 8.04. TRANSFER REGULATIONS: Except as provided in the Articles of
Incorporation, the shares of any Series of the Corporation may be freely
transferred, subject to the charging of customary transfer fees, and the board
of directors may, from time to time, adopt rules and regulations with reference
to the method of transfer of the shares of any Series or Class of the
Corporation.
Section 8.05. FIXING OF RECORD DATE: The board of directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than ninety nor less than ten days
prior to the date on which the particular action requiring such determination of
stockholders of record will be taken, except as otherwise provided by law.
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
-----------------------
Section 9.01. FISCAL YEAR: The fiscal year of the Corporation shall,
unless otherwise ordered by the board of directors, be twelve calendar months
ending on the 31st day of December in each year.
Section 9.02. ACCOUNTANT:
----------
(a) The Corporation shall employ an independent accountant or firm of
independent accountants as its accountant to examine the account of the
Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the board of directors and to the stockholders.
(b) A majority of the members of the board of directors who are not
"interested persons" (as such term is defined in the 1940 Act) of the
Corporation shall select the accountant at any meeting held within ninety days
before or after the beginning of the fiscal year of the Corporation or before
the annual stockholders' meeting (if any) in that year. Such selection shall be
submitted for ratification or rejection at the next stockholders' meeting, when
and if such meeting is held. If such meeting shall reject such selection, the
accountant shall be selected by majority vote of the Corporation's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of stockholders called for that purpose.
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(c) Any vacancy occurring between meetings, due to the death or
resignation of the accountant, may be filled by a majority of the members of the
board of directors who are not such interested persons.
ARTICLE X
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 10.01. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding'), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, partner, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually incurred,
and judgments, fines, penalties and amounts paid in settlement in connection
with such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions shall
apply with respect to indemnification of the Corporation's directors, officers,
and investment adviser (as defined in the 1940 Act):
(a) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for any
liability arising by reason of such person's willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office or reckless disregard of his duties under any contract or
agreement with the Corporation ("disabling conduct").
(b) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the proceeding was
brought (a) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (b) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is made,
based upon a review of the facts, by (a) the vote of a
majority of a quorum of the directors of the Corporation who
are neither "interested persons" of the Corporation as defined
in the 1940 Act nor parties to the Proceeding, or (b) if a
majority of a quorum of directors described above so directs,
or if such quorum is not obtainable, based upon a written
opinion by independent legal counsel, that such person was not
liable by reason of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred in
defending a Proceeding involving any such person will be paid by the
Corporation in advance of the final disposition thereof upon an
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undertaking by such person to repay such expenses unless it is
ultimately determined that he or she is entitled to indemnification,
if:
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation who
are neither "interested persons" of the Corporation as defined
in the 1940 Act nor parties to the proceeding, or independent
legal counsel in a written opinion, shall determine, based on
a review of readily available facts, that there is reason to
believe that such person will be found to be entitled to
indemnification.
Section 10.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES AND Agents: The
Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in or arising out of his or her position.
Section 10.03. NON-EXCLUSIVITY: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these Bylaws, any agreement, vote of stockholders or directors, or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
ARTICLE XI
AMENDMENTS
----------
Section 11.01. GENERAL: Except as provided in Sections 11.02 and 11.03
hereof, all Bylaws of the Corporation, whether adopted by the board of directors
or the stockholders, shall be subject to amendment, alteration or repeal, and
new Bylaws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new Bylaw; or
(b) the directors, at any regular or special meeting the notice or waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration, repeal or new Bylaw.
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Section 11.02. BY STOCKHOLDERS ONLY:
(a) No amendment of any section of these Bylaws shall be made except by
the stockholders of the Corporation if the Bylaws provide that such section may
not be amended, altered or repealed except by the stockholders.
(b) From and after the issuance of any shares of the capital stock of the
Corporation, no amendment of this Article XI shall be made except by the
stockholders of the Corporation.
Section 11.03. LIMITATION ON AMENDMENT: No amendment to Article X of these
Bylaws shall narrow or eliminate any right to expenses, indemnification or
insurance for any claim or proceeding arising out of conduct occurring prior to
said amendment.
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