As filed with the Securities and Exchange Commission on January 31, 2000.
1933 Act File No. 333-88715
1940 Act File No. 811-9613
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: 1 [X]
and ---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 2
---
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:
SHEILA M. VIDMAR 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:
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ X ] on March 31, 2000, pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on __________ pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LEGG MASON 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 - Navigator Class
Part B - Statement of Additional Information
Legg Mason Opportunity Trust - Primary Class Shares and Navigator Class Shares
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Investment Trust, Inc.
Legg Mason Opportunity Trust
NAVIGATOR CLASS PROSPECTUS March __, 2000
logo
The Art of Investing SM
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the adequacy of this prospectus, nor has it approved or disapproved these
securities. It is a criminal offense to state otherwise.
<PAGE>
T A B L E O F C O N T E N T S
A b o u t t h e f u n d:
xx Investment objective
xx Principal risks
xx Fees and expenses of the fund
xx Management
A b o u t y o u r i n v e s t m e n t:
xx How to invest
xx How to sell your shares
xx Account policies
xx Services for investors
xx Distributions and taxes
<PAGE>
[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 the
adviser believes are priced at large discounts relative to their intrinsic
value; securities of companies the adviser believes have 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. Intrinsic value, according to the adviser, is
the value of the company measured, to different extents depending on the type of
company, on factors such as, but not limited to, the discounted value of its
projected future free cash flows, the company's ability to earn returns on
capital in excess of its cost of capital, private market values of similar
companies, and the costs to replicate the business. Qualitative factors, such as
an assessment of the company's products, competitive positioning, strategy,
industry economics and dynamics, regulatory frameworks and more, are also
important.
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, market
capitalization, or industry sector. Although the fund will invest the majority
of its assets in the common stock of U.S. issuers, the fund may also invest in
the common stock 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. Although the fund's adviser considers ratings in determining
whether securities convertible into common stock or debt securities are
appropriate investments for the fund, such securities may include investments
rated below investment grade, commonly referred to as junk bonds.
The fund's adviser may decide to sell securities given a variety of
circumstances, such as when a security no longer appears to the adviser to offer
the potential for long-term growth of capital, when an investment opportunity
arises that the adviser believes is more compelling, 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, economic, or
other 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.
<PAGE>
[icon] P R I N C I P A L R I S K S
IN GENERAL:
There is no assurance that the fund will meet its investment objective;
investors could lose money by investing in the fund. As with all mutual funds,
an investment in this fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
EQUITY SECURITIES:
Prices of equity securities generally fluctuate more than those of other
securities, such as debt securities.
Market risk, the risk that prices of securities will go down because of the
interplay of market forces, may affect a single issuer, an industry or a sector
of the economy, or may affect the market as a whole. The fund may experience a
substantial or complete loss on individual stocks.
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.
The adviser may at times emphasize a value approach to investing, and may at
other times emphasize a growth approach:
The value approach to investing involves the risk that those stocks may
remain undervalued. Value stocks as a group may be out of favor for a
long period of time, while the market concentrates on "growth" stocks.
Moreover, at different times, the value approach may favor certain
industries or sectors over others, making fund performance especially
subject to the performance of the specific industries and sectors that
are selected by the adviser.
The growth approach to investing involves the risk that those stocks may
react with greater volatility to negative forecasts concerning
particular stocks, industries, sectors or the economy in general. Growth
stocks as a group may be out of favor for a long period of time, while
the market concentrates on "value" stocks.
COMPANY RISK:
The fund invests in securities that often involve certain special circumstances
which the adviser believes 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.
SMALL AND MID-SIZED COMPANY SECURITIES:
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.
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<PAGE>
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, different or lower standards in accounting, auditing and
financial reporting, less-developed securities regulation and trading systems,
fluctuations in foreign currency exchange rates, and the risk that a country may
impose controls on the exchange or repatriation of foreign currency.
DEBT SECURITIES:
Debt securities are subject to interest rate risk, which is the possibility that
the market prices of the fund's investments may decline due to an increase in
market interest rates. Generally, the longer the maturity of a fixed income
security, the greater is the effect on its value when rates change.
Debt securities are also subject to credit risk, i.e., the risk that an issuer
of securities will be unable to pay principal and interest when due, or that the
value of the security will suffer because investors believe the issuer is less
able to pay. This is broadly gauged by the credit ratings of the securities in
which the fund invests. However, ratings are only the opinions of the agencies
issuing them and are not absolute guarantees as to quality.
Debt securities rated BBB/Baa or better, and unrated securities considered by
the fund's adviser to be of equivalent quality, are considered investment grade.
Debt securities rated below BBB/Baa, which the fund may purchase from time to
time, are deemed by the ratings agencies to be speculative and may involve major
risk or exposure to adverse conditions. Those in the lowest rating categories
may involve a substantial risk of default or may be in default. Changes in
economic conditions or developments regarding the individual issuer are more
likely to cause price volatility and weaken the capacity of such securities to
make principal and interest payments than is the case for higher grade debt
securities.
Securities rated below BBB/Baa may be less liquid than higher-rated securities,
which means a fund may have difficulty selling them at times, and may have to
apply a greater degree of judgment in establishing a price.
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.
The value of a convertible security is a function of (1) its yield in comparison
with the yields of other securities of comparable maturity and quality that do
not have a conversion privilege and (2) its worth, at market value, if converted
into the underlying common stock. Convertible securities are typically issued by
smaller capitalized companies whose stock prices may be volatile. The price of a
convertible security often reflects such variations in the price of the
underlying common stock in a way that non-convertible debt does not. Convertible
securities are also subject to credit risk, as described above.
NON-DIVERSIFICATION RISK:
The fund is non-diversified. This means that 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.
3
<PAGE>
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. The fund may suffer significant
losses if securities which the fund sells short appreciate rather than
depreciate in value. Such transactions may also involve a cost of borrowing the
security.
PORTFOLIO TURNOVER:
Although the fund's adviser does not anticipate a turnover rate in excess of
100%, the possibility exists. High turnover rates can result in increased
trading costs and higher levels of realized capital gains.
PERFORMANCE:
The fund is newly organized and, as of the date of this prospectus, does not
have a calendar year of performance.
4
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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 so they lower the fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
The fees and expenses are shown as a percentage of average net assets.
ANNUAL FUND OPERATING EXPENSES -
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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PRIMARY CLASS SHARES
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Management Fees 1.00%
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Distribution and Service (12b-1) None
Fees
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Other Expenses(a) 0.39%
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Total Annual Fund Operating 1.39%
Expenses(b)
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(a) "Other expenses" are based on estimated expenses for the fiscal year
ending December 31, 2000.
(b) The manager has contractually 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. Certain
waivers of fees and reimbursements of expenses for the Primary Class may
result in similar waivers of fees or reimbursements of expenses for the
Navigator Class.
EXAMPLE:
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. Actual returns may be higher or lower than 5% per
year.
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1 YEAR 3 YEARS
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Opportunity Trust, Navigator Class $142 $440
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5
<PAGE>
[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 is responsible for
overseeing the fund's relationship with outside service providers, such as the
sub-manager, 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 certain sub-advisory and administrative responsibilities to Legg
Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland 21202.
LMM is newly organized; however, its principal employees have been managers or
advisers to investment companies since 1982. LMFA acts as manager or adviser to
investment companies with aggregate assets of about $21 billion as of December
31, 1999. LMM was the sole investor in the fund prior to the public offering of
its shares.
PORTFOLIO MANAGEMENT:
William H. Miller, III, Managing Member of LMM and President of LMFA, is
portfolio manager of the fund. Mr. Miller has been the manager of Legg Mason
Value Trust, Inc. since 1990; from its inception in 1982 to 1990, he served as
co-manager. Mr. Miller was co-manager of Legg Mason Total Return Trust, Inc.
from 1992 to 1997; from 1990 to 1992, he served as manager. Since its inception
in 1985, Mr. Miller has also been primarily responsible for the day-to-day
management of Legg Mason Special Investment Trust, Inc. Since its inception in
1998, Mr. Miller has been manager of LM Value Institutional Portfolio.
DISTRIBUTOR OF THE FUND'S SHARES:
Legg Mason Wood Walker, Incorporated ("Legg Mason" or "Distributor") 100 Light
Street, Baltimore, Maryland 21202, distributes the fund's shares pursuant to an
Underwriting Agreement. The Underwriting Agreement obligates the Distributor to
pay certain expenses in connection with offering fund shares, including
compensation to its financial advisers, the printing and distribution of
prospectuses, statements of additional information and shareholder reports
(after these have been printed and mailed to existing shareholders at the fund's
expense), supplementary sales literature and advertising materials.
The Distributor and the manager may pay non-affiliated entities out of their own
assets to support the distribution of Navigator Class shares and shareholder
servicing.
6
<PAGE>
[icon] H O W T O I N V E S T
Navigator Class shares are currently offered for sale only to:
o Institutional Clients of Legg Mason Trust Company for which they
exercise discretionary investment management responsibility and accounts
of the customers with such Institutional Clients ("Customers").
o Qualified retirement plans managed on a discretionary basis and having
net assets of at least $200 million.
o Any qualified retirement plan having net assets of at least $300
million.
o Clients of Bartlett & Co. who, as of December 19, 1996, were
shareholders of Bartlett Short Term Bond Fund or Bartlett Fixed Income
Fund and for whom Bartlett acts as an ERISA fiduciary.
o Any qualified retirement plan of Legg Mason, Inc. or of any of its
affiliates.
o Shareholders of Class Y shares of Bartlett Europe Fund or Bartlett
Financial Services Fund on October 5, 1999.
o Any open-end management investment company advised or managed by LMFA or
by any person controlling, controlled by, or under common control with
LMFA.
o Employees of Legg Mason, Inc. and its affiliates and children, siblings,
and parents of such persons ("Legg Mason Employees").
Eligible investors may purchase Navigator Class shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 other than for
Legg Mason Employees for which the minimum initial investment is $1,000. The
minimum for each purchase of additional shares is $100. Institutional Clients
may set different minimums for their Customers' investments in accounts invested
in Navigator Class shares.
Legg Mason Employees wishing to open a regular account or a retirement account
(traditional IRA, spousal IRA, education IRA, or Roth IRA) with the fund should
contact a financial adviser or Legg Mason Funds Investor Services ("FIS") to
discuss which type of account might be appropriate. Once the account is open,
Legg Mason Employees may use the following methods to add to the 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 WIRE Call your financial adviser or FIS at 1-800-822-5544
to transfer available cash balances in your
brokerage account or to transfer money from your bank
directly to Legg Mason. Wire transfers may be subject
to a service charge by your bank.
----------------------------------------------------------------------------
TRANSFER OF FUNDS Arrangements may be made with your employer and some
FROM FINANCIAL financial institutions for regular automatic monthly
INSTITUTIONS investments of $50 or more in shares of the fund.
----------------------------------------------------------------------------
7
<PAGE>
Customers of certain Institutional Clients that have omnibus accounts with the
fund's transfer agent can purchase shares through those institutions. The
Distributor may pay such Institutional Clients for account servicing.
Institutional Clients may charge their Customers for services provided in
connection with the purchase and redemption of shares. Information concerning
these services and any applicable charges will be provided by the Institutional
Clients. This prospectus should by read by Customers in connection with any such
information received by Institutional Clients. Any such fees, charges or
requirements imposed by Institutional Clients will be in addition to the fees
and requirements of this prospectus.
Certain institutions that have agreements with Legg Mason or the fund may be
authorized to accept purchase and redemption orders on their behalf. Once the
authorized institution accepts the order, you will receive the next determined
net asset value. You should consult with your institution to determine the time
by which it must receive your order to get that day's share price. It is the
institution's responsibility to transmit your order to the fund in a timely
fashion.
Purchase orders received by Legg Mason or by your financial adviser before the
close of the New York Stock Exchange (normally 4:00 p.m., Eastern time) will be
processed at the fund's net asset value as of the close of the exchange on that
day. The fund is open for business every day the New York Stock Exchange is
open. The New York Stock Exchange is closed on all national holidays and Good
Friday. Orders received after the close of the exchange will be processed at the
fund's net asset value as of the close of the exchange on the next day the
exchange is open. Payment must be made within three business days to the selling
organization.
8
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
Any of the following methods may be used to sell your shares:
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TELEPHONE Call your financial adviser or FIS at 1-800-822-5544 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.
----------------------------------------------------------------------------
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.
----------------------------------------------------------------------------
The fund will follow reasonable procedures to ensure the validity of any
telephone redemption request, such as requesting identifying information from
callers or employing identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held responsible for
any fraudulent telephone order.
Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the institution.
Redemption orders received by Legg Mason before the close of the exchange will
be transmitted to the fund's transfer agent. Your order will be processed at
that day's net asset value. Redemption orders received by Legg Mason after the
close of the exchange will be processed at the closing net asset value on the
next day the exchange is open.
Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration within a
week. You may also have your telephone redemption requests paid by a direct wire
to a previously designated domestic commercial bank account.
Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of 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.
9
<PAGE>
[icon] A C C O U N T P O L I C I E S
CALCULATION OF NET ASSET VALUE:
Net asset value per Navigator Class share is determined daily as of the close of
the New York Stock Exchange, on every day the exchange is open. To calculate the
fund's Navigator Class share price, the fund's assets attributable to that class
of shares are valued and totaled, liabilities attributable to Navigator Class
shares are subtracted, and the resulting net assets are divided by the number of
Navigator Class shares outstanding. The fund's securities are valued on the
basis of market quotations or, lacking such quotations, at fair value as
determined under procedures established by the Board of Directors.
Where a security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by the
adviser to be the primary market. Securities with remaining maturities of 60
days or less are valued at amortized cost. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange rates.
To the extent that the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
OTHER:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. The fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
The fund reserves the right to:
o Reject any order for shares or suspend the offering of shares for a
period of time.
o Change its minimum investment amounts.
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.
10
<PAGE>
[icon] S E R V I C E S F O R I N V E S T O R S
CONFIRMATIONS AND ACCOUNT STATEMENTS:
You will receive confirmations of each purchase and redemption transaction
(except a reinvestment of dividends or capital gain distributions and, for Legg
Mason Employees, purchases made through an automatic transfer of funds from a
financial institution). Confirmations will be sent to Institutional Clients
after each transaction involving Navigator Class shares which will include the
total number of shares being held in safekeeping by the transfer agent. You will
receive account statements monthly unless there has been no activity in your
account, in which case a statement will be sent to you quarterly. Beneficial
ownership of shares by Customer accounts will be recorded by the Institutional
Client and reflected in their regular account statements.
SYSTEMATIC WITHDRAWAL PLAN -
Legg Mason Employees that are purchasing or already own shares with a net asset
value of $5,000 or more 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 Navigator Class shares of the fund.
11
<PAGE>
[icon] D I S T R I B U T I O N S A N D T A X E S
The fund declares dividends and distributions of any net capital gains to
holders of Navigator Class shares annually.
Your dividends and other distributions will be automatically reinvested in
additional Navigator Class shares of the fund unless you elect to receive them
in cash. If you wish to begin receiving dividends and/or other distributions in
cash, you must notify the fund at least 10 days before the next dividend and/or
other distribution is to be paid.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Navigator Class shares of the fund. Dividends from
investment company taxable income (which includes net investment income and net
short-term capital gains) are taxable as ordinary income. Distributions of the
fund's net capital gain, if any, are taxable as long-term capital gain,
regardless of how long you have held your fund shares.
The sale 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.
12
<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.
ANNUAL AND SEMI-ANNUAL REPORTS - additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. These reports provide detailed information about the fund's
portfolio holdings and operating results.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmason.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. Reports and other information about the fund are available on
the SEC's Internet site at http://www.sec.gov. Investors may also obtain this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
LMF- SEC file number: 811-9613
13
<PAGE>
LEGG MASON INVESTMENT TRUST, INC.
LEGG MASON OPPORTUNITY TRUST
PRIMARY CLASS SHARES AND NAVIGATOR CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH __, 2000
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Class shares (dated
December 23, 1999) or for Navigator Class shares (dated March __, 2000) which
have been filed with the U.S. Securities and Exchange Commission ("SEC"). Copies
of the Prospectuses are available without charge from the fund's distributor,
Legg Mason Wood Walker, Incorporated ("Legg Mason"), at 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
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TABLE OF CONTENTS
Page
DESCRIPTION OF THE FUND........................................................3
FUND POLICIES..................................................................3
INVESTMENT STRATEGIES AND RISKS................................................4
ADDITIONAL TAX INFORMATION....................................................19
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................22
VALUATION OF FUND SHARES......................................................24
PERFORMANCE INFORMATION.......................................................24
TAX-DEFERRED RETIREMENT PLANS - PRIMARY SHARES................................26
MANAGEMENT OF THE FUND........................................................27
THE FUND'S INVESTMENT ADVISER/MANAGER.........................................30
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................32
THE FUND'S DISTRIBUTOR........................................................33
CAPITAL STOCK INFORMATION.....................................................35
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT...............35
THE FUND'S LEGAL COUNSEL......................................................35
THE FUND'S INDEPENDENT ACCOUNTANTS............................................35
FINANCIAL STATEMENTS..........................................................36
Appendix A....................................................................38
No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by the fund or its distributor. The Prospectuses
and this Statement of Additional Information do not constitute offerings by the
fund or by the distributor in any jurisdiction in which such offerings may not
lawfully be made.
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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 8, 1999. Legg Mason Opportunity Trust ("Opportunity
Trust") is the sole 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 of the fund described in the
Prospectuses, the fund has adopted the following fundamental investment
limitations that cannot be changed except by vote of its shareholders.
The fund 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. Lend any security or make any other 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, as amended ("1940 Act"); or
7. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the securities of issuers having their
principal business activities in the same industry. This limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements with respect thereto.
The foregoing fundamental limitations and the investment objective 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.
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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 futures contracts, options, forward
contracts, swaps, caps, floors, collars, and other financial instruments;
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
effect short sales, and (b) allocated to segregated accounts in connection with
short sales. Short sales "against the box" are not subject to this limitation;
or
3. Acquire additional securities if its borrowings exceed 5% of its
total assets.
The fund is a non-diversified fund; however, the fund intends to qualify
as a regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended ("Code"), which requires that, among other things, at the close
of each quarter of the fund's taxable year (1) with respect to 50% of its total
assets, no more than 5% of its total assets may be invested in the securities of
any one issuer and (2) no more than 25% of the value of its total assets may be
invested in the securities of a single issuer. These limits do not apply to U.S.
Government securities and investment company securities or securities of other
RICs.
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. The fund will monitor the level of borrowing and illiquid securities
in its portfolio and will make necessary adjustments to maintain required asset
coverage and adequate liquidity.
Unless otherwise stated, the investment policies and limitations are not
fundamental, and can be changed by the Board of Directors without shareholder
approval.
INVESTMENT STRATEGIES AND RISKS
This section supplements the information in the Prospectuses concerning
the investments the fund may make and the techniques it may use. The fund,
unless otherwise stated, may employ several investment strategies, including but
not limited to:
Illiquid and Restricted Investments
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The fund may invest up to 15% of its net assets in illiquid investments.
For this purpose, "illiquid investments" are those that cannot be disposed of
within seven days for approximately the price at which the fund values the
security. Illiquid investments include repurchase agreements with terms of
greater than seven days, restricted investments other than those the adviser has
determined are liquid pursuant to guidelines established by the Corporation's
Board of Directors, securities involved in swap, cap, floor, and collar
transactions, and over-the-counter ("OTC") options and their underlying
collateral.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, as amended, 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.
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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 Corporation'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.
The assets used as cover for OTC options written by the fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written 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.
Senior Securities
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The 1940 Act prohibits the issuance of senior securities by a registered
open-end fund with one exception. The fund may borrow from banks provided that
immediately after any such borrowing there is an asset coverage of at least 300%
for all borrowings of the fund. Borrowing for temporary purposes only and in an
amount not exceeding 5% of the value of the total assets of the fund at the time
the borrowing is made is not deemed to be an issuance of a senior security.
There are various investment techniques which may give rise to an
obligation of the fund to pay in the future about which the Commission has
stated it would not raise senior security concerns, provided the fund maintains
segregated assets in an amount that covers the future payment obligation. Such
investment techniques include, among other things, when-issued securities,
futures and forward contracts, short options positions, and repurchase
agreements.
Foreign Securities
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The fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from fluctuations
in currency exchange rates, revaluation of currencies, future political and
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers, and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory practices and requirements comparable to those
applicable to domestic issuers. These risks are intensified when investing in
countries with developing economies and securities markets, also known as
"emerging markets." Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation, confiscatory taxation, withholding taxes and limitations on
the use or removal of funds or other assets.
The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary
periods when assets of the fund are uninvested and no return is earned thereon.
The inability of the fund to make intended security purchases due to settlement
problems could cause it 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 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
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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
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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.
Debt securities and securities convertible into common stock need not
necessarily be of a certain grade as determined by rating agencies such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's");
however, the fund's adviser does consider such ratings in determining whether
the security is an appropriate investment for the fund. Generally, debt
securities rated below BBB by S&P, or below Baa by 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 S&P and Moody's is
included in Appendix A.
In addition to ratings assigned to individual bond issues, the adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which the fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial conditions of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
may be a wide variation in the quality of bonds, both within a particular
classification and between classifications. A bond issuer's obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer; litigation
or other conditions may also adversely affect the power or ability of bond
issuers to meet their obligations for the payment of principal and interest.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by the fund's adviser to determine, to
the extent possible, that the planned investment is sound.
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When-Issued Securities
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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 7 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 assets, 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
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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
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A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stocks of the same
or similar issuers, but lower than the yield of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible securities but rank senior to common stock in a corporation's
capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. The price of a convertible
security often reflects variations in the price of the underlying common stock
in a way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
convertible security's governing instrument, which may be less than the ultimate
conversion value.
Many convertible securities are rated below investment grade or, if
unrated, are considered of comparable quality.
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.
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Stripped Securities
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Stripped securities are created by separating bonds into their principal
and interest components and selling each piece separately (commonly referred to
as IOs, for "interest-only," and POs, for "principal-only"). 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
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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
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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
companies, when, in the adviser's judgment, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.
Options, Futures and Other Strategies
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GENERAL. The fund may invest in certain options, futures contracts
(sometimes referred to as "futures"), options on futures contracts, forward
currency contracts, swaps, caps, floors, collars, indexed securities and other
derivative instruments (collectively, "Financial Instruments") to attempt to
enhance its income or yield or to attempt to hedge its investments. The
strategies described below may be used in an attempt to manage the fund's
foreign currency exposure (including exposure to the Euro) as well as other
risks of the fund's investments that can affect its net asset value.
Generally, the fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, the fund will only purchase or sell
a particular Financial Instrument if the fund is authorized to invest in the
type of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since the fund is authorized to invest in foreign
securities, it may purchase and sell foreign currency and Euro derivatives.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in the fund's portfolio. Thus, in a short hedge the fund
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the fund intends to acquire. Thus, in a
long hedge, the fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the fund owns. Rather, it relates to a security that the fund intends
to acquire. If the fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
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Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that the fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which the fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded and the Commodity
Futures Trading Commission (the "CFTC"). In addition, the fund's ability to use
Financial Instruments may be limited by tax considerations. See "Additional Tax
Information."
In addition to the instruments, strategies and risks described below,
the adviser expects to discover additional opportunities in connection with
Financial Instruments and other similar or related techniques. These new
opportunities may become available as the adviser develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
Financial Instruments or other techniques are developed. The adviser may utilize
these opportunities to the extent that they are consistent with the fund's
investment objective and permitted by its investment limitations and applicable
regulatory authorities. The fund might not use any of these strategies, and
there can be no assurance that any strategy used will succeed. The fund's
Prospectuses or this Statement of Additional Information will be supplemented to
the extent that new products or techniques involve materially different risks
than those described below or in the Prospectuses.
SPECIAL RISKS. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general,
these techniques may increase the volatility of the fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon the
adviser's ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. There can be no assurance that any
particular strategy will succeed, and use of Financial Instruments could result
in a loss, regardless of whether the intent was to reduce risk or increase
return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there is a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the fund's current or anticipated investments exactly. The fund
may invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
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or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if the
fund entered into a short hedge because the adviser projected a decline in the
price of a security in the fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the fund could suffer a loss. In either such case, the
fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the fund might be required to maintain assets
as "cover," maintain accounts or make margin payments when it takes positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If the fund were unable to close out
its positions in such Financial Instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. These requirements might impair the fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the fund sell a portfolio security at a
disadvantageous time.
(5) The fund's ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction (the "counterparty") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is favorable to the
fund.
COVER. Transactions using Financial Instruments, other than purchased
options, expose the fund to an obligation to another party. The fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. The fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the fund's assets to cover in accounts could impede portfolio
management or the fund's ability to meet redemption requests or other current
obligations.
OPTIONS. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the purchase
of put options can serve as a short hedge. Writing put or call options can
enable the fund to enhance income or yield by reason of the premiums paid by the
purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
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the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid and
Restricted Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid and Restricted
Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, the fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the fund to
realize profits or limit losses on an option position prior to its exercise or
expiration.
A type of put that the fund may purchase is an "optional delivery
standby commitment," which is entered into by parties selling debt securities to
the fund. An optional delivery standby commitment gives the fund the right to
sell the security back to the seller on specified terms. This right is provided
as an inducement to purchase the security.
RISKS OF OPTIONS ON SECURITIES. Options offer large amounts of leverage,
which will result in the fund's net asset value being more sensitive to changes
in the value of the related instrument. The fund may purchase or write both
exchange-traded and OTC options. Exchange-traded options in the United States
are issued by a clearing organization affiliated with the exchange on which the
option is listed that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between the fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the fund purchases an OTC option, it relies
on the counterparty from whom it purchased the option to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the fund
as well as the loss of any expected benefit of the transaction.
The fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. However,
there can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. There can be no assurance that the fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, the fund might be unable to close
out an OTC option position at any time prior to its expiration.
If the fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the fund could cause material losses because the fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDICES. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
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price movements in individual securities or futures contracts. When the fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
the fund buys a call on an index, it pays a premium and has the same rights as
to such call as are indicated above. When the fund buys a put on an index, it
pays a premium and has the right, prior to the expiration date, to require the
seller of the put, upon the fund's exercise of the put, to deliver to the fund
an amount of cash if the closing level of the index upon which the put is based
is less than the exercise price of the put, which amount of cash is determined
by the multiplier, as described above for calls. When the fund writes a put on
an index, it receives a premium and the purchaser of the put has the right,
prior to the expiration date, to require the fund to deliver to it an amount of
cash equal to the difference between the closing level of the index and exercise
price times the multiplier if the closing level is less than the exercise price.
RISKS OF OPTIONS ON INDICES. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when the fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, the fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if the fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the fund as the call writer will not learn that the fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If the fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows the fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
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Generally, OTC foreign currency options used by the fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of the fund's fixed-income portfolio. If the adviser wishes to shorten
the average duration of the fund's fixed-income portfolio, the fund may sell a
debt futures contract or a call option thereon, or purchase a put option on that
futures contract. If the adviser wishes to lengthen the average duration of the
fund's fixed-income portfolio, the fund may buy a debt futures contract or a
call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the fund's obligations to or from a futures
broker. When the fund purchases an option on a futures contract, the premium
paid plus transaction costs is all that is at risk. In contrast, when the fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
However, there can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the fund were unable to liquidate a futures contract or an option on
a futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.
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RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or stock market trends by the adviser may
still not result in a successful transaction. The adviser may be incorrect in
its expectations as to the extent of various interest rate, currency exchange
rate or stock market movements or the time span within which the movements take
place.
INDEX FUTURES. The risk of imperfect correlation between movements in
the price of an index futures and movements in the price of the securities that
are the subject of the hedge increases as the composition of the fund's
portfolio diverges from the securities included in the applicable index. The
price of the index futures may move more than or less than the price of the
securities being hedged. If the price of the index futures moves less than the
price of the securities that are the subject of the hedge, the hedge will not be
fully effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, the fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where the fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before the fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If the fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
To the extent that the fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money" at the
time of purchase) may not exceed 5% of the liquidation value of the fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put.) This policy does not limit to 5% the
percentage of the fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
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FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS. The fund
may use options and futures contracts on foreign currencies (including the
Euro), as described above, and forward currency contracts, as described below,
to attempt to hedge against movements in the values of the foreign currencies in
which the fund's securities are denominated or to attempt to enhance income or
yield. Currency hedges can protect against price movements in a security that
the fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
The fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which the adviser
believes will have a high degree of positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Financial
Instrument will not correlate perfectly with movements in the price of the
currency subject to the hedging transaction is magnified when this strategy is
used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. The fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.
The fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if the fund owned securities denominated in Euros, it could enter
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into a forward currency contract to sell Euros in return for U.S. dollars to
hedge against possible declines in the Euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The fund could also hedge the position by selling
another currency expected to perform similarly to the Euro. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
The fund also may use forward currency contracts to attempt to enhance
income or yield. The fund could use forward currency contracts to increase its
exposure to foreign currencies that the adviser believes might rise in value
relative to the U.S. dollar, or shift its exposure to foreign currency
fluctuations from one country to another. For example, if the fund owned
securities denominated in a foreign currency and the adviser believed that
currency would decline relative to another currency, it might enter into a
forward currency contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency.
The cost to the fund of engaging in forward currency contracts varies
with factors such as the currency 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. When the fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Successful use of forward currency contracts depends on the adviser's
skill in analyzing and predicting currency values. Forward currency contracts
may substantially change the fund's exposure to changes in currency exchange
rates and could result in losses to the fund if currencies do not perform as the
adviser anticipates. There is no assurance that the adviser's use of forward
currency contracts will be advantageous to the fund or that the adviser will
hedge at an appropriate time.
COMBINED POSITIONS. The fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its 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. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
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<PAGE>
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
TURNOVER. The fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
the fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
SWAPS, CAPS, FLOORS, COLLARS. The fund may enter into swaps, caps,
floors, and collars to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the fund anticipates purchasing at a later date or to attempt to
enhance yield. A swap involves the exchange by the fund with another party of
their respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar combines
elements of buying a cap and selling a floor.
Swap agreements, including caps, floors, and collars, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of the fund's
investments and its share price and yield because, and to the extent, these
agreements affect the fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift the fund's investment exposure from
one type of investment to another. For example, if the fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which the fund enters into swaps,
caps, floors, or collars will be monitored by the adviser. If a firm's
creditworthiness declines, the value of the agreement would be likely to
decline, potentially resulting in losses. If a default occurs by the other party
to such transaction, the fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of the fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the fund's
custodian that satisfies the requirements of the 1940 Act. The fund will also
establish and maintain such accounts with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the fund. The adviser and the fund believe that
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to the fund's borrowing
restrictions. The fund understands that the position of the SEC is that assets
involved in swap transactions are illiquid and are, therefore, subject to the
limitations on investing in illiquid investments. See "Illiquid and Restricted
Investments."
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Indexed Securities
- ------------------
Indexed securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, subject to its operating policy
regarding derivative instruments. 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. Indexed
securities may be more volatile than the underlying investments. Recent issuers
of indexed securities have included banks, corporations, and certain U.S.
Government agencies. The U.S. Treasury issues securities whose principal value
is indexed to the Consumer Price Index (known as "Treasury Inflation-Protection
Securities").
The fund will purchase indexed securities only of issuers that 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 multiple changes in the underlying instrument and, in
that respect, have a leverage-like effect on the fund.
Portfolio Lending
- -----------------
The fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash or equivalent collateral, equal to
at least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the fund. During the time portfolio securities
are on loan, the borrower will pay the fund an amount equivalent to any
dividends or interest paid on such securities, and the fund may invest the cash
collateral and earn income, or it may receive an agreed upon amount of interest
income from the borrower who has delivered equivalent collateral. These loans
are subject to termination at the option of the fund or the borrower. The fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The fund does not have
the right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment. The risks of securities lending are similar to those of repurchase
agreements. The fund presently does not intend to lend more than 5% of its
portfolio securities at any given time.
Repurchase Agreements
- ---------------------
When cash is temporarily available, or for temporary defensive purposes,
the fund may invest without limit in repurchase agreements and money market
instruments, including high-quality short-term debt securities. A repurchase
agreement is an agreement under which either U.S. Government obligations or
other 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.
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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 its net assets would be
invested in such agreements and other illiquid investments. To the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the fund might suffer a loss. If bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the fund could be delayed or limited.
When the fund enters into a repurchase agreement, it will obtain as
collateral from the other party securities equal in value to 102% of the amount
of the repurchase agreement (or 100%, if the securities obtained are U.S.
Treasury bills, notes or bonds). Such securities will be held by a custodian
bank or an approved securities depository or book-entry system.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax considerations
affecting the fund and its shareholders. Investors are urged to consult their
own tax advisers for more detailed information and for information regarding any
federal, state or local taxes that might apply to them.
General
- -------
To qualify for treatment as a RIC under the Code, the fund must
distribute annually to its shareholders at least 90% of its investment company
taxable income (generally, net investment income plus any net short-term capital
gain and net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. These requirements
include the following: (1) the fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or foreign currencies ("Income Requirement"); (2) at the close of
each quarter of the fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (3) at the close of each
quarter of the fund's taxable year, not more than 25% of the value of its total
assets may be invested in the securities (other than U.S. Government securities
or the securities of other RICs) of any one issuer.
By qualifying for treatment as a RIC, the fund (but not its
shareholders) will be relieved of federal income tax on the part of the
investment company taxable income and net capital gain (I.E., the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. If the fund failed to qualify for treatment as a RIC for any
taxable year, (1) it would be taxed at corporate rates on the full amount of its
taxable income for that year without being able to deduct the distributions it
makes to its shareholders and (2) the shareholders would treat all those
distributions, including distributions of net capital gain, as dividends (that
is, ordinary income) to the extent of the fund's earnings and profits. In
addition, the fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.
The fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and Other Distributions
- ---------------------------------
Dividends and other distributions declared by the fund in December of
any year and payable to its shareholders of record on a date in that month will
be deemed to have been paid by the fund and received by the shareholders on
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December 31 if the distributions are paid by the fund during the following
January. Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from the fund's investment company taxable
income (whether paid in cash or reinvested in fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the fund for the taxable year
from domestic corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the federal alternative minimum tax. Distributions of net
capital gain made by the fund do not qualify for the dividends-received
deduction.
If fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for a dividend or other distribution, the shareholder will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.
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 under the election. 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 be
treated as qualifying income under the Income Requirement.
Certain futures and foreign currency contracts in which the fund may
invest will be subject to section 1256 of the Code ("section 1256 contracts").
Any section 1256 contracts the fund holds at the end of each taxable year, other
than contracts with respect to which the fund has made a "mixed straddle
election," must be "marked-to-market" (that is, treated as having been sold at
that time for their fair market value), with the result that unrealized gains or
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<PAGE>
losses will be treated as though they were realized. Sixty percent of any net
gain or loss recognized on these deemed sales, and 60% of any net realized gain
or loss on section 1256 contracts actually sold by the fund during the year will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax. These rules may operate to
increase the amount that the fund must distribute to satisfy the Distribution
Requirement (i.e., with respect to the portion treated as short-term capital
gain), which will be taxable to the shareholders as ordinary income, and to
increase the net capital gain the fund recognizes, without in either case
increasing the cash available to the fund. The fund may elect to exclude certain
transactions from the operation of section 1256, although doing so may have the
effect of increasing the relative proportion of net short-term capital gain
(taxable as ordinary income) and thus increasing the amount of dividends that
must be distributed.
When a covered call option written (sold) by the fund expires, it will
realize a short-term capital gain equal to the amount of the premium it received
for writing the option. When the fund terminates its obligations under such an
option by entering into a closing transaction, it will realize a short-term
capital gain (or loss), depending on whether the cost of the closing transaction
is less than (or exceeds) the premium received when the option was written. When
a covered call option written by the fund is exercised, it will be treated as
having sold the underlying security, producing long-term or short-term capital
gain or loss, depending on the holding period of the underlying security and
whether the sum of the option price received on the exercise plus the premium
received when the option was written exceeds or is less than the basis of the
underlying security.
Code section 1092 (dealing with straddles) also may affect the taxation
of Financial Instruments in which the fund may invest. Section 1092 defines a
"straddle" as offsetting positions with respect to personal property; for these
purposes, options, futures, and forward currency contracts are personal
property. Under section 1092, any loss from the disposition of a position in a
straddle generally may be deducted only to the extent the loss exceeds the
unrealized gain on the offsetting position(s) of the straddle; in addition,
these rules may apply to postpone the recognition of loss that otherwise would
be recognized under the mark-to-market rules discussed above. The regulations
under section 1092 also provide certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the fund makes certain elections, the amount, character, and
timing of recognition of gains and losses from the affected straddle positions
would be determined under rules that vary according to the elections made.
Because only a few of the regulations implementing the straddle rules have been
promulgated, the tax consequences to the fund of straddle transactions are not
entirely clear.
Other
- -----
Dividends and interest received by the fund, and gains realized thereby,
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the total return on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate these foreign taxes, however, and many foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
If the fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the position, the
fund will be treated as having made an actual sale thereof, with the result that
the 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 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
21
<PAGE>
fund's risk of loss regarding that position reduced by reason of certain
specified transactions with respect to substantially identical or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale, or granting an option to buy substantially identical
stock or securities).
To the extent the fund recognizes income from a "conversion
transaction," as defined in section 1258 of the Code, all or part of the gain
from the disposition or other termination of a position held as part of the
conversion transaction may be recharacterized as ordinary income. A conversion
transaction generally consists of two or more positions taken with regard to the
same or similar property, where (1) substantially all of the taxpayer's return
is attributable to the time value of its net investment in the transaction and
(2) the transaction satisfies any of the following criteria: (a) the transaction
consists of the acquisition of property by the taxpayer and a substantially
contemporaneous agreement to sell the same or substantially identical property
in the future; (b) the transaction is a straddle, within the meaning of section
1092 of the Code (see above); (c) the transaction is one that was marketed or
sold to the taxpayer on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as capital
gain; or (d) the transaction is described as a conversion transaction in future
regulations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund offers two classes of shares known as Primary Class shares and
Navigator Class shares. Other classes of shares may be offered in the future.
Primary Class shares are available from Legg Mason, certain of its affiliates,
and unaffiliated entities having an agreement with Legg Mason. Navigator Class
shares are available only to: Institutional Clients of Legg Mason Trust Company
for which they exercise discretionary investment management responsibility and
accounts of the customers with such Institutional Clients; qualified retirement
plan managed on a discretionary basis and having net assets of at least $200
million; any qualified retirement plan having net assets of at least $300
million; clients of Bartlette & Co., who as of December 19, 1996, were
shareholders of Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and
for whom Bartlett acts as an ERISA fiduciary; any qualified retirement plan of
Legg Mason, Inc. or of any of its affiliates; shareholders of Class Y shares of
Bartlett Europe Fund or Bartlett Financial Services Fund on October 5, 1999; any
open-end management investment company advised or managed by Legg Mason Fund
Adviser, Inc. ("LMFA") or by any person controlling, controlled by, or under
common control with LMFA; and employees of Legg Mason, Inc. and its affiliates
and children, siblings, and parents of such persons ("Legg Mason Employees").
Primary Class shares are available to all other investors.
Transfer of Funds from Financial Institutions
- ---------------------------------------------
Investors in Primary Class shares and Legg Mason Employees investing in
Navigator Class 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
- --------------------------
Investors in Primary Class shares and Legg Mason Employees investing in
Navigator Class shares with a net asset value of $5,000 or more may elect to
make systematic withdrawals of a minimum of $50 on a monthly basis. The amounts
paid to you each month are obtained by redeeming sufficient shares from your
22
<PAGE>
account to provide the withdrawal amount that you have specified. The Systematic
Withdrawal Plan is not currently available for shares held in an Individual
Retirement Account ("IRA"), Simplified Employee Pension Plan ("SEP"), Savings
Incentive Match Plan for Employees ("SIMPLE") or other qualified retirement
plan. You may change the monthly amount to be paid to you without charge not
more than once a year by notifying Legg Mason or the affiliate with which you
have an account. Redemptions will be made at the Primary Class shares' or
Navigator Class shares', whichever is applicable, 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 shares in your Primary
Class shares or Navigator Class shares account must be automatically reinvested
in Primary Class shares or Navigator Class shares, respectively. You may
terminate the Systematic Withdrawal Plan at any time without charge or penalty.
The fund, its transfer agent, and Legg Mason also reserve the right to modify or
terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and distributions, the
amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the fund if you
maintain a Systematic Withdrawal Plan, because you may incur tax liabilities in
connection with such purchases and withdrawals. The fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Future First Systematic
Investment Plan.
Other Information Regarding Redemption
- --------------------------------------
The fund reserves the right to modify or terminate the wire or telephone
redemption services described in the Prospectuses at any time.
The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended by the fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets
the fund normally utilizes is restricted, or an emergency, as defined by rules
and regulations of the SEC, exists, making disposal of the fund's investments or
determination of its net asset value not reasonably practicable, or (iii) for
such other periods as the SEC by regulation or order may permit for protection
of the fund's shareholders. In the case of any such suspension, you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.
The fund reserves the right, under certain conditions, to honor any
request for redemption by making payment in whole or in part in securities
valued in the same way as they would be valued for purposes of computing the
fund's net asset value per share. If payment is made in securities, a
shareholder should expect to incur brokerage expenses in converting those
securities into cash and will be subject to fluctuation in the market price of
those securities until they are sold. The fund does not redeem "in kind" under
normal circumstances, but would do so where the adviser determines that it would
be in the best interests of the fund's shareholders as a whole.
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<PAGE>
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 Day, and Christmas Day. As described in the Prospectuses,
securities for which market quotations are readily available are valued at
current market value. Securities traded on an exchange or the NASDAQ Stock
Market securities are normally valued at last sale prices. Other
over-the-counter securities, and securities traded on exchanges for which there
is no sale on a particular day (including debt securities), are valued at the
mean of latest closing bid and asked prices. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Securities and other
assets quoted in foreign currencies will be valued in U.S. dollars based on the
currency exchange rates prevailing at the time of the valuation. All other
securities are valued at fair value as determined by or under the direction of
the Corporation's Board of Directors. Premiums received on the sale of call
options are included in the net asset value of each class, and the current
market value of options sold by the fund will be subtracted from net assets of
each class.
PERFORMANCE INFORMATION
Total Return Calculations
- -------------------------
Average annual total return quotes used in the fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
separately for each class according to the following formula:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the fund are assumed to have been
reinvested at net asset value on the reinvestment dates during the period.
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<PAGE>
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. One such
market index is the S&P 500, a widely recognized, unmanaged index composed of
the capitalization-weighted average of the prices of 500 of the largest publicly
traded stocks in the U.S. The S&P 500 includes reinvestment of all dividends. It
takes no account of the costs of investing or the tax consequences of
distributions. The fund invests in many securities that are not included in the
S&P 500. The fund may also include calculations, such as hypothetical
compounding examples or tax-free compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions that are not indicative
of the performance of the fund.
From time to time, the total return of the fund may be quoted in
advertisements, shareholder reports, or other communications to shareholders.
The fund may also cite rankings and ratings, and compare the return of a
class with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc., Wiesenberger Investment Company Services, Value
Line, Morningstar, and other services or publications that monitor, compare
and/or rank the performance of investment companies. The fund may also refer in
such materials to mutual fund performance rankings, ratings, comparisons with
funds having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, FINANCIAL WORLD, MONEY
Magazine, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES.
The fund may compare the investment return of a class to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, fund shares are not insured, the value of fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which remains at a specified rate for a specified period of time,
the return of each class of shares will vary.
Fund advertisements may reference the history of the distributor and its
affiliates, the education, experience, investment philosophy and strategy of the
portfolio manager, and the fact that the portfolio manager engages in certain
approaches to 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 independent third parties such as
Ibbotson Associates and Frontier Analytics, Inc. to compare the returns of
various capital markets and to show the value of a hypothetical investment in a
capital market. Typically, different indices are used to calculate the
performance of common stocks, corporate and government bonds and Treasury bills.
The fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The fund may also include in advertising biographical information on key
investment and managerial personnel.
25
<PAGE>
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 $94.6 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.
TAX-DEFERRED RETIREMENT PLANS
In general, income earned through the investment of assets of IRAs and
qualified retirement plans is not taxed to their beneficiaries until the income
is distributed to them. Investors who are considering establishing an IRA or a
SEP, SIMPLE, or other qualified retirement plan should consult their attorneys
or other tax advisers with respect to individual tax questions. The option of
investing in IRAs and those plans with respect through regular payroll
deductions may be arranged with a Legg Mason or affiliated financial adviser and
your employer. Additional information with respect to IRAs and these plans is
available upon request from any Financial Adviser or Service Provider.
TRADITIONAL IRA. Certain investors may obtain tax advantages by
establishing an IRA. Specifically, except as noted below, if neither you nor
your spouse is an active participant in a qualified employer or government
retirement plan, or if either you or your spouse is an active participant and
your adjusted gross income does not exceed a certain level, then each of you may
deduct cash contributions made to an IRA in an amount for each taxable year not
exceeding the lesser of 100% of your earned income or $2,000. However, a married
investor who is not an active participant in such a plan and files a joint
income tax return with his or her spouse (and their combined adjusted gross
income does not exceed $150,000) is not affected by the spouse's active
participant status. In addition, if your spouse is not employed and you file a
joint return, you may establish a separate IRA for your spouse and contribute up
to a total of $4,000 to the two IRAs, provided that the contribution to either
does not exceed $2,000. If your employer's plan qualifies as a SIMPLE, permits
voluntary contributions and meets certain other requirements, you may make
voluntary contributions to that plan that are treated as deductible IRA
contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest through non-deductible IRA
contributions, up to certain limits, because all dividends and other
distributions on your fund shares are then not immediately taxable to you or the
IRA; they become taxable only when distributed to you. To avoid penalties, your
interest in an IRA must be distributed, or start to be distributed, to you not
later than April 1 following the calendar year in which you attain age 70 1/2.
Distributions made before age 59 1/2, in addition to being taxable, generally
are subject to a penalty equal to 10% of the distribution, except in the case of
death or disability, where the distribution is rolled over into another
qualified plan or certain other situations.
ROTH IRA. A shareholder whose adjusted gross income (or combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
26
<PAGE>
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).
Simplified Employee Pension Plan -- SEP
- ---------------------------------------
Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Class shares.
Savings Incentive Match Plan for Employees -- SIMPLE
- ----------------------------------------------------
An employer with no more than 100 employees that does not maintain
another retirement plan instead may establish a SIMPLE either as separate IRAs
or as part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, will allow certain employees to make elective contributions of up to
$6,000 per year and will require the employer to make either matching
contributions up to 3% of each such employee's salary or a 2% nonelective
contribution.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from the foregoing retirement plans (except IRAs and SEPs), unless the
recipient transfers the distribution directly to an "eligible retirement plan"
(including IRAs and other qualified plans) that accepts those distributions.
Other distributions generally are subject to regular wage withholding at the
rate of 10% (depending on the type and amount of the distribution), unless the
recipient elects not to have any withholding apply. Primary Class share
investors should consult their plan administrator or tax adviser for further
information.
MANAGEMENT OF THE FUND
The 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, their dates of birth, and their principal
occupations during the past five years are set forth below. An asterisk (*)
indicates officers and/or directors who are "interested persons" of the fund as
defined by the 1940 Act. The business address of each director and officer is
100 Light Street, Baltimore, Maryland 21202, unless otherwise indicated.
JOHN F. CURLEY, JR.* [7/24/39], CHAIRMAN OF THE BOARD AND DIRECTOR;
President and/or Chairman of the Board and Director/Trustee of all Legg Mason
retail funds. Retired: Vice Chairman and Director of Legg Mason, Inc. and Legg
Mason Wood Walker, Inc. FORMERLY: Director of LMFA and Western Asset Management
Company (each a registered investment adviser); Officer and/or Director of
various other affiliates of Legg Mason, Inc.
27
<PAGE>
RICHARD G. GILMORE [6/9/27], DIRECTOR; 10310 Tamo Shander Place,
Bradenton, Florida. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in the manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia Electric
Company); Director/Trustee of all Legg Mason retail funds. FORMERLY: Senior Vice
President and Chief Financial Officer of Philadelphia Electric Company (now PECO
Energy Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company, the Girard Company; and Director of
Finance, City of Philadelphia.
ARNOLD L. LEHMAN [7/18/44], DIRECTOR; The Brooklyn Museum of Art, 200
Eastern Parkway, Brooklyn, New York. Director of the Brooklyn Museum of Art;
Director/Trustee of all Legg Mason retail funds. FORMERLY: Director of the
Baltimore Museum of Art.
JILL E. McGOVERN [8/29/44], DIRECTOR; 400 Seventh Street NW, Washington,
DC. Chief Executive Officer of the Marrow Foundation. Director/Trustee of all
Legg Mason retail funds. FORMERLY: Executive Director of the Baltimore
International Festival (January 1991 - March 1993); and Senior Assistant to the
President of The Johns Hopkins University (1986-1991).
JENNIFER W. MURPHY* [12/18/64], PRESIDENT AND DIRECTOR; Senior Vice
President of LMFA; employee of Legg Mason since 1995. FORMERLY: strategy
consultant with Corporate Decisions, Inc. (1992-1995).
G. PETER O'BRIEN [10/13/45], DIRECTOR; Trustee of Colgate University;
Director/Trustee of all Legg Mason retail funds except Legg Mason Income Trust,
Inc. and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity
Capital Markets Group of Merrill Lynch & Co. (1971-1999).
T.A. RODGERS [10/22/34], DIRECTOR; 2901 Boston Street, Baltimore,
Maryland. Principal, T.A. Rodgers & Associates (management consulting);
Director/Trustee of all Legg Mason retail funds. FORMERLY: Director and Vice
President of Corporate Development, Polk Audio, Inc. (manufacturer of audio
components).
EDWARD A. TABER, III* [8/25/43], DIRECTOR; Senior Executive Vice
President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Vice Chairman
and Director of LMFA and Director of Western Asset Management Company (each a
registered investment adviser); President and/or Director/Trustee of all Legg
Mason retail funds except Legg Mason Tax Exempt Trust. FORMERLY: Executive Vice
President of T. Rowe Price-Fleming International, Inc. (1986-1992) and Director
of the Taxable Fixed Income Division at T. Rowe Price Associates, Inc.
(1973-1992).
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.
PATRICIA A. MAXEY* [7/10/67], SECRETARY; Secretary of Legg Mason Cash
Reserve Trust; employee of Legg Mason since November 1999. FORMERLY: Employee of
Select Appointments International, Inc. (1998-1999) and Fidelity Investments
(1995-1997).
Wm. SHANE HUGHES* [4/24/68], ASSISTANT SECRETARY AND ASSISTANT
TREASURER; employee of Legg Mason since May 1997. FORMERLY: Senior Associate of
C.W. Amos and Co. (a regional public accounting firm).
The Nominating Committee of the Board of Directors is responsible for
the selection and nomination of disinterested directors. The committee is
composed of Messrs. Gilmore, Lehman, Rodgers, and O'Brien, and Dr. McGovern.
28
<PAGE>
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 January 1, 2000, the directors and officers of the Corporation
beneficially owned __% 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 December
31, 2000. The fund has no retirement plan for its directors.
29
<PAGE>
COMPENSATION TABLE
------------------
================================================================================
TOTAL COMPENSATION FROM
NAME OF PERSON AND AGGREGATE COMPENSATION FUND AND FUND COMPLEX
POSITION FROM FUND* PAID TO DIRECTORS**
================================================================================
John F. Curley, Jr. - None None
Chairman of the Board and
Director
- --------------------------------------------------------------------------------
Jennifer W. Murphy - None None
President and Director
- --------------------------------------------------------------------------------
Edward A. Taber, III - None None
Director
- --------------------------------------------------------------------------------
Richard G. Gilmore - $1,200 $41,100
Director
- --------------------------------------------------------------------------------
Arnold L. Lehman - Director $1,200 $41,100
- --------------------------------------------------------------------------------
Jill E. McGovern - Director $1,200 $41,100
- --------------------------------------------------------------------------------
T.A. Rodgers - Director $1,200 $41,100
- --------------------------------------------------------------------------------
G. Peter O'Brien - Director $1,200 $15,000
- --------------------------------------------------------------------------------
* Represents estimated compensation that will be paid to each director
during the first fiscal year of operations.
** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1999. There are twelve open-end
investment companies in the Legg Mason Complex (with a total of
twenty-four funds).
THE FUND'S INVESTMENT ADVISER/MANAGER
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 a Management Agreement ("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-manager to the fund under a Sub-Management Agreement
("Sub-Management Agreement").
The 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 Prospectuses and
this Statement of Additional Information. The 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.
30
<PAGE>
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 Class 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 the average net assets of
the Primary Class shares and the payment is made within three years after the
year in which the manager earned the fee or incurred the expense.
For the period December 30, 1999 (commencement of operations) to
December 31, 1999, LMM waived $1,451 in management fees for the fund under the
Management Agreement. For the same period, the fund paid management fees of
$2,177.
The Sub-Management Agreement provides that LMFA is obligated to perform
certain advisory and administrative services for the fund. Regarding advisory
services, LMFA will regularly provide investment research, advice, management
and supervision; otherwise assist in determining from time to time what
securities will be purchased, retained or sold by the fund; and implement
decisions to purchase, retain or sell securities made on behalf of the fund, all
subject to the supervision of LMM and the general supervision of the
Corporation's Board of Directors. LMFA will also place orders for the fund
either directly with the issuer or with any broker or dealer; provide advice and
recommendations with respect to other aspects of the business and affairs of the
fund; and perform such other functions of management and supervision as may be
directed by the Board of Directors of the Corporation and LMM.
Regarding administrative services, LMFA will (a) furnish the fund with
office space and executive and other personnel necessary for the operation of
the fund; (b) supervise all aspects of the fund's operations; (c) bear the
expense of certain informational and purchase and redemption services to the
fund's shareholders; (d) arrange, but not pay for, the periodic updating of
prospectuses, proxy material, tax returns and reports to shareholders and state
and federal regulatory agencies; and (e) report regularly to the fund's officers
and directors. LMFA and its affiliates pay all compensation of directors and
officers of the fund who are officers, directors or employees of LMFA. The fund
pays all of its expenses which are not expressly assumed by LMFA. These expenses
include, among others, interest expense, taxes, brokerage fees and commissions,
expenses of preparing and setting in type prospectuses, proxy statements and
reports to shareholders and of printing and distributing them to existing
shareholders, custodian charges, transfer agency fees, distribution fees to the
fund's distributor, compensation of the independent directors, organizational
expenses, legal and audit expenses, insurance expense, shareholder meetings,
proxy solicitations, expenses of registering and qualifying fund shares for sale
under federal and state law, governmental fees, and expenses incurred in
connection with membership in investment company organizations. The fund also is
liable for such 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,
calculated daily and payable monthly, of 0.10% of the average daily net assets
of the fund up to $100 million and 0.05% of the average daily net assets of the
fund in excess of $100 million.
For the period December 30, 1999 (commencement of operations) to
December 31, 1999, LMFA received $363 for its services to the fund.
Under the Management Agreement and Sub-Management 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 Management Agreement
or the Sub-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.
31
<PAGE>
The Management Agreement and Sub-Management Agreement each terminate
automatically upon assignment and are terminable at any time without penalty by
vote of the fund's Board of Directors, by vote of a majority of the fund's
outstanding voting securities, or by 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, LMM, LMFA, and Legg Mason 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 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.
On any given trade, the choice of broker may be made by either LMM or LMFA. Such
research and analysis may be useful to either the fund's adviser or sub-adviser
in connection 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.
32
<PAGE>
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
Management Agreement expressly provides such consent.
Investment decisions for the fund are made independently from those of
other funds and accounts advised by LMM or LMFA. However, the same security may
be held in the portfolios of more than one fund or account. When two or more
accounts simultaneously engage in the purchase or sale of the same security, the
prices and amounts will be equitably allocated to each account. In some cases,
this procedure may adversely affect the price or quantity of the security
available to a particular account. In other cases, however, an account's ability
to participate in large-volume transactions may produce better executions and
prices.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the fund's shares pursuant to an
Underwriting Agreement with the fund. The Underwriting Agreement obligates Legg
Mason to promote the sale of fund shares and to pay certain expenses in
connection with its distribution efforts, including expenses for the printing
and distribution of prospectuses and periodic reports used in connection with
the offering to prospective investors (after the prospectuses and reports have
been prepared, set in type and mailed to existing shareholders at the fund's
expense), and for supplementary sales literature and advertising costs.
Under the Underwriting Agreement, the fund has the non-exclusive right
to use the name "Legg Mason" until that agreement is terminated, or until the
right is withdrawn in writing by Legg Mason.
The Primary Class shares are subject to a deferred sales charge payable
to Legg Mason if they are redeemed within 12 months of purchase. 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. Except as specifically provided for
in the fund's Prospectuses, for purposes of exchange privileges, the fund is not
considered a Legg Mason fund.
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 Class shares and the
provision of ongoing services to Primary Class shareholders. Payments are made
only from assets attributable to Primary Class shares. Under the Plan, the
aggregate fees may not exceed 1.00% of the fund's annual average daily net
assets attributable to Primary Class shares. Distribution activities for which
such payments may be made include, but are not limited to, compensation to
persons who engage in or support distribution and redemption of shares, printing
of prospectuses and reports for persons other than existing shareholders,
advertising, preparation and distribution of sales literature, overhead, travel
and telephone expenses, all with respect to Primary Class shares only.
The Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by a
vote of the Board of Directors, including a majority of the directors who are
not "interested persons" of the Corporation as that term is defined in the 1940
Act, and who have no direct or indirect financial interest in the operation of
the Plan or the Underwriting Agreement ("12b-1 Directors"). In approving the
establishment of the Plan, in accordance with the requirements of Rule 12b-1,
the directors determined that there was a reasonable likelihood that the Plan
would benefit the fund and its Primary Class shareholders. The directors
considered, among other things, the extent to which the potential benefits of
the Plan to the fund's Primary Class shareholders could offset the costs of the
Plan; the likelihood that the Plan would succeed in producing such potential
benefits; the merits of certain possible alternatives to the Plan; and the
extent to which the retention of assets and additional sales of the fund's
Primary Class shares would be likely to maintain or increase the amount of
compensation paid by the fund to 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
33
<PAGE>
assets increase. The directors further recognized that there can be no assurance
that any of the potential benefits described below would be achieved if the Plan
was implemented.
Among the potential benefits of the Plan, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
the fund's Primary Class shares and to maintain and enhance the level of
services they provide to the fund's Primary Class shareholders. These efforts,
in turn, could lead to increased sales and reduced redemptions, eventually
enabling the fund to achieve economies of scale and lower per share operating
expenses. Any reduction in such expenses would serve to offset, at least in
part, the additional expenses incurred by the fund in connection with its Plan.
Furthermore, the investment management of the fund could be enhanced, as net
inflows of cash from new sales might enable its portfolio manager to take
advantage of attractive investment opportunities, and reduced redemptions could
eliminate the potential need to liquidate attractive securities positions in
order to raise the funds necessary to meet the redemption requests.
As compensation for its services and expenses, Legg Mason receives from
the fund an annual distribution fee equivalent to 0.75% of its average daily net
assets attributable to Primary Class shares and a service fee equivalent to
0.25% of its average daily net assets attributable to Primary Class shares in
accordance with the Plan. All distribution and service fees are calculated daily
and paid monthly.
The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the 12b-1 Directors, cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may be terminated
by a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting Primary Class shares. Any change in the Plan that would
materially increase the distribution cost to the fund requires shareholder
approval; otherwise the Plan may be amended by the directors, including a
majority of the 12b-1 Directors, as previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the fund's Board of Directors, and the directors will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of candidates for Independent Director
will be committed to the discretion of the Independent Directors.
34
<PAGE>
For the period December 30, 1999 (commencement of operations) to
December 31, 1999, Legg Mason incurred the following expenses in connection with
distribution and shareholder services:
Compensation to Sales Personnel $2,685
Other $943
----
Total $3,628
The amounts in "Other" reflect the allocation of certain items of
overhead, using assumptions believed by Legg Mason to be reasonable.
CAPITAL STOCK INFORMATION
The Articles of Incorporation of the Corporation 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 are not
being offered at this time.
Each share in the fund is entitled to one vote for the election of
directors and any other matter submitted to a vote of fund shareholders.
Fractional shares have fractional voting rights. Voting rights are not
cumulative. All shares in the fund are fully paid and nonassessable and have no
preemptive or conversion rights.
Shareholder meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters (including
the election of directors, approval of an advisory contract, and certain
amendments to the plan of distribution pursuant to Rule 12b-1), at the request
of 25% or more of the shares entitled to vote as set forth in the bylaws of Legg
Mason Investment Trust, Inc. or as the Board of Directors from time to time
deems appropriate.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, serves as custodian of the fund's assets. Boston
Financial Data Services ("BFDS"), P.O. Box 953, Boston, Massachusetts 02103, as
agent for State Street, serves as transfer and dividend-disbursing agent, and
administrator of various shareholder services. Legg Mason assists BFDS with
certain of its duties as transfer agent and receives compensation from BFDS for
its services. Shareholders who request an historical transcript of their account
will be charged a fee based upon the number of years researched. The fund
reserves the right, upon 60 days' written notice, to make other charges to
investors to cover administrative costs.
THE FUND'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington,
D.C. 20036, serves as counsel to the fund.
THE FUND'S INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, Two Commerce Square, 2001 Market Street,
Philadelphia, PA 19103, serves as independent auditors for Opportunity Trust.
FINANCIAL STATEMENTS
LEGG MASON INVESTMENT TRUST, INC.:
LEGG MASON OPPORTUNITY TRUST
35
<PAGE>
Statement of Assets and Liabilities
December 14, 1999
Cash $100,000
Receivable from LMM 100,000
Deferred offering costs 27,000
-------------
Total Assets 227,000
-------------
Organization and offering costs payable 127,000
-------------
Net Assets - Offering price of $10.00 per share
with 10,000 shares outstanding (400,000,000 shares
par value $.001 per share Primary Class authorized) $100,000
=============
- -------------------------
Statement of Operations
For the Period October 8, 1999 through December 14, 1999
Organization expenses $100,000
Expenses reimbursed by LMM (100,000)
-------------
Net Income $ 0
=============
Notes to Financial Statements
Legg Mason Investment Trust, Inc. (the "Corporation"), comprised of Legg Mason
Opportunity Trust (the "Fund"), was organized on October 8, 1999. The Fund has
had no operations other than those matters related to its organization and
registration as an investment company under the Investment Company Act of 1940
and the sale of its initial shares. The Fund currently offers only Primary Class
shares. LMM, LLC ("LMM"), the Fund's investment advisor and manager and an
affiliate of Legg Mason, Inc. (a financial services holding company), has
provided the initial capital for the Fund by purchasing 10,000 shares of the
Primary Class at $10.00 per share. Such shares were acquired for investment and
can be disposed of only by redemption. Legg Mason Wood Walker, Incorporated, a
wholly owned subsidiary of Legg Mason, Inc. and a member of the New York Stock
Exchange, acts as the distributor of the Fund's shares.
Organization costs of the Fund have been expensed as incurred. Offering costs
have been deferred and will be expensed over a twelve-month period beginning the
day operations commence. Under the terms of the investment management agreement,
LMM is required to bear any expenses through December 31, 2000, including
organization costs, which would cause the Fund's ratio of expenses to average
net assets to exceed 1.99%. Thereafter, through December 31, 2003, the Fund is
required to reimburse LMM for these expenses, provided that average net assets
have grown or expenses have declined sufficiently to allow reimbursement without
causing the Fund's ratio of expenses to average net assets to exceed 1.99%. At
December 14, 1999, organization costs of $100,000 of the Fund have been borne by
LMM and under the arrangement, are subject to reimbursement by the Fund through
December 14, 2002.
36
<PAGE>
Report of Independent Auditors
To the Shareholder and Board of Directors
Legg Mason Investment Trust, Inc. - Legg Mason Opportunity Trust
We have audited the accompanying statement of assets and liabilities of Legg
Mason Opportunity Trust (the "Fund") as of December 14, 1999 and the related
statement of operations for the period October 8, 1999 through December 14,
1999. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Legg Mason Opportunity Trust at
December 14, 1999, and the results of its operations for the period October 8,
1999 through December 14, 1999, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
December 16, 1999
37
<PAGE>
Appendix A
RATINGS OF SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
- ----------------------------------------------------------
CORPORATE BOND RATINGS:
- ----------------------
Aaa -Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa- Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
38
<PAGE>
DESCRIPTION OF STANDARD & POOR'S ("S&P") CORPORATE BOND RATINGS:
- ---------------------------------------------------------------
AAA- An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC- An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC- An obligation rated CC is currently highly vulnerable to nonpayment.
C- A subordinated debt or preferred stock obligation rated C is
currently highly vulnerable to nonpayment. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A C also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.
D- An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-)- The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r- This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
39
<PAGE>
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.
40
<PAGE>
LEGG MASON INVESTMENT TRUST, INC.
Part C. Other Information
-----------------
Item 23. Exhibits
--------
(a) Articles of Incorporation (1)
(b) By-Laws (As Restated and Amended October 15, 1999) (2)
(c) Specimen security -- not applicable
(d) (i) Management Agreement - filed herewith
(ii) Sub-Management Agreement - filed herewith
(e) Underwriting Agreement - filed herewith
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement - filed herewith
(h) Transfer Agency and Service Agreement - filed herewith
(i) Opinion and Consent of Counsel - filed herewith
(j) Accountants' consent - filed herewith
(k) Financial statements omitted from Item 22 - none
(l) Agreement for providing initial capital with respect to
the Registrant (1)
(m) Distribution Plan - filed herewith
(n) Form of Multiple Class Plan Pursuant to Rule 18f-3 - filed herewith
(o) Reserved
(p) Codes of Ethics - not applicable
(1) Incorporated herein by reference to corresponding Exhibit of the initial
Registration Statement, SEC File No. 333-88715, filed October 8, 1999.
(2) Incorporated herein by reference to corresponding Exhibit of Pre-Effective
Amendment No. 1 to the Registration Statement, SEC File No. 333-88715,
filed December 21, 1999.
<PAGE>
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. Indemnification
---------------
This item is incorporated by reference to Item 25 of Part C of the initial
Registration Statement, SEC File No. 333-88715, filed October 8, 1999.
Item 26. Business and Other Connections of Manager and Investment Adviser
----------------------------------------------------------------
This item is incorporated by reference to Item 26 of Part C of
Pre-Effective Amendment No. 1 to the Registration Statement, SEC File No.
333-88715, filed December 21, 1999.
Item 27. Principal Underwriters
----------------------
This item is incorporated by reference to Item 27 of Part C of
Pre-Effective Amendment No. 1 to the Registration Statement, SEC File No.
333-88715, filed December 21, 1999.
Item 28. Location of Accounts and Records
--------------------------------
This item is incorporated by reference to Item 28 of Part C of
Pre-Effective Amendment No. 1 to the Registration Statement, SEC File No.
333-88715, filed December 21, 1999.
Item 29. Management Services
-------------------
None.
Item 30. Undertakings
------------
None.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Investment Trust,
Inc. has duly caused this Post-Effective Amendment No. 1 to its 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 31st day
of January, 2000.
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/ John F. Curley, Jr. Chairman of the Board January 31, 2000
- ------------------------ and Director
John F. Curley, Jr.*
/s/ Richard G. Gilmore Director January 31, 2000
- ------------------------
Richard G. Gilmore*
/s/ Arnold L. Lehman Director January 31, 2000
- ------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern Director January 31, 2000
- ------------------------
Jill E. McGovern*
/s/ Jennifer W. Murphy President and Director January 31, 2000
- -----------------------
Jennifer W. Murphy*
/s/ G. Peter O'Brien Director January 31, 2000
- ------------------------
G. Peter O'Brien*
/s/ T.A. Rodgers Director January 31, 2000
- ------------------------
T.A. Rodgers*
/s/ Edward A. Taber, III Director January 31, 2000
- ------------------------
Edward A. Taber, III*
/s/ Marie K. Karpinski Vice President January 31, 2000
- ----------------------- and Treasurer
Marie K. Karpinski
* Signatures affixed by Marc R. Duffy pursuant to a power of attorney, dated
November 12, 1999, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' Registration Statements on Form N-1A):
LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of MARIE K.
KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and ARTHUR C.
DELIBERT my true and lawful attorney-in-fact, with full power of substitution,
and with full power to sign for me and in my name in the appropriate capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration Statements on Form N-1A, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments in connection therewith, to file the same with the Securities and
Exchange Commission and the securities regulators of appropriate states and
territories, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, all related requirements of the Securities and Exchange
Commission and all requirements of appropriate states and territories. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
SIGNATURE DATE
/s/ Edmund J. Cashman, Jr. November 12, 1999
- ----------------------------------
Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. November 12, 1999
- ----------------------------------
John F. Curley, Jr.
/s/ Richard G. Gilmore November 12, 1999
- ----------------------------------
Richard G. Gilmore
/s/ Arnold L. Lehman November 12, 1999
- ----------------------------------
Arnold L. Lehman
/s/ Raymond A. Mason November 12, 1999
- ----------------------------------
Raymond A. Mason
/s/ Jill E. McGovern November 12, 1999
- ----------------------------------
Jill E. McGovern
/s/ Jennifer W. Murphy November 12, 1999
- ----------------------------------
Jennifer W. Murphy
/s/ G. Peter O'Brien November 12, 1999
- ----------------------------------
G. Peter O'Brien
<PAGE>
/s/ T.A. Rodgers November 12, 1999
- ----------------------------------
T. A. Rodgers
/s/ Edward A. Taber, III November 12, 1999
- ----------------------------------
Edward A. Taber, III
<PAGE>
Exhibits
(a) Articles of Incorporation (1)
(b) By-Laws (As Amended and Restated October 15, 1999) (2)
(c) Specimen security -- not applicable
(d) (i) Management Agreement - filed herewith
(ii) Sub-Management Agreement - filed herewith
(e) Underwriting Agreement - filed herewith
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement - filed herewith
(h) Transfer Agency and Service Agreement - filed herewith
(i) Opinion and Consent of Counsel - filed herewith
(j) Accountants' consent - filed herewith
(k) Financial statements omitted from Item 22 - none
(l) Agreement for providing initial capital with respect to the Registrant (1)
(m) Distribution Plan - filed herewith
(n) Form of Plan Pursuant to Rule 18f-3 - filed herewith
(o) Reserved
(p) Codes of Ethics - not applicable
(1) Incorporated herein by reference to corresponding Exhibit of the
initial Registration Statement, SEC File No. 333-88715, filed October
8, 1999.
(2) Incorporated herein by reference to corresponding Exhibit of
Pre-effective Amendment No. 1 to the Registration Statement, SEC File No.
333-88715, filed December 21, 1999.
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT ("Agreement") is made this 23rd day of December,
1999, by and between Legg Mason Investment Trust, Inc., a Maryland corporation
("Corporation"), on behalf of Legg Mason Opportunity Trust ("Fund") and LMM LLC,
a Delaware limited liability company ("Manager").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"), of which the Fund is currently the only series; and
WHEREAS, the Corporation wishes to retain the Manager to provide
investment advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Corporation hereby appoints the Manager as manager of the Fund for
the period and on the terms set forth in this Agreement. The Manager accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with regard
to the securities owned by it, its funds available, or to become available, for
investment, and generally as to the condition of its affairs. It shall furnish
the Manager with such other documents and information with regard to its affairs
as the Manager may from time to time reasonably request.
3. (a) Subject to the supervision of the Corporation's Board of Directors,
the Manager shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment program for
the Fund's portfolio of securities consistent with the Fund's investment goals
and policies. The Manager shall determine from time to time what securities will
be purchased, retained or sold by the Fund, and shall implement those decisions,
all subject to the provisions of the Corporation's Articles of Incorporation and
Bylaws, the 1940 Act, the applicable rules and regulations of the Securities and
Exchange Commission, and other applicable federal and state law, as well as the
investment goals, policies and limitations of the Fund. The Manager will place
orders pursuant to its investment determinations for the Fund either directly
with the issuer or with any broker or dealer. In placing orders with brokers and
dealers the Manager will attempt to obtain the best net price and the most
favorable execution of its orders; however, the Manager may, in its discretion,
purchase and sell portfolio securities from and to brokers and dealers who
provide the Fund with research, analysis, advice and similar services, and the
<PAGE>
Manager may pay to these brokers, in return for research and analysis, a higher
commission or spread than may be charged by other brokers. The Manager shall
also provide advice and recommendations with respect to other aspects of the
business and affairs of the Fund, and shall perform such other functions of
management and supervision as may be directed by the Board of Directors of the
Corporation.
(b) The Fund hereby authorizes any entity or person associated with the
Manager which is a member of a national securities exchange to effect or execute
any transaction on the exchange for the account of the Corporation which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
4. (a) The Manager, at its expense, shall furnish the Fund with office
facilities, including space, furniture and equipment, all personnel, and all
services reasonably necessary for the operation of the Fund.
(b) The Manager, at its expense, shall supervise all aspects of the
operations of the Corporation and the Fund including provision and coordination
of transfer agency, custodial services, accounting services (including
overseeing the calculation of the net asset value of the Fund's shares),
corporate secretarial services, legal services, and auditing services subject to
the Board's oversight.
(c) The Manager, at its expense, shall assure the maintenance of all books
and records with respect to the Fund's securities transactions and the keeping
of the Fund's books of account in accordance with all applicable federal and
state laws and regulations. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Manager hereby agrees: that any records which it
maintains for or on behalf of the Fund are the property of the Fund; that such
records will be available upon the request of the Corporation and/or the Fund
for inspection, copying and use by the Corporation and/or the Fund; and to
surrender promptly to the Fund any of such records upon the Fund's request. The
Manager further agrees to arrange for the preservation of the records required
to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by
Rule 31a-2 under the 1940 Act. Upon termination of this Agreement, the Manager
will promptly surrender all such records to the Fund or such person as the Fund
and/or Corporation may designate.
(d) The Manager, at its expense, shall supply the Board of Directors and
officers of the Corporation with all statistical information and analyses and
reports reasonably required by them and reasonably available to the Manager.
(e) The Manager will supervise the preparation, filing, and dissemination
of required tax returns, applications, disclosures, and reports with relevant
regulatory authorities including the Securities and Exchange Commission and
state blue sky authorities.
-2-
<PAGE>
(f) The Manager shall authorize and permit any of its directors, officers
and employees, who may be elected as directors or officers of the Fund, to serve
in the capacities in which they are elected.
5. (a) Other than as herein specifically indicated, the Manager shall not
be responsible for the Fund's expenses. Specifically, the Manager will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Manager hereunder, for any of the
following expenses of the Fund: advisory fees; distribution fees; interest,
taxes, governmental fees, fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; the
cost (including brokerage commissions or charges, if any) of securities
purchased or sold by the Fund and any losses in connection therewith; fees of
custodians, transfer agents, registrars or other agents; legal expenses; expense
of preparing share certificates; expenses relating to the redemption or
repurchase of the Fund's shares; expenses of registering and qualifying the
Fund's shares for sale under applicable federal and state law; expenses of
preparing, setting in print, printing and distributing prospectuses, reports,
notices and dividends to the Fund's shareholders; costs of stationery; costs of
stockholders and other meetings of the Fund; directors' fees; audit fees; travel
expenses of officers, directors and employees of the Corporation, if any; and
the Corporation's pro rata portion of premiums on any fidelity bond and other
insurance covering the Corporation and its officers, directors and employees.
(b) For the period ending December 31, 2000, the Manager shall pay any of
the Fund's expenses, including organizational expenses but excluding interest,
taxes, brokerage commissions and extraordinary expenses of the Fund which
exceed, in the aggregate, an annual rate of 1.99% of the Fund's average daily
net assets attributable to the Primary Class of shares ("Expense Limit");
provided, however, that in order to determine the Manager's liability for the
Fund's expenses over the Expense Limit, the amount of allowable year-to-date
expenses shall be computed daily by pro-rating the Expense Limit based on the
number of days elapsed within the fiscal year of the Fund ("Pro-Rated
Limitation"). The Pro-Rated Limitation shall be compared to the expenses of the
Fund recorded through the prior day in order to produce the allowable expenses
to be recorded for the current day ("Allowable Expenses"). If the Fund's
management fee and other expenses for the current day exceed the Allowable
Expenses, the management fee for the current day shall be reduced by such excess
("Unaccrued Fees"). In the event the excess exceeds the amount due as the
management fee, the Manager shall be responsible to the Fund for the additional
excess ("Other Expenses Exceeding Limit"). If at any time up through and
including December 31, 2000, the Fund's management fee and other expenses for
the current day are less than the Allowable Expenses, the differential shall be
due to the Manager as payment of cumulative Unaccrued Fees (if any) or as
payment for cumulative Other Expenses Exceeding Limit (if any). If cumulative
Unaccrued Fees or cumulative Other Expenses Exceeding Limit remain at December
31, 2000, these amounts shall be paid to the Manager in the future provided
that: (1) such payment shall be made to the Manager no later than the end of the
third fiscal year after the year in which the Unaccrued Fees or Other Expenses
Exceeding Limit was incurred; and (2) such payment shall only be made to the
extent that it does not result in the Fund's aggregate expenses exceeding an
expense limit of 1.99% of its average daily net assets attributable to the
Primary Class of shares.
-3-
<PAGE>
6. The Manager may enter into a contract ("Sub-Management Agreement") with
a sub-manager in which the Manager delegates to such sub-manager any or all of
its duties specified in Paragraphs 3 and 4 hereunder, provided that such
Sub-Management Agreement imposes on the sub-manager at least the same conditions
and standard of care to which the Manager would be subject in performing the
same duties hereunder, and further provided that such Sub-Management Agreement
meets all requirements of the 1940 Act and rules thereunder.
7. No director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such director,
officer or employee while he is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This paragraph
shall not apply to directors, executive committee members, consultants and other
persons who are not regular members of the Manager's or any affiliated company's
staff.
8. As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Fund shall pay the Manager, as promptly as possible
after the last day of each month, a fee, computed daily at an annual rate of
1.00% of the average daily net assets of the Fund up to $100 million and 0.75%
of the average daily net assets of the Fund in excess of $100 million. The first
payment of the fee shall be made as promptly as possible at the end of the month
succeeding the effective date of this Agreement, and shall constitute a full
payment of the fee due the Manager for all services prior to that date. If this
Agreement is terminated as of any date not the last day of a calendar month, a
final fee shall be paid promptly after the date of termination and shall be
based on the percentage of days of the month during which the contract was still
in effect. The average daily net assets of the Fund shall in all cases be based
only on business days and be computed as of the time of the regular close of
business of the New York Stock Exchange, or such other time as may be determined
by the Board of Directors of the Corporation. Each such payment shall be
accompanied by a statement prepared either by the Fund or by a reputable firm of
independent accountants which shall show the amount properly payable to the
Manager under this Agreement and the detailed computation thereof.
9. The Manager assumes no responsibility under this Agreement other than
to render the services called for hereunder, in good faith, and shall not be
responsible for any action of the Board of Directors of the Corporation in
following or declining to follow any advice or recommendations of the Manager;
provided, that nothing in this Agreement shall protect the Manager against any
liability to the Fund or its shareholders to which the Manager would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
10. Nothing in this Agreement shall limit or restrict the right of any
director, officer, managing member or employee of the Manager who may also be a
director, officer, or employee of the Corporation or the Fund, to engage in any
other business or to devote his time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
-4-
<PAGE>
nature, nor to limit or restrict the right of the Manager to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
11. As used in this Agreement, the term "net assets" shall have the
meaning ascribed to it in the Articles of Incorporation of the Corporation and
the terms "assignment," "interested person," and "majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of the
1940 Act, subject to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
12. This Agreement will become effective with respect to the Fund on the
above written date, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of the Fund in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided herein, will continue in effect for two years from the above written
date. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive annual periods ending on the same date
of each year, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority of the outstanding voting securities of the Fund, provided that in
either event the continuance is also approved by a majority of the Corporation's
Directors who are not "interested persons" of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
13. This Agreement is terminable with respect to the Fund without penalty
by the Corporation's Board of Directors, by vote of a majority of the
outstanding voting securities of the Fund, or by the Manager, on not less than
sixty (60) days' notice to the other party and will be terminated upon the
mutual written consent of the Manager and the Corporation. This Agreement shall
terminate automatically in the event of its assignment by the Manager and shall
not be assignable by the Corporation without the consent of the Manager.
14. The Manager agrees that for services rendered to the Fund, or
indemnity due in connection with service to the Fund, it shall look only to
assets of the Fund for satisfaction and that it shall have no claim against the
assets of any other portfolios of the Corporation.
15. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no material amendment of the Agreement shall be effective until
approved by vote of the holders of a majority of the Fund's outstanding voting
securities.
16. This Agreement embodies the entire agreement and understanding between
the parties hereto, and supersedes all prior agreements and understandings
relating to the subject matter hereof. Should any part of this Agreement be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement shall be binding
-5-
<PAGE>
on and shall inure to the benefit of the parties hereto and their respective
successors.
17. This Agreement shall be construed in accordance with the laws of the
State of Maryland, without giving effect to the conflicts of laws principles
thereof, and in accordance with the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INVESTMENT TRUST, INC.
By: /s/ Marc R. Duffy By: /s/ Jennifer W. Murphy
-------------------------- ------------------------------------
Marc R. Duffy Jennifer W. Murphy
President
Attest: LMM LLC
By: /s/ Marc R. Duffy By: /s/ William H. Miller, III
-------------------------- ------------------------------------
Marc R. Duffy William H. Miller, III
Managing Member
-6-
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT, made this 23rd day of December, 1999 by and
between Legg Mason Investment Trust, Inc., a Maryland corporation
("Corporation"), on behalf of Legg Mason Opportunity Fund ("Fund"), and Legg
Mason Wood Walker, Inc., a Maryland corporation ("Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered its shares of common stock
of the Fund for sale to the public under the Securities Act of 1933 (the "1933
Act") and filed appropriate notices under various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of common
stock of the Fund ("Shares") and to furnish certain other services to the
Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and to
furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of Shares of the Fund. The
Distributor, as exclusive agent for the Corporation, upon the commencement of
operations of the Fund and subject to applicable federal and state law and the
Articles of Incorporation and Bylaws of the Corporation, shall: (i) promote the
Fund; (ii) solicit orders for the purchase of the Shares subject to such terms
and conditions as the Corporation may specify; and (iii) accept orders for the
purchase of the Shares on behalf of the Corporation (collectively, "Distribution
Services"). The Distributor shall comply will all applicable federal and state
laws and offer the Shares of the Fund on an agency or "best efforts" basis under
which the Corporation shall issue only such Shares as are actually sold. The
Distributor shall have the right to use any list of shareholders of the
Corporation or the Fund or any other list of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such list or
lists to any unaffiliated person without the consent of the Corporation's Board
of Directors.
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Conduct Rule
<PAGE>
2830 of the National Association of Securities Dealers, Inc. ("NASD")
(collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeeping and sub-accounting
services, the form of such agreements to be as mutually agreed upon and approved
by the Corporation and the Distributor. In making such arrangements, the
Distributor shall act only as principal and not as agent for the Corporation. No
such dealer or other entity is authorized to act as agent for the Corporation in
connection with the offering or sale of Shares to the public or otherwise,
except for the limited purpose of determining the time as of which Shares are to
be priced, and then only if the agreement expressly provides in writing that it
shall so act.
3. The public offering price of the Shares of the Fund shall be the net
asset value per share (as determined by the Corporation) of the outstanding
Shares of the Fund plus any applicable sales charge as described in the
Registration Statement of the Corporation. The Corporation shall furnish the
Distributor with a statement of each computation of public offering price and of
the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Fund a distribution fee and a service fee at the rates and under the terms
and conditions of the Plan of Distribution ("Plan") adopted by the Corporation
with respect to the Fund, as such Plan is in effect from time to time, and
subject to any further limitations on such fees as the Corporation's Board of
Directors may impose. The Distributor may reallow any or all of the sales
charge, distribution fee and service fee that it has received under this
Agreement to such dealers or sub-accountants as it may from time to time
determine; provided, however, that unless permitted under the rules of the NASD,
the Distributor may not reallow to any dealer for Shareholder Services an amount
in excess of 0.25% of the average annual net asset value of the shares with
respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall mean
the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to such Series filed by the Corporation as
part of the Registration Statement, or as they may be amended from time to time.
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
-2-
<PAGE>
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representative or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares with
the Securities and Exchange Commission, state and other regulatory bodies, and
to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Fund shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to such Fund's
communications with persons who are shareholders of that Fund.
8. The Corporation agrees to indemnify, defend and hold the Distributor,
its several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the
Corporation or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement, and further provided that the
Corporation shall not indemnify the Distributor for conduct as set forth in
paragraph 9. The Distributor agrees that it shall look only to assets of the
Fund, and not to any other series of the Corporation, for satisfaction of any
obligation created by this paragraph or otherwise arising under this Agreement.
9. The Distributor agrees to indemnify, defend and hold the Corporation,
its several officers and directors, and any person who controls the Corporation
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Corporation, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, on account of any wrongful act of the
Distributor or any of its employees or arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
-3-
<PAGE>
writing by the Distributor to the Corporation for use in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement or necessary to make such information not misleading. As
used in this paragraph, the term "employee" shall not include a corporate entity
under contract to provide services to the Corporation or any Series, or any
employee of such a corporate entity, unless such person is otherwise an employee
of the Corporation.
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of the Fund by written notice to the Distributor at its
principal office.
11. The Corporation shall not issue certificates representing Shares
unless requested by a shareholder. If such request is transmitted through the
Distributor, the Corporation will cause certificates evidencing the Shares owned
to be issued in such names and denominations as the Distributor shall from time
to time direct, provided that no certificates shall be issued for fractional
Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify, by telex or in writing, the
Corporation and Boston Financial Data Services, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for
the Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's Board of
Directors on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
16. As used in this Agreement, the terms "assignment," "interested person"
and "majority of the outstanding voting securities" shall have the meanings
given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may
-4-
<PAGE>
be granted by the Securities and Exchange Commission by any rule, regulation or
order.
17. This Agreement will become effective with respect to the Fund on the
date first written above and, unless sooner terminated as provided herein, will
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to the fund for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the
Corporation's Board of Directors or (ii) by a vote of a majority of the
outstanding voting securities of the Fund (as defined the in 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Corporation's Directors who are not interested persons (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval.
18. This Agreement is terminable, with respect to the Fund or in its
entirety, without penalty by the Corporation's Board of Directors, by vote of a
majority of the outstanding voting securities of the fund (as defined in the
1940 Act), or by the Distributor, on not less than 60 days' notice to the other
party and will be terminated upon the mutual written consent of the Distributor
and the Corporation. This Agreement will also automatically and immediately
terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged or
terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON INVESTMENT TRUST, INC.
By:/s/ Marc R. Duffy By:/s/ Jennifer W. Murphy
-------------------------- -------------------------------------
Marc R. Duffy Jennifer W. Murphy
President
Attest: LEGG MASON WOOD WALKER, INC.
By:/s/ Marc R. Duffy By:/s/ Andrew J. Bowden
-------------------------- -------------------------------------
Marc R. Duffy Andrew J. Bowden
Vice President
-5-
CUSTODIAN CONTRACT
Between
LEGG MASON INVESTMENT TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Legg Mason Investment Trust, Inc., a corporation
organized and existing under the laws of the State of Maryland, having its
principal place of business at 100 Light Street, Baltimore, Maryland 21202
hereinafter called the "FUND", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"CUSTODIAN,"
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in one (1) series, the
Legg Mason Opportunity Trust (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "PORTFOLIO(S)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("DOMESTIC SECURITIES") and securities it desires to be held outside the United
States ("FOREIGN SECURITIES") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian; provided, however, that (a) the Custodian
will be liable to the Fund for the Custodian's own negligence in transmitting
any instructions received by it from the Fund and for the Custodian's own
negligence in connection with the delivery of any securities, cash or other
assets held by it to any sub-custodian and (b) in the event of any loss, damage
or expense suffered or incurred by the Fund caused by or resulting from actions
<PAGE>
or omissions for which the Custodian would be liable pursuant to this section,
the Custodian shall promptly reimburse the Fund in the amount of any such loss,
damage or expense. The Custodian may employ as sub-custodian for the Fund's
foreign securities on behalf of the applicable Portfolio(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A hereto
but only in accordance with the provisions of Section 3. The Fund may instruct
the Custodian, through Proper Instructions, to cease the employment of any one
or more sub-custodians for maintaining custody of the Fund's assets, and to
cause the prompt delivery of such assets to another sub-custodian acceptable to
the Fund and the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
--------------------------------------------------------------------------
Custodian in the United States
------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies (each, a "U.S. SECURITIES SYSTEM") and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("DIRECT PAPER") which is
deposited and/or maintained in the Direct Paper System of the Custodian
(the "DIRECT PAPER SYSTEM") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("DIRECT PAPER SYSTEM ACCOUNT") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "STREET DELIVERY" custom; provided that in any
such case, the Custodian shall have no responsibility or liability
for any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is to
be credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities
owned by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "EXCHANGE ACT") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
<PAGE>
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("TRANSFER
AGENT") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("PROSPECTUS"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Directors or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Section 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on
such securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
<PAGE>
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Directors of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect, and shall require any sub-custodian to collect,
on a timely basis all income and other payments with respect to registered
domestic securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent thereof and
shall promptly credit such income, as collected, to such Portfolio's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due each
Portfolio on securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than to provide the
Fund with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled. The Custodian shall promptly
notify the Fund by facsimile transmission or in such other manner as the
Fund and the Custodian may agree in writing if any amount payable with
respect to Shares of the Fund or other assets of the Fund is not received
by the Custodian when due.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
<PAGE>
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper form
for transfer; (b) in the case of a purchase effected through a U.S.
Securities System, in accordance with the conditions set forth in
Section 2.10 hereof; (c) in the case of a purchase involving the
Direct Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt
of a confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Section 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Section 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
<PAGE>
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Section 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder. In
the event of any loss, damage or expense suffered or incurred by the Fund,
caused by or resulting from the actions or omissions of any agent for
which the Custodian would be liable if said act or omission had been
committed by the Custodian, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. SECURITIES SYSTEM" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an
account ("ACCOUNT") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Portfolio.
<PAGE>
The Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the form of
a written advice or notice and shall furnish to the Fund on behalf of
the Portfolio copies of daily transaction sheets reflecting each
day's transactions in the U.S. Securities System for the account of
the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control or procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial certificate required by Section 14 hereof;
6) At the written request of the Fund, the Custodian will terminate the
use of any such Securities System as promptly as practicable;
7) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or of
any of its or their employees or from failure of the Custodian or any
such agent to enforce effectively such rights as it may have against
the U.S. Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claim against the U.S. Securities System or any other person
which the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been made
whole for any such loss or damage. In the event of any such
subrogation, the Custodian shall cooperate with the Fund in asserting
such rights and shall take all actions reasonably necessary to enable
the Fund to assert such rights.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
<PAGE>
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("ACCOUNT") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct Paper
on the next business day following such transfer and shall furnish to
the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
<PAGE>
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or
of the Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall, and shall
require any sub-custodian to, promptly execute ownership and other
certificates and affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with respect to
domestic securities of each Portfolio held by it and in connection with
transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights
in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers
of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Portfolio shall if reasonably
practicable notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action. If the Portfolio
provides the Custodian with such notification less than three business
days prior to the date on which the Custodian is to take such action, the
Custodian shall use best efforts only to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
--------------------------------------------------------------------------
of the United States
--------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("FOREIGN SUB-CUSTODIANS"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Directors, the
<PAGE>
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets and to cause the delivery of such assets to the
Custodian (if reasonably practicable) or to another sub-custodian
acceptable to the Custodian and the Fund.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"FOREIGN SECURITIES", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside of the United States (each a "FOREIGN SECURITIES SYSTEM") only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof (Foreign Securities
Systems and U.S. Securities Systems are collectively referred to herein as
the "SECURITIES SYSTEMS"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.5
hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of the Fund which are maintained in such account shall identify
by book-entry those securities and other non-cash property belonging to
the Fund and (ii) the Custodian shall require that securities and other
non-cash property so held by the foreign sub-custodian be held separately
from any assets of the Custodian, of the foreign sub-custodian or of
others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
<PAGE>
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the Fund, its
independent accountants and/or its attorneys to be afforded access to the
books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance
of such foreign banking institution under its agreement with the
Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities. The Custodian shall also provide to the Fund such other
information as may be reasonably requested by the Fund to evidence
compliance with Rule 17f-5 under the Investment Company Act of 1940.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account
of each applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer. (c)
Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities (except liability for failing to act in accordance with
instructions).
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care and diligence in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
<PAGE>
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim. In the event of such subrogation, the
Custodian shall cooperate with the Fund in asserting such rights and shall
take all actions reasonably necessary to enable the Fund to assert such
rights.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care and diligence.
In the event that any sub-custodian appointed pursuant to the provisions
of this Section 3 fails to perform any of its obligations under the terms
and conditions of the applicable sub-custodian agreement, the Custodian
shall use its best efforts to cause such sub-custodian to fully perform
its obligations. In the event that the Custodian is unable to cause such
sub-custodian to perform its obligations thereunder, the Custodian shall
forthwith notify the Fund of the same and, upon the Fund's request,
terminate such sub-custodian as a sub-custodian for the Fund in accordance
with the termination provisions of the applicable sub-custodian agreement
and, if requested by the Fund, appoint another sub-custodian acceptable to
the Custodian and the Fund.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio, having a fair market
value not in excess of 125% of the advance, shall be security therefor if
specifically identified as such by the Custodian and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Portfolios assets to the
extent necessary to obtain reimbursement. For any property identified as
security under this paragraph, the Fund may substitute other property of
equivalent value upon permission of the Custodian, which permission shall
not be unreasonably withheld.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, and as reasonably requested by the Fund
from time to time, information concerning the foreign sub-custodians
employed by the Custodian. Such information shall be similar in kind and
scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian shall monitor the
performance and financial condition of the foreign sub-custodians and
foreign securities depositories to the extent practicable and will
<PAGE>
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the performance or financial condition of a
foreign sub-custodian or any material loss of the assets of the Fund.
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract. (b) Cash
held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with
the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. Except as provided in Section 2.13, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed
on the Fund or the Custodian as custodian of the Fund by the tax law of
the United States of America or any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of jurisdictions other than those
mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications
and governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax law
of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and promptly deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
<PAGE>
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
instructions are consistent with any security procedures agreed to by the Fund
and the Custodian, including but not limited to, the security procedures
selected by the Fund on the Funds Transfer Addendum to this Contract. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Directors of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
<PAGE>
Board of Directors of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors pursuant to the Articles of Incorporation
as described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
--------------------------------------------------------------------------
of Net Asset Value and Net Income
---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio. On each day that the Custodian computes the net asset value per share
of the Fund, the Custodian will provide information sufficient to permit the
Fund to verify that portfolio transactions are reconciled with the Fund's
trading records.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder and under applicable state and federal tax laws. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection and audit by duly
authorized officers, employees, agents and auditors of and attorneys for the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
<PAGE>
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding cash, securities, futures contracts and options on
futures contracts, including cash, securities, and other assets deposited and/or
maintained in a Securities System or with a sub-custodian, relating to the
services provided by the Custodian, directly or through any agent, under this
Contract; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon in writing from time to time
between the Fund on behalf of each applicable Portfolio and the Custodian. The
Custodian shall provide the Fund a written invoice for each such payment.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice that such actions or
omissions comply with the terms of the Contract and with all applicable laws,
provided the Custodian acts in good faith and without negligence.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution employed as a sub-custodian to the same extent as set forth
with respect to sub-custodians generally in this Contract.
<PAGE>
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's or agent's own negligent action, negligent failure to act or willful
misconduct, (collectively referred to herein as a "Liability"), then in such
event cash held for the account of the Fund and securities issued by United
States issuers or other securities selected by the Custodian equal in value to
not more than 125% of such Advance and accrued interest on the Advance or the
anticipated amount of such Liability, held at any time for the account of the
Fund by the Custodian or sub-custodian, shall be held as security for such
Liability or for such Advance and the accrued interest on the Advance. The
Custodian shall designate the security or securities constituting security for
an Advance or Liability (the "Designated Securities") by notice in writing to
the Fund (which may be sent by telefax). In the event the value of the
Designated Securities shall decline to less than 110% of the amount of such
Advance and accrued interest on the Advance or the anticipated amount of such
Liability, then the Custodian may designate in the same manner additional
securities to be held as security for such obligation ("Additional Securities")
but the aggregate value of the Designated Securities and the Additional
Securities shall not be in excess of 125% of the amount of such Advance and the
accrued interest on the Advance or the anticipated amount of such Liability. At
the request of the Fund, the Custodian shall agree to substitution of a security
or securities which have a value equal to the value of the Designated or
Additional Securities which the Fund desires to be released from their status as
security, and such release from status as security shall be effective upon the
Custodian and the Fund agreeing in writing as to the identity of the substituted
security or securities, which shall thereupon become Designated Securities.
Notwithstanding the above, the Custodian shall, at the request of the
Fund, immediately release from their status as security any or all of the
Designated Securities or Additional Securities upon the Custodian's receipt from
such Fund of cash or cash equivalents in an amount equal to 100% of the value of
the Designated Securities or Additional Securities that the Fund desires to be
released from their status as security pursuant to this Section. The Fund shall
reimburse the Custodian in respect of a Liability and shall pay any Advances
upon demand; provided, however, that the Custodian first notified the Fund of
such demand for repayment or reimbursement. If, upon notification, the Fund
shall fail to pay such advance or interest when due or shall fail to reimburse
the Custodian promptly in respect of a Liability, the Fund acknowledges and
agrees that the Custodian shall be entitled to apply cash held for the Fund
and/or dispose of the Designated Securities and Additional Securities to the
extent necessary to obtain repayment or reimbursement. Interest, dividends and
other distributions paid or received on the Designated Securities or Additional
<PAGE>
Securities, other than payments of principal or payments upon retirement,
redemption or repurchase, shall remain the property of the Fund, and shall not
be subject to this Section. To the extent that the dispositions of the Fund's
property, designated as security for such Advance or Liability, results in an
amount less than necessary to obtain repayment or reimbursement, the Fund shall
continue to be liable to the Custodian for the difference between the proceeds
of the dispositions of the Fund's property, designated as security for such
Advance or Liability, and the amount of the repayment or reimbursement due to
the Custodian and the Custodian shall be entitled to designate Additional
Securities to secure the amount of the shortfall and shall have the same rights
with respect to such Additional Securities as are provided herein with respect
to Designated Securities generally.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund on behalf of one or more of
the Portfolios may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, promptly deliver to such successor custodian at the office of
<PAGE>
the Custodian, duly endorsed and in the form for transfer, all securities and
funds, as well as all books and records, of each applicable Portfolio then held
by it hereunder and shall transfer to an account of the successor custodian all
of the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and promptly
transfer such securities, funds, books and records, and other properties in
accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract. The Custodian
agrees to cooperate with the successor custodian and the Fund in the execution
of documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Legg Mason Opportunity Trust with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. Reproduction of Documents
-------------------------
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Notices.
-------
Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
<PAGE>
To the Fund: Legg Mason Investment Trust, Inc.
100 Light Street, 29th Floor
Baltimore, Maryland 21202
Attention: Marc R. Duffy
Telephone: 410-454-5313
Telecopy: 410-454-4408
To the Custodian: State Street Bank and Trust Company
1776 Heritage Drive, JAB/4SW
North Quincy, Massachusetts 02171
Attention: Edward M. Buccigross
Telephone: 617-985-6834
Telecopy: 617-985-5450
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
22. Data Access Service Addendum
----------------------------
The Fund and the Custodian agree to be bound by the terms of the Data
Access Services Addendum attached hereto.
23. Shareholder Communications
--------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If the Fund tells the Custodian "yes" or do not check either "yes" or "no"
below, the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any funds
or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.
<PAGE>
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
24. Miscellaneous
-------------
24.1 Expenses of the Fund
--------------------
In addition to any liability to the Fund for which the Custodian is
determined to be liable under this Contract, the Custodian shall be liable
to the Fund for all reasonable costs and expenses incurred by the Fund in
connection with a claim by the Fund against the Custodian, an Agent or
sub-custodian for which the Custodian is liable under this Contract,
including, reasonable attorneys' fees and expenses and other reasonable
fees incurred in any investigation, lawsuit or other proceeding related to
such claim. Nothing in this paragraph shall preclude the parties from
agreeing to payment of such expenses by the Custodian in connection with a
claim settled by arbitration, mediation or negotiation.
24.2 Assignment
----------
This Contract may not be assigned by either party without the written
consent of the other.
24.3 Insurance
---------
The Custodian agrees to maintain insurance adequate to the protection of
all assets of the Fund that may come into the Custodian's care under this
Contract.
24.4 Confidentiality
---------------
The Custodian agrees that all books, records, information and data
pertaining to the business of the Fund which are exchanged or received
pursuant to the negotiation or carrying out of this Contract shall remain
confidential, shall not be voluntarily disclosed to any other person,
except as may be required by law, and shall not be used by the Custodian
for any purpose not directly related to the business of the Fund, except
with the Fund's written consent.
24.5 Separate Portfolios
-------------------
Notwithstanding any other provision of this Contract, the parties agree
that the assets and liabilities of each series of the Fund are separate
<PAGE>
and distinct from the assets and liabilities of each other series and that
no series shall be liable or shall be charged for any debt, obligation or
liability of any other series, whether arising under this Contract or
otherwise.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 30th day of December, 1999.
LEGG MASON INVESTMENT TRUST, INC. FUND SIGNATURE ATTESTED TO BY:
By: /s/ Marie K. Karpinski By: /s/ Patricia A. Maxey
---------------------------- -----------------------
Name: Marie K. Karpinski Name: Patricia A. Maxey
---------------------------- -----------------------
Title: Vice President and Treasurer Title: Secretary
---------------------------- -----------------------
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: /s/ Ronald E. Logue By: /s/ Marc L. Parsons
---------------------------- -----------------------
Name: Ronald E. Logue Name: Marc L. Parsons
---------------------------- -----------------------
Title: Vice Chairman Title: Assistant Vice President
---------------------------- and Associate Counsel
------------------------
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON INVESTMENT TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Terms of Appointment and Duties...................................1
2. Third Party Administrators for Defined Contribution Plans.........4
3. Fees and Expenses.................................................5
4. Representations and Warranties of the Transfer Agent..............5
5. Representations and Warranties of the Fund........................6
6. Wire Transfer Operating Guidelines................................6
7. Data Access and Proprietary Information...........................8
8. Indemnification...................................................9
9. Standard of Care.................................................10
10. Year 2000........................................................10
11. Confidentiality..................................................11
12. Covenants of the Fund and the Transfer Agent.....................11
13. Termination of Agreement.........................................12
14. Assignment and Third Party Beneficiaries.........................12
15. Subcontractors...................................................13
16. Miscellaneous....................................................13
17. Additional Funds.................................................15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 30th day of December, 1999, by and between LEGG MASON
INVESTMENT TRUST, INC., a Maryland corporation, having its principal office and
place of business at 100 Light Street, Baltimore, Maryland 21202 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Transfer Agent").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in one (1) series, such
series shall be named in the attached Schedule A which may be amended by the
parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with SECTION 17, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Transfer
Agent as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Transfer Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment and Duties
-------------------------------
1.1 TRANSFER AGENCY SERVICES. Subject to the terms and conditions
set forth in this Agreement, the Fund, on behalf of the
Portfolios, hereby employs and appoints the Transfer Agent to
act as, and the Transfer Agent agrees to act as its transfer
agent for the Fund's authorized and issued shares of its common
stock, $ 0.001 par value, ("Shares"), dividend disbursing agent,
custodian of certain retirement plans and agent in connection
with any accumulation, open-account or similar plan provided to
the shareholders of each of the respective Portfolios of the
Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable
Portfolio, including without limitation any periodic investment
plan or periodic withdrawal program. In accordance with
procedures established from time to time by agreement between
the Fund on behalf of each of the Portfolios, as applicable and
the Transfer Agent, the Transfer Agent agrees that it will
perform the following services:
1
<PAGE>
(a) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to the
Articles of Incorporation of the Fund (the "Custodian");
(b) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(c) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(d) In respect to the transactions in items (a), (b) and (c)
above, the Transfer Agent shall execute transactions directly
with broker-dealers authorized by the Fund;
(e) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(f) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(g) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the applicable
Portfolio;
(h) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by
the Transfer Agent of indemnification satisfactory to the
Transfer Agent and protecting the Transfer Agent and the Fund,
and the Transfer Agent at its option, may issue replacement
certificates in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(i) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(j) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of
Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Transfer Agent shall also provide the Fund on a regular basis
with the total number of Shares which are authorized and issued
and outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Fund.
1.2 ADDITIONAL SERVICES. In addition to, and neither in lieu nor in
contravention of, the services set forth in the above paragraph,
the Transfer Agent shall perform the following services:
(a) OTHER CUSTOMARY SERVICES. Perform the customary services of
a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection
with accumulation, open-account or similar plan (including
without limitation any periodic investment plan or periodic
2
<PAGE>
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, preparing Shareholder meeting lists,
mailing Shareholder proxies, Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing
U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information.
(b) CONTROL BOOK (ALSO KNOWN AS "SUPER SHEET"). Maintain a daily
record and produce a daily report for the Fund of all
transactions and receipts and disbursements of money and
securities and deliver a copy of such report for the Fund for
each business day to the Fund no later than 9:00 AM Eastern
Time, or such earlier time as the Fund may reasonably require,
on the next business day.
(c) "BLUE SKY" REPORTING. The Fund shall (i) identify to the
Transfer Agent in writing those transactions and assets to be
treated as exempt from blue sky reporting for each State; and
(ii) verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Transfer
Agent for the Fund's blue sky State registration status is
solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and providing a
system which will enable the Fund to monitor the total number of
Shares sold in each State.
(d) NATIONAL SECURITIES CLEARING CORPORATION (THE "NSCC"). (i)
accept and effectuate the registration and maintenance of
accounts through Networking and the purchase, redemption,
transfer and exchange of shares in such accounts through
Fund/SERV (Networking and Fund/SERV being programs operated by
the NSCC on behalf of NSCC's participants, including the Fund),
in accordance with, instructions transmitted to and received by
the Transfer Agent by transmission from NSCC on behalf of
broker-dealers and banks which have been established by, or in
accordance with the instructions of authorized persons, as
hereinafter defined on the dealer file maintained by the
Transfer Agent; (ii) issue instructions to Fund's banks for the
settlement of transactions between the Fund and NSCC (acting on
behalf of its broker-dealer and bank participants); (iii)
provide account and transaction information from the affected
Fund's records on DST Systems, Inc. computer system TA2000
("TA2000 System") in accordance with NSCC's Networking and
Fund/SERV rules for those broker-dealers; and (iv) maintain
Shareholder accounts on TA2000 System through Networking.
(e) NEW PROCEDURES. New procedures as to who shall provide
certain of these services in Section 1 may be established in
writing from time to time by agreement between the Fund and the
Transfer Agent. The Transfer Agent may at times perform only a
portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
3
<PAGE>
2. Third Party Administrators for Defined Contribution Plans
---------------------------------------------------------
2.1 The Fund may decide to make available to certain of its
customers, a qualified plan program (the "Program") pursuant to
which the customers ("Employers") may adopt certain plans of
deferred compensation ("Plan or Plans") for the benefit of the
individual Plan participant (the "Plan Participant"), such
Plan(s) being qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended ("Code") and administered by
third party administrators which may be plan administrators as
defined in the Employee Retirement Income Security Act of 1974,
as amended)(the "TPA(s)").
2.2 In accordance with the procedures established in the initial
Schedule 2.1 entitled "Third Party Administrator Procedures", as
may be amended by the Transfer Agent and the Fund from time to
time ("Schedule 2.1"), the Transfer Agent shall:
(a) Treat Shareholder accounts established by the Plans in the
name of the Trustees, Plans or TPAs as the case may be as
omnibus accounts;
(b) Maintain omnibus accounts on its records in the name of
the TPA or its designee as the Trustee for the benefit of the
Plan; and
(c) Perform all services under SECTION 1 as transfer agent of
the Funds and not as a record-keeper for the Plans.
2.3 Transactions identified under SECTION 2 of this Agreement shall
be deemed exception services ("Exception Services") when such
transactions:
(a) Require the Transfer Agent to use methods and procedures
other than those usually employed by the Transfer Agent to
perform services under SECTION 1 of this Agreement;
(b) Involve the provision of information to the Transfer Agent
after the commencement of the nightly processing cycle of the
TA2000 System; or
(c) Require more manual intervention by the Transfer Agent,
either in the entry of data or in the modification or amendment
of reports generated by the TA2000 System than is usually
required by non-retirement plan and pre-nightly transactions.
4
<PAGE>
3. Fees and Expenses
-----------------
3.1 FEE SCHEDULE. For the performance by the Transfer Agent pursuant
to this Agreement, the Fund agrees to pay the Transfer Agent an
annual maintenance fee for each Shareholder account as set forth
in the attached fee schedule ("Schedule 3.1"). Such fees and
out-of-pocket expenses and advances identified under SECTION 3.2
below may be changed from time to time subject to mutual written
agreement between the Fund and the Transfer Agent.
3.2 OUT-OF-POCKET EXPENSES. In addition to the fee paid under
SECTION 3.1 above, the Fund agrees to reimburse the Transfer
Agent for out-of-pocket expenses, including but not limited to
confirmation production, postage, forms, telephone, microfilm,
microfiche, mailing and tabulating proxies, records storage, or
advances incurred by the Transfer Agent for the items set out in
Schedule 3.1 attached hereto. In addition, any other expenses
incurred by the Transfer Agent at the request or with the
consent of the Fund, will be reimbursed by the Fund.
3.3 POSTAGE. Postage for mailing of dividends, proxies, Fund reports
and other mailings to all shareholder accounts shall be advanced
to the Transfer Agent by the Fund at least seven (7) days prior
to the mailing date of such materials.
3.4 INVOICES. The Fund agrees to pay all fees and reimbursable
expenses within thirty (30) days following the receipt of the
respective billing notice, except for any fees or expenses which
are subject to good faith dispute. In the event of such a
dispute, the Fund may only withhold that portion of the fee or
expense subject to the good faith dispute. The Fund shall notify
the Transfer Agent in writing within twenty-one (21) calendar
days following the receipt of each billing notice if the Fund is
disputing any amounts in good faith. If the Fund does not
provide such notice of dispute within the required time, the
billing notice will be deemed accepted by the Fund.
4. Representations and Warranties of the Transfer Agent
----------------------------------------------------
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a trust company duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
4.2 It is duly qualified to carry on its business in The
Commonwealth of Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
4.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
5
<PAGE>
5. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Transfer Agent that:
5.1 It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland.
5.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement.
5.3 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to
enter into and perform this Agreement.
5.4 It is an open-end non-diversified management investment company
registered under the Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as
amended is currently effective and will remain effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of the Fund
being offered for sale.
6. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
----------------------------------------------------------------
Commercial Code
---------------
6.1 The Transfer Agent is authorized to promptly debit the
appropriate Fund account(s) upon the receipt of a payment order
in compliance with the selected security procedure (the
"Security Procedure") chosen for funds transfer and in the
amount of money that the Transfer Agent has been instructed to
transfer. The Transfer Agent shall execute payment orders in
compliance with the Security Procedure and with the Fund
instructions on the execution date provided that such payment
order is received by the customary deadline for processing such
a request, unless the payment order specifies a later time. All
payment orders and communications received after this the
customary deadline will be deemed to have been received the next
business day.
6.2 The Fund acknowledges that the Security Procedure it has
designated on the Fund Selection Form was selected by the Fund
from security procedures offered by the Transfer Agent. The Fund
shall restrict access to confidential information relating to
the Security Procedure to authorized persons as communicated to
the Transfer Agent in writing. The Fund must notify the Transfer
Agent immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any
change in the Fund's authorized personnel. The Transfer Agent
shall verify the authenticity of all Fund instructions according
to the Security Procedure.
6.3 The Transfer Agent shall process all payment orders on the basis
of the account number contained in the payment order. In the
event of a discrepancy between any name indicated on the payment
order and the account number, the account number shall take
precedence and govern.
6.4 The Transfer Agent reserves the right to decline to process or
delay the processing of a payment order which (a) is in excess
of the collected balance in the account to be charged at the
6
<PAGE>
time of the Transfer Agent's receipt of such payment order; (b)
if initiating such payment order would cause the Transfer Agent,
in the Transfer Agent's sole judgement, to exceed any volume,
aggregate dollar, network, time, credit or similar limits which
are applicable to the Transfer Agent; or (c) if the Transfer
Agent, in good faith, is unable to satisfy itself that the
transaction has been properly authorized.
6.5 The Transfer Agent shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders received
in compliance with the Security Procedure provided that such
requests are received in a timely manner affording the Transfer
Agent reasonable opportunity to act. However, the Transfer Agent
assumes no liability if the request for amendment or
cancellation cannot be satisfied.
6.6 The Transfer Agent shall assume no responsibility for failure to
detect any erroneous payment order provided that the Transfer
Agent complies with the payment order instructions as received
and the Transfer Agent complies with the Security Procedure. The
Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of
errors in payment orders.
6.7 The Transfer Agent shall assume no responsibility for lost
interest with respect to the refundable amount of any
unauthorized payment order, unless the Transfer Agent is
notified of the unauthorized payment order within thirty (30)
days of notification by the Transfer Agent of the acceptance of
such payment order. In no event (including failure to execute a
payment order) shall the Transfer Agent be liable for special,
indirect or consequential damages, even if advised of the
possibility of such damages.
6.8 When the Fund initiates or receives Automated Clearing House
credit and debit entries pursuant to these guidelines and the
rules of the National Automated Clearing House Association and
the New England Clearing House Association, the Transfer Agent
will act as an Originating Depository Financial Institution
and/or receiving depository Financial Institution, as the case
may be, with respect to such entries. Credits given by the
Transfer Agent with respect to an ACH credit entry are
provisional until the Transfer Agent receives final settlement
for such entry from the Federal Reserve Bank. If the Transfer
Agent does not receive such final settlement, the Fund agrees
that the Transfer Agent shall receive a refund of the amount
credited to the Fund in connection with such entry, and the
party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
6.9 Confirmation of Transfer Agent's execution of payment orders
shall ordinarily be provided within twenty four (24) hours
notice of which may be delivered through the Transfer Agent's
proprietary information systems, or by facsimile or call-back.
Fund must report any objections to the execution of an order
within thirty (30) days.
7
<PAGE>
7. Data Access and Proprietary Information
---------------------------------------
7.1 The Fund acknowledges that the databases, computer programs,
screen formats, report formats, interactive design techniques,
and documentation manuals furnished to the Fund by the Transfer
Agent as part of the Fund's ability to access certain
Fund-related data ("Customer Data") maintained by the Transfer
Agent on databases under the control and ownership of the
Transfer Agent or other third party ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of
substantial value to the Transfer Agent or other third party. In
no event shall Proprietary Information be deemed Customer Data.
The Fund agrees to treat all Proprietary Information as
proprietary to the Transfer Agent and further agrees that it
shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without
limiting the foregoing, the Fund agrees for itself and its
employees and agents to:
(a) Use such programs and databases (i) solely on the Fund's
computers, or (ii) solely from equipment at the location agreed
to between the Fund and the Transfer Agent and (iii) solely in
accordance with the Transfer Agent's applicable user
documentation;
(b) Refrain from copying or duplicating in any way (other than
in the normal course or performing processing on the Fund's
computer(s)), the Proprietary Information;
(c) Refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose
of such information in accordance with the Transfer Agent's
instructions;
(d) Refrain from causing or allowing information transmitted
from the Transfer Agent's computer to the Fund's terminal to be
retransmitted to any other computer terminal or other device
except as expressly permitted by the Transfer Agent (such
permission not to be unreasonably withheld);
(e) Allow the Fund to have access only to those authorized
transactions as agreed to between the Fund and the Transfer
Agent; and
(f) Honor all reasonable written requests made by the Transfer
Agent to protect at the Transfer Agent's expense the rights of
the Transfer Agent in Proprietary Information at common law,
under federal copyright law and under other federal or state
law.
7.2 Proprietary Information shall not include all or any portion of
any of the foregoing items that: (i) are or become publicly
available without breach of this Agreement; (ii) are released
for general disclosure by a written release by the Transfer
Agent; or (iii) are already in the possession of the receiving
party at the time or receipt without obligation of
confidentiality or breach of this Agreement.
8
<PAGE>
7.3 The Fund acknowledges that its obligation to protect the
Transfer Agent's Proprietary Information is essential to the
business interest of the Transfer Agent and that the disclosure
of such Proprietary Information in breach of this Agreement
would cause the Transfer Agent immediate, substantial and
irreparable harm, the value of which would be extremely
difficult to determine. Accordingly, the parties agree that, in
addition to any other remedies that may be available in law,
equity, or otherwise for the disclosure or use of the
Proprietary Information in breach of this Agreement, the
Transfer Agent shall be entitled to seek and obtain a temporary
restraining order, injunctive relief, or other equitable relief
against the continuance of such breach.
7.4 If the Fund notifies the Transfer Agent that any of the Data
Access Services do not operate in material compliance with the
most recently issued user documentation for such services, the
Transfer Agent shall endeavor in a timely manner to correct such
failure. Organizations from which the Transfer Agent may obtain
certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to
make no claim against the Transfer Agent arising out of the
contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION
THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
TRANSFER AGENT EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7.5 If the transactions available to the Fund include the ability to
originate electronic instructions to the Transfer Agent in order
to: (i) effect the transfer or movement of cash or Shares; or
(ii) transmit Shareholder information or other information, then
in such event the Transfer Agent shall be entitled to rely on
the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by
the Transfer Agent from time to time.
7.6 Each party shall take reasonable efforts to advise its employees
of their obligations pursuant to this SECTION 7. The obligations
of this Section shall survive any earlier termination of this
Agreement.
8. Indemnification
---------------
8.1 The Transfer Agent shall not be responsible for, and the Fund
shall indemnify and hold the Transfer Agent harmless from and
against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of the Transfer Agent or its agents or
subcontractors required to be taken pursuant to this Agreement,
provided that such actions are taken in good faith and without
negligence or willful misconduct;
(b) The Fund's lack of good faith, negligence or willful
misconduct;
9
<PAGE>
(c) The reliance upon, and any subsequent use of or action taken
or omitted, by the Transfer Agent, or its agents or
subcontractors on: (i) any information, records, documents,
data, stock certificates or services, which are received by the
Transfer Agent or its agents or subcontractors by machine
readable input, facsimile, CRT data entry, electronic
instructions or other similar means authorized by the Fund, and
which have been prepared, maintained or performed by the Fund or
any other person or firm on behalf of the Fund including but not
limited to any previous transfer agent or registrar; (ii) any
instructions or requests of the Fund or any of its officers;
(iii) any instructions or opinions of legal counsel with respect
to any matter arising in connection with the services to be
performed by the Transfer Agent under this Agreement which are
provided to the Transfer Agent after consultation with such
legal counsel; or (iv) any paper or document, reasonably
believed to be genuine, authentic, or signed by the proper
person or persons;
(d) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other
determination or ruling by any federal or any state agency with
respect to the offer or sale of such Shares;
(e) The negotiation and processing of any checks including
without limitation for deposit into the Fund's demand deposit
account maintained by the Transfer Agent; or
(f) Upon the Fund's request entering into any agreements
required by the National Securities Clearing Corporation (the
"NSCC") for the transmission of Fund or Shareholder data through
the NSCC clearing systems.
8.2 In order that the indemnification provisions contained in this
SECTION 8 shall apply, upon the assertion of a claim for which
the Fund may be required to indemnify the Transfer Agent, the
Transfer Agent shall promptly notify the Fund of such assertion,
and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to
participate with the Transfer Agent in the defense of such claim
or to defend against said claim in its own name or in the name
of the Transfer Agent. The Transfer Agent shall in no case
confess any claim or make any compromise in any case in which
the Fund may be required to indemnify the Transfer Agent except
with the Fund's prior written consent.
9. Standard of Care
9.1 The Transfer Agent shall at all times act in good faith and
agrees to use its best efforts within reasonable limits to
insure the accuracy of all services performed under this
Agreement, but assumes no responsibility and shall not be liable
for loss or damage due to errors unless said errors are caused
by its negligence, bad faith, or willful misconduct or that of
its employees, except as provided in SECTION 9.2 below.
9.2 In the case of Exception Services as defined in SECTION 2.3
herein, the Transfer Agent shall be held to a standard of gross
negligence and encoding and payment processing errors shall not
deemed negligence.
10. Year 2000
---------
10
<PAGE>
The Transfer Agent will take reasonable steps to ensure that its
products (and those of its third-party suppliers) reflect the
available technology to offer products that are Year 2000 ready,
including, but not limited to, century recognition of dates,
calculations that correctly compute same century and multi
century formulas and date values, and interface values that
reflect the date issues arising between now and the next
one-hundred years, and if any changes are required, the Transfer
Agent will make the changes to its products at a price to be
agreed upon by the parties and in a commercially reasonable time
frame and will require third-party suppliers to do likewise.
11. Confidentiality
---------------
11.1 The Transfer Agent and the Fund agree that they will not, at any
time during the term of this Agreement or after its termination,
reveal, divulge, or make known to any person, firm, corporation
or other business organization, any customers' lists, trade
secrets, cost figures and projections, profit figures and
projections, or any other secret or confidential information
whatsoever, whether of the Transfer Agent or of the Fund, used
or gained by the Transfer Agent or the Fund during performance
under this Agreement. The Fund and the Transfer Agent further
covenant and agree to retain all such knowledge and information
acquired during and after the term of this Agreement respecting
such lists, trade secrets, or any secret or confidential
information whatsoever in trust for the sole benefit of the
Transfer Agent or the Fund and their successors and assigns. In
the event of breach of the foregoing by either party, the
remedies provided by SECTION 7.3 shall be available to the party
whose confidential information is disclosed. The above
prohibition of disclosure shall not apply to the extent that the
Transfer Agent must disclose such data to its sub-contractor or
Fund agent for purposes of providing services under this
Agreement.
11.2 In the event that any requests or demands are made for the
inspection of the Shareholder records of the Fund, other than
request for records of Shareholders pursuant to standard
subpoenas from state or federal government authorities (i.e.,
divorce and criminal actions), the Transfer Agent will endeavor
to notify the Fund and to secure instructions from an authorized
officer of the Fund as to such inspection. The Transfer Agent
expressly reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by
counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person or if required by law or
court order.
12. Covenants of the Fund and the Transfer Agent
--------------------------------------------
12.1 The Fund shall promptly furnish to the Transfer Agent the
following:
(a) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Transfer Agent
and the execution and delivery of this Agreement; and
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
11
<PAGE>
12.2 The Transfer Agent hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for
safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
12.3 The Transfer Agent shall keep records relating to the services
to be performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the
Investment Company Act of 1940, as amended, and the Rules
thereunder, the Transfer Agent agrees that all such records
prepared or maintained by the Transfer Agent relating to the
services to be performed by the Transfer Agent hereunder are the
property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its
request.
13. Termination of Agreement
------------------------
13.1 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
13.2 Should the Fund exercise its right to terminate, all
out-of-pocket expenses or costs associated with the movement of
records and material will be borne by the Fund. Additionally,
the Transfer Agent reserves the right to charge for any other
reasonable expenses associated with such termination and a
charge equivalent to the average of three (3) months' fees.
Payment of such expenses or costs shall be in accordance with
SECTION 3.4 of this Agreement.
13.3 Upon termination of this Agreement, each party shall return to
the other party all copies of confidential or proprietary
materials or information received from such other party
hereunder, other than materials or information required to be
retained by such party under applicable laws or regulations.
14. Assignment and Third Party Beneficiaries
----------------------------------------
14.1 Except as provided in SECTION 15.1 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party. Any
attempt to do so in violation of this Section shall be void.
Unless specifically stated to the contrary in any written
consent to an assignment, no assignment will release or
discharge the assignor from any duty or responsibility under
this Agreement.
14.2 Except as explicitly stated elsewhere in this Agreement, nothing
under this Agreement shall be construed to give any rights or
benefits in this Agreement to anyone other than the Transfer
Agent and the Fund, and the duties and responsibilities
undertaken pursuant to this Agreement shall be for the sole and
exclusive benefit of the Transfer Agent and the Fund. This
Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
14.3 This Agreement does not constitute an agreement for a
partnership or joint venture between the Transfer Agent and the
12
<PAGE>
Fund. Other than as provided in SECTION 15.1 neither party shall
make any commitments with third parties that are binding on the
other party without the other party's prior written consent.
15. Subcontractors
--------------
15.1 The Transfer Agent may, without further consent on the part of
the Fund, subcontract for the performance hereof with (i) Boston
Financial Data Services, Inc., a Massachusetts corporation
("BFDS") which is duly registered as a transfer agent pursuant
to Section 17A(c)(2) of the Securities Exchange Act of 1934, as
amended, (ii) a BFDS subsidiary duly registered as a transfer
agent or (iii) a BFDS affiliate duly registered as a transfer
agent; provided, however, that the Transfer Agent shall be fully
responsible to the Fund for the acts and omissions of BFDS or
its subsidiary or affiliate as it is for its own acts and
omissions.
15.2 Nothing herein shall impose any duty upon the Transfer Agent in
connection with or make the Transfer Agent liable for the
actions or omissions to act of unaffiliated third parties such
as by way of example and not limitation, Airborne Services,
Federal Express, United Parcel Service, the U.S. Mails, the NSCC
and telecommunication companies, provided, if the Transfer Agent
selected such company, the Transfer Agent shall have exercised
due care in selecting the same.
16. Miscellaneous
-------------
16.1 AMENDMENT. This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or
approved by a resolution of the Board of Directors of the Fund.
16.2 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed
and the provisions thereof interpreted under and in accordance
with the laws of The Commonwealth of Massachusetts.
16.3 FORCE MAJEURE. In the event either party is unable to perform
its obligations under the terms of this Agreement because of
acts of God, strikes, equipment or transmission failure or
damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable for damages
to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16.4. CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be
liable to the other party for consequential damages under any
provision of this Agreement or for any consequential damages
arising out of any act or failure to act hereunder.
16.5 SURVIVAL. All provisions regarding indemnification, warranty,
liability, and limits thereon, and confidentiality and/or
protections of proprietary rights and trade secrets shall
survive the termination of this Agreement.
13
<PAGE>
16.6 SEVERABILITY. If any provision or provisions of this Agreement
shall be held invalid, unlawful, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired.
16.7 PRIORITIES CLAUSE. In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this
Agreement and any Schedules or attachments hereto, the terms and
conditions contained in this Agreement shall take precedence.
16.8 WAIVER. No waiver by either party or any breach or default of
any of the covenants or conditions herein contained and
performed by the other party shall be construed as a waiver of
any succeeding breach of the same or of any other covenant or
condition.
16.9 MERGER OF AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior
agreement with respect to the subject matter hereof whether oral
or written.
16.10 COUNTERPARTS. This Agreement may be executed by the parties
hereto on any number of counterparts, and all of said
counterparts taken together shall be deemed to constitute one
and the same instrument.
16.11 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules,
exhibits, attachments and amendments hereto may be reproduced by
any photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process. The parties hereto each
agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and
whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile
or further reproduction shall likewise be admissible in
evidence.
16.12 NOTICES. All notices and other communications as required or
permitted hereunder shall be in writing and sent by first class
mail, postage prepaid, addressed as follows or to such other
address or addresses of which the respective party shall have
notified the other.
(a) If to State Street Bank and Trust Company, to:
State Street Bank and Trust Company
c/o Boston Financial Data Services, Inc.
1250 Hancock Street, Suite 300N
Quincy, Massachusetts 02171
Attention: Legal Department
Facsimile: (617) 483-5850
14
<PAGE>
(b) If to the Fund, to:
Legg Mason Investment Trust, Inc.
Attention: Marie K. Karpinski
100 Light Street
Baltimore, Maryland 21202
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of
Shares in addition to the series named in attached Schedule A
with respect to which it desires to have the Transfer Agent
render services as transfer agent under the terms hereof, it
shall so notify the Transfer Agent in writing, and if the
Transfer Agent agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
LEGG MASON INVESTMENT TRUST, INC.
BY:/s/ Marie K. Karpinski
----------------------------------
Marie K. Karpinski
Vice President and Treasurer
ATTEST:
/s/ Marc R. Duffy
- ---------------------------
STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Ronald E. Logue
--------------------------------
Vice Chairman
ATTEST:
/s/ [ILLEGIBLE]
- ---------------------------
<PAGE>
SCHEDULE A
17F-5 APPROVAL
The Board of Directors of Legg Mason Investment Trust, Inc. has approved
certain foreign banking institutions and foreign securities depositories within
State Street's Global Custody Network for use as subcustodians for the Fund's
securities, cash and cash equivalents held outside of the United States. Board
approval is as indicated by the Fund's Authorized Officer:
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
PM STATE STREET'S ENTIRE GLOBAL CUSTODY NETWORK LISTED BELOW
PM Argentina Citibank, N.A. Caja de Valores S.A.
PM Australia Westpac Banking Corporation Austraclear Limited
Reserve Bank Information and
Transfer System
PM Austria Erste Bank der Oesterreichischen Oesterreichische Kontrollbank
Sparkassen AG AG (Wertpapiersammelbank
Division)
___ Bahrain HSBC Bank Middle East None
(as delegate of The Hongkong and
Shanghai Banking Corporation
Limited)
___ Bangladesh Standard Chartered Bank None
PM Belgium Fortis Bank NV/as. Caisse Interprofessionnelle
de Depots et de Virements de
Titres S.A.
Banque Nationale de Belgique
___ Bermuda The Bank of Bermuda Limited None
___ Bolivia Citibank, N.A. None
___ Botswana Barclays Bank of Botswana Limited None
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
PM Brazil Citibank, N.A. Companhia Brasileira de
Liquidacao e Custodia
___ Bulgaria ING Bank N.V. Central Depository AD
Bulgarian National Bank
PM Canada State Street Trust Company Canada Canadian Depository
for Securities Limited
PM Chile Citibank, N.A. Deposito Central de Valores
S.A.
PM People's The Hongkong and Shanghai Shanghai Securities Central
Republic of China Banking Corporation Limited, Clearing & Registration
Shanghai and Shenzhen branches Corporation
Shenzhen Securities Clearing
Co., Ltd.
___ Colombia Cititrust Colombia S.A. Deposito Centralizado de
Sociedad Fiduciaria Valores
___ Costa Rica Banco BCT S.A. Central de Valores S.A.
___ Croatia Privredna Banka Zagreb d.d. Ministry of Finance
National Bank of Croatia
Sredisnja Depozitarna Agencija
___ Cyprus The Cyprus Popular Bank Ltd. None
PM Czech Republic eskoslovenska Obchodi Banka, A.S. Sir disko cennych papirti
PM Denmark Den Danske Bank Vaerdipapircentralen (Danish
Securities Center)
___ Ecuador Citibank, N.A. None
___ Egypt Egyptian British Bank (as Misr Company for Clearing,
delegate of The Hongkong and Settlement and Depository
Shanghai Banking Corporation
Limited)
___ Estonia Hansabank Eesti Vaartpaberite
Keskdepositoorium
PM Finland Merita Bank Plc. Finnish Central Securities
Depository
2
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
PM France Paribas, S.A. Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres
PM Germany Dresdner Bank AG Deutsche Borse Clearing AG
___ Ghana Barclays Bank of Ghana Limited None
___ Greece National Bank of Greece S.A. Central Securities Depository
(Apotheririon Titlon AE)
Bank of Greece,
System for Monitoring
Transactions in Securities in
Book-Entry Form
PM Hong Kong Standard Chartered Bank Central Clearing and
Settlement System
___ Hungary Citibank Rt. Kozponti Elszamolonaz es
Ertektar (Budapest) Rt.
(KELER)
___ Iceland Icebank Ltd. None
___ India Deutsche Bank AG The National Securities
Depository Limited
Central Depository Services
India Limited
Reserve Bank of India
__ The Hongkong and Shanghai The National Securities
Banking Corporation Limited Depository Limited
Central Depository Services
India Limited
Reserve Bank of India
PM Indonesia Standard Chartered Bank Bank Indonesia
PM Ireland Bank of Ireland Central Bank of Ireland
Securities Settlement Office
3
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
___ Israel Bank Hapoalim B.M. Tel Aviv Stock Exchange
Clearing House Ltd. (TASE
Clearinghouse)
Bank of Israel
(As part of the TASE
Clearinghouse system)
PM Italy Paribas, S.A. Monte Titoli S.p.A.
Banca d'Italia
___ Ivory Coast Societe Generale de Banques en Depositarie Central -
Cote d'Ivoire Banque de Reglement
___ Jamaica Scotiabank Jamaica Trust Jamaica Central Securities
and Merchant Bank Limited Depository
PM Japan The Fuji Bank, Limited Japan Securities Depository
Center (JASDEC)
Bank of Japan Net System
PM The Sumitomo Bank, Limited Japan Securities Depository
Center (JASDEC)
Bank of Japan Net System
___ Jordan HSBC Bank Middle East None
(as delegate of The Hongkong and
Shanghai Banking Corporation
Limited)
___ Kenya Barclays Bank of Kenya Limited Central Bank of Kenya
___ Republic of Korea The Hongkong and Shanghai Korea Securities Depository
Banking Corporation Limited Corporation
___ Latvia A/s Hansabank Latvian Central Depository
___ Lebanon HSBC Bank Middle East Custodian and Clearing Center
(as delegate of The Hongkong and of Financial Instruments for
Shanghai Banking Corporation Lebanon and the Middle East
Limited) (MIDCLEAR) S.A.I.
The Central Bank of Lebanon
___ Lithuania Vilniaus Bankas AB Central Securities Depository
of Lithuania
4
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
PM Malaysia Standard Chartered Bank Malaysian Central Depository
Malaysia Berhad Sdn. Bhd.
Bank Negara Malaysia,
Scripless Securities Trading
and Safekeeping Systems
___ Mauritius The Hongkong and Shanghai Central Depository and
Banking Corporation Limited Settlement Co. Ltd.
PM Mexico Citibank Mexico, S.A. S.D. INDEVAL
de Valores)
___ Morocco Banque Commerciale du Maroc Maroclear
PM The Netherlands MeesPierson N.V. Nederlands Centraal Instituut
voor Giraal Effectenverkeer
B.V. (NECIGEF)
PM New Zealand ANZ Banking Group New Zealand Central
(New Zealand) Limited Securities Depository Limited
PM Norway Christiania Bank og Kreditkasse Verdipapirsentralen (the
ASA Norwegian Central Registry of
Securities)
___ Oman HSBC Bank Middle East Muscat Securities Market
(as delegate of The Hongkong and Depository & Securities
Shanghai Banking Corporation Registration Company
Limited)
___ Pakistan Deutsche Bank AG Central Depository Company of
Pakistan Limited
State Bank of Pakistan
___ Palestine HSBC Bank Middle East The Palestine Stock Exchange
(as delegate of the Hongkong and
Shanghai Banking Corporation
Limited)
PM Peru Citibank, N.A. Caja de Valores y
Liquidaciones, CAVALI ICLV
S.A.
PM Philippines Standard Chartered Bank Philippines Central
Depository, Inc.
Registry of Scripless
Securities (ROSS) of the
Bureau of Treasury
5
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
___ Poland Citibank (Poland) S.A. National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciowych SA)
Central Treasury Bills
Registrar
___ Portugal Banco Comercial Portugues Central de Valores Mobiliarlos
___ Qatar HSBC Bank Middle East Doha Securities Market
___ Romania ING Bank N.V. National Securities Clearing,
Settlement and Depository
Company
Bucharest Stock Exchange
Registry Division
National Bank of Romania
___ Russia Credit Suisse First Boston AG, Moscow None
(as delegate of Credit Suisse
First Boston, Zurich
PM Singapore The Development Bank of Central Depository (Pte)
Singapore Limited Limited
PM Slovak Republic eskoslovenska Obchodi Banka, A.S. Stredisko cennych papierov SR
Bratislava, a.s.
National Bank of Slovakia
___ Slovenia Bank Austria Creditanstalt d.d. Klirinsko Depotna Druzba d.d.
Ljublijana
PM South Africa Standard Bank of South Africa The Central Depository Limited
Limited
Strate Ltd.
PM Spain Banco Santander Central Hispano, S.A. Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana,
Central de Anotaciones en
Cuenta
___ Sri Lanka The Hongkong and Shanghai Central Depository System
Banking Corporation Limited (Pvt) Limited
___ Swaziland Standard Bank Swaziland Limited None
6
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
PM Sweden Skandinaviska Enskilda Banken Vardepapperscentralen, VPC AB
(the Swedish Central
Securities Depository)
PM Switzerland UBS AG SIS - Sengalntersettle
___ Taiwan - R.O.C. Central Trust of China Taiwan Securities Central
or Depository Co., Ltd.
___ _________________________________
(Client Designated Subcustodian)
PM Thailand Standard Chartered Bank Thailand Securities
Depository Company Limited
___ Tunisia Banque Internationale Arabe de Societe Tunisienne
Tunisie Interprofessionelle pour la
Compensation et de Depots de
Valeurs Mobilieres
___ Turkey Citibank, N.A. Takas ve Saklama Bankasi A.
(TAKASBANK)
Central Bank of Turkey
___ Ukraine ING Bank Ukraine National Bank of Ukraine
PM United Kingdom State Street Bank and Trust The Bank of England,
Company, London branch Central Gilts Office and
Central Moneymarkets Office
___ Uruguay BankBoston N.A. None
PM Venezuela Citibank, N.A. Central Bank of Venezuela
___ Vietnam The Hongkong and Shanghai None
Banking Corporation Limited
___ Zambia Barclays Bank of Zambia Limited LuSE Central Shares
Depository Limited
Bank of Zambia
___ Zimbabwe Barclays Bank of Zimbabwe Limited None
7
<PAGE>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIANS CENTRAL DEPOSITORY
- -------- ------- ------------- ------------------
<S> <C> <C> <C>
___ Euroclear (The Euroclear System)/State Street London Limited
___ Cedelbank S.A./State Street London Limited
</TABLE>
CERTIFIED BY:
/s/ Patricia A. Maxey 1-6-00
- -------------------------- --------------------------
FUND'S AUTHORIZED OFFICER DATE
Secretary
8
<PAGE>
SCHEDULE A
Legg Mason Opportunity Trust
LEGG MASON INVESTMENT TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:/s/ Marie K. Karpinski BY: /s/ Ronald E. Logue
-------------------------------- --------------------------------
Marie K. Karpinski
<PAGE>
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated: November 10, 1998
1. On each Business Day, the TPA(s) shall receive, on behalf of and as
agent of the Fund(s), Instructions (as hereinafter defined) from the
Plan. Instructions shall mean as to each Fund (i) orders by the Plan for
the purchases of Shares, and (ii) requests by the Plan for the
redemption of Shares; in each case based on the Plan's receipt of
purchase orders and redemption requests by Participants in proper form
by the time required by the term of the Plan, but not later than the
time of day at which the net asset value of a Fund is calculated, as
described from time to time in that Fund's prospectus. Each Business Day
on which the TPA receives Instructions shall be a "Trade Date".
2. The TPA(s) shall communicate the TPA(s)'s acceptance of such
Instructions, to the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which it
accepted Instructions for the purchase and redemption of Shares, (TD+1),
the TPA(s) shall notify the Transfer Agent of the net amount of such
purchases or redemptions, as the case may be, for each of the Plans. In
the case of net purchases by any Plan, the TPA(s) shall instruct the
Trustees of such Plan to transmit the aggregate purchase price for
Shares by wire transfer to the Transfer Agent on (TD+1). In the case of
net redemptions by any Plan, the TPA(s) shall instruct the Fund's
custodian to transmit the aggregate redemption proceeds for Shares by
wire transfer to the Trustees of such Plan on (TD+1). The times at which
such notification and transmission shall occur on (TD+1) shall be as
mutually agreed upon by each Fund, the TPA(s), and the Transfer Agent.
4. The TPA(s) shall maintain separate records for each Plan, which record
shall reflect Shares purchased and redeemed, including the date and
price for all transactions, and Share balances. The TPA(s) shall
maintain on behalf of each of the Plans a single master account with the
Transfer Agent and such account shall be in the name of that Plan, the
TPA(s), or the nominee of either thereof as the record owner of Shares
owned by such Plan.
5. The TPA(s) shall maintain records of all proceeds of redemptions of
Shares and all other distributions not reinvested in Shares.
<PAGE>
6. The TPA(s) shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that Plan
as of the statement closing date, purchases and redemptions of Shares by
the Plan during the period covered by the statement, and the dividends
and other distributions paid to the Plan on Shares during the statement
period (whether paid in cash or reinvested in Shares).
7. The TPA(s) shall, at the request and expense of each Fund, transmit to
the Plans prospectuses, proxy materials, reports, and other information
provided by each Fund for delivery to its shareholders.
8. The TPA(s) shall, at the request of each Fund, prepare and transmit to
each Fund or any agent designated by it such periodic reports covering
Shares of each Plan as each Fund shall reasonably conclude are necessary
to enable the Fund to comply with state Blue Sky requirements.
9. The TPA(s) shall transmit to the Plans confirmation of purchase orders
and redemption requests placed by the Plans; and
10. The TPA(s) shall, with respect to Shares, maintain account balance
information for the Plan(s) and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses,
proxy materials, periodic reports and other materials relating to each
Fund be furnished to Participants in which event the Transfer Agent or
each Fund shall mail or cause to be mailed such materials to
Participants. With respect to any such mailing, the TPA(s) shall, at the
request of the Transfer Agent or each Fund, provide at the TPA(s)'s
expense complete and accurate set of mailing labels with the name and
address of each Participant having an interest through the Plans in
Shares.
LEGG MASON INVESTMENT TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:/s/ Marie K. Karpinski BY: /s/ Ronald E. Logue
---------------------------------- ----------------------------
Marie K. Karpinski
<PAGE>
SCHEDULE 3.1
FEES
Dated: January 1, 2000
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. There is a minimum charge of $1,000 per
month per fund. Annual maintenance charges are given below.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
BASIC ANNUAL PER ACCOUNT FEE
Equity Funds $6.00
Income Funds $8.00
Money Market Funds $14.15
Closed Account Fee (per account, per month) $0.10
Backup Fee (per account serviced, per year) $0.25
OUT-OF-POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, forms, telephone, microfilm, microfiche, photocopying and expenses
incurred at the specific direction of the fund. Postage for mass mailings is due
seven days in advance of the mailing date.
Fund Minimum - The Navigator Series of Funds are assessed a fund minimum based
on the following schedule:
0 - 4 months Waived
5 - 8 months $500 per cusip, per month
9 - 12 months $750 per cusip, per month
After the first year $1,000 per cusip, per month
PAYMENT - The above fees will be charged against the Fund's custodian checking
account five (5) days after the invoice is mailed to the fund's offices.
ALL FEES WILL BE SUBJECT TO AN ANNUAL COST OF LIVING ADJUSTMENT BASED ON
REGIONAL CONSUMER PRICE INDEX.
LEGG MASON INVESTMENT TRUST, STATE STREET BANK AND TRUST
INC. COMPANY
BY:/s/ Marie K. Karpinski BY: /s/ Ronald E. Logue
---------------------------------- ----------------------------
Marie K. Karpinski
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
January 31, 2000
Legg Mason Investment Trust, Inc.
100 Light Street
Baltimore, MD 21202
Dear Sir or Madam:
Legg Mason Investment Trust, Inc. (the "Company") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated October 8, 1999. You have requested our opinion regarding certain matters
in connection with the Company's issuance of shares of common stock ("Shares")
in its series designated as Legg Mason Opportunity Trust, which has two classes,
Primary Class and Navigator Class.
We have, as counsel, participated in various corporate and other matters
relating to the Company. We have examined copies of the Articles of
Incorporation and Bylaws, the minutes of meetings of the directors and other
documents relating to the organization and operation of the Company, and we are
generally familiar with its business affairs. Based upon the foregoing, it is
our opinion that the unissued Shares designated as Legg Mason Opportunity Trust,
which are currently registered, may be legally and validly issued from time to
time in accordance with the Company's Articles of Incorporation and Bylaws if
such issuance is approved by the Company's Board of Directors; and, when so
issued, will be legally issued, fully paid and nonassessable by the Company.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 1 to the Company's Registration Statement on Form
N-1A (File No. 333-88715) being filed with the Securities and Exchange
Commission. We also consent to the reference to our firm under the caption "The
Fund's Legal Counsel" in the Statement of Additional Information filed as part
of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
Consent of Ernst & Young LLP, Independent Auditors
We consent to the use of our report dated December 16, 1999, in this
Post-Effective Amendment No. 1 to the Registration Statement (Form N-1A) (No.
333-88715) of Legg Mason Investment Trust, Inc.
Philadelphia, Pennsylvania
January 28, 2000
DISTRIBUTION PLAN OF
LEGG MASON INVESTMENT TRUST, INC.
WHEREAS, Legg Mason Investment Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale a distinct series of shares of common stock
("Series"), corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established a Series of
shares of common stock of the Corporation known as Legg Mason Opportunity Trust
("Fund");
WHEREAS, the Corporation has employed Legg Mason Wood Walker, Incorporated
("Legg Mason") as principal underwriter of the shares of the Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the 1940 Act on the following terms
and conditions:
1. A. Legg Mason Opportunity Trust shall pay to Legg Mason, as
compensation for Legg Mason's services as principal underwriter of the Fund's
Primary Shares, a distribution fee at the rate of 0.75% on an annualized basis
of the average daily net assets attributable to Primary Shares of the Fund, such
fee to be calculated and accrued daily and paid monthly or at such other
intervals as the Board shall determine.
B. The Corporation shall pay to Legg Mason, as compensation for
ongoing services provided to the investors in Primary Shares of the Fund, a
service fee at the rate of 0.25% on an annualized basis of the average daily net
assets attributable to Primary Shares of the Fund, such fees to be calculated
and accrued daily and paid monthly or at such other intervals as the Board shall
determine.
C. The Corporation may pay a distribution or service fee to Legg Mason
at a lesser rate than the fees specified in paragraphs 1.A and 1.B,
respectively, of this Plan, in either case as agreed upon by the Board and Legg
Mason and as approved in the manner specified in paragraph 3 of this Plan. The
distribution and service fees payable hereunder are payable without regard to
the aggregate amount that may be paid over the years, provided that, so long as
the limitations set forth in Conduct Rule 2830 of the National Association of
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Corporation's shares, the amounts paid hereunder shall not exceed
those limitations, including permissible interest.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Series and/or the
servicing and maintenance of shareholder accounts, including, but not limited
<PAGE>
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall take effect on December 23, 1999 and shall continue in
effect for successive periods of one year from its execution for so long as such
continuance is specifically approved at least annually together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Corporation and (b) those Directors who are not "interested persons" of the
Corporation, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements; and only if the
Directors who approve the Plan taking effect have reached the conclusion
required by Rule 12b-1(e) under the 1940 Act.
4. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Corporation's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 4, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 4, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Legg Mason's performance of its obligations under
the underwriting agreement, dated December 23, 1999, by and between the
Corporation and Legg Mason, with respect to the Fund, that are not deemed
"service activities." As used herein, "distribution activities" also include
sub-accounting or recordkeeping services provided by an entity if the entity is
compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides appropriate
services. Nothing in the foregoing is intended to or shall cause there to be any
implication that compensation for such services must be made only pursuant to a
plan of distribution under Rule 12b-1. "Service activities" shall mean
activities covered by the definition of "service fee" contained in Conduct Rule
2830 of the NASD, including the provision by Legg Mason of personal, continuing
services to investors in the Corporation's shares. Overhead and other expenses
of Legg Mason related to its "distribution activities" or "service activities,"
including telephone and other communications expenses, may be included in the
information regarding amounts expended for such distribution or service
activities, respectively.
5. This Plan may be terminated with respect to the Fund at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding voting securities of that Fund.
-2-
<PAGE>
6. After the issuance of Primary Shares of the Fund, this Plan may not be
amended to increase materially the amount of distribution fees provided for in
paragraph 1.A. hereof or the amount of service fees provided for in paragraph
1.B. hereof unless such amendment is approved by a vote of at least a majority
of the outstanding securities, as defined in the 1940 Act, of the Fund, and no
material amendment to the Plan shall be made unless such amendment is approved
in the manner provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of directors
who are not interested persons of the Corporation, as defined in the 1940 Act,
shall be committed to the discretion of directors who are themselves not
interested persons.
8. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 4 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan as
of the day and year set forth below:
Date: LEGG MASON INVESTMENT TRUST, INC.
Attest: By:/s/ Jennifer W. Murphy
---------------------------------
Jennifer W. Murphy
President
By:/s/ Marc R. Duffy
----------------------------
Marc R. Duffy
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By:/s/ Andrew J. Bowden
-----------------------------
Andrew J. Bowden
Vice President
-3-
FORM OF MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
Legg Mason Investment Trust, Inc. hereby adopts this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), on behalf of Legg Mason Opportunity Trust ("Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. PRIMARY CLASS SHARES. Primary Class shares of the Fund are offered and
sold without imposition of an initial sales charge but may be assessed a
contingent deferred sales charge.
Primary Class shares of the Fund are available to all investors except
those qualified to purchase Navigator Class shares.
Primary Class shares of the Fund are subject to an annual distribution fee
of up to 0.75% of the average daily net assets of the Primary Class shares of
the Fund and an annual service fee of 0.25% of the average daily net assets of
the Primary Class shares of the Fund under a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
Primary Class shares are also available for purchase by exchange, as
described below.
2. NAVIGATOR CLASS SHARES. Navigator Class shares are offered and sold
without imposition of an initial sales charge or a contingent deferred sales
charge and are not subject to any service or distribution fees.
Navigator Class shares of the Fund are available for purchase only to: (i)
Institutional Clients of Legg Mason Trust Company for which they exercise
discretionary investment management responsibility and accounts of the customers
with such Institutional Clients; (ii) qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million; (iii) any
qualified retirement plan having net assets of at least $300 million; (iv)
clients of Bartlett & Co. who, as of December 19, 1996, were shareholders of
Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and for whom
Bartlett acts as an ERISA fiduciary; (v) any qualified retirement plan of Legg
Mason, Inc. or of any of its affiliates; (vi) shareholders of Class Y shares of
the Bartlett Europe Fund and Bartlett Financial Services Fund on October 5,
1999; (vii) any open-end management investment company advised or managed by
Legg Mason Fund Adviser, Inc. ("LMFA") or by any person controlling, controlled
by, or under common control with LMFA; and (viii) employees of Legg Mason, Inc.
and its affiliates and children, siblings, and parents of such persons. Exchange
privileges do not apply to Navigator Class shares.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular class of shares of
the Fund ("Class Expenses"). Class Expenses are charged directly to the net
assets of the particular class and, thus, are borne on a pro rata basis by the
outstanding shares of that class.
<PAGE>
In addition to the distribution and service fees described above, each
class may also pay a different amount of the following other expenses:
(1) legal, printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a specific
class;
(2) Blue Sky fees incurred by a specific class of shares;
(3) SEC registration fees incurred by a specific class of shares;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific class of shares;
(5) Directors' fees incurred as a result of issues relating to a
specific class of shares;
(6) litigation expenses or other legal expenses relating to a
specific class of shares;
(7) transfer agent fees and shareholder servicing expenses
identified as being attributable to a specific class; and
(8) such other expenses actually incurred in a different amount by a
class or related to a class's receipt of services of a different
kind or to a different degree than another class.
C. EXCHANGE PRIVILEGES:
-------------------
Primary Class shares of the Fund may be exchanged for or acquired through
an exchange of shares of the corresponding class of Legg Mason Cash Reserve
Trust, Legg Mason Tax Exempt Trust, Inc., and Legg Mason U.S. Government Money
Market Portfolio (collectively referred to as "Legg Mason Money Market Funds").
These exchange privileges may be modified or terminated by the Fund in
certain instances, and exchanges may be made only into funds that are legally
available for sale in the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Directors, the Fund may alter the
nomenclature for the designations of one or more of its classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of the
then current Prospectuses for the applicable classes; provided, however, that
none of the terms set forth in any such Prospectuses shall be inconsistent with
2
<PAGE>
the terms of the classes contained in this Plan. The Prospectuses for the Fund
contain additional information about the classes and the Fund's multiple class
structure.
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective on February __, 2000, provided that
this Plan shall not become effective with respect to the Fund unless such action
has first been approved by the vote of a majority of the Board of Directors of
Legg Mason Investment Trust, Inc. and by vote of a majority of those directors
who are not interested persons.
February __, 2000
3
