As filed with the Securities and Exchange Commission on March 28, 2000.
1933 Act File No. 333-88715
1940 Act File No. 811-9613
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No:___ [ ]
Post-Effective Amendment No: 2 [X]
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 3
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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)
[X] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on__________ pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LEGG MASON INVESTMENT TRUST, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Part A - Prospectus
Legg Mason Opportunity Trust - Primary Class
Part A - Supplement to Prospectus, dated May 27, 2000
Legg Mason Opportunity Trust - Primary Class
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
PRIMARY CLASS PROSPECTUS December 23, 1999
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:
1 Investment objective
3 Principal risks
8 Fees and expenses of the fund
10 Management
A b o u t y o u r i n v e s t m e n t:
12 How to invest
14 How to sell your shares
15 Account policies
17 Services for investors
18 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.
1
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[icon] P R I N C I P A L R I S K S
IN GENERAL:
There is no assurance that the fund will meet its investment objective;
investors could lose money by investing in the fund. As with all mutual funds,
an investment in this fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
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.
2
<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.
YEAR 2000:
Like other mutual funds (and most organizations around the world), the fund
could be adversely affected by computer problems related to the year 2000. These
could interfere with operations of the fund, its adviser, its distributor, and
its other outside service providers and could impact companies in which the fund
invests.
While no one knows if these problems will have any impact on the fund or on
financial markets in general, the adviser and its affiliates and the other
service providers to the fund have reported that they are taking steps to
protect fund investors. These include efforts to determine that the problem will
not directly affect the systems used by major service providers.
Whether these steps will be effective can only be known for certain in the year
2000.
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. Because the fund had not commenced operations prior
to the date of this prospectus, the fund does not have any performance history.
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. Other expenses include transfer agency, custody, professional
and registration fees. The Primary Class has no initial sales charge, but it is
subject to a deferred sales charge and 12b-1 fees. The fees and expenses are
calculated as a percentage of average net assets.
The fund currently offers only Primary Class shares. Other classes of shares may
be offered in the future.
SHAREHOLDER FEES:
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
----------------------------------------------------
PRIMARY CLASS SHARES
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Maximum Deferred Sales 1.00%(a)
Charge (Load) (as a % of
net asset value)
----------------------------------------------------
(a) Applies only to shares 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 compensation otherwise payable to it.
ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
----------------------------------------------------
PRIMARY CLASS SHARES
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Management Fees 1.00%
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Distribution and Service 1.00%
(12b-1) Fees
----------------------------------------------------
Other Expenses(a) 0.39%
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Total Annual Fund Operating 2.39%
Expenses
----------------------------------------------------
Fee Waivers and Expense -0.40%
Reimbursement(b)
----------------------------------------------------
Net Annual Fund Operating 1.99%
Expenses
----------------------------------------------------
(a) "Other expenses" are based on estimated expenses for the fiscal year ending
December 31, 2000.
(b) The manager has 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. The fund has agreed to
pay the manager for waived fees and reimbursed expenses provided that payment
does not cause the fund's annual operating expenses to exceed 1.99% of its
average net assets and the payment is made within three years after the year in
which the manager earned the fee or incurred the expense.
5
<PAGE>
EXAMPLE:
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. Actual returns may be higher or lower than 5% per
year. This example also assumes that the deferred sales charge is imposed on
redemptions made within the first year after purchase of Primary Class shares.
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Opportunity Trust, Primary Class 1 YEAR 3 YEARS
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Assuming redemption $302 $707
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Assuming no redemption $202 $707
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[icon] M A N A G E M E N T
MANAGEMENT AND ADVISERS:
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 $19 billion as of September
30, 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, Inc. ("Legg Mason"), 100 Light Street, Baltimore,
Maryland 21202, is the distributor of the fund's shares. The fund has adopted a
plan that allows it to pay distribution fees and shareholder service fees for
the sale of its shares and for services provided to shareholders. Under the
plan, the fund may pay the distributor an annual distribution fee equal to 0.75%
of the fund's average daily net assets and an annual service fee equal to 0.25%
of its average daily net assets attributable to Primary Class shares. Because
these fees are paid out of the fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
6
<PAGE>
The distributor may enter into agreements with other brokers to sell Primary
Class shares of the fund. The distributor pays these brokers up to 100% of the
distribution and service fees that it receives from the fund for those sales.
7
<PAGE>
[icon] H O W T O I N V E S T
To open a regular account or a retirement account with the fund, contact a
financial adviser or other entity that has entered into an agreement with the
fund's distributor to sell shares of the Legg Mason family of funds. The minimum
initial investment is $1,000 and the minimum for each purchase of additional
shares is $100, except as noted below.
Retirement accounts include traditional IRAs, spousal IRAs, education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. Contact your financial adviser
or other entity offering the funds to discuss which one might be appropriate for
you.
ONCE YOUR ACCOUNT IS OPEN, YOU MAY USE THE FOLLOWING METHODS TO ADD TO YOUR
ACCOUNT:
---------------------------------------------------------------------
IN PERSON Give your financial adviser a check for $100 or more
payable to the fund.
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MAIL Mail your check, payable to the fund, for $100 or
more to your financial adviser.
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TELEPHONE OR Call Legg Mason Funds Investors Services at
WIRE 1-800-822-5544 or your financial adviser to transfer
available cash balances in your brokerage account or
to transfer money from your bank directly to Legg
Mason. Wire transfers may be subject to a service
charge by your bank.
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TRANSFER OF Arrangements may be made with some employers and
FUNDS FROM financial institutions for regular automatic monthly
FINANCIAL investments of $50 or more in shares of the fund.
INSTITUTIONS
---------------------------------------------------------------------
Call your financial adviser or another entity offering the fund for sale with
any questions regarding the investment options above.
Certain investment methods may be subject to lower minimum initial and
additional investments.
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
Purchase orders received by your financial adviser or the entity offering the
fund before the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) will be processed at the fund's net asset value as of the close of
the exchange on that day. Orders received after the close of the exchange will
be processed at the fund's net asset value as of the close of the exchange on
the next day the exchange is open. Payment must be made within three business
days to Legg Mason.
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<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions imposed by those entities. You should
consult their program literature for further information.
Any of the following methods may be used to sell your shares:
---------------------------------------------------------------------
TELEPHONE Call your financial adviser or entity offering the fund
and request a redemption. Please have the following
information ready when you call: the name of the fund,
the number of shares (or dollar amount) to be redeemed
and your shareholder account number.
Proceeds will be credited to your brokerage account or
a check will be sent to you, at your direction, at no
charge to you. Wire requests will be subject to a fee
of $18. Be sure that your financial adviser has your
bank account information on file.
The fund will follow reasonable procedures to ensure
the validity of any telephone redemption request,
such as requesting identifying information from
callers or employing identification numbers. Unless
you specify that you do not wish to have telephone
redemption privileges, you may be held responsible
for any fraudulent telephone order.
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MAIL Send a letter to the fund requesting redemption of your
shares. The letter should be signed by all of the
owners of the account and their signatures guaranteed
without qualification. You may obtain a signature
guarantee from most banks or securities dealers.
---------------------------------------------------------------------
Your order will be processed promptly and you will generally receive the
proceeds within a week. Fund shares will be sold at the next net asset value
calculated after your redemption request is received by your financial adviser
or another entity.
Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of distributions on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
The fund has reserved the right under certain conditions to redeem its shares in
kind by distributing portfolio securities in payment for redemptions.
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 Primary Class share is determined daily as of the close of
the New York Stock Exchange, on every day the exchange is open. To calculate the
fund's Primary Class share price, the fund's assets attributable to that class
of shares are valued and totaled, liabilities attributable to Primary Class
shares are subtracted, and the resulting net assets are divided by the number of
Primary Class shares outstanding. The fund's securities are valued on the basis
of market quotations or, lacking such quotations, at fair value as determined
under procedures established by the Board of Directors.
Where a security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by the
adviser to be the primary market. Securities with remaining maturities of 60
days or less are valued at amortized cost. The fund will value its foreign
securities in U.S. dollars on the basis of the then-prevailing exchange rates.
To the extent that the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
OTHER:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. The fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
The fund reserves the right to:
o Reject any order for shares or suspend the offering of shares for a period of
time.
o Change its minimum investment amounts.
o Delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions, excessive trading or during
unusual market conditions. The fund may delay redemptions beyond seven days,
or suspend redemptions, only as permitted by the SEC.
10
<PAGE>
[icon] S E R V I C E S F O R I N V E S T O R S
For further information regarding any of the services below, please contact your
financial adviser or other entity offering the fund for sale.
CONFIRMATIONS AND ACCOUNT STATEMENTS:
You will receive from Legg Mason a confirmation after each transaction involving
Primary Class shares (except a reinvestment of dividends, capital gain
distributions and purchases made through a transfer of funds from a financial
institution). Legg Mason or the entity through which you invest will send you
account statements monthly unless there has been no activity in the account, in
which case a statement will be sent to you quarterly. Legg Mason will send you
statements quarterly if you purchase shares through a transfer of funds from a
financial institution.
SYSTEMATIC WITHDRAWAL PLAN:
If you are purchasing or already own shares with a net asset value of $5,000 or
more, you may elect to make systematic withdrawals from the fund. The minimum
amount for each withdrawal is $50. If you are making withdrawals from the fund
pursuant to the systematic withdrawal plan, you should not be purchasing shares
of the fund at the same time.
EXCHANGE PRIVILEGE:
Exchange privileges do not apply to the fund's shares.
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 Primary Class shares annually.
Your dividends and other distributions will be automatically reinvested in
additional Primary Class shares of the fund unless you elect to receive your
dividends and/or other distributions in cash. To change your election, you must
notify the fund at least 10 days before the next dividend and/or other
distribution is to be paid.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional shares of the fund. Dividends from investment company
taxable income (which includes net investment income and net short-term capital
gains) are taxable as ordinary income. Distributions of the fund's net capital
gain are taxable as long-term capital gain, regardless of how long you have held
your fund shares.
The sale of fund shares may result in a taxable gain or loss, depending on
whether the proceeds are more or less than the cost of your shares.
A tax statement is sent to you after the end of each year detailing the tax
status of your distributions.
The fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number. The fund will also withhold 31% of all dividends and capital gain
distributions payable to such shareholders who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.
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<PAGE>
L e g g M a s o n O p p o r t u n i t y T r u s t
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - The SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) this prospectus. The SAI provides further information and
additional details about the fund and its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - Additional information about the fund's
investments will be available in the fund's annual and semi-annual reports to
shareholders. These reports will 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 Commission's
Public Reference Section, Washington, DC 20549-0102.
LMF- SEC file number: 811-9613
13
<PAGE>
Legg Mason Opportunity Trust
Supplement to the Primary Class Prospectus dated December 23, 1999,
Supplanting the Supplement dated December 29, 1999
The information under the heading "Exchange Privilege" on page 17 of the
prospectus is replaced in its entirety with the following:
Primary Class shares of the fund may be exchanged only for Primary Class shares
of the following funds: Legg Mason Cash Reserve Trust; Legg Mason Tax Exempt
Trust, Inc.; and Legg Mason U.S. Government Money Market Portfolio, provided
these funds are eligible for sale in your state of residence. You can request an
exchange in writing or by phone. Be sure to read the current prospectus for any
fund into which you are exchanging.
An exchange of the fund's shares will be treated as a sale of the shares and any
gain on the transaction may be subject to tax.
The fund reserves the right to:
o terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the fund in one calendar year
o terminate or modify the exchange privilege after 60 days' notice to
shareholders
Under the heading "Fees and Expenses of the Fund" on page 8 of the prospectus,
the second paragraph is replaced in its entirety with the following:
The fund currently offers two classes of shares: Primary Class shares and
Navigator Class shares. Other classes of shares may be offered in the future.
Under the new heading "Financial Highlights" on page 18 of the prospectus, the
following information is added:
[icon] F I N A N C I A L H I G H L I G H T S
The financial highlights table is intended to help you understand the fund's
financial performance for the past year. Total return represents the rate that
an investor would have earned (or lost) on an investment in the fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by the fund's independent auditors, Ernst & Young LLP, whose report,
along with the fund's financial statements, is incorporated by reference into
the Statement of Additional Information (see back cover) and is included in the
annual report. The annual report is available upon request by calling toll-free
1-800-822-5544.
<PAGE>
Period ended December 31, 1999(a)
- ---------------------------------
The following information reflects financial results for a single share of the
fund:
Net asset value, beginning of period $10.00
------
Income from investment operations:
Net investment income ------
Net realized and unrealized gain
on investments ------
______
Distributions:
Dividends from net investment income ------
Dividends from net realized gain on ------
investments ______
Net asset value, end of period $10.00
======
Total return N.M.
Ratios/Supplemental Data
Ratio of total expenses to average
net assets 1.99%
(b,c)
Ratio of net investment income to
average net assets N.M.
Portfolio turnover rate --%
Net assets, end of period (in thousands) $146,093
(a) For the period December 30, 1999 (commencement of operations) to December
31, 1999.
(b) Net of fees waived pursuant to an expense limitation of 1.99% of average
daily net assets through December 31, 2000. If no fees had been waived by LMM,
the annualized ratio of expenses to average daily net assets for the period
would have been 2.39%.
(c) Annualized.
N.M. - Not meaningful.
See notes to financial statements.
This Supplement is dated May 27, 2000
<PAGE>
Legg Mason Investment Trust, Inc.
Legg Mason Opportunity Trust
NAVIGATOR CLASS PROSPECTUS May __, 2000
logo
The Art of Investing(SM)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>
T A B L E O F C O N T E N T S
A b o u t t h e f u n d:
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.
2
<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
<PAGE>
[icon] F E E S A N D E X P E N S E S O F T H E F U N D
The table below describes the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets so they lower the fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
The fees and expenses are shown as a percentage of average net assets.
ANNUAL FUND OPERATING EXPENSES -
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
--------------------------------------------------------------
NAVIGATOR CLASS SHARES
--------------------------------------------------------------
Management Fees 1.00%
--------------------------------------------------------------
Distribution and Service (12b-1) None
Fees
--------------------------------------------------------------
Other Expenses(a) 0.39%
--------------------------------------------------------------
Total Annual Fund Operating 1.39%
Expenses(b)
--------------------------------------------------------------
(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.
--------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------------------------------------------
Opportunity Trust, Navigator Class $142 $440
--------------------------------------------------------------
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
FROM FINANCIAL some financial institutions for regular automatic
INSTITUTIONS monthly 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:
----------------------------------------------------------------------
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. Beginning with the fund's next annual report, within you will find
a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.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
MAY __, 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 May __, 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..........................................................35
Appendix A....................................................................36
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. The fund may borrow money for any legal purpose
to the extent consistent with its policy to limit borrowing to an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowing).
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, or
if qualified institutional buyers become uninterested for a time, 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 (debt securities
rated below investment grade are commonly referred to as junk bonds). 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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<PAGE>
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
20
<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.
23
<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.
24
<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.
NELSON A. DIAZ [5/23/47], DIRECTOR; One Logan Square, Philadelphia, PA.
Partner, Blank Rome Comisky, & McCauley LLP since 1997; Trustee of Temple
University and of Philadelphia Museum of Art; Board member of U.S. Hispanic
Leadership Institute, Democratic National Committee, and National Association
for Hispanic Elderly; Director/Trustee of all Legg Mason retail funds except
Legg Mason Income Trust, Inc. and Legg Mason Tax Exempt Trust, Inc. FORMERLY:
General Counsel, United States Department of Housing and Urban Development
(1993-1997).
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.
As of March 20, 2000, the directors and officers of the Corporation
beneficially owned less than 1% of the Fund's outstanding shares.
As of February 29, 2000, no person is known by the fund to own
beneficially and/or of record 5% or more of any class 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
- --------------------------------------------------------------------------------
Nelson A. Diaz - $1,200 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).
*** Mr. Diaz was elected to the Board on February 10, 2000.
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"). Legg Mason, Inc. is a financial services holding
company.
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.
The fund commenced investment operations on December 30, 1999, and paid
no brokerage commissions for the fiscal year ended December 31, 1999.
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
The Statement of Assets and Liabilities as of December 31, 1999; the
Statements of Operations, Changes in Net Assets, and Financial Highlights for
the period ended December 31, 1999; the Notes to Financial Statements and the
Report of the Independent Auditors, each with respect to Opportunity Trust, are
included in the December 31, 1999, annual report, and are hereby incorporated by
reference in this Statement of Additional Information.
35
<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.
36
<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
37
<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.
38
<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 (3)
(ii) Sub-Management Agreement (3)
(e) Underwriting Agreement (3)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement (3)
(h) (i) Transfer Agency and Service Agreement (3)
(ii) Amendment to Credit Agreement dated as of March 17, 2000 - 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 (3)
(n) Form of Multiple Class Plan pursuant to Rule 18f-3 (3)
(o) Reserved
(p) Codes of ethics for the fund, its investment advisers, and its
principal underwriter - filed herewith
(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.
(3) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 1 to the Registration Statement, SEC File No.
333-88715, filed January 31, 2000.
<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
LMM LLC ("LMM"), the Registrant's investment manager, is a registered
investment adviser organized on June 23, 1999. LMM is engaged primarily in the
investment advisory business. Information as to the officers and directors of
LMM is included in its Form ADV filed on November 4, 1999, with the Securities
and Exchange Commission (registration number 801-56989) and is incorporated
herein by reference.
Legg Mason Fund Adviser, Inc. ("LMFA"), the Registrant's investment
sub-manager, is a registered investment adviser incorporated on January 20,
1982. LMFA is engaged primarily in the investment advisory business. LMFA serves
as investment adviser or manager of twenty-five open-end registered investment
companies or portfolios. Information as to the officers and directors of LMFA is
included in its Form ADV which was most recently amended on June 18, 1999, and
is on file with the Securities and Exchange Commission (registration number
801-16958) and is incorporated herein by reference.
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. 2 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 28th day
of March, 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 March 28, 2000
- --------------------------- and Director
John F. Curley, Jr.*
Director March 28, 2000
- ---------------------------
Nelson A. Diaz
/s/ Richard G. Gilmore Director March 28, 2000
- ---------------------------
Richard G. Gilmore*
/s/ Arnold L. Lehman Director March 28, 2000
- ---------------------------
Arnold L. Lehman*
/s/ Jill E. McGovern Director March 28, 2000
- ---------------------------
Jill E. McGovern*
/s/ Jennifer W. Murphy President and Director March 28, 2000
- ---------------------------
Jennifer W. Murphy*
/s/ G. Peter O'Brien Director March 28, 2000
- ---------------------------
G. Peter O'Brien*
/s/ T.A. Rodgers Director March 28, 2000
- ---------------------------
T.A. Rodgers*
/s/ Edward A. Taber, III Director March 28, 2000
- ---------------------------
Edward A. Taber, III*
/s/ Marie K. Karpinski Vice President March 28, 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 (3)
(ii) Sub-Management Agreement (3)
(e) Underwriting Agreement (3)
(f) Bonus, profit sharing or pension plans - none
(g) Custodian Agreement (3)
(h) (i) Transfer Agency and Service Agreement (3)
(ii) Amendment to Credit Agreement dated as of March 17, 2000 - 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 (3)
(n) Form of Plan Pursuant to Rule 18f-3 (3)
(o) Reserved
(p) Codes of ethics for the fund, its investment advisers, and its
principal underwriter - filed herewith
(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.
(3) Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 1 to the Registration Statement, SEC File
No. 333-88715, filed January 31, 2000.
AMENDMENT TO CREDIT AGREEMENT
DATED AS OF MARCH 17, 2000
WITH RESPECT TO
CREDIT AGREEMENT DATED AS OF FEBRUARY 20, 1998
(as heretofore amended and restated)
AMONG
THE FUNDS AND PORTFOLIOS PARTIES HERETO,
THE BANKS PARTY HERETO AS LENDERS,
STATE STREET BANK AND TRUST COMPANY, as
AS SYNDICATION AGENT,
NATIONAL AUSTRALIA BANK LIMITED, A.C.N.,
AS DOCUMENTATION AGENT,
AND
BANK OF AMERICA, NATIONAL ASSOCIATION,
AS AGENT
BANC OF AMERICA SECURITIES LLC,
AS SOLE LEAD ARRANGER AND SOLE BOOK MANAGER
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
This AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT"), dated as of March
17, 2000, is by and among the Funds (either on their own behalf or on behalf of
certain specified Portfolios) identified on Annex I hereto listed under the
heading Original Borrower Parties (the "ORIGINAL BORROWER PARTIES"), the Funds
(either on their own behalf or on behalf of certain specified Portfolios)
identified on Annex I hereto listed under the heading New Borrower Parties (the
"NEW BORROWER PARTIES"), the undersigned Banks and BANK OF AMERICA, N.A., as
agent (in such capacity, the "AGENT") for the Banks.
RECITALS:
WHEREAS, the Original Borrower Parties, the Banks and the Agent have
previously entered into a certain Credit Agreement, dated as of February 20,
1998 as amended and restated as of March 19, 1999 (as in effect immediately
prior to the Amendment Effective Date (as hereinafter defined), the "EXISTING
CREDIT AGREEMENT" and, as amended or otherwise modified hereby, the "CREDIT
AGREEMENT"); and
WHEREAS, the parties hereto wish to add the New Borrower Parties as
parties to the Credit Agreement and effect certain other amendments to the
Existing Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms used herein, unless otherwise defined
herein or the context otherwise requires, shall have the meanings assigned to
such terms in the Credit Agreement.
SECTION 2. CREDIT AGREEMENT AMENDMENTS. The Existing Credit Agreement
is hereby amended on and from the Amendment Effective Date as follows:
2.1 The New Borrower Parties are hereby made additional parties to
the Credit Agreement.
2.2 Section 1.1 of the Existing Credit Agreement is amended by
adding the following definition in the appropriate alphabetical location:
"CHANGE IN CONTROL" means any transaction or series of transactions
where (i) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "EXCHANGE ACT") as in effect on
the date hereof) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, as in effect on the date hereof), directly or
- 2 -
<PAGE>
indirectly, of securities of another Person (the "TARGET") representing
25% or more of the combined voting power of the Target's then-outstanding
securities; (ii) at any time less than a majority of the members of the
Target's board of directors shall be persons who were either nominated for
election or were elected by such board of directors; (iii) the Target's
stockholders approve a merger or consolidation of the Target with any
other Person, other than a merger or consolidation that would result in
the voting securities of the Target outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 75% of
the combined voting power of the voting securities of the Target or such
surviving entity outstanding immediately after such merger or
consolidation; or (iv) the Target's stockholders approve a plan of
complete liquidation of the Target or an agreement for the sale or
disposition of all or substantially all of the Target's assets.
2.3 The definition of the term "Termination Date" found in
Section 1.1 of the Existing Credit Agreement is deleted in its entirety and
replaced with the following:
"TERMINATION DATE" means March 16, 2001, or such earlier date as may
be fixed by the Funds and Portfolios on at least 15 Banking Days' prior
written or telephonic notice received by the Agent. The Funds and
Portfolios shall promptly confirm any telephonic notice in writing. Upon
the request of the Funds and Portfolios, and in the Banks' sole
discretion, the Termination Date may be extended for successive 364-day
periods as provided in SECTION 2.7.
2.4 The first sentence of Section 2.3(a) of the Existing Credit
Agreement is deleted in its entirety and replaced with the following:
A Fund or Portfolio shall give the Agent prior written or telephonic
notice of each Loan, which shall be received by the Agent, in the case of
a Federal Funds Rate Loan, not later than 12:00 noon, Eastern time, on the
Borrowing date with respect to such Loan, or, in the case of a Eurodollar
Loan, not later than 12:00 noon, Eastern time, three (3) Banking Days
prior to the Borrowing date with respect to such Loan.
2.5 The following sentence shall be added at the end of Section
2.6 of the Existing Credit Agreement:
The Funds and the Portfolios shall honor the good faith allocations made
among them pursuant to the Indemnification Agreement dated March 17, 2000
among them.
2.6 The first sentence of Section 3.2 of the Existing Credit
Agreement is deleted in its entirety and replaced with the following:
- 3 -
<PAGE>
The Funds and Portfolios shall collectively pay to the Banks a commitment
fee equal to 0.09% per annum on the average daily unused portion of the
Commitment Amount from time to time during the period from and including
the date of this Agreement to, but not including, the earlier of the
Termination Date or the date of termination of the Commitment Amount
pursuant to SECTION 4.3 or 11.2.
2.7 The text of Section 4.1 of the Existing Credit Agreement is
deleted in its entirety and replaced with the following:
All payments hereunder (including payments with respect to the Notes)
shall be made without setoff or counterclaim and shall be made to the
Agent in immediately available funds prior to 9:30 a.m., Eastern time, on
the date due at Bank of America, ABA No. 053 000 196, Account No. 136621
2250600, Reference: Legg Mason, or at such other place or for such other
account as may be designated by the Agent to the Funds and Portfolios in
writing. Any payments received after such time shall be deemed received on
the next Banking Day. The Agent will promptly distribute to each Bank its
Pro Rata Share (or other applicable share as expressly provided herein) of
such payment in like funds as received. Subject to the definition of the
term "Interest Period," whenever any payment to be made hereunder or under
a Note shall be stated to be due on a date other than a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension
of time shall be included in the calculation of interest or any fees.
2.8 The text of Section 6.17 of the Existing Credit Agreement is
deleted in its entirety and replaced with the following:
Each Fund reasonably believes that each of its service providers
designated below has (a) completed a review and assessment of all areas
within its business and operations relating to such Fund that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications and devices containing imbedded computer chips that
are material to the business, properties or operations of the Fund used by
any service providers identified below may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (b) developed a plan and timeline
for addressing the Year 2000 Problem on a timely basis and (c)
substantially competed implementation of that plan in accordance with that
timetable. The Year 2000 Problem has not resulted in, and such Fund
reasonably believes that the Year 2000 Problem will not result in, a
Material Adverse Effect. The service providers to which this provision
relates consists solely of the following service providers: Legg Mason
Fund Adviser, Inc.; Legg Mason Capital Management, Inc.; Bartlett & Co.;
LM Institutional Advisors, Inc.; State Street Bank and Trust Company; and
Boston Financial Data Services, Inc.
- 4 -
<PAGE>
2.9 The text of Section 7.22 of the Existing Credit Agreement is
deleted in its entirety and replaced with the following:
Utilize the proceeds of the Loans for short-term liquidity purposes,
including to finance overdrafts caused by securities not delivered on time
or to accommodate share redemptions and for temporary or emergency
purposes, as permitted by such Fund's or Portfolio's prospectus and
statement of additional information and the Act.
2.10 The Existing Credit Agreement is amended by adding a new
Section 7.23 as follows:
Notify promptly the Agent and the Banks in the event such Fund or
Portfolio discovers or determines that the "Year 2000 Problem" (that is,
the risk that computer applications and devices containing imbedded
computer chips that are material to the business, properties or operations
of the Fund used by any service providers identified below may be unable
to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999) has resulted
in, or is reasonably expected to result in, a Material Adverse Effect. The
service providers to which this provision relates consists solely of the
following service providers: Legg Mason Fund Adviser, Inc.; Legg Mason
Capital Management, Inc.; Bartlett & Co.; LM Institutional Advisors, Inc.;
State Street Bank and Trust Company; and Boston Financial Data Services,
Inc.
2.11 Section 11.1 of the Existing Credit Agreement is amended by
adding a new subparagraph (m) as follows:
(m) ADVISER CHANGE IN CONTROL. There occurs a Change in Control of a
Fund's Adviser.
2.12 Schedule I of the Existing Credit Agreement is deleted in its
entirety and replaced with Schedule I appended hereto.
2.13 Schedule II of the Existing Credit Agreement is deleted in
its entirety and replaced with Schedule II appended hereto.
2.14 The third paragraph of Exhibit B and the fourth paragraph of
Exhibit B-1 of the Existing Credit Agreement are deleted in their entirety and
replaced with the following:
All payments of principal and interest under this Note shall be made
in lawful money of the United States of America in immediately available
funds at Bank of America, N.A., ABA No.: 053 000 196, Account No. 136621
2250600, Reference: Legg Mason, or at such other place as may be
designated by the Bank to the Fund in writing.
- 5 -
<PAGE>
SECTION 3. NAME CHANGES, ETC.
3.1 The Funds, the Banks and the Agent acknowledge that:
3.1.1 the name of Bartlett Europe Fund has been changed to Legg
Mason Europe Fund and such Fund has become a Portfolio of Legg Mason Global
Trust, Inc. in lieu of being a Portfolio of Bartlett Capital Trust;
3.1.2 the name of Bartlett Financial Services Fund has been
changed to Legg Mason Financial Services Fund and such Fund has become a
Portfolio of Legg Mason Investors Trust, Inc. in lieu of being a Portfolio of
Bartlett Capital Trust;
3.1.3 the name of LM MidCap Institutional Portfolio has been
changed to LM Special Investment Institutional Portfolio; and
3.1.4 the name of Legg Mason Global Government Trust has been
changed to Legg Mason Global Income Trust.
SECTION 4. NEW NOTES.
4.1 Each of the Original Borrower Parties and the New Borrower
Parties shall deliver its Note to the Agent for the account of each Bank on or
before the Amendment Effective Date (such Notes being referred to collectively
herein as the "NEW NOTES").
4.2 The Original Borrower Parties, Bank of America, State Street
Bank and Trust Company and First Union National Bank agree that, upon receipt by
the Agent of the New Notes, the corresponding Notes of the Original Borrower
Parties previously delivered to such Banks shall cease to be of further force
and effect.
SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date (the "AMENDMENT EFFECTIVE DATE") on which each of the
conditions precedent set forth in this Section 5 shall have been satisfied and
notice thereof shall have been given by the Agent to the Funds and the Banks.
The following instruments shall have been delivered to the Agent, each to have
been duly executed and dated the Amendment Effective Date or such earlier date
as is satisfactory to the Agent and in form and substance satisfactory to the
Agent and its counsel:
5.1 The New Notes..1 The New Notes.
5.2.2 A copy, duly certified by the secretary or an assistant
secretary of each Fund or Portfolio, as the case may be, of (i) the resolutions
of such Fund's or Portfolio's trustees or directors authorizing or ratifying the
execution and delivery of this Amendment and such Fund's Notes or, in the case
- 6 -
<PAGE>
of a Fund comprised of one or more Portfolios, the Notes of each such Portfolio,
and authorizing the Borrowings under the Credit Agreement, (ii) all documents
evidencing other necessary trust or corporate action, as the case may be, and
(iii) all approvals or consents, if any, with respect to this Amendment and the
aforesaid Note(s).
5.3.3 A certificate of the secretary or an assistant secretary
of each Fund certifying the names of the Fund's officers and/or other persons
authorized to sign this Amendment, the Notes of such Fund or, as appropriate,
such Fund's Portfolio(s), and all other documents or certificates to be
delivered hereunder, together with the true signatures of such officers.
5.4.4 For each of the New Borrower Parties that has as its
investment adviser a Person other than Legg Mason Fund Adviser, Inc. or Legg
Mason Capital Management, Inc., a letter from such Person addressed to the Agent
and the Banks, substantially in the form of Exhibit H to the Credit Agreement.
5.5.5 For each of the New Borrower Parties, an opinion of
counsel to such Fund or Portfolio, addressed to the Agent and the Banks,
substantially in the form of Exhibit I to the Credit Agreement modified as
appropriate to take into account that this Amendment and not the Credit
Agreement is being executed and delivered.
5.6.6 A Form FR U-1 of the Board of Governors of the Federal
Reserve System duly executed and completed by each New Borrower Party and, in
the case of a Fund comprised of Portfolios, each Portfolio of such Fund.
5.7.7 Copies of each investment advisory agreement between each
New Borrower Party and its Adviser, together with all sub-advisory agreements,
if any.
5.8.8 For each New Borrower Party (including, in the case of a
Fund consisting of one or more specified Portfolios, such Portfolios), a
certificate of its net asset value as of March 13, 2000.
SECTION 6. WARRANTIES. To induce the Banks and the Agent to enter into
this Amendment, each Fund hereby represents and warrants with respect to itself
and, as may be relevant with respect to a Fund comprised of Portfolios, each of
its respective Portfolios that:
6.1 The execution and delivery by the Fund of this Amendment and
the New Notes as to which it is the maker, and the performance by the Fund of
the Credit Agreement and the New Notes as to which it is the maker, have been
duly authorized by all necessary action on the part of the Fund, and do not and
will not (i) violate any provision of any law, rule, regulation, order, writ,
judgment, decree, determination or award presently in effect having
applicability to the Fund or of the organizational documents of the Fund, (ii)
result in a breach of or constitute a default under any indenture or loan or
- 7 -
<PAGE>
credit agreement, or any other agreement or instrument, to which the Fund is a
party or by which the Fund or its properties may be bound or affected or (iii)
result in, or require, the creation or imposition of any Lien of any nature in,
upon or with respect to any of the properties now owned or hereafter acquired by
the Fund.
6.2 Assuming this Amendment constitutes the binding obligation of
each other necessary party hereto, this Amendment, the Credit Agreement as
amended by this Amendment and the New Notes as to which the Fund is the maker
constitute the legal, valid and binding obligation of the Fund, enforceable
against the Fund in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, receivership, fraudulent
conveyance, fraudulent transfer, moratorium or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
6.3 Each representation and warranty of the Fund set forth in
Section 6 of the Credit Agreement is true and correct as of the Amendment
Effective Date as though made on and as of such date.
6.4 As of the Amendment Effective Date, and as of the date of the
execution and delivery by the Fund of this Amendment, as to the Fund or, in the
case of a Fund consisting of Portfolios, each Portfolio of such Fund, no Event
of Default or Unmatured Event of Default has occurred and is continuing.
SECTION 7. COSTS, EXPENSES AND TAXES. The Funds agree to pay or reimburse
the Agent within 30 Business Days after demand all reasonable costs and
expenses, including reasonable fees of attorneys for the Agent (including the
nonduplicative allocated costs of internal counsel) and other legal expenses and
costs, incurred by the Agent in connection with the development, preparation,
delivery, administration and execution of this Amendment and any other documents
prepared in connection herewith, and the consummation of the transactions
contemplated hereby; PROVIDED that the maximum liability of the Funds for such
attorneys' fees shall not exceed $20,000. Each Fund shall only be liable for its
pro rata portion of the above costs and expenses determined on the basis of the
proportion of the respective net asset value of such Fund on any date of
determination to the aggregate of the net asset values of all the Funds as of
such date.
SECTION 8. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT. The Credit
Agreement as amended hereby shall remain in full force and effect and is hereby
ratified, adopted and confirmed in all respects. All references to the Credit
Agreement in any other agreement or document shall hereafter be deemed to refer
to the Credit Agreement as amended hereby. In addition, each reference in the
Credit Agreement to the terms "this Agreement," "hereunder," "hereof" or terms
or words of similar import shall hereafter mean the Credit Agreement as amended
hereby.
- 8 -
<PAGE>
SECTION 9. COUNTERPARTS. This Amendment may be executed in several
counterparts, and each such counterpart shall be deemed to be an original and
shall constitute together with all other counterparts but one and the same
Amendment.
SECTION 10. GOVERNING LAW. This Amendment shall be deemed to be a contract
made under the laws of the State of Illinois and for all purposes shall be
construed in accordance with the laws of said State, without regard to
principles of conflicts of law. All obligations of the Funds and rights of the
Agent and the Banks shall be in addition to and not in limitation of those
provided by applicable law.
SECTION 11. OTHER. The parties hereto acknowledge that the Syndication
Agent and the Documentation Agent have been designated as such for purposes of
convenience only, and that the Syndication Agent and the Documentation Agent
shall not have any duties or responsibilities, except those that may be
expressly set forth in one or more separate written agreements, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Syndication Agent or the Documentation
Agent.
SECTION 12. DISCLAIMER. None of the shareholders, trustees, directors,
officers, employees and other agents of any Fund or Portfolio shall personally
be bound by or liable for any indebtedness, liability or obligation hereunder or
under any Note nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder or thereunder.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LEGG MASON VALUE TRUST, INC.
By:__________________________________
Title:_______________________________
LEGG MASON TOTAL RETURN TRUST, INC.
By:__________________________________
Title:_______________________________
LEGG MASON SPECIAL INVESTMENT TRUST,
INC.
By:__________________________________
Title:_______________________________
LEGG MASON INVESTORS TRUST, INC.,
ON BEHALF OF LEGG MASON AMERICAN
LEADING COMPANIES TRUST
By:__________________________________
Title:_______________________________
LEGG MASON INVESTORS TRUST, INC.,
ON BEHALF OF LEGG MASON BALANCED
TRUST
By:__________________________________
Title:_______________________________
S-1
<PAGE>
LEGG MASON INVESTORS TRUST, INC., ON
BEHALF OF LEGG MASON U.S.
SMALL-CAPITALIZATION VALUE TRUST
By:__________________________________
Title:_______________________________
LEGG MASON INVESTORS TRUST, INC., ON
BEHALF OF LEGG MASON FINANCIAL
SERVICES FUND
By:__________________________________
Title:_______________________________
LEGG MASON GLOBAL TRUST, INC., ON
BEHALF OF LEGG MASON GLOBAL
INCOME TRUST
By:__________________________________
Title:_______________________________
LEGG MASON GLOBAL TRUST, INC., ON
BEHALF OF LEGG MASON INTERNATIONAL
EQUITY TRUST
By:__________________________________
Title:_______________________________
S-2
<PAGE>
LEGG MASON GLOBAL TRUST, INC., ON
BEHALF OF LEGG MASON EMERGING MARKETS
TRUST
By:__________________________________
Title:_______________________________
LEGG MASON GLOBAL TRUST, INC., ON
BEHALF OF LEGG MASON EUROPE FUND
By:__________________________________
Title:_______________________________
LEGG MASON TAX-FREE INCOME FUND,
ON BEHALF OF LEGG MASON MARYLAND
TAX-FREE INCOME TRUST
By:__________________________________
Title:_______________________________
LEGG MASON TAX-FREE INCOME FUND,
ON BEHALF OF LEGG MASON PENNSYLVANIA
TAX-FREE INCOME TRUST
By:__________________________________
Title:_______________________________
LEGG MASON TAX-FREE INCOME FUND,
ON BEHALF OF LEGG MASON TAX-FREE
INTERMEDIATE-TERM INCOME TRUST
By:__________________________________
Title:_______________________________
S-3
<PAGE>
LEGG MASON INCOME TRUST, INC., ON
BEHALF OF LEGG MASON U.S.
GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
By:__________________________________
Title:_______________________________
LEGG MASON INCOME TRUST, INC., ON
BEHALF OF LEGG MASON INVESTMENT
GRADE INCOME PORTFOLIO
By:__________________________________
Title:_______________________________
LEGG MASON INCOME TRUST, INC., ON
BEHALF OF LEGG MASON HIGH YIELD
PORTFOLIO
By:__________________________________
Title:_______________________________
LEGG MASON FOCUS TRUST, INC.
By:__________________________________
Title:_______________________________
LEGG MASON LIGHT STREET TRUST, INC.,
ON BEHALF OF LEGG MASON MARKET
NEUTRAL TRUST
By:__________________________________
Title:_______________________________
S-4
<PAGE>
BARTLETT CAPITAL TRUST, ON
BEHALF OF BARTLETT VALUE
INTERNATIONAL FUND
By:__________________________________
Title:_______________________________
BARTLETT CAPITAL TRUST, ON
BEHALF OF BARTLETT BASIC
VALUE FUND
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF LM VALUE INSTITUTIONAL
PORTFOLIO
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF LM SPECIAL INVESTMENT
INSTITUTIONAL PORTFOLIO
By:__________________________________
Title:_______________________________
S-5
<PAGE>
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF LM TOTAL RETURN
INSTITUTIONAL PORTFOLIO
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF BATTERYMARCH
INTERNATIONAL EQUITY PORTFOLIO
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF BATTERYMARCH
EMERGING MARKETS PORTFOLIO
By:__________________________________
Title:_______________________________
LEGG MASON INVESTMENT TRUST, INC.,
ON BEHALF OF LEGG MASON OPPORTUNITY
TRUST
By:__________________________________
Title:_______________________________
S-6
<PAGE>
LEGG MASON LIGHT STREET TRUST, INC.,
ON BEHALF OF LEGG MASON CLASSIC
VALUATION FUND
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF LM BALANCED INSTITUTIONAL
PORTFOLIO
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF BATTERYMARCH U.S.
MIDCAPITALIZATION EQUITY PORTFOLIO
By:__________________________________
Title:_______________________________
LM INSTITUTIONAL FUND ADVISORS II, INC.,
ON BEHALF OF BATTERYMARCH U.S. SMALL
CAPITALIZATION EQUITY PORTFOLIO
By:__________________________________
Title:_______________________________
S-7
<PAGE>
BANK OF AMERICA, N.A., as Agent
By:__________________________________
Title:_______________________________
BANK OF AMERICA, N.A., as a Bank
By:__________________________________
Title:_______________________________
S-8
<PAGE>
FIRST UNION NATIONAL BANK
By:__________________________________
Title:_______________________________
S-9
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By:__________________________________
Title:_______________________________
S-10
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
A.C.N. 004044937
By:__________________________________
Title:_______________________________
S-11
<PAGE>
DEN DANSKE BANK AKTIESELSKAB
By:__________________________________
Title:_______________________________
By:__________________________________
Title:_______________________________
S-12
<PAGE>
ANNEX I
ORIGINAL BORROWER PARTIES
Legg Mason Value Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Bartlett Capital Trust, on behalf of Bartlett Basic Value Fund and Bartlett
Value International Fund
Legg Mason Focus Trust, Inc.
Legg Mason Global Trust, Inc., on behalf of Legg Mason Global Income Trust
(formerly Legg Mason Global Government Trust), Legg Mason International Equity
Trust, Legg Mason Emerging Markets Trust and Legg Mason Europe Fund (formerly
Bartlett Europe Fund)
Legg Mason Income Trust, Inc., on behalf of Legg Mason U.S. Government
Intermediate-Term Portfolio, Legg Mason Investment Grade Income Portfolio and
Legg Mason High Yield Portfolio
Legg Mason Investors Trust, Inc., on behalf of Legg Mason American Leading
Companies Trust, Legg Mason Balanced Trust, Legg Mason U.S. Small-Capitalization
Value Trust and Legg Mason Financial Services Fund (formerly Bartlett Financial
Services Fund)
Legg Mason Light Street Trust, Inc., on behalf of Legg Mason Market Neutral
Trust
Legg Mason Tax-Free Income Fund, on behalf of Legg Mason Maryland Tax-Free
Income Trust, Legg Mason Pennsylvania Tax-Free Income Trust and Legg Mason
Tax-Free Intermediate-Term Income Trust
Legg Mason Total Return Trust, Inc.
LM Institutional Fund Advisors II, Inc., on behalf of LM Value Institutional
Portfolio, LM Special Investment Institutional Portfolio (formerly LM MidCap
Institutional Portfolio), LM Total Return Institutional Portfolio, Batterymarch
International Equity Portfolio and Batterymarch Emerging Markets Portfolio
I-1
<PAGE>
NEW BORROWER PARTIES
LM Institutional Fund Advisors II, Inc., on behalf of LM Balanced Institutional
Portfolio, Batterymarch U.S. MidCapitalization Equity Portfolio and Batterymarch
U.S. Small Capitalization Equity Portfolio
Legg Mason Investment Trust, Inc., on behalf of Legg Mason Opportunity Trust
Legg Mason Light Street, Inc., on behalf of Legg Mason Classic Valuation Fund
II-2
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone 202-778-9000
March 28, 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 issuance of Navigator Class shares of common stock
("Shares") in the Company's series designated as Legg Mason Opportunity Trust,
which has two classes, Primary Class and Navigator Class. This opinion is valid
until the earlier of (1) 16 months from the effective date of Post-Effective
Amendment No. 2; or (2) a subsequent Post-Effective Amendment to the Company's
Registration Statement becomes effective which purports to register Shares of
the class for which this opinion is rendered.
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 issuance of the Shares has been duly authorized by the
Company and that, when sold in accordance with the Company's Articles of
Incorporation, Bylaws, and the terms contemplated by Post-Effective Amendment
No. 2 to the Company's Registration Statement, the Shares will have been 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. 2 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
/s/ Arthur C. Delibert
----------------------
Arthur C. Delibert
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" in the Supplement to the Legg Mason Opportunity Trust Primary Class
Prospectus, dated May 27, 2000, and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment Number 2 to the Registration Statement (Form N-1A) (No.
333-88715) of Legg Mason Investment Trust, Inc., of our report dated February 2,
2000, included in the 1999 Annual Report to shareholders
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 24, 2000
[LEGG MASON LOGO]
LEGG MASON FUNDS
CODE OF ETHICS
Dated: April 1, 2000
<PAGE>
TABLE OF CONTENTS
TOPIC PAGE
----- ----
I. Introduction 1
A. Individuals and Entities Covered by the Code 1
B. Fiduciary Duty 1
1. The Funds Come First 1
2. Avoid Taking Advantage 1
3. Comply with the Code 1
C. Application of the Code to Independent Fund Directors 1
II. Personal Securities Transactions 2
A. Preclearance Requirements for Access Persons 2
1. General Requirement 2
2. Trade Authorization Request Forms 2
3. Review of Form 2
4. Length of Trade Authorization Approval 3
5. No Explanation Required for Refusals 3
B. Execution of Personal Securities Transactions 3
C. Prohibited Transactions 3
1. Always Prohibited Securities Transactions 3
a. Inside Information 3
b. Market Manipulation 4
c. Others 4
2. Generally Prohibited Securities Transactions 4
a. Initial Public Offerings
(Investment Personnel only) 4
b. One Day Blackout
(all Access Persons) 4
<PAGE>
c. Seven-Day Blackout
(Portfolio Managers only) 4
d. 60-Day Blackout (Investment
Personnel only) 4
e. Private Placements (Investment
Personnel only) 5
D. Exemptions 5
1. Exemptions from Preclearance and Treatment as
a Prohibited Transaction 5
a. Mutual Funds 5
b. No Knowledge 5
c. Legg Mason, Inc. Stock 6
d. Certain Corporate Actions 6
e. Systematic Investment Plans 6
f. Option-Related Activity 6
g. Commodities, Futures, and Options
on Futures 6
h. Rights 6
i. Miscellaneous 6
2. Exemption from Treatment as a Prohibited Transaction 7
a. Employer of Access Person Does
Not Make Investment Decisions
For the Relevant Fund 7
b. De Minimis Transactions 7
i. Equity Securities 7
ii. Fixed Income Securities 7
c. Options on Broad-Based Indices 7
E. Reporting Requirements 8
1. Initial and Periodic Disclosure of Personal Holdings
by Access Persons 8
2. Transaction and Periodic Statement Reporting
Requirements 8
3. Independent Fund Directors 8
4. Disclaimers 9
<PAGE>
5. Availability of Reports 9
III. Fiduciary Duties 9
A. Confidentiality 9
B. Gifts 9
1. Accepting Gifts 9
2. Solicitation of Gifts 10
3. Giving Gifts 10
C. Corporate Opportunities 10
D. Undue Influence 10
E. Service as a Director 10
IV. Compliance with the Code of Ethics 11
A. Code of Ethics Review Committee 11
1. Membership, Voting and Quorum 11
2. Investigating Violations of the Code 11
3. Annual Reports 11
B. Remedies 12
1. Sanctions 12
2. Sole Authority 12
3. Review 12
C. Exceptions to the Code 12
D. Inquiries Regarding the Code 13
V. Definitions 13
"Access Person" 13
"Appropriate Compliance Department" 13
"Batterymarch" 14
"Beneficial Interest" 14
"Brandywine" 14
"Code" 15
<PAGE>
"Equivalent Security" 15
"Fund Adviser" 15
"Gray Seifert" 15
"Immediate Family" 15
"Independent Fund Director" 15
"Investment Personnel" and "Investment Person" 15
"Legal and Compliance Department" 15
"Legg Mason Fund" and "Fund" 16
"Lombard Odier" 16
"Portfolio Manager" 16
"Preclearance Officer" 16
"Securities Transaction" 16
"Security" 16
"Western Asset" 16
"Western Asset Limited" 16
VI. Appendices to the Code 16
Appendix 1 - Contact Persons and List of Legg Mason Funds i
Appendix 2 - Acknowledgement of Receipt of Code of Ethics
and Personal Holdings Report iii
Appendix 3 - Trade Authorization Request for Access Persons v
Appendix 4 - Certification of Access Person's Designee vi
Appendix 5 - Acknowledgement of Receipt of Code of Ethics
(Independent Fund Directors) vii
Appendix 6 - Form Letter to Broker, Dealer or Bank viii
Appendix 7 - Certification of No Beneficial Interest ix
<PAGE>
I. INTRODUCTION
------------
A. INDIVIDUALS AND ENTITIES COVERED BY THE CODE. Unless the use of another
Code of Ethics has been approved in writing by the Legal and Compliance
Department, all Access Persons1 are subject to the provisions of this Code. (SEE
Section I.C. for information regarding the application of the Code to
Independent Fund Directors).
B. FIDUCIARY DUTY. The Code is based on the principle that Access Persons
owe a fiduciary duty to the Legg Mason Funds and must avoid activities,
interests and relationships that might interfere with making decisions in the
best interests of any of the Funds.
As fiduciaries, Access Persons must at all times comply with the following
principles:
1. THE FUNDS COME FIRST. Access Persons must scrupulously
avoid serving their personal interests ahead of the
interests of the Legg Mason Funds. An Access Person may
not induce or cause a Fund to take action, or not to take
action, for the Access Person's personal benefit, rather
than for the benefit of the Fund. For example, an Access
Person would violate this Code by causing a Fund to
purchase a Security the Access Person owned for the purpose
of increasing the price of that Security.
2. AVOID TAKING ADVANTAGE. Access Persons may not use their
knowledge of open, executed, or pending portfolio transactions
to profit by the market effect of such transactions. Receipt
of investment opportunities, perquisites, or gifts from
persons seeking business with a Legg Mason Fund or a Fund
Adviser could call into question the exercise of an Access
Person's independent judgment.
3. COMPLY WITH THE CODE. Doubtful situations should be resolved
in favor of the Legg Mason Funds. Technical compliance with
the Code's procedures will not automatically insulate from
scrutiny any Securities Transactions that indicate an abuse of
fiduciary duties.
C. APPLICATION OF THE CODE TO INDEPENDENT FUND DIRECTORS. This Code
applies to Independent Fund Directors and requires Independent Fund Directors to
report certain Securities Transactions in which they have a Beneficial Interest
to the Legal and Compliance Department in accordance with Section II.E.4.
However, provisions of the Code requiring preclearance of trades (Section
II.A.), execution of personal trades through Legg Mason (Section II.B.),
prohibited transactions (Section II.C.), disclosure of personal holdings,
transactions and accounts (Sections II.E.1, and 2), receipt of gifts (Section
III.B.), and restrictions on serving as a director of a publicly-traded company
(Section III.E.) do not apply to Independent Fund Directors.
____________________
1 Capitalized words are defined in Section V (Definitions).
1
<PAGE>
II. PERSONAL SECURITIES TRANSACTIONS
--------------------------------
A. PRECLEARANCE REQUIREMENTS FOR ACCESS PERSONS.
--------------------------------------------
1. GENERAL REQUIREMENT. Except for the transactions specified in
Section II.D.1, any Securities Transaction in which an Access
Person has or acquires a Beneficial Interest must be
precleared with a Preclearance Officer.
2. TRADE AUTHORIZATION REQUEST FORMS. Prior to entering an order
for a Securities Transaction that requires preclearance, the
Access Person must complete a Trade Authorization Request form
(Appendix 3) and submit the completed form to a Preclearance
Officer. The form requires Access Persons to provide certain
information and to make certain representations.
In the event an Access Person is unable to complete a Trade
Authorization Request form, the Access Person may designate
another individual to complete the form on his or her behalf.
The Access Person's designee should complete the Trade
Authorization Request form AND the Certification of Access
Person's Designee (Appendix 4) and submit both forms to a
Preclearance Officer.
Proposed Securities Transactions of a Preclearance Officer
that require preclearance must be submitted to another
Preclearance Officer.
3. REVIEW OF FORM. After receiving a completed Trade
Authorization Request form, a Preclearance Officer will (a)
review the information set forth in the form, (b) review
information regarding past, pending, and contemplated
transactions by any relevant Fund, as necessary, and (c) as
soon as reasonably practicable, determine whether to
authorize the proposed Securities Transaction. The
granting of authorization, and the date and time that
authorization was granted, must be reflected on the form.
The Preclearance Officer should keep one copy of the
completed form for the Appropriate Compliance Department
and provide one copy to the Access Person seeking
authorization.
2
<PAGE>
NO ORDER FOR A SECURITIES TRANSACTION FOR WHICH PRECLEARANCE
AUTHORIZATION IS REQUIRED MAY BE PLACED PRIOR TO THE RECEIPT
OF WRITTEN AUTHORIZATION OF THE TRANSACTION BY A PRECLEARANCE
OFFICER. VERBAL APPROVALS ARE NOT PERMITTED.
4. LENGTH OF TRADE AUTHORIZATION APPROVAL. The authorization
provided by a Preclearance Officer is effective until the
earlier of (1) its revocation, (2) the close of business on
the trading day after the authorization is granted (for
example, if authorization is provided on a Monday, it is
effective until the close of business on Tuesday), or (3)
the moment the Access Person learns that the information in
the Trade Authorization Request form is not accurate. If
the order for the Securities Transaction is not placed
within that period, a new authorization must be obtained
before the Securities Transaction is placed. If the
Securities Transaction is placed but has not been executed
before the authorization expires (as, for example, in the
case of a limit order), no new authorization is necessary
unless the person placing the original order for the
Securities Transaction amends it in any way, or learns that
the information in the Trade Authorization Request form is
not accurate.
5. NO EXPLANATION REQUIRED FOR REFUSALS. In some cases, a
Preclearance Officer may refuse to authorize a Securities
Transaction for a reason that is confidential. Preclearance
Officers are not required to give an explanation for refusing
to authorize any Securities Transaction.
B. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. Unless an exception is
provided in writing by the Legal and Compliance Department, all transactions in
Securities subject to the preclearance requirements shall be executed through
Legg Mason Wood Walker, Incorporated. Notwithstanding the foregoing,
transactions in Securities subject to the preclearance requirements effected by
employees of Batterymarch, Brandywine, Gray Seifert, Lombard Odier, Western
Asset, and Western Asset Limited may be executed through any broker, dealer,
bank, or mutual fund so long as the requirements of Section II.E.2. (Transaction
Reporting Requirements) are met.
C. PROHIBITED TRANSACTIONS.
1. ALWAYS PROHIBITED SECURITIES TRANSACTIONS. The following
Securities Transactions are prohibited and will not be
authorized under any circumstances:
a. INSIDE INFORMATION. Any transaction in a Security by
an individual who possesses material nonpublic
3
<PAGE>
information regarding the Security or the issuer of
the Security;
b. MARKET MANIPULATION. Transactions intended to raise,
lower, or maintain the price of any Security or to
create a false appearance of active trading;
c. OTHERS. Any other transaction deemed by the Preclearance
Officer to involve a conflict of interest, possible
diversions of corporate opportunity, or an appearance of
impropriety.
2. GENERALLY PROHIBITED SECURITIES TRANSACTIONS. Unless exempted
by Section II.D, the following Securities Transactions are
prohibited and will not be authorized by a Preclearance
Officer absent exceptional circumstances. The prohibitions
apply only to the categories of Access Persons specified.
a. INITIAL PUBLIC OFFERINGS (INVESTMENT PERSONNEL
only). Any purchase of a Security by Investment
Personnel in an initial public offering (other than a
new offering of a registered open-end investment
company);
b. ONE DAY BLACKOUT (ALL ACCESS PERSONS). Any purchase or
sale of a Security by an Access Person on any day during
which any Fund has a pending buy or sell order, or has
effected a buy or sell transaction, in the same Security
(or Equivalent Security);
c. SEVEN-DAY BLACKOUT (PORTFOLIO MANAGERS ONLY). Any
purchase or sale of a Security by a Portfolio Manager
within seven calendar days of a purchase or sale of
the same Security (or Equivalent Security) by a Fund
managed by that Portfolio Manager. For example, if a
Fund trades a Security on day one, day eight is the
first day the Portfolio Manager may trade that
Security for an account in which he or she has a
Beneficial Interest;
d. 60-DAY BLACKOUT (INVESTMENT PERSONNEL ONLY). (1)
Purchase of a Security in which an Investment Person
thereby acquires a Beneficial Interest within 60 days
of a sale of the Security (or an Equivalent Security)
in which such Investment Person had a Beneficial
Interest, and (2) sale of a Security in which an
Investment Person has a Beneficial Interest within 60
days of a purchase of the Security (or an Equivalent
Security) in which such Investment Person had a
Beneficial Interest, if, in either case, a Fund held
4
<PAGE>
the same Security at any time during the 60 days;
unless the Investment Person agrees to give up all
profits on the transaction to a charitable
organization specified in accordance with Section
IV.B.I. Of course, Investment Personnel must place
the interests of the Funds first; they may not avoid
or delay purchasing or selling a security for a Fund
in order to profit personally; and
e. PRIVATE PLACEMENTS (INVESTMENT PERSONNEL ONLY).
Acquisition of a Beneficial Interest in Securities in
a private placement by Investment Personnel is
strongly discouraged. A Preclearance Officer will
give permission only after considering, among other
facts, whether the investment opportunity should be
reserved for a Fund and whether the opportunity is
being offered to the person by virtue of the person=s
position as an Investment Person. Investment
Personnel who have acquired a Beneficial Interest in
Securities in a private placement are required to
disclose their Beneficial Interest to the Appropriate
Compliance Department. If the Investment Person is
subsequently involved in a decision to buy or sell a
Security (or an Equivalent Security) from the same
issuer for a Fund, then the decision to purchase or
sell the Security (or an Equivalent Security) must be
independently authorized by a Portfolio Manager with
no personal interest in the issuer.
D. EXEMPTIONS.
1. EXEMPTIONS FROM PRECLEARANCE AND TREATMENT AS A PROHIBITED
TRANSACTION. The following Securities Transactions are exempt
from the preclearance requirements set forth in Section II.A.
and the prohibited transaction restrictions set forth in
Section II.C.:
a. MUTUAL FUNDS. Any purchase or sale of a Security
issued by any registered open-end investment
companies (including but not limited to the Legg
Mason Funds);
b. NO KNOWLEDGE. Securities Transactions where the
Access Person has no knowledge of the transaction
before it is completed (for example, Securities
Transactions effected for an Access Person by a
trustee of a blind trust, or discretionary trades
involving an investment partnership or investment
club, in connection with which the Access Person is
neither consulted nor advised of the trade before it
is executed);
5
<PAGE>
c. LEGG MASON, INC. STOCK. Any purchase or sale of Legg
Mason, Inc. stock.
d. CERTAIN CORPORATE ACTIONS. Any acquisition of Securities
through stock dividends, dividend reinvestments, stock
splits, reverse stock splits, mergers, consolidations,
spin-offs, or other similar corporate reorganizations or
distributions generally applicable to all holders of the
same class of Securities;
e. SYSTEMATIC INVESTMENT PLANS. Any acquisition of a
security pursuant to a systematic investment plan that
has previously been approved pursuant to the Code. A
systematic investment plan is one pursuant to which a
prescribed investment will be made automatically on a
regular, predetermined basis without affirmative action
by the Access Person.
f. OPTIONS-RELATED ACTIVITY. Any acquisition or
disposition of a security in connection with an
option-related Securities Transaction that has been
previously approved pursuant to the Code. For
example, if an Access Person receives approval to
write a covered call, and the call is later
exercised, the provisions of Sections II.A. and II.C.
are not applicable to the sale of the underlying
security.
g. COMMODITIES, FUTURES, AND OPTIONS ON FUTURES. Any
Securities Transaction involving commodities, futures
(including currency futures and futures on securities
comprising part of a broad-based, publicly traded market
based index of stocks) and options on
futures.
h. RIGHTS. Any acquisition of Securities through the
exercise of rights issued by an issuer PRO RATA to all
holders of a class of its Securities, to the extent the
rights were acquired in the issue; and
i. MISCELLANEOUS. Any transaction in the following:
(1) bankers acceptances, (2) bank certificates of
deposit, (3) commercial paper, (4) repurchase
agreements, (5) Securities that are direct
obligations of the U.S. Government, and (6) other
Securities as may from time to time be designated in
writing by the Code of Ethics Review Committee on the
ground that the risk of abuse is minimal or
non-existent.
6
<PAGE>
2. EXEMPTION FROM TREATMENT AS A PROHIBITED TRANSACTION. The
following Securities Transactions are exempt from the
prohibited transaction restrictions that are set forth in
Section II.C. THEY ARE NOT EXEMPT FROM THE PRECLEARANCE
REQUIREMENTS SET FORTH IN SECTION II.A:
a. EMPLOYER OF ACCESS PERSON DOES NOT MAKE INVESTMENT
DECISIONS FOR THE RELEVANT FUND. The prohibitions in
Sections II.C.2.b, c, and d are not applicable to any
Securities Transaction effected by an Access Person
if the employer of the Access Person is not the Fund
Adviser that makes investment decisions for the
relevant Fund. For example, an employee of Western
Asset may effect a Securities Transaction without
regard to transactions that are open, executed, or
pending for a Fund managed by Batterymarch so long as
the Western Asset employee does not have actual
knowledge of any open, executed, or pending
transactions for the Fund managed by Batterymarch. A
Security Transaction effected by an Access Person who
has actual knowledge of an open, executed, or pending
portfolio transaction by any Fund is not exempt from
the prohibitions of Sections II.C.2.b, c, and d.
Employees of more than one Fund Adviser must take
into account the transactions of Funds managed by
each of their employers.
b. DE MINIMIS TRANSACTIONS. The prohibitions in Section
II.C.2.b and c are not applicable to the following
transactions:
i. EQUITY SECURITIES. Any equity Security
Transaction, or series of related transactions,
effected over a thirty (30) calendar day period,
involving 1000 shares or less in the aggregate if
the issuer of the Security is listed on the New
York Stock Exchange or has a market capitalization
in excess of $1 billion.
ii. FIXED-INCOME SECURITIES. Any fixed income Security
Transaction, or series of related transactions,
effected over a thirty (30) calendar day period,
involving $100,000 principal amount or less in the
aggregate.
c. OPTIONS ON BROAD-BASED INDICES. The prohibitions in
Section II.C.2. b, c, and d are not applicable to any
Securities Transaction involving options on certain
7
<PAGE>
broad-based indices designated by the Legal and
Compliance Department. The broad-based indices
designated by the Legal and Compliance Department may
be changed from time to time and presently consist of
the S&P 500, the S&P 100, NASDAQ 100, Nikkei 300,
NYSE Composite, and Wilshire Small Cap indices.
E. REPORTING REQUIREMENTS
1. INITIAL AND PERIODIC DISCLOSURE OF PERSONAL HOLDINGS BY
ACCESS PERSONS. Within ten (10) days of being designated as
an Access Person and thereafter on an annual basis (during
the month of April), an Access Person (except an
Independent Fund Director) must acknowledge receipt and
review of the Code and disclose all Securities in which
such Access Person has a Beneficial Interest on the
Acknowledgement of Receipt of Code of Ethics and Personal
Holdings Report (Appendix 2).
2. TRANSACTION AND PERIODIC STATEMENT REPORTING REQUIREMENTS.
An Access Person (except an Independent Fund Director) must
arrange for the Appropriate Compliance Department to
receive directly from any broker, dealer, or bank that
effects any Securities Transaction in which the Access
Person has or acquires a Beneficial Interest, duplicate
copies of each confirmation for each such transaction and
periodic statements for each account in which such Access
Person has a Beneficial Interest. Unless a written
exception is granted by a Preclearance Officer, an Access
Person must also arrange for the Appropriate Compliance
Department to receive directly from any mutual fund that
effects any Securities Transaction in which the Access
Person has or acquires a Beneficial Interest duplicate
copies of periodic statements for each account in which
such Access Person has a Beneficial Interest. Attached as
Appendix 6 is a form of letter that may be used to request
such documents from such entities.
IF AN ACCESS PERSON OPENS AN ACCOUNT AT A BROKER, DEALER,
BANK, OR MUTUAL FUND THAT HAS NOT PREVIOUSLY BEEN DISCLOSED,
THE ACCESS PERSON MUST IMMEDIATELY NOTIFY THE APPROPRIATE
COMPLIANCE DEPARTMENT IN WRITING OF THE EXISTENCE OF THE
ACCOUNT AND MAKE ARRANGEMENTS TO COMPLY WITH THE REQUIREMENTS
SET FORTH HEREIN.
If an Access Person is not able to arrange for duplicate
confirmations and periodic statements to be sent, the Access
Person must immediately notify the Appropriate Compliance
Department.
8
<PAGE>
3. INDEPENDENT FUND DIRECTORS. Within ten (10) days of being
designated an Independent Fund Director and thereafter on
an annual basis, an Independent Fund Director must
acknowledge receipt and review of the Code of Ethics on the
Acknowledgement of Receipt of Code of Ethics (Appendix 5).
Each Independent Fund Director must also report to the
Appropriate Compliance Department any Securities
Transaction in which the Independent Fund Director has or
acquires a Beneficial Interest if the Independent Fund
Director knew, or in the ordinary course of fulfilling his
or her duty as a director of a Fund should have known, that
during the 15-day period immediately preceding or after the
date of the transaction such Security (or an Equivalent
Security) was or would be purchased or sold by the Fund, or
such purchase or sale was or would be considered by the
Fund.
4. DISCLAIMERS. Any report of a Securities Transaction for the
benefit of a person other than the individual in whose account
the transaction is placed may contain a statement that the
report should not be construed as an admission by the person
making the report that he or she has any direct or indirect
beneficial ownership in the Security to which the report
relates.
5. AVAILABILITY OF REPORTS. All information supplied pursuant
to this Code may be made available for inspection to the
Board of Directors of each Fund Adviser employing the
Access Person, the Board of Directors of each Legg Mason
Fund, the Chairman of the Board and the Vice Chairman of
Legg Mason, Inc., the Code of Ethics Review Committee, the
Legal and Compliance Department, Preclearance Officers, the
Access Person's department manager (or designee), any party
to which any investigation is referred by any of the
foregoing, the Securities Exchange Commission, any
self-regulatory organization of which Legg Mason Wood
Walker, Incorporated is a member, any state securities
commission, and any attorney or agent of the foregoing or
of the Legg Mason Funds.
III. FIDUCIARY DUTIES
----------------
A. CONFIDENTIALITY. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
the Funds, except to persons whose responsibilities require knowledge of the
information.
B. GIFTS. The following provisions on gifts apply to all Investment
Personnel.
9
<PAGE>
1. ACCEPTING GIFTS. On occasion, because of their position
with the Legg Mason Funds, Investment Personnel may be
offered, or may receive without notice, gifts from clients,
brokers, vendors, or other persons not affiliated with such
entities. Acceptance of extraordinary or extravagant gifts
is not permissible. Any such gifts must be declined or
returned in order to protect the reputation and integrity
of the Legg Mason Funds and the Fund Advisers. Gifts of a
nominal value (I.E., gifts whose reasonable value is no
more than $100 a year), and customary business meals,
entertainment (E.G., sporting events), and promotional
items (E.G., pens, mugs, T-shirts) may be accepted.
If an Investment Person receives any gift that might be
prohibited under this Code, the Investment Person must
immediately inform the Appropriate Compliance Department.
2. SOLICITATION OF GIFTS. Investment Personnel may not solicit
gifts or gratuities.
3. GIVING GIFTS. Investment Personnel may not personally give
gifts with an aggregate value in excess of $100 per year to
persons associated with securities or financial organizations,
including exchanges, other member organizations, commodity
firms, news media, or clients of the firm.
C. CORPORATE OPPORTUNITIES. Access Persons may not take personal advantage
of any opportunity properly belonging to any Fund or Fund Adviser. For example,
an Investment Person should not acquire a Beneficial Interest in a Security of
limited availability without first offering the opportunity to purchase such
Security to the Fund Adviser for the relevant Fund.
D. UNDUE INFLUENCE. Access Persons may not cause or attempt to cause any
Fund to purchase, sell or hold any Security in a manner calculated to create any
personal benefit to the Access Person. If an Access Person stands to benefit
materially from an investment decision for a Fund, and the Access Person is
making or participating in the investment decision, then the Access Person must
disclose the potential benefit to those persons with authority to make
investment decisions for the Fund (or, if the Access Person in question is a
person with authority to make investment decisions for the Fund, to the
Appropriate Compliance Department). The person to whom the Access Person reports
the interest, in consultation with the Appropriate Compliance Department, must
determine whether or not the Access Person will be restricted in making or
participating in the investment decision.
E. SERVICE AS A DIRECTOR. No Investment Person may serve on the board of
directors of a publicly-held company (other than the Fund Advisers, their
10
<PAGE>
affiliates, and the Funds) absent prior written authorization by the Code of
Ethics Review Committee. This authorization will rarely, if ever, be granted
and, if granted, will normally require that the affected Investment Person be
isolated, through a AChinese Wall@ or other procedures, from those making
investment decisions related to the issuer on whose board the Investment Person
sits.
IV. COMPLIANCE WITH THE CODE OF ETHICS
----------------------------------
A. CODE OF ETHICS REVIEW COMMITTEE
-------------------------------
1. MEMBERSHIP, VOTING AND QUORUM. The Code of Ethics Review
Committee is comprised of the individuals identified in
Appendix 1. The Committee shall vote by majority vote with
two members serving as a quorum. Vacancies may be filled
and, in the case of extended absences or periods of
unavailability, alternates may be selected, by a majority
vote of the remaining members of the Committee; PROVIDED,
HOWEVER, that at least one member of the Committee shall
also be a member of the Legal and Compliance Department.
2. INVESTIGATING VIOLATIONS OF THE CODE. The Appropriate
Compliance Department is responsible for investigating any
suspected violation of the Code and shall report the
results of each investigation to the Code of Ethics Review
Committee. The Code of Ethics Review Committee is
responsible for reviewing the results of any investigation
of any reported or suspected violation of the Code. Any
violation of the Code by an Access Person will be reported
to the Boards of Directors of the relevant Legg Mason Funds
no less frequently than each quarterly meeting.
3. ANNUAL REPORTS. The Code of Ethics Review Committee will
review the Code at least once a year, in light of legal and
business developments and experience in implementing the Code,
and will report to the Board of Directors of each Legg Mason
Fund:
a. Summarizing existing procedures concerning personal
investing and any changes in the procedures made
during the past year;
b. Identifying any violation requiring significant remedial
action during the past year; and
c. Identifying any recommended changes in existing
restrictions or procedures based on its experience under
the Code, evolving
11
<PAGE>
industry practices, or developments in applicable laws or
regulations.
B. REMEDIES
--------
1. SANCTIONS. If the Code of Ethics Review Committee
determines that an Access Person has committed a violation
of the Code, the Committee may impose sanctions and take
other actions as it deems appropriate, including a letter
of caution or warning, suspension of personal trading
rights, suspension of employment (with or without
compensation), fine, civil referral to the Securities and
Exchange Commission, criminal referral, and termination of
the employment of the violator for cause. The Code of
Ethics Review Committee may also require the Access Person
to reverse the transaction in question and forfeit any
profit or absorb any loss associated or derived as a
result. The amount of profit shall be calculated by the
Code of Ethics Review Committee and shall be forwarded to a
charitable organization selected by the Code of Ethics
Review Committee. No member of the Code of Ethics Review
Committee may review his or her own transaction.
2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3
below, to determine the remedy for any violation of the Code,
including appropriate disposition of any monies forfeited
pursuant to this provision. Failure to promptly abide by a
directive to reverse a trade or forfeit profits may result in
the imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee
determines that an Access Person has committed a violation
of this Code that merits remedial action, it will report no
less frequently than quarterly to the Boards of Directors
of the applicable Legg Mason Funds, information relating to
the investigation of the violation, including any sanctions
imposed. The Boards of Directors of the relevant Legg
Mason Funds may modify such sanctions as they deem
appropriate. Such Boards shall have access to all
information considered by the Code of Ethics Review
Committee in relation to the case. The Code of Ethics
Review Committee may determine whether or not to delay the
imposition of any sanctions pending review by the
applicable Board of Directors.
C. EXCEPTIONS TO THE CODE. Although exceptions to the Code will rarely, if
ever, be granted, the Appropriate Compliance Department may grant exceptions to
the requirements of the Code on a case by case basis if the Appropriate
Compliance Department finds that the proposed conduct involves negligible
12
<PAGE>
opportunity for abuse. All such exceptions must be in writing and must be
reported as soon as practicable to the Code of Ethics Review Committee and to
any relevant Funds' Board of Directors at their next regularly scheduled meeting
after the exception is granted.
D. INQUIRIES REGARDING THE CODE. The Appropriate Compliance
Department will answer any questions about this Code or any other
compliance-related matters.
V. DEFINITIONS
-----------
When used in the Code, the following terms have the meanings set forth
below:
"ACCESS PERSON" means:
-------------
(1) every director or officer of a Legg Mason Fund or a Fund Adviser;
(2) every employee of a Fund Adviser (or employee of a company in a
control relationship with any of the foregoing), who in connection
with his or her regular functions, makes, participates in, or
obtains information regarding the purchase or sale of a Security by
a Fund;
(3) every natural person in a control relationship with a Legg Mason
Fund or a Fund Adviser who obtains information concerning
recommendations made to a Fund with regard to the purchase or sale
of a Security, prior to its dissemination or prior to the execution
of all resulting trades;
(4) any director, officer or employee of Legg Mason Wood Walker,
Incorporated who in the ordinary course of his or her business
makes, participates in or obtains information regarding the purchase
or sale of Securities for any of the Legg Mason Funds, or whose
functions or duties as a part of the ordinary course of his or her
business relate to the making of any recommendation to such
investment company concerning the purchase or sale of Securities;
and
(5) such other persons as the Legal and Compliance Department shall
designate.
Any uncertainty as to whether an individual is an Access Person should be
brought to the attention of the Legal and Compliance Department. Such questions
will be resolved in accordance with, and this definition shall be subject to,
the definition of "Access Person" found in Rule 17j-1(e) (1) promulgated under
the Investment Company Act of 1940, as amended.
"APPROPRIATE COMPLIANCE DEPARTMENT" for an employee means the compliance
department of that employee's immediate employer. For dual employees, the
13
<PAGE>
compliance department of one employer will be designated as the Appropriate
Compliance Department.
"BATTERYMARCH" means Batterymarch Financial Management, Inc.
"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit, or share in any profit derived from, a transaction in the subject
Securities.
An Access Person is deemed to have a Beneficial Interest in the following:
(1) any Security owned individually by the Access Person;
(2) any Security owned jointly by the Access Person with others
(for example, joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in
corporations); and
(3) any Security in which a member of the Access Person's
Immediate Family has a Beneficial Interest if:
a. the Security is held in an account over which the Access
Person has decision making authority (for example, the
Access Person acts as trustee, executor, or guardian);
or
b. the Security is held in an account for which the
Access Person acts as a broker or investment adviser
representative.
In addition, an Access Person is presumed to have a Beneficial Interest in
any Security in which a member of the Access Person's Immediate Family has a
Beneficial Interest if the Immediate Family member resides in the same household
as the Access Person. This presumption may be rebutted if the Access Person is
able to provide the Legal and Compliance Department with satisfactory assurances
that the Access Person has no material Beneficial Interest in the Security and
exercises no control over investment decisions made regarding the Security.
Access Persons may use the form attached as Appendix 7 (Certification of No
Beneficial Interest) in connection with such requests.
Any uncertainty as to whether an Access Person has a Beneficial Interest
in a Security should be brought to the attention of the Legal and Compliance
Department. Such questions will be resolved in accordance with, and this
definition shall be subject to, the definition of "beneficial owner" found in
Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of
1934, as amended.
"BRANDYWINE" means Brandywine Asset Management, Inc.
14
<PAGE>
"CODE" means this Code of Ethics, as amended.
"EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security, including options, rights, stock appreciation
rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and
other obligations of that company or security otherwise convertible into that
security. Options on securities are included even if, technically, they are
issued by the Options Clearing Corporation or a similar entity.
"FUND ADVISER" means any entity that acts as a manager, adviser or
sub-adviser to a Legg Mason Fund, including, but not limited to, Bartlett & Co.,
Batterymarch Financial Management, Inc., Brandywine Asset Management, Inc.,
Gray, Seifert & Co., Inc., Legg Mason Capital Management, Inc., Legg Mason Fund
Adviser, Inc., LM Institutional Advisors, Inc., LMM LLC, Lombard Odier
International Portfolio Management Limited, Western Asset Management Company,
and Western Asset Management Company Limited.
"GRAY SEIFERT" means Gray, Seifert & Co., Inc.
"IMMEDIATE FAMILY" of an Access Person means any of the following
persons:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and other relationships
(whether or not recognized by law) that the Legal and Compliance Department
determines could lead to the possible conflicts of interest, diversions of
corporate opportunity, or appearances of impropriety which this Code is intended
to prevent.
"INDEPENDENT FUND DIRECTOR" means an independent director of a Legg
Mason Fund.
"INVESTMENT PERSONNEL" and "INVESTMENT PERSON" mean each Portfolio Manager
and any Access Person who, in connection with his or her regular functions or
duties, provides information and advice to a Portfolio Manager or who helps
execute a Portfolio Manager's decisions.
"LEGAL AND COMPLIANCE DEPARTMENT" means the Legal and Compliance
Department of Legg Mason Wood Walker, Incorporated and the persons designated
in Appendix 1, as such Appendix shall be amended from time to time. See also
"Appropriate Compliance Department."
15
<PAGE>
"LEGG MASON FUND" and "FUND" mean an investment company registered under
the Investment Company Act of 1940 (or a portfolio or series thereof, as the
case may be) that is sponsored by Legg Mason, including, but not limited to, the
funds listed in Appendix 1.
"LOMBARD ODIER" means Lombard Odier International Portfolio Management
Limited.
"PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing the portfolio of a Fund.
"PRECLEARANCE OFFICER" means the person designated as a Preclearance
Officer in Appendix 1 hereof or such person's designee.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which
an Access Person has or acquires a Beneficial Interest.
"SECURITY" includes stock, notes, bonds, debentures, and other evidences
of indebtedness (including loan participations and assignments), limited
partnership interests, investment contracts, and all derivative instruments of
the foregoing, such as options and warrants. "Security" does not include futures
or options on futures, but the purchase and sale of such instruments are
nevertheless subject to the reporting requirements of the Code.
"WESTERN ASSET" means Western Asset Management Company.
"WESTERN ASSET LIMITED" means Western Asset Management Company Limited.
VI. APPENDICES TO THE CODE
----------------------
The following appendices are attached to and are a part of the Code:
Appendix 1. CONTACT PERSONS AND LIST OF LEGG MASON FUNDS;
Appendix 2. ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS AND PERSONAL
HOLDINGS REPORT;
Appendix 3. TRADE AUTHORIZATION REQUEST FOR ACCESS PERSONS;
Appendix 4. CERTIFICATION OF ACCESS PERSON'S DESIGNEE;
Appendix 5. ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS (INDEPENDENT
FUND DIRECTORS);
16
<PAGE>
Appendix 6. FORM LETTER TO BROKER, DEALER, BANK, OR MUTUAL FUND.
Appendix 7. CERTIFICATION OF NO BENEFICIAL INTEREST.
17
<PAGE>
APPENDIX 1
CONTACT PERSONS AND LIST OF LEGG MASON FUNDS
PRECLEARANCE OFFICERS
Andrew J. Bowden
Neil P. O'Callaghan
Suzanne E. Peluso
Jennifer W. Murphy (Legg Mason Fund Adviser, Inc.)
Philip E. Sachs (Legg Mason Capital Management, Inc.)
Ilene S. Harker (Western Asset Management Company)
Francis X. Tracy (Batterymarch Financial Management, Inc.)
Thomas A. Steele (Bartlett & Co.)
Denise Justice (Bartlett & Co.)
DESIGNEES OF PRECLEARANCE OFFICER
Nancy E. McColgan (Legg Mason Capital Management, Inc.)
Nancy Dennin (Legg Mason Fund Adviser, Inc.)
Jean C. Collins (Bartlett & Co.)
Donna Preishoff (Bartlett & Co.)
LEGAL AND COMPLIANCE DEPARTMENT
Andrew J. Bowden
Neil P. O'Callaghan
Frank R. Walker Jr.
CODE OF ETHICS REVIEW COMMITTEE
Andrew J. Bowden
Edward A. Taber, III
Neil P. O'Callaghan
Philip E. Sachs
Jennifer W. Murphy
LEGG MASON FUNDS
Bartlett Basic Value Fund
Bartlett Value International Fund
Batterymarch Emerging Markets Portfolio
i
<PAGE>
Batterymarch International Equity Portfolio
Batterymarch U.S. MidCapitalization Equity Portfolio
Batterymarch U.S. Small Capitalization Equity Portfolio
Legg Mason American Leading Companies Trust
Legg Mason Balanced Trust
Legg Mason Cash Reserve Trust
Legg Mason Classic Valuation Fund
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
Legg Mason Financial Services Fund
Legg Mason Focus Trust
Legg Mason Global Income Trust
Legg Mason High Yield Portfolio
Legg Mason International Equity Trust
Legg Mason Investment Grade Income Portfolio
Legg Mason Market Neutral Trust
Legg Mason Maryland Tax-Free Income Trust
Legg Mason Opportunity Trust
Legg Mason Pennsylvania Tax-Free Income Trust
Legg Mason Special Investment Trust, Inc.
Legg Mason Tax Exempt Trust, Inc.
Legg Mason Tax-Free Intermediate-Term Income Trust
Legg Mason Total Return Trust, Inc.
Legg Mason U.S. Government Intermediate-Term Portfolio
Legg Mason U.S. Government Money Market Portfolio
Legg Mason U.S. Small-Cap Value Trust
Legg Mason Value Trust, Inc.
LM Balanced Institutional Portfolio
LM Value Institutional Portfolio
LM Special Investment Institutional Portfolio
LM Total Return Institutional Portfolio
Western Asset Core Portfolio
Western Asset Core Plus Portfolio
Western Asset Enhanced Equity Portfolio
Western Asset Global Strategic Income Portfolio
Western Asset Government Money Market Portfolio
Western Asset High Yield Portfolio
Western Asset Intermediate Portfolio
Western Asset Intermediate Plus Portfolio
Western Asset Money Market Portfolio
Western Asset Non-U.S. Fixed Income Portfolio
ii
<PAGE>
APPENDIX 2
ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS AND PERSONAL HOLDINGS REPORT
I acknowledge that I have received the Code of Ethics dated April 1, 2000 and
represent that:
1. I have read the Code of Ethics and I understand that it applies to me and to
all Securities in which I have or acquire any Beneficial Interest. I have
read the definition of "Beneficial Interest" and understand that I may be
deemed to have a Beneficial Interest in Securities owned by members of my
Immediate Family and that Securities Transactions effected by members of my
Immediate Family may therefore be subject to this Code.
2. In accordance with Section II.A. of the Code, I will obtain prior written
authorization for all Securities Transactions in which I have or acquire a
Beneficial Interest, except for transactions exempt from preclearance under
Section II.D.1 of the Code.
3. In accordance with Section II.E.2. of the Code of Ethics, I will report all
non-exempt Securities Transactions in which I have or acquire a Beneficial
Interest.
4. I agree to disgorge and forfeit any profits on prohibited transactions in
accordance with the requirements of the Code.
5. I will comply with the Code of Ethics in all other respects.
6. In accordance with Section II.E.1. of the Code, the following is a list of
all Securities in which I have a Beneficial Interest:
(1) PROVIDE THE INFORMATION REQUESTED BELOW FOR EACH ACCOUNT THAT YOU
MAINTAIN WITH A BROKER, DEALER, BANK, OR MUTUAL FUND.
INDICATE "NONE" IF APPROPRIATE.
- --------------------------------------------------------------------------------
NAME OF BROKER, DEALER,
BANK, OR MUTUAL FUND ACCOUNT TITLE ACCOUNT NUMBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ATTACH A SEPARATE SHEET IF NECESSARY)
(2) ATTACH THE MOST RECENT ACCOUNT STATEMENT FOR EACH ACCOUNT IDENTIFIED
ABOVE THAT IS NOT MAINTAINED AT LEGG MASON WOOD WALKER, INCORPORATED.
iii
<PAGE>
(3) IF YOU OWN BENEFICIAL INTERESTS IN SECURITIES THAT ARE NOT LISTED ON
AN ATTACHED ACCOUNT STATEMENT OR IN AN ACCOUNT MAINTAINED AT LEGG MASON
WOOD WALKER, INCORPORATED, LIST THEM BELOW. INCLUDE PRIVATE EQUITY
INVESTMENTS. INDICATE "NONE" IF APPROPRIATE.
- --------------------------------------------------------------------------------
NAME OF ACCOUNT ACCOUNT NAME OF SECURITY NUMBER OF
BROKER, TITLE NUMBER SHARES/PRINCIPAL
DEALER, BANK, AMOUNT
OR MUTUAL FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ATTACH SEPARATE SHEET IF NECESSARY)
7. (INVESTMENT PERSONNEL ONLY) In accordance with Section III.E. of the Code,
the following is a list of publicly-held companies (other than Fund Advisers,
their affiliates, and the Funds) on which I serve as a member of the board of
directors. INDICATE "NA" OR "NONE" IF APPROPRIATE.
- --------------------------------------------------------------------------------
NAME OF COMPANY BOARD MEMBER SINCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. I certify that the information on this form is accurate and complete.
- ----------------------------------
Access Person's Name
- ------------------------------------ --------------------
Access Person's Signature Date
iv
<PAGE>
<TABLE>
<CAPTION>
APPENDIX 3
TRADE AUTHORIZATION REQUEST FOR ACCESS PERSONS
1. Name of Access Person: _____________________________
2. Account Title: _____________________________
3. Account Number: _____________________________
4. Name of Security: _____________________________
5. Maximum number of shares or units to be purchased or sold or
amount of bond: ___________________
6. Name and phone number of broker to effect transaction: ___________________
<S> <C> <C> <C> <C>
7. Check applicable boxes: Purchase / / Sale / / Market Order / / Limit Order / /
</TABLE>
9. In connection with the foregoing transaction, I hereby make the following
representations and warranties:
(a) I do not possess any material nonpublic information regarding the
Security or the issuer of the Security.
(b) I am not aware that any Legg Mason Fund has an open order to buy or
sell the Security or an Equivalent Security.
(c) By entering this order, I am not using knowledge of any open,
executed, or pending transaction by a Legg Mason Fund to profit by
the market effect of such Fund transaction.
(d) (Investment Personnel Only). The Security is not being acquired
in an initial public offering.
(e) (Investment Personnel Only). The Security is not being acquired
in a private placement or, if it is, I have reviewed Section
II.C.3. of the Code and have attached hereto a written
explanation of such transaction.
(f) (Investment Personnel Only). If I am purchasing the Security, and if
the same or an Equivalent Security has been held within the past 60
days by any Fund managed by my immediate employer, I have not
directly or indirectly (through any member of my Immediate Family,
any account in which I have a Beneficial Interest or otherwise) sold
the Security or an Equivalent Security in the prior 60 days.
(g) (Investment Personnel Only) If I am selling the Security, and if the
same or an Equivalent Security has been held within the past 60 days
by any Fund managed by my immediate employer, I have not directly or
indirectly (through any member of my Immediate Family, any account
in which I have a Beneficial Interest or otherwise) purchased the
Security or an Equivalent Security in the prior 60 days.
(h) I believe that the proposed trade fully complies with the
requirements of the Code.
------------------------------------- -------------------- -------
Access Person's Signature Date Time
- -----------------------------------------------------------------------------
TRADE AUTHORIZATION
(TO BE COMPLETED BY PRECLEARANCE OFFICER)
-------------------------------------- -------------------- ------
Authorized By Date Time
- -----------------------------------------------------------------------------
<PAGE>
APPENDIX 4
CERTIFICATION OF ACCESS PERSON'S DESIGNEE
The undersigned hereby certifies that the Access Person named on the attached
Trade Authorization Request for Access Persons (a) directly instructed me to
complete the attached form on his or her behalf, (b) to the best of my
knowledge, was out of the office at the time of such instruction and has not
returned, and (c) confirmed to me that the representations and warranties
contained in the attached Form are accurate.
--------------------------------
Access Person's Designee
--------------------------------
Print Name
--------------------------------
Date
vi
<PAGE>
APPENDIX 5
ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS
(INDEPENDENT FUND DIRECTORS)
I acknowledge that I have received the Code of Ethics dated April 1, 2000 and
represent that:
1. I have read the Code of Ethics and I understand that it applies
to me and to all Securities in which I have or acquire any
Beneficial Interest. I have read the definition of "Beneficial
Interest" and understand that I may be deemed to have a
Beneficial Interest in Securities owned by members of my
Immediate Family and that Securities Transactions effected by
members of my Immediate Family may therefore be subject to this
Code.
2. I will report all Securities Transactions required to be reported
under Section II.E.3 of the Code in which I have or acquire a
Beneficial Interest.
3. I will comply with applicable provisions of the Code of Ethics in
all other respects.
__________________________________
Director's Signature
__________________________________
Print Name
__________________________________
Dated
vii
<PAGE>
APPENDIX 6
FORM OF LETTER TO BROKER, DEALER, BANK, OR MUTUAL FUND
(Date)
(Name
and Address)
Subject: Account #__________________________
Dear ______________________:
My employer, ___________________________________, is an investment adviser
to, or principal underwriter of, an investment company. Pursuant to my
employer's Code of Ethics and Rule 17j-1 under the Investment Company Act of
1940, please send duplicate confirmations of individual transactions as well as
duplicate periodic statements for the referenced account directly to:
(Name and Address of Individual Responsible
for Reviewing Periodic Holdings and Transaction Reports)
Thank you for your cooperation. If you have any questions, please contact
me or (Name of Individual Responsible for Reviewing Periodic Holdings and
Transaction Reports) at _______________________________.
Sincerely,
(Name of Access Person)
viii
<PAGE>
APPENDIX 7
CERTIFICATION OF NO BENEFICIAL INTEREST
I have read the Code of Ethics and I understand that it applies to me and to all
Securities in which I have or acquire any Beneficial Interest. I have read the
definition of "Beneficial Interest" and understand that I may be deemed to have
a Beneficial Interest in Securities owned by members of my Immediate Family and
that Securities Transactions effected by members of my Immediate Family may
therefore be subject to this Code.
The following accounts are maintained by one or more members of my Immediate
Family who reside in my household:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BROKERAGE FIRM
RELATIONSHIP OF IMMEDIATE (INCLUDE LEGG MASON
ACCOUNT NUMBER FAMILY MEMBER ACCOUNT NUMBER ACCOUNTS)
- -------------- ------------------------- -------------- -------------------
</TABLE>
I certify that with respect to each of the accounts listed above (INITIAL
APPROPRIATE BOXES):
/ / I do not own individually or jointly with others
any of the securities held in the account.
/ / I do not possess or exercise decision making authority
over the account.
/ / I do not act as a broker or investment adviser
representative for the account.
I agree that I will notify the Legal and Compliance Department immediately if
any of the information I have provided in this certification becomes inaccurate
or incomplete.
________________________________
Access Person's Signature
_________________________________
Print Name
_________________________________
Date
ix
