As filed with the Securities and Exchange Commission on December 21, 1995.
1933 Act File No. 2-62218
1940 Act File No. 811-2853
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 32 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 25
LEGG MASON CASH RESERVE TRUST
(Exact Name of Registrant as Specified in Charter)
111 South Calvert Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
CHARLES A. BACIGALUPO ARTHUR C. DELIBERT, ESQ.
111 South Calvert Street Kirkpatrick & Lockhart
Baltimore, Maryland 21202 1800 M Street, N.W.
(Name and Address of South Lobby - Ninth Floor
Agent for Service) Washington, D.C. 20036-5891
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ X ] on December 31 , 1995 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on , 1996 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1996 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.
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for its most
recent fiscal year on October 26, 1995.
<PAGE>
Legg Mason Cash Reserve Trust
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Cash Reserve Trust
Form N-1A Cross Reference Sheet
Part A Item No. Prospectus Caption
1 Cover Page
2 Prospectus Highlights;
Trust Expenses
3 Financial Highlights;
Performance Information
4 The Trust's Investment Objective
and Policies;
Description of the Trust and
Its Shares
5 Trust Expenses;
The Trust's Board of Trustees
and Manager;
The Trust's Investment Adviser
The Trust's Custodian and
Transfer Agent
6 Cover Page;
Prospectus Highlights;
Description of the Trust and
its Shares;
Dividends;
Shareholder Services;
Tax Treatment of Dividends
7 How You Can Invest In the Trust;
How Your Shareholder Account Is
Maintained;
How Net Asset Value Is Determined;
The Trust's Distributor;
Investing Through Tax-Deferred
Retirement Accounts and Plans
8 How You Can Redeem Your Trust
Shares
9 Not Applicable
<PAGE>
Statement of Additional
Part B Item No. Information Caption
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About
Investment Limitations and Policies;
Portfolio Transactions and Brokerage
14 The Trust's Trustees and Officers
15 The Trust's Trustees and Officers
16 Management Agreement;
Investment Advisory Agreement;
The Trust's Trustees and Officers;
The Trust's Independent Auditors;
The Trust's Custodian and Transfer and
Dividend-Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Massachusetts Trust Law
19 Valuation of Shares;
Additional Purchase and Redemption
Information
20 Additional Tax Information;
Tax-Deferred Retirement Accounts
and Plans
21 Not Applicable
22 How the Trust's Yield is Calculated
23 Financial Statements
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Trust Expenses 3
Financial Highlights 4 PROSPECTUS
Performance Information 5 DECEMBER 31, 1995
Investment Objective and Policies 5
How You Can Invest in the Trust 7
How Your Shareholder Account is
Maintained 8 LEGG MASON
How You Can Redeem Your Trust CASH
Shares 8 RESERVE
How Net Asset Value is Determined 10 TRUST
Dividends 10
Tax Treatment of Dividends 10
Shareholder Services 11
Investing through Tax-Deferred
Retirement Accounts and Plans 13
The Trust's Board of Trustees and
Manager 13
The Trust's Investment Adviser 13
The Trust's Distributor 13
The Trust's Custodian and Transfer
Agent 14
Description of the Trust and its
Shares 14 PUTTING YOUR FUTURE FIRST
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc. (Legg Mason Funds Logo)
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 M Street, N.W., Washington, DC 20036
INDEPENDENT AUDITORS:
Ernst & Young LLP
One North Charles Street, Baltimore, MD 21201
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE TRUST OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
LMF-017
<PAGE>
THE LEGG MASON CASH RESERVE TRUST
PROSPECTUS
Legg Mason Cash Reserve Trust ("Trust") is a no-load, open-end,
diversified management investment company investing in money market
instruments to achieve stability of principal and current income
consistent with stability of principal. AN INVESTMENT IN THE TRUST IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. WHILE THE TRUST
SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN
BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
This Prospectus concisely sets forth information about the Trust you
should read and know before you invest in the Trust. Keep this Prospectus
for future reference.
The Trust has also filed a Statement of Additional Information dated
December 31, 1995 with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information, as
amended from time to time, is incorporated by reference in this
Prospectus. You may request a copy of the Statement of Additional
Information free of charge or obtain other information or make inquiries
about the Trust by contacting Legg Mason Wood Walker, Incorporated ("Legg
Mason") (address and telephone numbers listed at right).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: December 31, 1995
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
THE LEGG MASON CASH RESERVE TRUST
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
FUND TYPE:
The Trust is a no-load money market fund. You may purchase or redeem
shares of the Trust through a brokerage account with Legg Mason or certain
of its affiliates. See "How You Can Invest in the Trust," page 7, and "How
You Can Redeem Your Trust Shares," page 8.
INVESTMENT OBJECTIVE AND POLICIES:
The Trust's investment objective is stability of principal and current
income consistent with stability of principal. The Trust pursues this
investment objective by investing in a portfolio of high-quality money
market instruments maturing in one year or less. Of course, there can be
no assurance that the Trust will achieve its objective. See "The Trust's
Investment Objective and Policies," page 5.
NET ASSETS:
Over $1.1 billion as of November 30, 1995
DISTRIBUTOR :
Legg Mason Wood Walker, Incorporated
MANAGER AND ADVISER :
Legg Mason Fund Adviser, Inc. serves as the Trust's manager and
Western Asset Management Company serves as investment adviser to the
Trust.
TRANSFER AND SHAREHOLDER SERVICING AGENT :
Boston Financial Data Services
CUSTODIAN:
State Street Bank and Trust Company
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 11.
YIELD:
Based on current money market rates; quoted in the financial section
of most newspapers.
DIVIDENDS:
Declared daily and paid monthly. See "Dividends," page 10.
REINVESTMENT :
All dividends are automatically reinvested in Trust shares unless cash
payments are requested.
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$500 minimum, generally.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. See "How You Can
Invest in the Trust," page 7.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value, which the Trust seeks to maintain at $1.00 per share.
CHECKWRITING:
Available to qualified shareholders upon request.
Unlimited number of checks
Minimum amount per check: $500
2
<PAGE>
TRUST EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in the Trust
will bear directly or indirectly. The expenses and fees set forth in the
table are based on average net assets and annual Trust operating expenses
for the year ended August 31, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.49 %
12b-1 fees None
Other expenses 0.22 %
Total operating expenses 0.71 %
</TABLE>
For further information concerning Trust expenses, please see "The
Trust's Board of Trustees and Manager," page 13.
EXAMPLE OF EFFECT OF TRUST EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. As noted in
the table above, the Trust charges no redemption fees of any kind.
<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$7 $23 $40 $88
</TABLE>
This example assumes that all dividends are reinvested and that the
percentage amounts listed under "Annual Trust Operating Expenses" remain
the same over the time periods shown. The above tables and the assumption
in the example of a 5% annual return are required by regulations of the
SEC applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS
NOT A PREDICTION OF, AND DOES NOT REPRESENT, THE TRUST'S PROJECTED OR
ACTUAL PERFORMANCE. THE ABOVE TABLE AND EXAMPLE SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The Trust's actual expenses
will depend upon, among other things, the level of average net assets, the
levels of sales and redemptions of shares, and the extent to which the
Trust incurs variable expenses, such as transfer agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for each of the ten years in the period ended
August 31, 1995 have been derived from financial statements which have been
audited by Ernst & Young LLP, independent auditors. The Trust's financial
statements for the year ended August 31, 1995 and the report of Ernst &
Young LLP thereon are included in the Trust's annual report and are
incorporated by reference in the Statement of Additional Information. The
annual report is available to shareholders without charge by calling your
Legg Mason or affiliated investment executive or Legg Mason's Funds
Marketing Department at 800-822-5544.
<TABLE>
<CAPTION>
For the Years Ended August 31,
1995 1994 1993 1992 1991 1990 1989 1988* 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .05 .03 .03 .04 .06 .08 .08 .06 .06
Net realized gain
(loss) on
investments Nil (Nil) -- Nil -- -- -- -- --
Total from investment
operations .05 .03 .03 .04 .06 .08 .08 .06 .06
Dividends paid from:
Net investment
income (.05) (.03) (.03) (.04) (.06) (.08) (.08) (.06) (.06)
Realized gain on
investments -- -- -- (Nil) -- -- -- -- --
Net asset value, end
of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return 5.08% 3.08% 2.85% 4.37% 6.41% 8.03% 8.56% 6.56% 5.69%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Expenses .71% .72% .76% .75% .74% .74% .88% .84% .83%
Net investment income 5.03% 3.05% 2.82% 4.11% 6.26% 7.73% 8.30% 6.45% 5.50%
Net assets, end of
year (in thousands) $1,153,130 $786,321 $754,996 $733,789 $860,954 $923,249 $723,662 $436,759 $321,109
</TABLE>
<TABLE>
<CAPTION>
1986
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $1.00
Net investment income .07
Net realized gain
(loss) on
investments --
Total from investment
operations .07
Dividends paid from:
Net investment
income (.07)
Realized gain on
investments --
Net asset value, end
of year $1.00
Total return 6.64%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Expenses .89%
Net investment income 6.58%
Net assets, end of
year (in thousands) $279,188
</TABLE>
* ON JULY 18, 1988, THE RESPONSIBILITY FOR THE TRUST'S MANAGEMENT WAS
TRANSFERRED FROM LM RESEARCH LIMITED PARTNERSHIP TO LEGG MASON FUND
ADVISER, INC. AND WESTERN ASSET MANAGEMENT COMPANY. SEE "THE TRUST'S
BOARD OF TRUSTEES AND MANAGER," AND "THE TRUST'S INVESTMENT ADVISER,"
PAGE 13.
4
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Trust may quote its yield, including a compound
effective yield, in advertisements or in reports or other communications
to shareholders. The Trust's "yield" refers to the income generated by an
investment in the Trust over a stated seven-day period. This income is
then "annualized." That is, the average daily net income generated by the
investment during that week is assumed to be generated each day over a
365-day period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but assumes that the income
earned by an investment is reinvested. The Trust's "effective yield" will
be slightly higher than the Trust's "yield" because of the compounding
effect of this assumed reinvestment.
Yield information may be useful in reviewing the Trust's performance
and for providing a basis for comparison with other investment
alternatives. However, since the calculation is based on past performance
and the Trust's yield changes in response to fluctuations in interest
rates and Trust expenses, any given yield quotation should not be
considered representative of the Trust's yield for any future period.
The Trust's yield for the seven-day period ended August 31, 1995 was
5.09%. The effective yield for the same period was 5.22%.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Trust is stability of principal and
current income consistent with stability of principal. While there is no
assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
Prospectus. The investment objective and the policies and limitations
described below, unless otherwise noted, are fundamental, which means they
cannot be changed without approval of shareholders.
The Trust attempts to stabilize the net asset value of a Trust share
at $1.00. In general, the market value of the fixed income instruments in
which the Trust invests will rise when interest rates decline and fall
when interest rates increase. To maintain its $1.00 net asset value, the
Trust pursues several practices intended to minimize the effect of
interest rate fluctuations. It invests in a portfolio of money market
instruments maturing in one year or less; it maintains the dollar-weighted
average maturity of the portfolio at 90 days or less; and it buys only
high-quality securities with minimal credit risk. The Trust, of course,
cannot guarantee a net asset value of $1.00 per share.
ACCEPTABLE INVESTMENTS
The Trust invests in high-quality money market instruments which
include, but are not limited to: (Bullet) instruments of domestic and
foreign banks and savings and loan institutions (such as certificates of
deposit, demand and time deposits, savings shares, and bankers'
acceptances, including Eurodollar certificates of deposit) if they have
capital, surplus and undivided profits of over $100,000,000, or if the
principal amount of the instrument is insured by the Federal Deposit
Insurance Corporation;
(Bullet) commercial paper rated A-1 by Standard & Poor's, Prime-1 by
Moody's Investors Service, Inc. or F-1 by Fitch Investors Service;
(Bullet) marketable obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and
(Bullet) repurchase agreements.
U.S. Government Obligations
The types of U.S. government obligations in which the Trust may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes and bonds) and obligations issued or guaranteed by
U.S. government
5
<PAGE>
agencies or instrumentalities. These securities are backed by:
(Bullet) the full faith and credit of the U.S. Treasury;
(Bullet) the issuer's right to borrow from the U.S. Treasury;
(Bullet) the discretionary authority of the U.S. Government to
purchase certain obligations of agencies or instrumentalities; or
(Bullet) the credit of the agency or instrumentality issuing the
obligations.
Certain agencies and instrumentalities in which the Trust may invest
may not always receive financial support from the U.S. Government.
Examples of such agencies are:
(Bullet) Federal Farm Credit Banks;
(Bullet) Federal Land Banks;
(Bullet) Federal Home Loan Banks;
(Bullet) Farmers Home Administration; and
(Bullet) Federal National Mortgage Association.
Repurchase Agreements
Repurchase agreements are agreements under which either U.S.
government obligations or high-quality 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 Trust by State Street Bank and Trust
Company ("State Street"), the Trust's custodian, 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 Trust bears a risk that the other party to a
repurchase agreement will default on its obligations and the Trust will be
delayed or prevented from exercising its rights to dispose of the
collateral securities, which may decline in value in the interim. The
Trust will enter into repurchase agreements only with financial
institutions determined by Western Asset Management Company ("Adviser") to
present minimal risk of default during the term of the agreement based on
guidelines which are periodically reviewed by the Board of Trustees.
Although not a fundamental investment limitation, the Trust will not enter
into repurchase agreements and certain time deposits of more than seven
days' duration if more than 10% of its total assets would be invested in
such agreements, deposits and other illiquid investments.
When-Issued and Delayed-Delivery Transactions
The Trust may enter into commitments to purchase short-term U.S.
government securities on a when-issued or delayed-delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. When the Trust purchases
securities on a when-issued or delayed-delivery basis, it immediately
assumes the risks of ownership, including the risk of price fluctuation.
The Trust engages in when-issued and delayed-delivery transactions only
for the purpose of acquiring portfolio securities consistent with the
Trust's investment objective and policies, not for investment leverage;
however, such trades may have an effect on the Trust that is similar to
leverage. In when-issued and delayed-delivery transactions, the Trust
relies on the seller to complete the transaction. The seller's failure to
do so may cause the Trust to miss an opportunity to acquire a desired
money market instrument.
INVESTMENT LIMITATIONS AND RISKS
The Trust will not:
(Bullet) invest more than 5% of its total assets in securities of one
issuer, except cash and cash items, repurchase agreements, and U.S.
government obligations (the Trust considers the type of bank obligations
it purchases as cash items; however, as a non-fundamental policy, the
Trust will apply the 5% limitation to bank obligations other than demand
deposits); or
(Bullet) purchase money market instruments if, as a result of such
purchase, more than 25% of the value of its total assets would be
invested in any one industry. However, investing in bank instruments (such
as time and demand deposits and certificates of deposit), U.S. government
obligations or instruments secured by these money market instruments, such
as repurchase agreements, shall not be considered investments in any one
industry.
In accordance with SEC requirements concerning money market funds, the
Trust has adopted the following non-fundamental investment policies, which
may be changed without shareholder approval: The money market instruments
purchased by the Trust will consist only of instruments that the Adviser
determines present minimal credit risks and are (1) rated in one of the
two highest rating categories by at least two nationally
6
<PAGE>
recognized statistical rating organizations ("NRSROs") (or one, if only
one NRSRO has rated the security) or, (2) if unrated, determined to be of
comparable quality by the Adviser pursuant to procedures adopted by the
Board of Trustees ("Eligible Securities"). The Trust may invest no more
than 5% of its total assets in securities that are Eligible Securities but
have not been rated in the highest short-term ratings category by at least
two NRSROs (or by one NRSRO if only one NRSRO has assigned the obligation
a short-term rating) or, if the obligations are unrated, determined by the
Adviser to be of comparable quality ("Second Tier Securities"). In
addition, the Trust will not invest more than 1% of its total assets or $1
million (whichever is greater) in the Second Tier Securities of a single
issuer.
To the extent the Trust purchases Eurodollar certificates of deposit
issued by foreign branches of U.S. banks, consideration will be given to
their domestic marketability, the lower reserve requirements normally
mandated for overseas banking operations, and the possible impact of
interruptions in the flow of international currency transactions. The
Trust has no reason to believe that these factors should presently serve
to inhibit the purchase by the Trust of these types of instruments.
Additional investment limitations are set forth in the Statement of
Additional Information under "Additional Information about Investment
Limitations and Policies."
HOW YOU CAN INVEST IN THE TRUST
You may purchase shares of the Trust through a brokerage account with
Legg Mason or with an affiliate that has a dealer agreement with Legg
Mason. (Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., a
financial services holding company.) Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Trust and answer any questions you may have. You should
complete documents which are available from your Legg Mason or affiliated
investment executive to invest in shares of the Trust through an
Individual Retirement Account ("IRA"), Self-Employed Individual Retirement
Plan ("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
The minimum initial investment in the Trust for each account,
including investments made by exchange from other Legg Mason funds, is
$1,000, and the minimum investment for each purchase of additional shares
is $500, except as noted below. Those investing through the Trust's Future
First Systematic Investment Plan, payroll deduction plans and plans
involving automatic transfer of funds from Legg Mason brokerage accounts,
accounts with other financial institutions and certain unit investment
trusts are subject to lower minimum initial and subsequent investments.
The Trust reserves the right to change the minimum amount requirements
at its discretion. You should always furnish your shareholder account
number when making additional purchases of shares of the Trust.
Initial investments in an IRA account established on behalf of a
nonworking spouse of a shareholder who has an IRA invested in the Trust
require a minimum amount of only $250. Subsequent investments in an IRA or
similar plan require a minimum amount of $100. However, once an account is
established, the minimum amount for subsequent investments will be waived
if an investment in an IRA or similar plan will bring the account total to
the maximum amount permitted under the Internal Revenue Code of 1986, as
amended ("Code"). The Trust reserves the right to change these minimum
amount requirements at its discretion.
There are four ways you can invest:
1. BY MAIL
Once you have opened an account with the Trust, you may purchase
shares in person or by mailing a check for $500 or more (payable to "Legg
Mason Cash Reserve Trust") to your Legg Mason or affiliated investment
executive.
2. BY TELEPHONE OR WIRE TRANSFER OF FUNDS
Once you have opened an account with the Trust, you may also purchase
shares by telephone, using available cash balances in your Legg Mason or
affiliated brokerage account, or by wire transfer of funds from your bank
directly to Legg Mason. Please contact any Legg Mason or affiliated
investment executive for further information. Wire transfers may be
subject to a service charge by your bank.
7
<PAGE>
3. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares in the Trust through the Future First
Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in the Trust of $50 or more by authorizing Boston
Financial Data Services ("BFDS"), the Trust's transfer agent, to prepare a
check each month drawn on your checking account. There is no minimum
initial investment. Please contact any Legg Mason or affiliated investment
executive for further information.
4. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares of the Trust. In addition, it
may be possible for dividends from certain unit investment trusts to be
invested automatically in Trust shares. Persons interested in establishing
such automatic investment programs should contact the Trust through any
Legg Mason or affiliated investment executive.
Shares of the Trust are issued at the net asset value next determined
after receipt of a purchase order and payment in proper form. Many
instruments in which the Trust invests must be paid for in immediately
available money called "federal funds." Therefore, payments received from
you for the purchase of shares in a form other than federal funds will
require conversion into federal funds before your purchase order may be
executed. For checks, this normally will take two days but may take up to
nine days. All checks are accepted subject to collection at full face
value in federal funds and must be drawn in U.S. dollars on a domestic
bank. Purchases made by telephone from available cash balances in your
Legg Mason or affiliated brokerage account or wire payments representing
federal funds will normally be completed on the same or the next business
day. If an order and payment in federal funds is received by your Legg
Mason or affiliated investment executive prior to 12:00 noon, Eastern
time, on any day that the New York Stock Exchange ("Exchange") is open,
the shares will be purchased and earn dividends on that day; if such an
order is received at 12:00 noon or later, or on days the Exchange is
closed, the shares will be purchased at the next determined net asset
value and will earn dividends on the next day the Exchange is open. See
"How Net Asset Value is Determined," page 10.
The Trust reserves the right to reject any order for shares of the
Trust or to suspend the offering of shares for a period of time.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares of the Trust, a shareholder account
is automatically established for you. Any shares that you purchase or
receive as a dividend will be credited directly to your account at the
time of purchase or receipt. No certificates are issued unless you
specifically request them in writing. Shareholders who elect to receive
certificates can redeem their shares only by mail. Certificates will be
issued in full shares only. No certificates will be issued for shares
prior to 15 business days after purchase of such shares by check unless
the Trust can be reasonably assured during that period that payment for
the purchase of such shares has been collected. Trust shares may not be
held in, or transferred to, an account with any brokerage firm other than
Legg Mason or its affiliates.
HOW YOU CAN REDEEM YOUR TRUST SHARES
All redemptions will be made in cash at the net asset value per share
next determined after the receipt by the Trust of a redemption request in
proper form either in writing or by telephone as described below. Requests
for redemption received after 12:00 noon, Eastern time, will be executed
on the next day the Exchange is open, at the net asset value next
determined. However, payment of redemption proceeds for shares purchased
by check and shares acquired through reinvestment of dividends on such
shares may be delayed for up to 10 days after receipt of the check in
order to allow time for the check to clear. Any of the following methods
may be used to redeem shares:
8
<PAGE>
1. REDEMPTION BY TELEPHONE
Telephone redemptions may be made by calling your Legg Mason or
affiliated investment executive. However, you may not redeem shares by
telephone for which certificates have been issued. The minimum amount for
telephone redemptions is $100 unless you require a lesser amount to
complete a transaction in your Legg Mason or affiliated brokerage account.
Proceeds of redemptions requested by telephone will be transmitted only to
you. They may be transferred by mail or wire, at your direction (see
below). Proceeds of redemptions authorized by telephone will be credited
directly to your Legg Mason or affiliated brokerage account the same day.
Checks representing redemption proceeds normally will be mailed within
three business days of redemption but may take longer (up to seven days in
some cases) if the Adviser believes that immediate payment could adversely
affect the Trust. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.) Wire transfers of proceeds to you
or your Legg Mason or affiliated brokerage account will normally be
transmitted the same day.
To make a telephone redemption, you should call your Legg Mason or
affiliated investment executive and provide your name, the Trust's name,
your Trust account number and the number of shares or dollar amount you
wish to redeem. In the event that you are unable to reach your Legg Mason
or affiliated investment executive by telephone, you may make a redemption
request by mail. There is no fee for telephone redemptions with the
exception of wire redemptions by telephone as described below.
You may request by telephone that your shares be redeemed and the
proceeds wired to your account at a commercial bank in the United States.
In order to initiate a wire redemption by telephone, you must inform your
Legg Mason or affiliated investment executive of the name and address of
your bank and your bank account number. If your designated bank is not a
member of the Federal Reserve System, the proceeds will be wired to a
member bank that has a correspondent relationship with your bank. The
failure of the member bank immediately to notify your bank of the wire
transfer could delay the crediting of redemption proceeds to your bank. An
$18 fee for using the wire redemption service will be deducted by Legg
Mason from the redemption proceeds that are wired to your bank.
The Trust will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Trust may request identifying
information from callers or employ identification numbers. The Trust may
be liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
2. REDEMPTION BY CHECK
The Trust offers a free checkwriting service that permits you to write
checks to anyone in amounts of $500 or more. The checks will be paid at
the time they are received by BFDS for payment by redeeming the
appropriate number of shares in your account; the shares will earn
dividends until the check clears BFDS for payment. Please contact your
Legg Mason or affiliated investment executive for further information
regarding this service.
3. REDEMPTION BY MAIL
You may request the redemption of your shares by sending a letter
signed by all of the registered owners of the account to: "Legg Mason
Cash Reserve Trust, c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476." Any stock certificates issued for the
shares must be surrendered at the same time. for your protection,
certificates, if any, should be sent by registered mail. On all
requests for the redemption of shares valued at $10,000 or more, or
when the proceeds of the redemption are to be paid to someone other
than you, your signature must have been guaranteed without
qualification by a national bank, a state bank, a member firm of a
principal stock exchange, or other entity described in Rule 17Ad-15
under the Securities Exchange Act of 1934. Legg Mason or its
affiliates may request further documentation from corporations,
executors, partnerships, administrators, trustees or custodians.
Checks normally will be mailed within three business days of receipt
of the proper redemption request to your address of record
or, in accordance with your written request, to some other person.
However, it may take longer (up to seven days in some cases) if the
Adviser believes that immediate payment could adversely affect the
Trust.
9
<PAGE>
4. REDEMPTION TO PAY FOR SECURITIES PURCHASES AT LEGG MASON
Legg Mason has established special redemption procedures for Trust
shareholders who wish to purchase stocks, bonds or other securities at
Legg Mason. You may place an order to buy securities through your Legg
Mason or affiliated investment executive and, in the absence of any
indication that you wish to make payment in another manner, Trust shares
will be redeemed on the settlement date for the amount due. Trust shares
may also be redeemed by Legg Mason to cover debit balances in your
brokerage account. Contact your Legg Mason or affiliated investment
executive for details.
Because of the relatively high cost of maintaining small accounts, the
Trust may elect to close any account with a current value due to
redemptions of less than $500, by redeeming all of the shares in the
account and mailing the proceeds to you. If the Trust elects to redeem the
shares in your account, you will be notified that your account is below
$500 and will be allowed 60 days in which to make an additional investment
in order to avoid having your account closed.
To redeem your Trust retirement account, a Distribution Request Form
must be completed and returned to Legg Mason Client Services for
processing. This form can be obtained through your Legg Mason or
affiliated investment executive or Legg Mason Client Services in
Baltimore, Maryland.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per share of the Trust is determined twice daily, as
of 12:00 noon, Eastern time, and the close of business of the Exchange
(normally 4:00 p.m., Eastern time), on every day that the Exchange is
open, by subtracting the Trust's liabilities from its total assets and
dividing the result by the number of shares outstanding. The Trust
attempts to maintain a per share net asset value of $1.00 by using the
amortized cost method of valuation. The Trust cannot guarantee that net
asset value will always remain at $1.00 per share.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on the payment dates in additional shares of the
Trust unless cash payments are requested by writing to a Legg Mason or
affiliated investment executive. Requests for payments of dividends in
cash must be received at least 10 days prior to a payment date in order to
be honored on that date.
In certain cases, you may reinvest your dividends in shares of another
Legg Mason fund. Please contact your Legg Mason or affiliated investment
executive for additional information about this option.
Since the Trust's policy is, under normal circumstances, to hold
portfolio securities to maturity and to value portfolio securities at
amortized cost, it does not expect to realize any capital gain or loss. If
the Trust does realize any net short-term capital gains, it will
distribute them at least once every 12 months.
TAX TREATMENT OF DIVIDENDS
The Trust intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income
(generally consisting of net investment income and any net short-term
capital gain) that is distributed to its shareholders. Such distributions
(whether paid in cash or reinvested in Trust shares) are taxable to the
Trust's shareholders (other than IRAs, Keogh Plans, SEPs, other qualified
retirement plans and other tax-exempt investors) as ordinary income to the
extent of the Trust's earnings and profits.
The Trust sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amount of all dividends
paid (or deemed paid) during that year. The Trust is required to withhold
31% of all dividends payable to any individuals and certain other
noncorporate shareholders who do not provide the Trust with a certified
taxpayer identification number or who otherwise are subject to backup
withholding.
The foregoing is only a summary of some of the important federal
income tax considerations generally affecting the Trust and its
shareholders; for further information, see the Statement of Additional
Information. In addition to federal income tax, you may also be subject to
state and local income taxes on dividends from the Trust, depending on the
laws of your home state and
10
<PAGE>
locality, though the portion of the dividends paid by the Trust
attributable to direct U.S. government obligations is not subject to state
and local income taxes in most jurisdictions. The Trust's annual notice to
shareholders regarding the amount of dividends identifies this portion.
Prospective shareholders are therefore urged to consult their tax advisers
with respect to the effects of this investment on their own tax
situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
As transfer agent for the Trust, BFDS maintains a share account for
each shareholder. Share certificates are not issued unless requested by
writing to a Legg Mason or affiliated investment executive.
An account statement will be sent to you monthly unless there has been
no activity in the account or you are purchasing shares through the Future
First Systematic Investment Plan or through automatic investments, in
which case an account statement will be sent quarterly. Reports will be
sent to shareholders at least semiannually showing the Trust's portfolio
and other information; the annual report will contain financial statements
audited by the Trust's independent auditors.
Shareholder inquiries should be addressed to "Legg Mason Cash Reserve
Trust, c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476."
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Trust account
of a minimum of $50 on a monthly basis if you are purchasing or already
own shares with a net asset value of $5,000 or more. Please contact your
Legg Mason or affiliated investment executive for further information.
LEGG MASON PREMIER ASSET MANAGEMENT ACCOUNT
Shareholders may participate in Legg Mason's Premier Asset Management
Account, which combines the Trust Account, a preferred customer VISA Gold
debit card, a Legg Mason brokerage account with margin borrowing
availability and unlimited checks with no minimum check amount. Other
services include automatic transfer of free credit balances in a
participant's brokerage account to the Trust account and automatic
redemption of Trust shares to offset debit balances in the participant's
brokerage account. Legg Mason charges an annual fee for the Premier Asset
Management Account, which is currently $85 for individuals and $100 for
corporations and businesses. For further information, contact your Legg
Mason or affiliated investment executive.
EXCHANGE PRIVILEGE
As a Trust shareholder, you are entitled to exchange your shares of
the Trust for shares of the following funds in the Legg Mason Family of
Funds, provided that such shares are eligible for sale in your state of
residence:
Legg Mason U.S. Government Money Market Portfolio
A money market fund seeking high current income consistent with
liquidity and conservation of principal.
Legg Mason Tax Exempt Trust, Inc.
A money market fund seeking high current income exempt from federal
income tax, preservation of capital and liquidity.
Legg Mason Value Trust, Inc.
A mutual fund seeking long-term growth of capital.
Legg Mason Special Investment Trust, Inc.
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
Legg Mason Total Return Trust, Inc.
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Legg Mason American Leading Companies Trust
A mutual fund seeking long-term capital appreciation and current
income consistent with prudent investment risk.
Legg Mason Global Equity Trust
A mutual fund seeking maximum long-term total return, by investing
primarily in common
11
<PAGE>
stocks of companies located in at least three different countries.
Legg Mason Global Government Trust
A mutual fund seeking capital appreciation and current income by
investing principally in debt securities issued or guaranteed by foreign
governments, the U.S. Government, their agencies, instrumentalities and
political subdivisions.
Legg Mason U.S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
Legg Mason Investment Grade Income Portfolio
A mutual fund seeking a high level of current income, primarily
through investment in a diversified portfolio of investment grade debt
securities.
Legg Mason High Yield Portfolio
A mutual fund primarily seeking a high level of current income and
secondarily, capital appreciation, by investing principally in
lower-rated, fixed-income securities.
Legg Mason Maryland Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income Trust(A,B)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
(A) Shares of these funds are sold with an initial sales charge.
(B) Effective August 1, 1995 through January 31, 1996, the sales charge will
be waived for all new accounts and subsequent investments into existing
accounts. After January 31, 1996, any exchanges of these shares will be
subject to the full sales charge, if any, since no sales charge will be
paid on shares purchased during this period.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Trust shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Trust shares you wish to redeem; except that no sales charge will
be imposed upon proceeds from the redemption of Trust shares to be
exchanged that were originally purchased by exchange from a fund on which
the same or higher initial sales charge previously was paid. There is no
charge for the exchange privilege, but the Trust reserves the right to
terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the Trust in one calendar year. To obtain
further information concerning the exchange privilege and prospectuses of
other Legg Mason funds, or to make an exchange, please contact your Legg
Mason or affiliated investment executive. To effect an exchange by
telephone, please call your Legg Mason or affiliated investment executive
with the information described in the section "How You Can Redeem Your
Trust Shares," page 8. Please read the Prospectus for the other fund(s)
carefully before you invest by exchange. The Trust reserves the right to
modify or terminate the exchange privilege upon 60 days' notice to
shareholders.
There is no assurance the money market funds will be able to maintain
a $1.00 share price. None of the funds is insured or guaranteed by the
U.S. Government.
12
<PAGE>
INVESTING THROUGH TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS
Investors who are considering establishing an IRA, Keogh Plan, SEP or
other qualified retirement plan may wish to consult their attorneys or tax
advisers with respect to individual tax questions. Your Legg Mason or
affiliated investment executive can make available to you forms of plans.
The option of investing in these accounts and plans
through regular payroll deductions may be arranged with Legg Mason and
your employer. Additional information with respect to these accounts and
plans is available upon request from any Legg Mason or affiliated
investment executive.
THE TRUST'S BOARD OF TRUSTEES AND MANAGER
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees.
MANAGER
Pursuant to a management agreement with the Trust, which was approved
by the Trust's Board of Trustees, Legg Mason Fund Adviser, Inc.
("Manager"), a wholly owned subsidiary of Legg Mason, Inc., serves as the
Trust's manager. The Manager manages the non-investment affairs of the
Trust, directs all matters related to the operation of the Trust and
provides office space and administrative staff for the Trust. The Manager
receives for its services a management fee calculated daily and payable
monthly at an annual rate equal to 0.50% of the first $500 million of the
Trust's average daily net assets, 0.475% of the next $500 million, 0.45%
of the next $500 million, 0.425% of the next $500 million, and 0.40% of
assets in excess of $2 billion. During the fiscal year ended August 31,
1995, the Trust paid the Manager, pursuant to the Management Agreement, a
fee equal to 0.49% of the Trust's average daily net assets.
The Manager acts as manager, investment adviser or consultant to
sixteen investment company portfolios which had aggregate assets under
management of approximately $5.1 billion as of November 30, 1995. The
Manager's address is 111 South Calvert Street, Baltimore, Maryland 21202.
THE TRUST'S INVESTMENT ADVISER
Western Asset Management Company, another wholly owned subsidiary of
Legg Mason, Inc., serves as investment adviser to the Trust pursuant to
the terms of an Investment Advisory Agreement with the Manager, which was
approved by the Trust's Board of Trustees. The Adviser acts as the
portfolio manager for the Trust and is responsible for the actual
investment management of the Trust, including the responsibility for
making decisions and placing orders to buy, sell or hold a particular
security. For these services, the Manager (not the Trust) pays the Adviser
a fee, computed daily and payable monthly, at an annual rate equal to 30%
of the fee received by the Manager.
The Adviser also renders investment advice to open-end investment
companies and one closed-end investment company, which together had
aggregate assets under management of approximately $ billion as of
November 30, 1995. The Adviser also renders investment advice to private
accounts with fixed income assets under management of approximately $
billion as of that date. The address of the Adviser is 117 East Colorado
Boulevard, Pasadena, California 91105.
THE TRUST'S DISTRIBUTOR
Legg Mason is the distributor of the Trust's shares pursuant to an
Underwriting Agreement with the Trust. The Underwriting Agreement
obligates Legg Mason to pay all expenses in connection with the offering
of shares of the Trust, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses, statements of
additional information and reports have been prepared, set in type and
mailed to existing shareholders at the Trust's expense, and for any
supplementary sales literature and advertising costs. Legg Mason receives
no compensation from the Trust for these expenses. The offering of shares
normally is continuous. Legg Mason is a wholly owned subsidiary of Legg
Mason, Inc., which is also the parent of the Manager and Adviser. Legg
Mason also assists BFDS with certain of its duties as transfer agent; for
the year ended August 31, 1995, Legg Mason received $518,547 for
performing such services in connection with the Trust.
The Chairman, President and Treasurer of the Trust are employed by
Legg Mason.
13
<PAGE>
THE TRUST'S CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105,
is custodian for the
securities and cash of the Trust. Boston Financial Data Services, P.O. Box
953, Boston, MA 02103, is transfer agent for Trust shares and
dividend-disbursing agent for the Trust.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated July 24, 1978. The Declaration of Trust
authorizes the Trust to issue an unlimited number of shares. Each share of
the Trust gives the shareholder one vote in trustee elections and other
matters submitted to shareholders for vote. Shares of the Trust are
fully-paid and non-assessable, and have no preemptive or conversion
rights.
The Trust does not hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's operation
and for the election of trustees under certain circumstances. Trustees may
be removed by the trustees or by shareholders at a special meeting. A
special meeting of the Trust will be called by the trustees upon the
written request of shareholders owning at least 10% of the Trust's
outstanding shares; shareholders wishing to call such a meeting should
submit a written request to the Trust at 111 South Calvert Street,
Baltimore, Maryland 21202, stating the purpose of the proposed meeting and
the matters to be acted upon.
14
<PAGE>
THE
LEGG MASON
CASH RESERVE TRUST
STATEMENT OF ADDITIONAL INFORMATION
Legg Mason Cash Reserve Trust ("Trust") is a no-load, open-end,
diversified management investment company investing in money market instruments
to achieve stability of principal and current income consistent with stability
of principal. In attempting to achieve this objective, the Trust's investment
adviser, Western Asset Management Company ("Adviser"), invests in a portfolio of
high-quality money market instruments maturing in one year or less. The Trust
attempts to maintain a stable net asset value per share of $1.00 and a
dollar-weighted average maturity of 90 days or less, although there can be no
assurance that it will always be able to do so.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Trust's Prospectus dated December 31, 1995
which has been filed with the Securities and Exchange Commission ("SEC"). A copy
of the Prospectus is available without charge from the Trust's distributor, Legg
Mason Wood Walker, Incorporated ("Legg Mason") (address and telephone numbers
listed below).
Dated: December 31, 1995
Legg Mason Wood Walker
Incorporated
111 South Calvert Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT
LIMITATIONS AND POLICIES
The Trust's investment objective is stability of principal and current
income consistent with stability of principal.
TYPES OF INVESTMENTS The Trust invests in high-quality money market instruments
that mature in one year or less and that include, but are not limited to, bank
instruments, commercial paper and variable rate demand master notes, U.S.
government obligations, repurchase agreements and instruments secured by any of
these obligations.
The above investment objective and policy cannot be changed without
approval of shareholders.
BANK INSTRUMENTS In addition to domestic bank obligations such as certificates
of deposit, demand and time deposits, savings shares and bankers' acceptances,
the Trust may invest in Eurodollar certificates of deposit issued by foreign
branches of U.S. or foreign banks.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to
secure what is considered to be an advantageous price and yield for the Trust.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Trust sufficient to make payment for the
securities to be purchased are maintained in a segregated account with the
Trust's custodian until the transaction is settled.
REVERSE REPURCHASE AGREEMENTS The Trust may enter into reverse repurchase
agreements to the extent permitted by its investment limitations. These
transactions are similar to borrowing cash. In a reverse repurchase agreement
the Trust transfers possession of a portfolio instrument to another person, such
as a financial institution or broker-dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Trust will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed-upon rate. The use of reverse
repurchase agreements may enable the Trust to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure such an
outcome.
When effecting reverse repurchase agreements, liquid assets in a
dollar amount sufficient to make payment for the obligations to be purchased are
maintained in a segregated account with the Trust's custodian until the
transaction is settled.
PORTFOLIO TURNOVER The Trust normally holds portfolio instruments to maturity
but may dispose of them prior to maturity if the Adviser believes it advisable.
Investing in short-term money market instruments will result in high portfolio
turnover. Because the cost of these transactions is small, this turnover is
not expected to adversely affect net asset value or yield to any significant
degree.
INVESTMENT LIMITATIONS The Trust has adopted certain fundamental investment
limitations, described below, which cannot be changed without approval of
shareholders.
1. SELLING SHORT AND BUYING ON MARGIN The Trust will not sell any money market
instruments short or purchase any money market instruments on margin but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of money market instruments.
2
<PAGE>
2. BORROWING MONEY The Trust will not borrow money except as a temporary measure
for extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets. In addition, the Trust may enter into
reverse repurchase agreements and otherwise borrow up to one-third of the value
of its total assets, including the amount borrowed, in order to meet redemption
requests without
immediately selling portfolio instruments. This latter practice is not for
investment leverage but solely to facilitate management of the portfolio by
enabling the Trust to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment.
The Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
However, during the period any reverse repurchase agreements are outstanding,
but only to the extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
3. PLEDGING ASSETS The Trust will not pledge any securities.
4. INVESTING IN COMMODITIES, MINERALS, OR REAL ESTATE The Trust will not invest
in commodities, commodity contracts, oil, gas, or other mineral programs, or
real estate, except that it may purchase money market instruments issued by
companies that invest in or sponsor such interests.
5. UNDERWRITING The Trust will not engage in underwriting of
securities issued by others.
6. LENDING CASH OR SECURITIES The Trust will not lend any of its assets, except
that it may purchase or hold money market instruments, including repurchase
agreements and variable amount demand master notes, permitted by its investment
objective and policies.
7. ACQUIRING SECURITIES The Trust will not acquire the voting securities of any
issuer. It will not invest in securities issued by any other investment company,
except as part of a merger, consolidation, or other acquisition. It will not
invest in securities of a company for the purpose of exercising control or
management.
8. DIVERSIFICATION OF INVESTMENTS The Trust will not purchase securities issued
by any one issuer having a value of more than 5% of the value of its total
assets except cash or cash items, repurchase agreements, and U.S. government
obligations. The Trust considers the type of bank obligations it purchases as
cash items (however, as a non-fundamental policy, the Trust will apply the 5%
limitation to bank obligations other than demand deposits).
9. CONCENTRATION OF INVESTMENTS The Trust will not purchase money market
instruments if, as a result of such purchase, more than 25% of the value of its
total assets would be invested in any one industry. However, investing in bank
instruments (such as time and demand deposits and certificates of deposit), U.S.
government obligations or instruments secured by these money market instruments,
such as repurchase agreements, shall not be considered investments in any one
industry.
10. INVESTING IN NEW ISSUERS The Trust will not invest more than 5% of the value
of its total assets in money market instruments of unseasoned issuers, including
their predecessors, that have been in operation for less than three years.
11. INVESTING IN FOREIGN SECURITIES The Trust will not invest in
foreign securities which are not publicly traded in the United States.
3
<PAGE>
12. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST The
Trust will not purchase or retain the securities of any issuer if the officers
and trustees of the Trust or its investment adviser owning individually more
than 1/2 of 1% of the issuer's securities together own more than 5% of the
issuer's securities.
13. DEALING IN PUTS AND CALLS The Trust will not invest in puts,
calls, straddles, spreads, or any combination of these.
14. INVESTING IN RESTRICTED SECURITIES The Trust will not invest in money market
instruments which are subject to restrictions on resale under federal securities
laws.
15. ISSUING SENIOR SECURITIES The Trust will not issue senior securities, except
as permitted by the investment objective and policies and investment limitations
of the Trust.
Except with respect to the 33-1/3% limitation on borrowing money, if
a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction.
The Trust did not borrow money or invest in reverse repurchase
agreements in excess of 5% of the value of its total assets during the last
fiscal year and, at present, has no intent to do so.
As noted above, the investment objective and fundamental investment
policies and limitations of the Trust, described in the preceding paragraphs and
in the Prospectus, may not be changed without the vote of the holders of a
majority of the Trust's outstanding voting securities. Under the Investment
Company Act of 1940, as amended ("1940 Act"), a "vote of a majority of the
outstanding voting securities" of the Trust means the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Trust or (2) 67% or
more of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
ADDITIONAL TAX INFORMATION
In order to continue to qualify for treatment as a regulated investment
company under the Internal Revenue Code of 1986, as amended, the Trust 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 must meet several additional requirements. Among these requirements
are the following: (1) at least 90% of the Trust's gross income each taxable
year must be derived from dividends, interest and gains from the sale or other
disposition of securities, or other income derived with respect to its business
of investing in securities; (2) the Trust must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities held
for less than three months; (3) at the close of each quarter of the Trust'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, 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 Trust's total assets; and (4) at the
close of each quarter of the Trust's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
government securities) of any one issuer.
The Trust will be subject to a nondeductible 4% 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 any capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
4
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are sold at their net asset value without a sales charge on days
the New York Stock Exchange ("Exchange") is open for business. The procedure for
purchasing shares of the Trust is explained in the Prospectus under "How You Can
Invest in the Trust".
Conversion to Federal Funds
It is the Trust's policy to be as fully invested as possible so
that maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal
funds. This conversion must be made before shares are purchased. Legg
Mason or Boston Financial Data Services
("BFDS") acts as the shareholders' agent in depositing checks and converting
them to federal funds, normally within two to nine business days of receipt of
checks.
A cash deposit made after the daily cashiering deadline of the Legg
Mason office in which the deposit is made will be credited to your Legg Mason
brokerage account ("Brokerage Account") on the next business day following the
day of deposit, and the resulting free credit balance will be invested on the
second business day following the day of receipt.
Redemption By Wire
The Trust redeems shares at the next computed net asset value after
Legg Mason receives the redemption request. Redemption procedures are explained
in the Prospectus under "How You Can Redeem Your Trust Shares". When payment for
shares is in the form of federal funds, the 10-day potential delay described
in the Prospectus does not apply.
Redemption in Kind
The Trust reserves the right, under certain conditions, to honor any
request for a redemption, or combination of requests from the same shareholder
in any 90-day period, totalling $250,000 or 1% of the net assets of the Trust,
whichever is less, by making payment in whole or in part by securities valued in
the same way as they would be valued for purposes of computing the Trust'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 Trust 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 shareholders as a whole.
Future First Systematic Investment Plan and Transfer of Funds from
Financial Institutions
When you purchase shares through the Future First Systematic Investment
Plan, BFDS, the Trust's transfer agent, will send a check each month to your
bank for collection and the proceeds of the check will be used to buy shares of
the Trust. Legg Mason, the Trust's distributor, will send an account statement
quarterly. The check also will be reflected on your regular checking account
statement. You may terminate the Future First Systematic Investment Plan
at any time without charge or penalty.
You may also buy additional shares of the Trust through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow you, on a pre-authorized basis, to have $50 or more
automatically transferred monthly for investment in shares of the Trust to:
Legg Mason Wood Walker, Incorporated
Funds Processing
5
<PAGE>
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution on which
it is drawn, the investor may be subject to extra charges in order to cover
collection costs. These charges may be deducted from the investor's account.
Systematic Withdrawal Plan
You may also elect to make systematic withdrawals from your Trust
account of a minimum of $50 on a monthly basis if you own shares with a net
asset value of $5,000 or more. The amounts paid to you each month are obtained
by redeeming sufficient shares from your account to provide the withdrawal
amount that you have specified. The Systematic Withdrawal Plan is not currently
available for shares held in an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan ("Keogh
Plan"), Simplified Employee Pension Plan ("SEP") 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 net asset value determined as
of the 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 net asset
value determined as of the close 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 distributions on all shares in your Trust account
must be automatically reinvested in Trust shares. You may terminate the
Systematic Withdrawal Plan at any time without charge or penalty. The Trust, its
transfer agent, Legg Mason and its affiliates 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. If the periodic withdrawals exceed reinvested dividends and
distributions, the amount of your original investment will be correspondingly
reduced.
Legg Mason Premier Asset Management Account/VISA Account
Shareholders of the Trust who have cash or negotiable securities
(including Trust shares) valued at $20,000 or more in accounts with Legg Mason
may subscribe to Legg Mason's Premier Asset Management Account ("Premier"). This
program provides a direct link between a shareholder's Trust account and his or
her Brokerage Account. Premier provides shareholders with a convenient method to
invest in the Trust through their Brokerage Account, which includes automatic
daily investment of free credit balances of $100 or more and automatic weekly
investment of free credit balances of less than $100.
Premier is a comprehensive financial service which combines a
shareholder's Trust account, a preferred customer VISA Gold debit card, a
Brokerage Account and unlimited checks with no minimum check amount. Premier is
offered as an exclusive preferred customer service for shareholders of certain
Legg Mason funds.
The VISA Gold debit card may be used to purchase merchandise or
services from merchants honoring VISA or to obtain cash advances (which a bank
may limit to $5,000 or less, per account per day) from any bank honoring VISA.
Checks, VISA charges and cash advances are posted to the shareholder's
margin account and create automatic same day redemptions if shares are available
in the Trust. If Trust shares have been exhausted, the debits will remain in the
margin account, reducing the cash available. The shareholder will receive one
6
<PAGE>
consolidated monthly statement which details all Trust transactions, securities
activity, check writing activity and VISA Gold purchases and cash advances.
BancOne Columbus ("BancOne"), 757 Carolyn Avenue, Columbus, Ohio 43271,
is the Trust's agent for processing payment of VISA Gold debit card charges and
clearance of checks written on the Premier account. Shareholders are subject to
BancOne's rules and regulations governing VISA accounts, including the right of
BancOne not to honor VISA drafts in amounts exceeding the authorization limit
of the shareholder's account at the time the VISA draft is presented for
payment. The authorization limit is determined daily by taking the
shareholder's Trust account balance and subtracting (1) all shares purchased by
other than federal funds wired within 15 days; (2) all shares for which
certificates have been issued; and (3) any previously authorized VISA
transaction.
PREFERRED CUSTOMER CARD SERVICES Unlike some other investment programs
which offer the VISA card privilege, Premier also includes travel/accident
insurance at no added cost when shareholders purchase travel tickets with their
Premier VISA Gold debit card. Coverage is provided through VISA and extends up
to $250,000.
If a VISA Gold debit card is lost or stolen, the shareholder should
report the loss immediately by contacting Legg Mason directly between the hours
of 8:30 a.m. and 5:00 p.m., or BancOne collect after hours at 1-614-248-4242.
Those shareholders who subscribe to the Premier VISA account privilege may be
liable for the unauthorized use of their VISA Gold debit card in amounts up to
$50.
Legg Mason is responsible for all Premier VISA Gold debit card
inquiries as well as billing and account resolutions. Simply call Legg Mason
Premier Client Services directly between 8:30 a.m. and 5:00 p.m., Eastern time,
at 1-800-253-0454 or 1-410-528-2066 with your account inquiries.
AUTOMATIC PURCHASES OF TRUST SHARES For shareholders participating in
the Premier program who sell shares held in their Brokerage Account, any free
credit balances of $100 or more resulting from any such sale will automatically
be invested in shares of the Trust on the same business day the proceeds of sale
are credited to the Brokerage Account. Free credit balances of less than $100
will be invested in Trust shares weekly.
Free credit balances arising from sales of Brokerage Account shares for
cash (i.e., same-day settlement), redemption of debt securities, dividend and
interest payments and cash deposits will be invested automatically in Trust
shares on the next business day following the day the transaction is credited to
the Brokerage Account.
Trust shares will receive the next dividend declared following purchase
(normally 12:00 noon, Eastern time, on the following business day). A purchase
order will not become effective until cash in the form of federal funds is
received by the Trust.
HOW TO OPEN A PREMIER ACCOUNT To subscribe to Premier services, clients
must contact Legg Mason to execute both a Premier Agreement with Legg Mason and
a VISA Account Application and Agreement with BancOne. Legg Mason charges a fee
for the Premier service, which is currently $85 per year for individuals and
$100 per year for businesses and corporations. Legg Mason reserves the right to
alter or waive the conditions upon which a Premier account may be opened. Both
Legg Mason and BancOne reserve the right to terminate or modify any
shareholder's Premier services at their discretion.
You may request Premier Account status by filling out the Premier Asset
Management Account Agreement and Check Application which can be obtained from
your investment executive. You will receive your VISA Gold debit card (if
applicable) from BancOne. The Premier VISA Gold debit card may be used at
7
<PAGE>
over 8 million locations, including 23,000 ATMs, in 24 countries around the
world. Premier checks will be sent to you directly. There is no limit on the
number of checks you may write against your Premier account.
Shareholders should be aware that the various features of the Premier
program are intended to provide easy access to assets in their accounts and that
the Premier account is not a bank account. Additional information about the
Premier program is available by calling your investment executive or Legg
Mason's Premier Client Services.
Other Information Regarding Redemption
The Trust reserves the right to modify or terminate the check, wire,
telephone or VISA Gold card redemption services described in the Prospectus and
this Statement of Additional Information at any time.
You may request the Trust's checkwriting service by sending a written
request to Legg Mason. State Street Bank and Trust Company ("State Street"), the
Trust's custodian, will supply you with checks which can be drawn on an account
of the Trust maintained with State Street. When honoring a check presented for
payment, the Trust will cause State Street to redeem exactly enough full and
fractional shares from your account to cover the amount of the check. Cancelled
checks will be returned to you.
Check redemption is subject to State Street's rules and regulations
governing checking accounts. Checks should not be used to close a Trust account
because when the check is written you will not know the exact total value of the
account, including accrued dividends, on the day the check clears. Persons
obtaining certificates for their shares may not use the checkwriting service.
The date of payment for a redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended except (1) for
any periods during which the Exchange is closed (other than for customary
weekend and holiday closings), (2) when trading in markets the Trust normally
utilizes is restricted, or an emergency, as defined by rules and regulations
of the SEC, exists, making disposal of the Trust's investments or
determination of its net asset value not reasonably practicable, or (3) for
such other periods as the SEC by regulation or order may permit for protection
of the Trust'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.
Although the Trust may elect to redeem any shareholder account with a
current value of less than $500, the Trust will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS
In general, income earned through the investment of assets of
qualified retirement accounts and plans is not taxed to the beneficiaries
thereof until the income is distributed to them. Investors who are considering
establishing such an account or plan should consult their attorneys or tax
advisers with respect to individual tax questions. The option of investing in
these accounts or plans through regular payroll deductions may be arranged with
a Legg Mason or affiliated investment executive and your employer. Additional
information with respect to these accounts or plans is available upon request
from any Legg Mason or affiliated investment executive.
8
<PAGE>
Individual Retirement Account - IRA
Certain investors may obtain tax advantages by establishing IRAs.
Specifically, 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, 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. 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 $2,250 to the two IRAs, provided that the contribution to either
does not exceed $2,000. If you and your spouse are both employed and neither of
you is an active participant in a qualified employer or government retirement
plan and you establish separate IRAs, you each may contribute all of your earned
income, up to $2,000 each, and thus may together receive tax deductions of up to
$4,000 for contributions to your IRAs. If your employer's plan qualifies as a
SEP, permits voluntary contributions and meets certain other requirements, you
may make voluntary contributions to that plan that are treated as deductible IRA
contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in shares of the Trust through
IRA contributions up to certain limits, because all dividends on your Trust
shares are then not immediately taxable to you or the IRA; they become taxable
only when distributed to you. To avoid penalties, your interest in an IRA must
be distributed, or start to be distributed, to you not later than the end of the
taxable year in which you attain age 70-1/2. Distributions made before age
59-1/2, in addition to being taxable, generally are subject to a penalty equal
to 10% of the distribution, except in
the case of death or disability, when the distribution is rolled over into
another qualified plan or certain other situations.
Self-Employed Individual Retirement Plan - Keogh Plan
Legg Mason makes available to self-employed individuals a Plan and
Trustee Agreement for a Keogh Plan through which shares of the Trust may be
purchased. Investors have the right to use a bank of their own choice to provide
these services at their own cost. There are penalties for distributions from a
Keogh Plan prior to age 59-1/2, except in the case of death or disability.
Simplified Employee Pension Plan - SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in shares of the Trust.
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 or
withholding at the rate of 10% (depending on the type and amount of the
distribution), unless the recipient elects not to have any withholding apply.
Investors should consult their plan administrator or tax adviser for further
information.
VALUATION OF SHARES
The Trust attempts to stabilize the value of a share at $1.00.
Net asset value will not be calculated on days when the Exchange is
closed. The Exchange currently observes the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
9
<PAGE>
USE OF THE AMORTIZED COST METHOD The trustees have decided that the
best method for determining the value of portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the acquisition
cost as adjusted for amortization of premium or accretion of discount rather
than at current market value. The Board of Trustees continually assesses this
method of valuation.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with Rule 2a-7 under the 1940 Act. Under
that Rule, the trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Trust's investment objective.
Under the Rule, the Trust is permitted to purchase instruments which
are subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Trust to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals, not exceeding one year, on no more than 30 days'
notice. A standby commitment entitles the Trust to achieve same day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques that
are defined as "puts" under the Rule, the Trust does not consider them to be
"puts" as that term is used in the Trust's investment limitations. Demand
features and standby commitments are features which enhance an instrument's
liquidity, and the investment limitation which proscribes puts is designed to
prohibit the purchase and sale of put and call options and is not designed to
prohibit the Trust from using techniques which enhance the liquidity of
portfolio instruments.
MONITORING PROCEDURES The Trust's procedures include monitoring the
relationship between the amortized cost value per share and net asset value per
share based upon available indications of market value. If there is a difference
of more than 0.5% between the two, the trustees will take any steps they
consider appropriate (such as shortening the dollar-weighted average portfolio
maturity) to minimize any material dilution or other potentially unfair results
arising from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS Rule 2a-7 requires the Trust, if it wishes to
value its assets at amortized cost, to limit its investments to instruments
that, (i) in the opinion of the Adviser, present minimal credit risk and (ii)(a)
are rated in the two highest rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs")(or one, if only one NRSRO
has rated the security) or, (b) if unrated, are determined to be of comparable
quality by the Adviser, all pursuant to procedures determined by the Board of
Trustees ("Eligible Securities"). The Trust may invest no more than 5% of its
total assets in securities that are Eligible Securities but have not been rated
in the highest short-term ratings category by at least two NRSROs (or by one
NRSRO, if only one NRSRO has assigned the obligation a short-term rating) or, if
the obligations are unrated, determined by the Adviser to be of comparable
quality ("Second Tier Securities"). In addition, the Trust will not invest more
than 1% of its total assets or $1 million (whichever is greater) in the Second
Tier Securities of a single issuer. The Rule requires the Trust to maintain a
dollar-weighted average portfolio maturity appropriate to the objective of
maintaining a stable net asset value of $1.00 per share and in any event not
more than 90 days. While Rule 2a-7 allows the Trust to purchase securities with
remaining maturities not to exceed 397 days, under the Trust's investment
policies, no instrument with a remaining maturity of more than one year can be
purchased by the Trust. The Trust may hold securities with maturities greater
than one year as collateral for repurchase agreements and other collateralized
transactions of short duration. Certain variable rate securities in which the
Trust invests may have a remaining maturity of more than one year. However,
pursuant to regulations of the SEC, the Trust is permitted to treat these
securities as having a maturity of no more than one year.
10
<PAGE>
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90 days or less as
soon as possible.
It is the Trust's usual practice to hold portfolio securities to
maturity and realize par, unless the Adviser determines that sale or other
disposition is appropriate in light of the Trust's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Trust, computed by dividing the annualized daily income on the
Trust's investment portfolio by the net asset value computed as above, may tend
to be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Trust computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
HOW THE TRUST'S YIELD IS CALCULATED
The current annualized yield for the Trust is based on a seven-day
period and is computed by determining the net change in the value of a
hypothetical account in the Trust. The net change in the value of the account
includes the value of dividends and of additional shares purchased with
dividends, but does not include gains and losses or unrealized appreciation and
depreciation. In addition, the Trust may use a compound effective annualized
yield quotation which is calculated as prescribed by SEC regulations, by adding
one to the base period return (calculated as described above), raising the sum
to a power equal to 365 divided by 7, and subtracting one.
The Trust's yield may fluctuate daily depending upon such factors as
the average maturity of its securities, changes in investments, changes in
interest rates and variations in operating expenses. Therefore, current yield
does not provide a basis for determining future yields. The fact that the
Trust's current yield will fluctuate and that shareholders' principal is not
guaranteed or insured should be considered in comparing the Trust's yield with
yields on fixed-income investments, such as insured savings certificates. In
comparing the yield of the Trust to other investment vehicles, consideration
should be given to the investment policies of each, including the types of
investments owned, lengths of maturities of the portfolio, the method used to
compute the yield and whether there are any special charges that may reduce the
yield.
Other Information
The Trust's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to predict or indicate future results. The return on an investment in
the Trust will fluctuate. In Performance Advertisements, the Trust may compare
its taxable yield with data published by Lipper Analytical Services, Inc. for
money funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Morningstar Mutual Funds
("Morningstar") or Wiesenberger Investment Companies Service ("Wiesenberger") or
with the performance of recognized stock and other indexes, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"),
the Dow Jones Industrial Average ("Dow Jones") and the Consumer Price Index as
published by the U.S. Department of Commerce. The types of securities in which
the Trust invests are different from those included in the Standard & Poor's and
Dow Jones indices which track the performance of the equity markets. The S&P 500
and Dow Jones are accepted as broad-based measures of the equity markets.
Calculation of those indices assumes reinvestment of dividends and
11
<PAGE>
ignores brokerage costs and the tax consequences of investing. The Trust
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper,
CDA, Donoghue, Morningstar or Wiesenberger. Performance Advertisements also may
refer to discussions of the Trust and comparative mutual fund data and ratings
reported in independent periodicals, including (but not limited to) THE WALL
STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD,
BARRON'S, THE NEW YORK TIMES and FORTUNE.
The Trust may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing the Trust's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or part by an agency of the U.S.
Government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Trust shares are not insured or guaranteed
by the U.S. Government or any agency thereof and returns thereon will fluctuate.
While the Trust seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that it will be able to do so.
In advertising, the Trust 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 Trust may use other recognized,
sources as they become available.
The Trust may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.
The Trust 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
the performance of bonds is represented by a nationally recognized bond index,
such as the Lehman Brothers Long-Term Government Bond Index.
The Trust may also include in advertising biographical information on
key investment and managerial personnel.
The Trust 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 grown to provided a full spectrum of
financial services. Legg Mason affiliates serve as investment advisors for
private accounts and mutual funds with assets of more than $27 billion as of
September 30, 1995.
In advertising, the Trust 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.
12
<PAGE>
MASSACHUSETTS TRUST LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust's Declaration of Trust, filed with the Commonwealth of
Massachusetts, expressly disclaims the liability of its shareholders for acts or
obligations of the Trust. The Declaration requires notice of this disclaimer to
be given in each agreement, obligation or instrument the Trust or its trustees
enter into or sign.
In the unlikely event a shareholder, based on the mere fact of being a
shareholder, is held personally liable for the Trust's obligations, the Trust is
required to use its property to protect or compensate the shareholder. On
request, the Trust will defend any claim made, and pay any judgment, against
such a shareholder for any act or obligation of the Trust. Therefore, financial
loss resulting from liability as a shareholder will occur only if the Trust
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
THE TRUST'S TRUSTEES AND OFFICERS
The Trust's officers are responsible for the operation of the Trust
under the direction of the Board of Trustees. The officers and trustees of the
Trust and their principal occupations during the past five years are set forth
below. An asterisk(*) indicates officers and/or trustees who are "interested
persons" of the Trust, as defined in the 1940 Act. The address of each officer
and trustee is 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
JOHN F. CURLEY, JR.*, [56] Chairman of the Board, President and
Trustee; Vice Chairman and Director of Legg Mason Wood Walker, Inc. and Legg
Mason, Inc.; Director of Legg Mason Fund Adviser, Inc. and Western Asset
Management Company (each a registered investment adviser); Officer and/or
Director of various other affiliates of Legg Mason, Inc.; Chairman of the Board
and Director of four other Legg Mason funds; President and Director of three
Legg Mason funds; Chairman of the Board and Trustee of one other Legg Mason
fund.
CHARLES F. HAUGH, [70] Trustee; 14201 Laurel Park Drive, Ste. 208,
Laurel, Maryland. Real Estate Developer and Investor; President and Director of
Resource Enterprises, Inc. (real estate brokerage); Partner in Greater Laurel
Health Park Ltd. Partnership (real estate investment and development); Chairman
of Resource Realty LLC (management of retail and office space); Director of
seven other Legg Mason funds; and Trustee of one other Legg Mason fund.
ARNOLD L. LEHMAN, [52] Trustee; The Baltimore Museum of Art, Art Museum
Drive, Baltimore, Maryland. Director of The Baltimore Museum of Art; Director of
seven other Legg Mason funds; Trustee of one other Legg Mason fund.
13
<PAGE>
JILL E. McGOVERN, [51] Trustee; 1500 Wilson Blvd., Arlington, Virginia.
Chief Executive Officer of the Marrow Foundation. Director of seven other Legg
Mason funds; Trustee of one other Legg Mason fund. Formerly: Executive Director
of the Baltimore International Festival (January, 1991-March, 1993); Senior
Assistant to the President of the Johns Hopkins University (1986-1991).
The executive officers of the Trust, other than those who also serve as
trustees, are:
MARIE K. KARPINSKI*, [46] Vice President and Treasurer; Treasurer of
Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of eight other
Legg Mason funds and Vice President, Secretary and Treasurer of Worldwide
Value Fund, Inc.; Vice President of Legg Mason Wood Walker, Inc.
KATHI D. BAIR*, [31] Secretary; Secretary and Assistant Treasurer of
three other Legg Mason funds; Secretary of one other Legg Mason fund and
Assistant Secretary of two other Legg Mason funds.
Officers and trustees of the Trust who are interested persons of the
Trust receive no salary or fees from the Trust. Those trustees who are not
interested persons of the Trust receive a fee of $400 annually for serving
as a trustee, and a fee of $400 for each meeting of the Board of Trustees
attended by him or her.
The Nominating Committee of the Board of Trustees is responsible for
the selection and nomination of disinterested trustees. The Committee is
composed of Messrs. Haugh and Lehman and Dr. McGovern, each of whom is a
disinterested trustee as that term is defined in the 1940 Act.
At August 31, 1995, the trustees and officers of the Trust
beneficially owned, in the aggregate, less than 1% of the Trust's outstanding
shares.
TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
The following table provides certain information relating to the
compensation of the Trust's trustees for the fiscal year ended August 31, 1995.
14
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Aggregate Accrued as Part Estimated Annual From Trust and
Name of Person and Compensation of Trust's Benefits Upon Fund Complex
Position From Trust* Expenses Retirement Paid to Trustees**
<S> <C> <C> <C> <C>
John F. Curley, Jr. -
Chairman of the Board
and Trustee None N/A N/A None
Charles F. Haugh -
Director $2,000 N/A N/A $23,600
Arnold L. Lehman -
Director $2,000 N/A N/A $23,600
Jill E. McGovern -
Director $2,000 N/A N/A $23,600
========================= ===================== ================= =================== =====================
</TABLE>
* Represents fees paid to each trustee during the fiscal year ended
August 31, 1995.
** Represents aggregate compensation paid to each trustee during the
calendar year ended December 31, 1995.
15
<PAGE>
MANAGEMENT AGREEMENT
Legg Mason Fund Adviser, Inc. ("Manager"), 111 South Calvert Street,
Baltimore, Maryland 21202, is a wholly owned subsidiary of Legg Mason, Inc.
which is also the parent of Legg Mason Wood Walker, Incorporated. The Manager
serves as the manager for the Trust under a Management Agreement dated July 18,
1988, which provides that, subject to the overall direction by the Board of
Trustees, the Manager will manage the investment and other affairs of the Trust.
Under the Management Agreement, the Manager is responsible for managing the
Trust's securities and for making purchases and sales of securities consistent
with the investment objectives and policies described in the Trust's Prospectus
and this Statement of Additional Information. The Manager has delegated the
portfolio management functions for the Trust to the adviser, Western Asset
Management Company ("Adviser"). The Manager is obligated to furnish the Trust
with office space and certain administrative services, as well as executive and
other personnel necessary for the operation of the Trust. The Manager and its
affiliates also are responsible for the compensation of trustees and officers of
the Trust who are employees of the Manager and/or its affiliates.
The Manager receives for its services a management fee, calculated daily
and payable monthly, based upon the average daily net assets of the Trust as
follows: 0.50% on the first $500 million; 0.475% on the next $500 million; 0.45%
on the next $500 million; 0.425% on the next $500 million and 0.4% thereafter.
The management fee paid by the Trust may be reduced under state regulations that
impose limitations on the annual expense ratio of the Trust. The most
restrictive state limitation of which the Trust is aware currently requires that
the Manager reimburse the Trust for certain expenses, including the management
fees received by it (but, in the Manager's opinion, excluding interest, taxes,
brokerage fees and commissions, distribution fees and certain extraordinary
charges), in any fiscal year in which the Trust's expenses exceed 2.5% of the
first $30 million of the Trust's average net assets, 2.0% of the next $70
million of average net assets, and 1.5% of average net assets in excess of $100
million. No reimbursements have been made nor have any been required to be made
pursuant to this undertaking. During the fiscal years ended August 31, 1995,
1994 and 1993, the Trust paid $4,640,893, $3,848,651 and $3,689,675
respectively, to the Manager. During the fiscal years ended August 31,
1995 and 1994, Legg Mason contributed $480,000 and $1,100,000,
respectively, to offset a portion of the Trust's net realized losses.
Under the Management Agreement, the Manager will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of the Management Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or losses resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties or from reckless
disregard of its obligations or duties under the Agreement.
The Management Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Trust's Board of Trustees,
by vote of a majority of the outstanding voting securities or by the Manager, on
not less than 60 days' notice to the other party, and may be terminated
immediately upon the mutual written consent of the Manager and the Trust.
The Trust pays all of its expenses which are not expressly assumed by the
Manager. These expenses include, among others, interest expense, taxes,
brokerage fees and commissions, expenses of preparing and printing prospectuses,
statements of additional information, proxy statements and reports and of
distributing them to existing shareholders, custodian charges, transfer agency
fees, compensation of the independent trustees, legal and audit expenses,
insurance expenses, expenses of registering and qualifying shares of the Trust
for sale under federal and state law, governmental fees and expenses incurred in
connection with membership in investment company organizations. The Trust also
is obligated to pay the expenses for maintenance of its financial books and
records, including computation of the Trust's net asset value per share, and
dividends. The Trust also is liable for such nonrecurring expenses as may arise,
including litigation to
16
<PAGE>
which the Trust may be a party. The Trust may also have an obligation to
indemnify the trustees and officers of the Trust with respect to litigation.
Under the Management Agreement, the Trust 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 the Manager.
INVESTMENT ADVISORY AGREEMENT
The Adviser, Western Asset Management Company, 117 East Colorado Boulevard,
Pasadena, CA 91105, an affiliate of Legg Mason, serves as investment adviser to
the Trust under an Investment Advisory Agreement dated July 18, 1988, between
the Adviser and the Manager ("Advisory Agreement"). The Advisory Agreement was
most recently approved by the Board of Trustees, including a majority of the
trustees who are not "interested persons" of the Trust, the Adviser or the
Manager, on October 27, 1995. Under the Advisory Agreement, the Adviser is
responsible, subject to the general supervision of the Manager and the Trust's
Board of Trustees, for the actual management of the Trust's assets, including
the responsibility for making decisions and placing orders to buy, sell or hold
a particular security. For the Adviser's services to the Trust, the Manager (not
the Trust) pays the Adviser a fee, computed daily and payable monthly, at an
annual rate of 30% of the fee received by the Manager from the Trust. During the
years ended August 31, 1995, 1994 and 1993, the Manager paid the Adviser
$1,392,268, $1,154,595 and $1,106,903, respectively, pursuant to the Advisory
Agreement.
Under the Advisory Agreement, the Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Manager or by the
Trust in connection with the performance of the Advisory 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 by it of its obligations or duties under the Agreement.
The Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Trust's Board of Trustees,
by vote of a majority of the Trust's outstanding voting securities, by the
Manager or by the Adviser, on not less than 60 days' notice to the Trust and/or
the other party(ies). The Advisory Agreement will be terminated immediately upon
any termination of the Management Agreement or upon the mutual written consent
of the Adviser, the Manager and the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, the Adviser is responsible for the execution
of portfolio transactions. Debt securities are generally traded on a "net" basis
without a stated commission, through dealers acting for their own account and
not as brokers. Prices paid to a dealer in debt securities will generally
include a "spread", which is the difference between the prices at which the
dealer is willing to purchase and sell the specific security at the time, and
includes the dealer's normal profit. Some portfolio transactions may be executed
through brokers acting as agents. In selecting brokers or dealers, the Adviser
must seek the most favorable price (including the applicable dealer spread) and
execution for such transactions, subject to the possible payment as described
below of higher brokerage commissions for agency transactions to brokers who
provide research and analysis. The Trust may not always pay the lowest
commission or spread available. Rather, in placing orders on behalf of the
Trust, the Adviser also takes into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below) and any risk assumed by the executing
broker. The Trust paid no brokerage commissions, nor did it allocate any
transactions to dealers for research, analysis, advice or similar services
during any of its last three fiscal years.
Consistent with the policy of most favorable price and execution, the
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place
17
<PAGE>
orders with brokers who provide supplemental investment and market research
and securities and economic analysis, and, for agency transactions, may pay to
these broker-dealers a higher brokerage commission or spread than may be charged
by other brokers. Such research and analysis may be useful to the Adviser in
connection with services to clients other than the Trust. The Adviser's fee is
not reduced by reason of its receiving such brokerage and research services.
The Trust may not buy securities from, or sell securities to, Legg Mason or
its affiliated persons as principal. However, the Trust's Board of Trustees has
adopted procedures in conformity with Rule 10f-3 under the 1940 Act whereby the
Trust may purchase securities that are offered in underwritings in which Legg
Mason or any of its affiliated persons is a participant.
Investment decisions for the Trust are made independently from those of
other funds and accounts advised by the Adviser. 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 Trust may not always hold portfolio securities to maturity, but may
sell a security to buy another which has a higher yield because of short-term
market movements. This may result in high portfolio turnover. The Trust does not
anticipate incurring significant brokerage expense in connection with such
transactions, since ordinarily they will be made directly with the issuer or a
dealer on a net price basis.
THE TRUST'S CUSTODIAN AND TRANSFER AND
DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 179013, Boston, MA 02105
serves as custodian of the Trust's assets. Boston Financial Data Services, P.O.
Box 953, Boston, MA 02103 serves as transfer and dividend-disbursing agent and
administrator of various shareholder services.
THE TRUST'S LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 M Street, N.W., Washington, D.C. 20036,
serves as counsel to the Trust.
THE TRUST'S INDEPENDENT AUDITORS
Ernst & Young LLP, One North Charles Street, Baltimore, MD 21201 has been
selected by the Board of Trustees to serve as the Trust's independent auditors.
FINANCIAL STATEMENTS
The Trust's Statement of Net Assets as of August 31, 1995; the Statement
of Operations for the year ended August 31, 1995; the Statement of Changes in
Net Assets for the fiscal years ended August 31, 1995 and 1994; the Financial
Highlights for the years ended August 31, 1991 through 1995; the Notes to
Financial Statements and the Report of the Independent Auditors, all of which
are included in the Trust's annual report for the year ended August 31, 1995,
are hereby incorporated by reference in this Statement of Additional
Information.
18
<PAGE>
TABLE OF CONTENTS
Additional Information About Investment
Limitations and Policies 2
Additional Tax Information 4
Additional Purchase and Redemption Information 5
Tax-Deferred Retirement Accounts and Plans 8
Valuation of Shares 9
How the Trust's Yield is Calculated 11
Massachusetts Trust Law 13
The Trust's Trustees and Officers 13
Management Agreement 16
Investment Advisory Agreement 17
Portfolio Transactions and Brokerage 17
The Trust's Custodian and Transfer and Dividend-
Disbursing Agent 18
The Trust's Legal Counsel 18
The Trust's Independent Auditors 18
Financial Statements 18
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offering made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Trust or its distributor. The Prospectus and the
Statement of Additional Information do not constitute an offering by the Trust
or by the principal underwriter in any jurisdiction in which such offering may
not lawfully be made.
LEGG MASON WOOD WALKER
Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410) 539-0000
<PAGE>
Legg Mason Cash Reserve Trust
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The financial statements of Legg
Mason Cash Reserve Trust for the year ended August 31,
1995 and the report of the independent auditors
thereon are incorporated into the Statement of
Additional Information by reference to the Annual
Report to Shareholders for the same period.
(b) Exhibits
(1) (a) Declaration of Trust 1/
(b) Amendment No. 1 to the Declaration of Trust 2/
(2) By-Laws (As Restated and Amended February 2, 1987) 3/
(3) Voting trust agreement - none
(4) Specimen security 2/
(5) (a) Management Agreement 4/
(b) Investment Advisory Contract 4/
(6) Underwriting Agreement 8/
(7) Bonus, profit sharing or pension plans - none
(8) (a) Custodian Agreement 3/
(b) Amendment to Custodian Agreement 7/
(9) Transfer Agency and Service Agreement 7/
(10) Opinion of Counsel 5/
(11) Consent of Independent Auditors - filed herewith (12)
Financial statements omitted from Item 23 - none (13) Not
Applicable
(14) (a) Prototype IRA Plan 6/
(b) Prototype Keogh Plan 6/
(15) Plan pursuant to Rule 12b-1 - none
(16) Schedule for Computation of Performance Quotations - filed
herewith
(27) Financial Data Schedule - filed herewith
1/ Incorporated herein by reference to corresponding Exhibit of the initial
Registration Statement on Form S-5 filed on July 27, 1978.
2/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 2 to the initial Registration
Statement filed on September 12, 1979.
<PAGE>
3/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 21 to the initial Registration
Statement filed on October 15, 1987.
4/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 22 to the initial Registration
Statement filed on August 9, 1988.
5/ Incorporated herein by reference to corresponding Exhibit of
Pre-Effective Amendment No. 1 to the initial Registration
Statement filed on September 25, 1978.
6/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 8 of Legg Mason Income Trust, Inc.
file no. 33-12092, filed April 24, 1991.
7/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 26 to the initial Registration
Statement filed on December 31, 1991.
8/ Incorporated herein by reference to corresponding Exhibit of
Post-Effective Amendment No. 30 to the initial Registration
Statement filed on December 30, 1993.
Item 25. Persons Controlled By or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class (as of November 30, 1995)
Shares of Beneficial
Interest (no par value) 98,743
Item 27. Indemnification
Pursuant to Section 4 of Article XI of the Registrant's Declaration of
Trust, indemnification may be provided to the Registrant's present and former
Officers, Trustees, employees and agents to the fullest extent permitted by law
against claims and expenses reasonably incurred or paid by them by virtue of
serving or having served in such a capacity or in settlement of any such claims.
No indemnification may be provided under the Declaration of Trust against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of office.
Under Section 2 of Article XI of the Registrant's Declaration of Trust,
no Trustee or Officer of the Registrant shall be personally liable to any person
for incurring any debts, liabilities or obligations or in taking or omitting any
other actions for or in connection with the Registrant. Provided that the
Trustees and Officers have exercised reasonable care and have acted under the
belief that their actions are in the best of the Registrant, the Trustees and
<PAGE>
Officers shall not be responsible or liable in any event for neglect or
wrongdoing by them or any employee, agent, investment advisor or principal
underwriter of the Registrant.
Section 11 of the Underwriting Agreement between the Registrant and Legg
Mason Wood Walker, Incorporated ("Underwriter") provides that the Registrant
will indemnify and hold harmless the Underwriter within the meaning of Section
15 of the Securities Exchange Act of 1933 or Section 20 of the Securities
Exchange Act of 1934, as amended, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as from time to
time amended and supplemented) or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus, or any amendment
or supplement thereof.
Similarly, the Underwriter agrees to indemnify and hold harmless the
Registrant, each of its Trustees, each of its Officers who have signed the
Registration Statement and each other person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933,
("1933 Act") to the same extent as the foregoing indemnity from the Registrant
to the Underwriter but only with respect to statements or omissions, if any,
made in the Registration Statement or Prospectus or any amendment or supplement
thereof in reliance upon, and in conformity with, information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
or supplement thereof.
Section 8 of the Management Agreement between the Registrant and Legg
Mason Fund Adviser, Inc. provides that the Manager shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Registrant
in connection with performance of the Management Agreement, except for losses
resulting from willful misfeasance, bad faith or gross negligence in the
Manager's performance of its duties, or by reason of the Manager's reckless
disregard of its obligations and duties under the Management Agreement.
Pursuant to Section 8 of the Investment Advisory Agreement, Western Asset
Management Company will not be liable for any error of judgment or mistake of
law or for any loss suffered by the Registrant in connection with the
performance of the Investment Advisory Agreement, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Western Asset
Management Company or from Western Asset Management Company's reckless disregard
of its obligations or duties under the Investment Advisory Agreement.
Insofar as indemnification for liabilities arising under the 1933 Act, as
amended, may be permitted for Trustees, Officers and controlling persons of the
Registrant by the Registrant,
<PAGE>
pursuant to the Declaration of Trust or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by Trustees, Officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or proceeding) is
asserted by such Trustees, Officers or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues. Registrant undertakes to carry out all
indemnification provisions of its Declaration of Trust and the above-described
contracts in accordance with Investment Company Act Release No. 11330 (September
4, 1980) and successor releases. Item 28. Business and Other Connections of
Manager and Investment Adviser
I. Legg Mason Fund Adviser, Inc. ("Manager"), the Registrant's manager,
is a registered investment adviser incorporated on January 20, 1982. The Manager
is engaged primarily in the investment advisory business. The Manager also
serves as investment adviser or manager to fifteen open-end investment companies
and as investment consultant for one closed-end investment company. Information
as to the officers and directors of the Manager is included in its Form ADV-S
filed on June 30, 1995 with the Securities and Exchange Commission
(registration number 801-16958) and is incorporated herein by reference.
II. Western Asset Management Company ("Western"), the Registrant's
investment adviser, is a registered investment adviser incorporated on October
5, 1971. Western is primarily engaged in the investment advisory business.
Western also serves as investment adviser for open-end investment companies
and one closed-end investment company. Information as to the officers and
directors of Western is included in its Form ADV filed on May 17, 1995 with
the Securities and Exchange Commission (registration number 801-08162) and is
incorporated herein by reference.
Item 29. Principal Underwriters
(a) Legg Mason Income Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Western Asset Trust, Inc.
<PAGE>
(b) The following table sets forth information concerning each director
and officer of the Registrant's principal underwriter, Legg Mason
Wood Walker, Incorporated ("LMWW").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter-LMWW Registrant
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the Board,
President and Trustee
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Executive Vice None
President and
Director
Edward A. Taber, III Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
<PAGE>
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21701 Director
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
F. Barry Bilson Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
Harry M. Ford, Jr. Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
63 Wall Street President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
<PAGE>
Horace M. Lowman, Jr. Senior Vice None
President and
Assistant
Secretary
Robert L. Meltzer Senior Vice None
63 Wall Street President
New York, NY 10005
William H. Miller, III Senior Vice None
President
Douglas C. Petty, Jr. Senior Vice None
1747 Pennsylvania President
Avenue, N.W.
Washington, D.C. 20006
John A. Pliakas Senior Vice None
99 Summer Street President
Boston, MA 02101
E. Robert Quasman Senior Vice None
President
Gail Reichard Senior Vice None
7 E. Redwood St, President
Baltimore, MD 21202
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Joseph Sullivan Senior Vice None
President
Peter J. Biche Vice President None
1735 Market Street
Philadelphia, PA 19103
John C. Boblitz Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Andrew J. Bowden Vice President None
<PAGE>
D. Stuart Bowers Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Robert Dickey, IV Vice President None
One World Trade Center
New York, NY 10048
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Seth J. Lehr Vice President None
1735 Market Street
Philadephia, PA 19103
Edward W. Lister, Jr. Vice President None
Eileen M. O'Rourke Vice President None
and Controller
Marie K. Karpinski Vice President Vice President
and Treasurer
Jonathan M. Pearl Vice President None
Douglas F. Pollard Vice President None
Chris Scitti Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
Lewis T. Yeager Vice President None
7 E. Redwood St.
Baltimore, MD 21202
<PAGE>
Joseph F. Zunic Vice President None
Charles R. Spencer, Jr. Vice President None
600 Thimble Shoals Blvd.
Newport News, VA 23606
* All addresses are 111 South Calvert Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of
such an affiliated person.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 30. Management Services
None
Item 31. Undertakings
Registrant hereby undertakes to provide each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Cash Reserve Trust,
certifies that it meets all the requirements for effectiveness in this
Post-Effective Amendment No. 32 to its Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore and State of Maryland, on the 21st day
of December, 1995.
LEGG MASON CASH RESERVE TRUST
By:/s/ John F. Curley, Jr.
John F. Curley, Jr.
Chairman of the Board, President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 32 to the Registrant's 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,
John F. Curley, Jr. President and Trustee December 21, 1995
/s/ Charles F. Haugh Trustee December 21, 1995
Charles F. Haugh*
/s/ Arnold L. Lehman Trustee December 21, 1995
Arnold L. Lehman*
/s/ Jill E. McGovern Trustee December 21, 1995
Jill E. McGovern*
/s/ Marie K. Karpinski Vice President and
Marie K. Karpinski Treasurer December 21, 1995
*Signatures affixed by Marie K. Karpinski pursuant to a power of
attorney dated May 18, 1992, incorporated herein by reference to
Post-Effective Amendment No. 29, filed December 31, 1992.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "The Trust's Independent Auditors" in the
Statement of Additional Information and to the incorporation by reference in
this Post-Effective Amendment Number 32 to Registration Statement Number
2-62218 (Form N-1A) of our report dated September 27, 1995, on the
financial statements and financial highlights of The Legg Mason Cash
Reserve Trust for the year ended August 31, 1995, included in the 1995 Annual
Report to Shareholders.
/s/Ernst & Young LLP
Baltimore, Maryland
December 18, 1995
Cash Reserve Trust Yield Calculations:
1. 7 day yield at 8/31/95 annualized:
[7 days dividends ended 8/31/95 (divided by) 7 x 365]
$1.00 (NAV)
(.0009754400 (divided by) 7 x 365) = 5.09%
1.00
2. Effective yield:
365
-----
[base period return + 1] 7 - 1 =
365
-----
(.0009754400 + 1) 7 - 1 = 5.22%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000276300
<NAME> Legg Mason Cash Reserve Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1,173,602
<INVESTMENTS-AT-VALUE> 1,173,602
<RECEIVABLES> 62,735
<ASSETS-OTHER> 40
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,236,377
<PAYABLE-FOR-SECURITIES> 77,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,247
<TOTAL-LIABILITIES> 83,247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,153,942
<SHARES-COMMON-PRIOR> 787,720
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 108
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,153,130
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 54,584
<OTHER-INCOME> 0
<EXPENSES-NET> 6,754
<NET-INVESTMENT-INCOME> 47,830
<REALIZED-GAINS-CURRENT> 108
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 47,938
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,830)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 480
<NUMBER-OF-SHARES-SOLD> 4,083,397
<NUMBER-OF-SHARES-REDEEMED> (3,762,544)
<SHARES-REINVESTED> 45,368
<NET-CHANGE-IN-ASSETS> 366,809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,754
<AVERAGE-NET-ASSETS> 950,714
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
