<PAGE>
LEGG MASON CASH RESERVE TRUST
Supplement to the Prospectus dated December 31, 1994
The following information is inserted in the section captioned "Prospectus
Highlights" on page 2 of the Prospectus:
Subsequent Purchases:
$500 minimum, generally. See "How You Can Invest in the Trust," page 7.
Under the section entitled "How You Can Invest in the Trust," page 7, the
second and third paragraphs should read:
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.
October 1, 1995
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Trust Expenses 3
Financial Highlights 4
Performance Information 5
Investment Objective and Policies 6
How You Can Invest in the Trust 7
How Your Shareholder Account is Maintained 9
How You Can Redeem Your Trust Shares 9
How Net Asset Value is Determined 10
Dividends 11
Tax Treatment of Dividends 11
Shareholder Services 11
Investing through Tax-Deferred Retirement Plans 13
The Trust's Board of Trustees and Manager 13
The Trust's Investment Adviser 13
The Trust's Distributor 14
The Trust's Custodian and Transfer Agent 14
Description of the Trust and its Shares 14
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
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 8000, Boston, MA 02266-8000
COUNSEL:
Kirkpatrick & Lockhart
1800 M Street, N.W., Washington, DC 20036
AUDITORS:
Ernst & Young LLP
One North Charles Street, Baltimore, Maryland 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
PROSPECTUS
DECEMBER 31, 1994
THE LEGG MASON
CASH
RESERVE
TRUST
ADDING VALUE TO YOUR FUTURE
(Legg Mason logo appears here)
<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, 1994 with the Securities and Exchange Commission. 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, 1994
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.
FUND'S INCEPTION:
November 2, 1979
NET ASSETS:
Over $860 million as of November 30, 1994
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 9.
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 6.
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 12.
YIELD:
Based on current money market rates; quoted in the financial section
of most newspapers.
DIVIDENDS:
Declared daily and paid monthly. See "Dividends," page 11.
REINVESTMENT:
All dividends are automatically reinvested in Trust shares unless
cash payments are requested.
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$100 minimum, generally. See "How You Can Invest in the Trust,"
page 7.
PURCHASE METHODS:
Send bank/personal check or wire federal funds.
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, 1994.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management fees 0.49%
12b-1 fees None
Other expenses 0.23%
Total operating expenses 0.72%
</TABLE>
For further information concerning Trust expenses, please see "The
Trust's Board of Trustees and Manager," page 13.
HYPOTHETICAL 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>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$7 $23 $40 $89
</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 Securities and Exchange Commission ("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
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FINANCIAL HIGHLIGHTS
The financial highlights for each of the ten years in the period
ended August 31, 1994 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, 1994 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 which 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,
1994 1993 1992 1991 1990 1989 1988* 1987 1986 1985
<S> <C> <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 $1.00
Net investment income .03 .03 .04 .06 .08 .08 .06 .06 .07 .08
Net realized gain (loss) on
investments (Nil) -- (Nil) -- -- -- -- -- -- --
Total from investment
operations .03 .03 .04 .06 .08 .08 .06 .06 .07 .08
Dividends paid from:
Net investment income (.03) (.03) (.04) (.06) (.08) (.08) (.06) (.06) (.07) (.08)
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 $1.00
Total return 3.08% 2.85% 4.37% 6.41% 8.03% 8.56% 6.56% 5.69% 6.64% 8.30%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses .72% .76% .75% .74% .74% .88% .84% .83% .89% .89%
Net investment income 3.05% 2.82% 4.11% 6.26% 7.73% 8.30% 6.45% 5.50% 6.58% 8.20%
Net assets, end of year
(in thousands) $786,321 $754,996 $733,789 $860,954 $923,249 $723,662 $436,759 $321,109 $279,188 $241,846
</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, 1994 was
3.92%. The effective yield for the same period was 4.00%.
5
<PAGE>
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 and cannot be
changed without approval of shareholders.
The Trust attempts to stabilize the net asset value of a Trust share
at $1.00. To maintain that 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 Ratings Group,
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 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.
6
<PAGE>
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. 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 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,
7
<PAGE>
and the minimum investment for each purchase of additional shares
is $100, except as noted below. Those investing through the Trust's Future
First Systematic Investment Plan, payroll deduction plans and plans
involving automatic payment of funds from financial institutions or
automatic investment of dividends from certain unit investment trusts are
subject to lower minimum initial and subsequent investments.
Cash held in Legg Mason brokerage accounts of Trust shareholders may
be invested in the Trust during regularly scheduled "sweeps" of such
accounts made twice each month. (Brokerage accounts participating in the
Premier Asset Management Account described on page 12 are swept daily for
free credit balances of $100 or more, and weekly for free credit balances
of less than $100.) 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 $100 or more (payable to "Legg
Mason Cash Reserve Trust") to your Legg Mason or affiliated investment
executive.
2. BY WIRE
Once you have opened an account with the Trust, you may also purchase
shares 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. Any order for which your investment executive has submitted a
purchase by 12:00 noon, Eastern time, and for which wired funds have been
received, will earn dividends on shares purchased that day.
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
fed-
8
<PAGE>
eral funds will normally be completed on the same or the next business
day. If an order and payment in federal funds is received 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, 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:
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
seven calendar days of redemption. Wire transfers of proceeds to you or
your Legg Mason or affiliated brokerage account will normally be
transmitted within two business days.
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.
9
<PAGE>
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; your account 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 Client Service, 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 will be mailed within seven calendar days of receipt
of receipt of the proper redemption request to your address of record or,
in accordance with your written request, to some other person.
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 regular trading on 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.
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DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on 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 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.
You will receive from the distributor a confirmation after each
transaction (except a reinvestment of dividends or capital gain
distributions and shares purchased through the Future First Systematic
Investment Plan or through automatic investments). 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 a
cumulative account statement will be sent quarterly. Reports will be sent
to shareholders at least semiannually showing the Trust's portfolio and
other information. An annual report containing financial statements
audited by the Trust's independent auditors will also be sent to
shareholders each year.
Shareholder inquiries should be addressed to "Legg Mason Cash Reserve
Trust, c/o Legg Mason Funds Client Service, 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.
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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 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 high
yield, fixed-income securities.
LEGG MASON MARYLAND TAX-FREE INCOME TRUST*
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 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 tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
* Shares of these funds are sold with an initial sales charge.
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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 has already been
paid. Exchanges from the other Legg Mason funds sold without an initial
sales charge will be at net asset value. 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 -- Redemption By Telephone," page 9. The other factors relating
to telephone redemptions described in that section also apply to
telephone exchanges. 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.
INVESTING THROUGH TAX-DEFERRED RETIREMENT PLANS
An investment in shares of the Trust may be appropriate for IRAs,
Keogh Plans, SEPs and other qualified retirement plans. Investors who
are considering establishing such a 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 plans through
regular payroll deductions may be arranged with Legg Mason and your
employer. Additional information with respect to these 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, 1994, 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
fourteen investment company portfolios (excluding the Trust) which had
aggregate assets under management of approximately $3.1 billion as of
November 30, 1994. 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 ser-
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vices, 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 ten open-end
investment companies, one closed-end investment company, and Obliflex
B Fund, an open-end investment company registered in Jersey, Channel
Islands, which together had aggregate assets under management of
approximately $1.6 billion as of November 30, 1994. The Adviser also
renders investment advice to private accounts with fixed income assets
under management of approximately $10.3 billion as of that date. The
address of the Adviser is 117 East Colorado Boulevard, Pasadena,
California 91105.
THE TRUST'S DISTRIBUTOR
Legg Mason acts as 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, 1994, Legg Mason
received $455,539 for performing such services in connection with the
Trust.
The Chairman, President and Treasurer of the Trust are employed by
Legg Mason.
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 8000, Boston, MA 02266-8000, 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.
As a Massachusetts business trust, the Trust is not required to
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 shall 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.
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