TABLE OF CONTENTS
Prospectus Highlights 2
Trust Expenses 3
Financial Highlights 4
Performance Information 5 PROSPECTUS
Investment Objective and Policies 5 APRIL 1, 1996
How You Can Invest in the Trust 7
How Your Shareholder Account is
Maintained 8
How You Can Redeem Your Trust
Shares 9 LEGG MASON
How Net Asset Value is Determined 10 CASH
Dividends 10 RESERVE
Tax Treatment of Dividends 11 TRUST
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 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 953, Boston, MA 02103 PUTTING YOUR FUTURE FIRST
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, DC 20036-1800
[LEGG MASON LOGO]
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
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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
April 1, 1996 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: April 1, 1996
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 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 397 days or less. Of course, there can be
no assurance that the Trust will achieve its objective. See "Investment
Objective and Policies," page 5.
NET ASSETS:
Over $1.2 billion as of February 29, 1996
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
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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.
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.49%
12b-1 fees 0.10%*
Other expenses 0.22%
Total operating expenses 0.81%*
*Reflects determination by Legg Mason to request payment of, and
determination by the Board to pay, less than the full amount of the
authorized 12b-1 fee. If the full amount of the fee were paid, 12b-1 fees
would be 0.15% and total operating expenses would be 0.86%.
For further information concerning Trust expenses, please see "The
Trust's Board of Trustees and Manager," page 13 and "The Trust's
Distributor," page 14.
EXAMPLE
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.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$8 $26 $45 $100
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, the
extent (if any) to which Legg Mason waives its fees and the extent to
which the Trust incurs variable expenses, such as transfer agency costs.
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FINANCIAL HIGHLIGHTS
The financial information in the table below, insofar as it relates to
each of the periods presented in the ten-year period ended August 31, 1995,
has 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
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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 of the Trust may not be changed
without a vote of Trust shareholders; however, except as otherwise noted,
the investment policies of the Trust described below may be changed by the
Trust's Board of Trustees without a shareholder vote.
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 397 days 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 ("S&P"), Prime-1
by Moody's Investors Service, Inc. ("Moody's") or F-1 by Fitch Investors
Service ("Fitch");
(Bullet) marketable obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
(Bullet) repurchase agreements;
(Bullet) corporate bonds with a remaining maturity of 397 days or less,
rated AAA or AA by S&P or Aaa or Aa by Moody's and comparable unrated
bonds; and
(Bullet) U.S. dollar-denominated securities of foreign issuers.
5
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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 (direct
obligations of the U.S. Treasury, majority of Federal Land Bank
securities, Farmers Home Administration certificates);
(Bullet) the issuer's right to borrow from the U.S. Treasury (Federal Home
Loan Banks, Federal National Mortgage Association);
(Bullet) the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities (Federal Home Loan
Banks); and
(Bullet) the credit of the agency or instrumentality issuing the
obligations (Federal Farm Credit Banks Funding Corporation).
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. The
Trust will not enter into repurchase agreements and certain time deposits
of more than seven days' duration if more than 10% of its net 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.
Variable and Floating Rate Securities
Variable and floating rate securities have interest rate adjustment
formulas that may help to stabilize their market value. Many of these
instruments carry a demand feature that permits the Trust to sell them
during a determined time period at par value plus accrued interest. The
demand feature is often backed by a credit instrument, such as a letter of
credit, or by a creditworthy insurer. The Trust may rely on the credit
instrument or the creditworthiness of the insurer in purchasing a variable
or floating rate security. The ability of a party to fulfill its
obligations under a letter of credit or guarantee might be affected by
possible financial difficulties of its borrowers, adverse interest rate or
economic conditions, regulatory limitations or other factors. For purposes
of determining its dollar-weighted average maturity, the Trust calculates
the remaining maturity of variable and floating rate instruments as
provided in Rule 2a-7 under the 1940 Act.
INVESTMENT LIMITATIONS AND RISKS
As fundamental limitations, the Trust will not:
(Bullet) invest more than 5% of its total assets in securities of one
issuer, except cash and cash items,
6
<PAGE>
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, pursuant to procedures
adopted by the Trust's Board of Trustees, eligible for investment by money
market funds, under rules adopted by the SEC; these generally include
securities that 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.
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.
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.
7
<PAGE>
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.
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
8
<PAGE>
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
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
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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.
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
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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.
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
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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 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)From August 1, 1995 through July 31, 1996, the sales charge will be
waived for all new accounts and subsequent investments into existing
accounts. After July 31, 1996, any exchanges of these shares will be
subject to the full sales charge, if any, since no sales charge will have
been 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
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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 9. 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.
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 $5.5 billion as of February 29, 1996. 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 thirteen open-end
investment companies and one closed-end investment company, which together
had aggregate assets under management of approximately $3.3 billion as of
February 29, 1996.
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The Adviser also renders investment advice to private accounts with fixed
income assets under management of approximately $16.6 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. The Trust's Board of
Trustees has adopted a Distribution and Shareholder Services Plan ("Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan, which was approved by
shareholders on March 8, 1996, provides that as compensation for Legg
Mason's ongoing services to investors and its activities and expenses
related to the sale and distribution of shares, Legg Mason may receive
payments at an annual rate of up to 0.15% of the Trust's average daily net
assets. However, Legg Mason has agreed that it will not request payment of
more than 0.10% annually from the Trust during the first two years
following adoption of the Plan. The distribution fee and the service fee
are calculated daily and paid monthly. The fees received by Legg Mason
during any year may be more or less than its cost of providing
distribution and shareholder services to the Trust. 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.
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.
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