As filed with the Securities and Exchange Commission on October 30, 1998.
1933 Act File No. 2-62218
1940 Act File No. 811-2853
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 36 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 29
LEGG MASON CASH RESERVE TRUST
(Exact Name of Registrant as Specified in Charter)
100 Light Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
CHARLES A. BACIGALUPO ARTHUR C. DELIBERT, ESQ.
100 Light Street Kirkpatrick & Lockhart LLP
Baltimore, Maryland 21202 1800 Massachusetts Ave., N.W.
(Name and Address of Second Floor
Agent for Service) Washington, D.C. 20036-1800
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on , 1998 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[X] on December 31, 1998 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1998 pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Legg Mason Cash Reserve Trust
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Table of Contents
Cross Reference Sheets
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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Legg Mason Cash Reserve Trust
Form N-1A Cross Reference Sheet
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<TABLE>
<S><C>
Part A. Item Number Prospectus Caption
1. Front and Back Cover Pages Same
2. Risk/Return Summary: Investments, Risks and Performance Investment Objective; Risks; Performance
3. Risk/Return Summary: Fee Table Fees and Expenses
4. Investment Objectives, Principal Investment Strategies, Investment Objective; Risks
and Related Risks
5. Management's Discussion of Fund Performance Not Applicable
6. Management, Organization and Capital Structure Management
7. Shareholder Information How to Invest; How to Sell Your Shares; Account
Policies; Services for Investors; Dividends andTaxes
8. Distribution Arrangements Management
9. Financial Highlights Information Financial Highlights
Part B. Item Number Statement of Additional Information Caption
10. Cover Page and Table of Contents Same
11. Fund History Massachusetts Trust Law
12. Description of the Fund and Its Investments and Risks Investment Strategies and
Risks; Fund Policies
13. Management of the Fund Management of the Fund
14. Control Persons and Principal Holders of Securities Management of the Fund
15. Investment Advisory and Other Services Management Agreement; Investment Advisory Agreement; The
Fund's Distributor
16. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
17. Capital Stock and Other Securities Not Applicable
18. Purchase, Redemption, and Pricing of Shares Additional Purchase and Redemption Information;
Valuation of Shares
19. Taxation of the Fund Additional Tax Information; Tax-Deferred Retirement
Accounts and Plans
20. Underwriters The Fund's Distributor
21. Calculation of Performance Data How The Fund's Yield is Calculated
22. Financial Statements Financial Statements
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Legg Mason Cash Reserve Trust
Prospectus
December 31, 1998
Investing in money market instruments to achieve stability of principal and
current income consistent with stability of principal.
The Art of Investing
As with all mutual funds, the Securities and Exchange Commission doesn't
guarantee that the information in this prospectus is accurate or complete, nor
has it approved or disapproved these securities. It is a criminal offense to
state otherwise.
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Table of Contents Page
About the fund:
Investment Objective 3
Risks 4
Performance 5
Expenses 6
Management 7
About your investment:
How to invest 8
How to sell your shares 10
Account policies 11
Services for investors 12
Dividends and taxes 13
Financial Highlights 14
2
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Legg Mason Cash Reserve Trust
INVESTMENT OBJECTIVE
The fund seeks to achieve stability of principal and current income consistent
with stability of principal. There is no guarantee that the fund will achieve
its objective.
The fund is a money market fund that seeks to maintain a net asset value of
$1.00 per share. To achieve its objective, the fund adheres to the following
practices:
o it buys money market securities maturing in 397 days or less
o it maintains an average dollar-weighted portfolio maturity of 90 days or less
o it buys only high-quality money market securities determined by the investment
adviser to present minimal credit risk
High-quality money market securities in which the fund may invest include, but
are not limited to,:
o securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
o securities representing deposits at domestic and foreign banks and savings and
loan institutions. These banks and institutions must have capital, surplus and
undivided profits of over $100,000,000 or the principal amount of the
instruments must be insured by the Federal Deposit Insurance Corporation.
o commercial paper rated A-1 by Standard & Poor's, Prime-1 by Moody's Investors
Service, Inc. or F-1 by Fitch Investors Service, Inc. and unrated commercial
paper that the adviser determines to be of comparable quality
o corporate bonds rated AAA or AA by S&P, Aaa or Aa by Moody's, having a
remaining maturity of 397 days or less and unrated bonds that the adviser
determines to be of comparable quality
o U.S. dollar-denominated securities of foreign issuers
o asset-backed securities - i.e., securities that represent an interest in a
pool of assets, such as credit card receivables or car loan receivables
o repurchase agreements
o variable and floating rate securities - i.e., securities whose interest rates
change at specified intervals so they approximately equal current market rates
3
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RISKS
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks to
maintain a net asset value of $1.00 per share, it is possible to lose money by
investing in the fund.
Additionally, risks of investing in this fund include:
MARKET RISK - the possibility that the market prices of the fund's investments
may decline due to an increase in interest rates.
CREDIT RISK - the risk that any of the fund's holdings could have its credit
rating downgraded or could default. Credit ratings measure an issuer's ability
to make timely principal and interest payments. Generally, the fund is required
to invest at least 95% of its total assets in the securities of issuers with the
highest credit rating. Credit ratings are the opinions of the private companies
(such as Standard & Poor's) that rate companies or their securities; they are
not guarantees.
OTHER -
Not all obligations of the U.S. Government, its agencies and instrumentalities
are backed by the full faith and credit of the United States; some are backed
only by the credit of the issuing agency.
Investments in Eurodollar certificates of deposit also pose risks of overseas
banking operations.
4
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PERFORMANCE
The information below shows changes in the fund's performance from year to year.
Annual returns assume reinvestment of dividends and distributions. Historical
performance of the fund does not necessarily indicate what will happen in the
future.
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
[PERFORMANCE GRAPH APPEARS HERE -- SEE PERCENTAGES BELOW]
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
6.95% 8.75% 7.73% 5.83% 3.47% 2.78% 3.66% 5.32% 4.80% 4.90%
DURING THE PAST TEN YEARS:
QUARTER ENDED TOTAL RETURN
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BEST QUARTER: June 30, 1989 2.25%
WORST QUARTER: June 30, 1993 0.68%
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The fund's return for the quarter ended September 30, 1998 was 1.22%. The fund's
seven day yield on December 31, 1997 was 5.00%. For the fund's current yield,
call toll-free 1-800-822-5544.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997:
1 Year 4.90%
5 Years 4.28%
10 Years 5.35%
These figures include changes in principal value, reinvested dividends and
capital gain distributions, if any.
5
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EXPENSES
The table below describes the fees and expenses you will incur directly or
indirectly as an investor in the fund. The fund pays operating expenses directly
out of its assets so they lower the fund's share price and dividends. Other
expenses include expenses such as transfer agency, custody, professional and
registration fees. The fund has no sales charge but is subject to a 12b-1
distribution fee.
The fees and expenses shown are for the fiscal year ended August 31, 1998 and
are calculated as a percentage of average net assets.
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FEES:
Annual Fund Operating Expenses
Management fees 0.48%
Distribution and Service (12b-1) fees 0.15%*
Other expenses 0.20%
Total 0.83%*
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*For the fiscal year ended August 31, 1998, Legg Mason requested the fund to pay
a portion of its 12b-1 fee. The actual 12b-1 fee paid by the fund was 0.10%,
reducing total expenses from 0.83% to 0.78%. The Board has determined to request
payment of a 0.10% 12b-1 fee until January 10, 1999.
EXPENSES:
This example helps you compare the cost of investing in the fund with the cost
of investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in the fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown. The fund charges no redemption fees.
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1 Year 3 Years 5 Years 10 Years
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$85 $265 $460 $1,025
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6
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MANAGEMENT
MANAGER AND ADVISER:
Legg Mason Fund Adviser, Inc., 100 Light Street, Baltimore, Maryland 21202, is
the manager for the fund. The manager is responsible for the non-investment
affairs of the fund, providing office space and administrative staff for the
fund and directing all matters related to the operation of the fund. The manager
acts as manager or investment adviser to investment companies and private
accounts with aggregate assets of $[ ] billion as of November 30, 1998.
Western Asset Management Company, 117 East Colorado Boulevard, Pasadena,
California 91105, is the investment adviser for the fund. The adviser is
responsible for the actual investment management of the fund, which includes
making investment decisions and placing orders to buy, sell or hold a particular
security. The adviser acts as investment adviser to investment companies and
private accounts with aggregate assets of $[ ] billion as of November 30, 1998.
For its services, the fund paid the manager a fee of 0.48% of the fund's average
daily net assets for the fiscal year ended August 31, 1998. The adviser received
a fee from the manager, which is calculated daily and payable monthly, equal to
30% of the manager's fee.
DISTRIBUTOR OF THE FUND'S SHARES:
Legg Mason Wood Walker, Incorporated distributes the fund's shares. The fund has
adopted a plan that allows it to pay distribution and service fees for the sale
of its shares and for services provided to shareholders. Under the plan, the
fund may pay the distributor an annual fee equal to 0.15% of the fund's average
daily net assets. However, the Board has authorized payment of only 0.10%
annually of the fund's average daily net assets until January 10, 1999. At
August 31, 1998, distribution and service fees payable were $135,000.
Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The distributor may enter into agreements with other brokers to sell shares of
the fund. The distributor pays these brokers up to 90% of the distribution and
service fees that it receives from the fund for those sales.
The manager, adviser and distributor are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.
YEAR 2000:
Like other mutual funds (and most organizations around the world), the fund
could be adversely affected by computer problems related to the year 2000. These
could interfere with operations of the fund, its manager, distributor or
adviser, or could impact companies in which the fund invests.
While no one knows if these problems will have any impact on the fund or on
financial markets in general, the manager and its affiliates are taking steps to
protect fund investors. These include efforts to determine that the problem will
not directly affect the systems used by major service providers.
Whether these steps will be effective can only be known for certain in the year
2000.
7
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HOW TO INVEST
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To open a regular account or a retirement account with the fund, contact a Legg
Mason financial advisor or other entity offering the fund for sale. The minimum
initial investment for regular accounts and retirement accounts is $1,000 and
the minimum for each purchase of additional shares is $500.
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For initial investments in a traditional IRA, spousal IRA, education IRA, Roth
IRA, simplified employee pension plan, savings incentive match plan for
employees or other qualified retirement plan, please contact your Legg Mason
financial advisor or other entity offering the fund for forms to complete or to
answer any questions you may have regarding these plans.
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Once your account is open, you may use the following methods to add to your
account:
In Person Give your financial advisor a check for $500 or more payable
to the fund
Mail Mail your check, payable to the fund, for $500 or more to your
financial advisor
Telephone
or Wire Call your financial advisor to transfer available cash
balances in your brokerage account or to transfer money from
your bank directly to Legg Mason. Wire transfers may be
subject to a service charge by your bank.
Future First
Systematic
Investment Contact your Legg Mason financial advisor to enroll in Legg
Mason's Future First Systematic Investment Plan. Under this
plan, you may arrange for automatic monthly investments in the
fund of $50 or more. The fund's transfer agent will transfer
funds monthly from your Legg Mason account or from your
checking account to purchase shares of the fund.
Automatic
Investments Arrangements may be made with some employers and financial
institutions for regular automatic monthly investments of
$50 or more in shares of the fund. You may also reinvest
dividends from certain unit investment trusts in shares of the
fund.
Call your financial advisor or another entity offering the fund for sale with
any questions regarding the investment options above.
Certain investment methods may be subject to lower minimum initial and
additional investments.
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Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
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Purchase orders received in federal funds form, by either your Legg Mason
financial advisor or the entity offering the fund, on any day that the New York
Stock Exchange is open will be processed as follows:
If the purchase order Shares will be purchased at the Such shares will begin to
is received net asset value determined on earn dividends on the
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before 12:00 noon same day same day
12:00 noon or after,
but before 4:00 p.m. same day next day
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8
<PAGE>
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after 4:00 p.m. next day next day
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If you do not make payment in federal funds, your order will be processed when
payment is converted into federal funds. Most bank wires are federal funds.
9
<PAGE>
HOW TO SELL YOUR SHARES
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions imposed by those entities. You should
consult their program literature for further information.
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Any of the following methods may be used to sell your shares:
Telephone Call your Legg Mason financial advisor or entity
offering the fund and request a redemption for $100
or more. Proceeds will be credited to your
brokerage account or a check will be sent to you, at
your direction, at no charge to you. Wire requests
will be subject to a fee of $18. Be sure that your
financial advisor has your bank account information
on file. Unless you specify that you do not
wish to have telephone redemption privileges, you
may be held responsible for any fraudulent
telephone order. The fund will follow reasonable
procedures to ensure the validity of any
telephone redemption request, such as requesting
identifying information from callers or employing
identification numbers.
Checkwriting The fund offers a free checkwriting service. You
may write checks to anyone in amounts of $500 or
more. The fund's transfer agent will redeem
sufficient shares from your account to pay the
checks. You will continue to earn dividends on
your shares until the check clears at the transfer
agent. Please do not use your checks to close your
account.
Mail Send a letter to the fund requesting redemption of
your shares. The letter should be signed by all of
the owners of the account. Redemption requests for
shares valued at $10,000 or more or when the
proceeds are to be paid to someone other than
the accountholder will require a signature guarantee.
You may obtain a signature guarantee from most banks
or securities dealers.
Securities
Purchases at
Legg Mason Legg Mason has special redemption procedures
for investors who wish to purchase stocks, bonds
or other securities at Legg Mason. Once you've
placed an order for securities, and have not
indicated any other payment method, fund shares will
be redeemed on the settlement date for the amount
due. Fund shares may also be redeemed to cover debit
balances in your brokerage account.
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Your order will be processed promptly and you will generally receive the
proceeds within a week. Fund shares will be sold at the next net asset value
calculated after your redemption request is received by your Legg Mason
financial advisor or another entity.
Redemptions of shares that were recently purchased by check or acquired through
reinvestment of dividends on such shares may be delayed for up to 10 days in
order to allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
10
<PAGE>
ACCOUNT POLICIES
To calculate the fund's share price, the fund's assets are valued and totaled,
liabilities are subtracted, and the resulting net assets are divided by the
number of shares outstanding. The fund seeks to maintain a share price of $1.00
per share. The fund is priced twice a day, as of 12:00 noon, Eastern time, and
at the close of the New York Stock Exchange (normally 4:00 p.m., Eastern time),
on every day the exchange is open. Like most other money market funds, the fund
normally values its investments using the amortized cost method.
Fund shares may not be held in, or transferred to, an account with any brokerage
firm that does not have an agreement with Legg Mason.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds.
The fund reserves the right to:
o reject any order for shares or suspend the offering of shares for a period
of time
o change its minimum investment amounts
o delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions.
11
<PAGE>
SERVICES FOR INVESTORS
For further information regarding any of the services below, please contact your
financial advisor or other entity offering the fund for sale.
Account statements:
Legg Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account. Legg Mason
will send you statements quarterly if you participate in the Future First
Systematic Investment Plan or if you purchase shares through automatic
investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares with a net asset value of $5,000 or
more, you may elect to make systematic withdrawals from the fund. The minimum
amount for each withdrawal is $50.
Premier Account Status:
Legg Mason offers a Premier Asset Management Account, which combines your fund
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 your brokerage account to your fund account and automatic redemption of fund
shares to offset debit balances in your brokerage account.
Legg Mason charges an annual fee for the Premier Account, which is currently $85
for individuals and $100 for corporations and businesses.
Exchange Privilege:
Fund shares may be exchanged for shares of any of the other Legg Mason funds or
the Bartlett funds, provided these funds are eligible for sale in your state of
residence. You can request an exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a sales
load when exchanging into a fund that has one. In addition, an exchange of the
fund's shares will be treated as a sale of the shares and any gain on the
transaction may be subject to tax.
The fund reserves the right to:
o terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year
o terminate or modify the exchange privilege after 60 days' notice to
shareholders
12
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DIVIDENDS AND TAXES
The fund declares dividends from its net investment income daily and pays them
monthly. Your dividends will be automatically reinvested in additional shares of
the fund. If you wish to receive dividends in cash, you must notify the fund at
least 10 days before the next dividend is to be paid. The fund does not expect
to realize any capital gain or loss; however, if the fund realizes any capital
gains, it will pay them at least once every twelve months. You may request that
your dividends be reinvested in shares of another Legg Mason fund.
Fund dividends and distributions of any net short-term capital gains are taxable
to most investors (other than retirement plans and other tax-exempt investors)
whether received in cash or reinvested in additional shares of the fund.
Generally, those dividends and distributions will be taxable as ordinary income.
The sale or exchange of fund shares will not result in any gain or loss for the
shareholder to the extent the fund maintains a stable share price of $1.00.
A tax statement is sent to each investor at the end of each year detailing the
tax status of your distributions.
The fund will withhold 31% of all dividends payable to individuals and certain
other non-corporate shareholders who do not provide the fund with a valid
taxpayer identification number or who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
advisor about federal, state and local tax considerations.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
financial performance for the past 5 years. Total return represents the rate
that an investor would have earned (or lost) on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information has
been audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, are included in the annual report. The annual report is available
upon request by calling toll-free 1-800-822-5544.
<TABLE>
<CAPTION>
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Year ended August 31, 1998 1997 1996 1995 1994
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<S><C>
THE FOLLOWING INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE SHARE OF THE
FUND:
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .05 .05 .05 .05 .03
DISTRIBUTIONS:
Dividends from net
investment income (.05) (.05) (.05) (.05) (.03)
Net asset value,
end of year $1.00 $1.00 $1.00 $1.00 $1.00
Total return 4.96% 4.84% 4.92% 5.08% 3.08%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets .78% .75% .70% .71% .72%
Ratio of net investment
income to average net assets 4.86% 4.73% 4.81% 5.03% 3.05%
Net assets, end of year
(in millions) $1,423 $1,343 $1,224 $1,153 $786
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</TABLE>
14
<PAGE>
Legg Mason Cash Reserve Trust
The following additional information about the fund is available upon request
and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - the SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) the prospectus. The SAI provides additional details about
the fund and its policies.
ANNUAL AND SEMIANNUAL REPORTS - additional information about the fund's
investments is available in the fund's annual and semiannual reports to
shareholders. These reports provide detailed information about the fund's
portfolio holdings and operating results.
To request the SAI, any reports to shareholders, or to make shareholder
inquiries for more information:
o call toll-free 1-800-822-5544
o send an email to: [ ]
o visit us on the Internet via, http://www.leggmason.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's public reference room in Washington, DC. (phone 1-800-SEC-0330). Reports
and other information about the fund are available on the SEC's Internet site at
http://www.sec.gov. Investors may also write to: SEC, Public Reference Section,
Washington, DC 20549-6009. A fee will be charged for making copies.
SEC file number: 811-2853
15
<PAGE>
THE LEGG MASON CASH RESERVE TRUST
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1998
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the fund's Prospectus dated December 31, 1998 which
has been filed with the Securities and Exchange Commission ("SEC"). The fund's
annual report is incorporated by reference into this Statement of Additional
Information. A copy of either the Prospectus or the annual report is available
without charge by writing to or calling the fund's distributor. See below for
the address and phone numbers.
Legg Mason Wood Walker
Incorporated
---------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
Table Of Contents
Page
----
Investment Strategies and Risks 3
Fund Policies 5
Management of the Fund 6
Management Agreement 8
Investment Advisory Agreement 9
The Fund's Distributor 10
Additional Tax Information 12
Additional Purchase and Redemption Information 12
Tax-Deferred Retirement Accounts and Plans 16
Valuation of Shares 17
How the Fund's Yield is Calculated 18
Massachusetts Trust Law 20
Portfolio Transactions and Brokerage 20
The Fund's Custodian and Transfer and Dividend-
Disbursing Agent 21
The Fund's Legal Counsel 21
The Fund's Independent Auditors 21
Financial Statements 21
2
<PAGE>
Investment Strategies and Risks
The fund is an open-end, diversified management investment company.
The fund invests in high-quality money market instruments that mature in 397
days or less. It may use any of the following instruments or techniques, among
others:
Bank Instruments
The fund may invest in certificates of deposit, demand and time
deposits, savings shares and bankers' acceptances, as well as Eurodollar
certificates of deposit issued by foreign branches of U.S. or foreign banks.
U. S. Government Obligations
The fund may purchase securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, which include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury; others
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit of
the agency or instrumentality. These securities may bear fixed, floating or
variable rates of interest.
Variable and Floating Rate Securities
The fund may invest in securities whose interest rates change at
specified intervals so they approximately equal current market rates. These
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 fund to sell them during a determined time period at par 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 fund 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. The fund will calculate the
remaining maturity of variable and floating rate securities in accordance with
Rule 2a-7 under the Investment Company Act of 1940.
When-Issued and Delayed Delivery Transactions
The fund may enter into commitments to purchase short-term U.S.
Government securities on a when-issued or delayed-delivery basis. When the fund
purchases securities on a when-issued or delayed-delivery basis, it immediately
assumes the risks of ownership, including the risk of price fluctuation. These
transactions are made to secure what is considered to be an advantageous price
and yield for the fund. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased may
vary from the purchase prices in the interim. No fees or other expenses, other
than normal transaction costs, are incurred. Liquid assets of the Trust
sufficient to make payment for the securities to be purchased are maintained in
a segregated account with the fund's custodian until the transaction is settled.
Such trades may have an effect on the fund that is similar to leverage. The
seller's failure to complete a transaction may result in a loss.
3
<PAGE>
Repurchase Agreements
The fund may enter into repurchase agreements to purchase either U.S.
Government obligations or high-quality debt securities from a securities dealer
or bank. The securities dealer or bank agrees to repurchase those securities at
an agreed-upon price and date. The securities are held for the fund by a
custodian bank as collateral until resold. Additional collateral may be
necessary to maintain the required value of the repurchase agreement. There is a
risk that the other party to a repurchase agreement will default on its
obligations and the fund may be delayed or prevented from disposing of the
collateral securities. This may result in a loss.
The fund will enter into repurchase agreements only with financial
institutions that the adviser determines present a minimal risk of default. This
determination is made based on guidelines set forth by the fund's board of
trustees.
Reverse Repurchase Agreements
The fund may enter into reverse repurchase agreements to the extent
permitted by its investment limitations. These transactions are similar to
borrowing cash. In a reverse repurchase agreement the fund transfers possession
of a portfolio instrument to another person, such as a financial institution or
broker-dealer, in return for a percentage of the instrument's market value in
cash and agrees that on a stipulated date in the future the fund will repurchase
the portfolio instrument by remitting the original consideration plus interest
at an agreed-upon rate. The use of reverse repurchase agreements may enable the
fund to avoid selling portfolio instruments at a time when a sale may be deemed
to be disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure such an outcome.
When effecting reverse repurchase agreements, liquid assets in a dollar
amount sufficient to make payment for the obligations to be purchased are
maintained in a segregated account with the fund's custodian until the
transaction is settled.
Foreign Securities
The fund may invest in foreign securities that are not publicly traded
in the United States. Investments in obligations of banking entities located
outside the United States involve certain risks that are different from
investments in securities of domestic banks. These risks may include adverse
foreign economic and political developments, the imposition of foreign laws or
restrictions that may adversely affect payment of principal and interest on such
obligations held by the fund, and the imposition of foreign exchange controls
and of withholding taxes on principal and interest payable on such obligations
held by the fund. In addition, there may be less public information available
about a foreign bank than is generally available about domestic banks.
Furthermore, foreign banking institutions may not be subject to the same
accounting, auditing and financial recordkeeping standards and requirements as
are domestic banks and branches. All securities purchased by the fund will be
denominated in U.S. dollars.
In an effort to minimize these risks, the adviser will purchase
foreign-issued money market instruments only from the branches of those banks
that are among the largest and most highly rated in various industrialized
nations. On an ongoing basis, the adviser will monitor the credit risk of such
foreign banks by using third party services which provide credit and sovereign
risk analysis. Also, the adviser will not purchase obligations that it believes,
at the time of purchase, will be subject to exchange controls or the interest on
which will be subject to withholding taxes. Investment will be limited to
obligations of bank branches located in countries where sovereign risk is
considered by the adviser to be minimal; however, there can be no assurance that
exchange control laws, withholding taxes or other similar laws will not become
applicable to certain of the fund's investments.
4
<PAGE>
Restricted and Illiquid Securities
Restricted securities are securities subject to legal or contractual
restrictions on their resale, such as private placements. Such restrictions
might prevent the sale of restricted securities at a time when sale would
otherwise be desirable. Although restricted securities traditionally were
considered illiquid, the adviser, acting pursuant to guidelines established by
the fund's Board of Trustees, may determine that certain restricted securities
are liquid.
Illiquid securities may be difficult to value, and the fund may have
difficulty selling such securities promptly. Repurchase agreements maturing in
more than seven days are considered illiquid.
Fund Policies
The fund has adopted certain fundamental investment limitations,
described below, which cannot be changed without approval of shareholders.
Except for the fund's investment objective and the limitations described below,
the investment policies and limitations of the fund are non-fundamental and can
be changed by the Board of Trustees without shareholder approval.
1. SELLING SHORT AND BUYING ON MARGIN The fund will not sell any money market
instruments short or purchase any money market instruments on margin but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of money market instruments.
2. BORROWING MONEY The fund will not borrow money except as a temporary measure
for extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets. In addition, the fund may enter into
reverse repurchase agreements and otherwise borrow up to one-third of the value
of its total assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments. This latter practice
is not for investment leverage but solely to facilitate management of the
portfolio by enabling the fund to meet redemption requests when the liquidation
of portfolio instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment.
The fund will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
However, during the period any reverse repurchase agreements are outstanding,
but only to the extent necessary to assure completion of the reverse repurchase
agreements, the fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
3. INVESTING IN COMMODITIES, MINERALS, OR REAL ESTATE The fund will not invest
in commodities, commodity contracts, oil, gas, or other mineral programs, or
real estate, except that it may purchase money market instruments issued by
companies that invest in or sponsor such interests.
4. UNDERWRITING The fund will not engage in underwriting of securities issued by
others.
5. LENDING CASH OR SECURITIES The fund will not lend any of its assets, except
that it may purchase or hold money market instruments, including repurchase
agreements and variable amount demand master notes, permitted by its investment
objective and policies.
6. ACQUIRING SECURITIES The fund will not acquire the voting securities of any
issuer. It will not invest in securities issued by any other investment company,
except as part of a merger, consolidation, or other acquisition. It will not
invest in securities of a company for the purpose of exercising control or
management.
7. DIVERSIFICATION OF INVESTMENTS The fund will not purchase securities issued
by any one issuer
5
<PAGE>
having a value of more than 5% of the value of its total assets except cash or
cash items, repurchase agreements, and U.S. government obligations. The fund
considers the type of bank obligations it purchases as cash items (however, as a
non-fundamental policy, the fund will apply the 5% limitation to bank
obligations other than demand deposits).
8. CONCENTRATION OF INVESTMENTS The fund will not purchase money market
instruments if, as a result of such purchase, more than 25% of the value of its
total assets would be invested in any one industry. However, investing in bank
instruments (such as time and demand deposits and certificates of deposit), U.S.
government obligations or instruments secured by these money market instruments,
such as repurchase agreements, shall not be considered investments in any one
industry.
9. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND The
fund will not purchase or retain the securities of any issuer if the officers
and trustees of the fund or its investment adviser owning individually more than
1/2 of 1% of the issuer's securities together own more than 5% of the issuer's
securities.
10. DEALING IN PUTS AND CALLS The fund will not invest in puts, calls,
straddles, spreads, or any combination of these.
11. ISSUING SENIOR SECURITIES The fund will not issue senior securities, except
as permitted by the investment objective and policies and investment limitations
of the Fund.
Except with respect to the one-third limitation on borrowing money, if
a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction.
The fund did not borrow money or invest in reverse repurchase
agreements in excess of 5% of the value of its total assets during the last
fiscal year and, at present, has no intent to do so.
The investment objective and fundamental investment limitations of the
fund, described in the preceding paragraphs and in the Prospectus, may be
changed only with the vote of a majority of the Trust's outstanding voting
securities. Under the Investment Company Act of 1940, as amended ("1940 Act"), a
"vote of a majority of the outstanding voting securities" of the fund means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the fund or (2) 67% or more of the shares present at a shareholders' meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy.
Management of the Fund
The fund's officers are responsible for the operation of the fund under
the direction of the Board of Trustees. The officers and trustees of the fund,
their dates of birth and their principal occupations during the past five years
are set forth below. An asterisk(*) indicates officers and/or trustees who are
"interested persons" of the fund, as defined in the 1940 Act. The address of
each officer and trustee is 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
JOHN F. CURLEY, JR.*, [7/24/39] Chairman of the Board, President and
Trustee; Retired Vice Chairman and Director of Legg Mason Wood Walker, Inc. and
Legg Mason, Inc.; Director of Legg Mason Fund Adviser, Inc. and Western Asset
Management Company (each a registered investment adviser); Officer and/or
Director of various other affiliates of Legg Mason, Inc.; President and/or
Chairman of the Board and Director/Trustee of nine Legg Mason funds.
ARNOLD L. LEHMAN, [7/18/44] Trustee; The Brooklyn Museum of Art, 200
Eastern Parkway, Brooklyn, NY. Director, The Brooklyn Museum of Art;
Director/Trustee of nine Legg Mason funds.
6
<PAGE>
Formerly: Director, Baltimore Museum of Art.
JILL E. McGOVERN, [8/29/44] Trustee; 1500 Wilson Blvd., Arlington,
Virginia. Chief Executive Officer of the Marrow Foundation. Director/Trustee
of nine Legg Mason funds. Formerly: Executive Director of the Baltimore
International Festival (1991- 1993).
RICHARD G. GILMORE, [6/9/27] Trustee; 948 Kennett Way, West
Chester, Pennsylvania. Independent Consultant. Director of CSS Industries,
Inc. (diversified holding company whose subsidiaries are engaged in the
manufacture and sale of decorative paper products, business forms, and
specialty metal packaging); Director of PECO Energy Company (formerly
Philadelphia Electric Company); Director/Trustee of nine Legg Mason funds.
T.A. RODGERS, [10/22/34] Trustee; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting).
Director/Trustee of nine Legg Mason funds. Formerly: Director and Vice
President of Corporate Development, Polk Audio, Inc. (manufacturer of audio
components) (1991-1992).
EDWARD A. TABER*, [8/25/43] Trustee; Senior Executive Vice President
of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.; Chairman and Director
of Legg Mason Fund Adviser, Inc. and Director of Western Asset Management
Company (a registered investment adviser); President and/or Director/Trustee of
eight Legg Mason funds.
EDMUND J. CASHMAN, Jr. *, [8/31/36] Trustee; Senior Executive Vice
President and Director of Legg Mason, Inc.; Officer and/or Director of various
other affiliates of Legg Mason, Inc.; President or Vice Chairman of the Board
and Director/Trustee of four Legg Mason funds.
The executive officers of the fund, other than those who also serve as
trustees, are:
MARIE K. KARPINSKI*, [1/1/49] Vice President and Treasurer; Treasurer
of Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of nine Legg
Mason funds and Vice President of Legg Mason Fund Adviser, Inc.,; Vice President
of Legg Mason Wood Walker, Inc.
KATHI D. BAIR*, [12/15/64] Secretary; Secretary of nine Legg Mason
funds; Assistant Treasurer of three Legg Mason funds.
BRIAN M. EAKES*, [12/9/69 ] Assistant Secretary and Assistant
Treasurer; employee of Legg Mason, Inc. since July 1995. Formerly: Senior
Associate - Audit of Coopers & Lybrand L.L.P. (Aug. 1992 - June 1995).
Officers and trustees of the fund who are interested persons of the
fund receive no salary or fees from the fund. Each trustee who is not an
interested person of the fund ("Independent Trustees") receives an annual
retainer and a per meeting fee based on the average net assets of the fund at
December 31 of the previous year.
The Nominating Committee of the Board of Trustees is responsible for
the selection and nomination of disinterested trustees. The Committee is
composed of Messrs. Gilmore, Rodgers and Lehman and Dr. McGovern, each of whom
is a disinterested trustee as that term is defined in the 1940 Act.
At December 1, 1998, the trustees and officers of the fund beneficially
owned, in the aggregate, less than 1% of the fund's outstanding shares.
As of December 1, 1998, no persons or entities were known by the fund
to own of record 5% or
7
<PAGE>
more of the fund's outstanding shares.
Trustee Liability
The fund's Declaration of Trust provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
The following table provides certain information relating to the
compensation of the fund's trustees for the fiscal year ended August 31, 1998.
The fund has no retirement plan for its trustees.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Total Compensation From Fund and
Name of Person and Position Aggregate Compensation From Fund* Fund Complex Paid to Trustees**
- ----------------------------------------------------------------------------------------------------------------
<S><C>
John F. Curley, Jr. -
Chairman of the Board and Trustee None None
- ----------------------------------------------------------------------------------------------------------------
Charles F. Haugh - Trustee(A) $3,600 $26,100
- ----------------------------------------------------------------------------------------------------------------
Arnold L. Lehman - Trustee $3,600 $34,800
- ----------------------------------------------------------------------------------------------------------------
Jill E. McGovern - Trustee $3,600 $34,800
- ----------------------------------------------------------------------------------------------------------------
Richard G. Gilmore - Trustee $3,600 $34,800
- ----------------------------------------------------------------------------------------------------------------
T.A. Rodgers - Trustee $3,600 $34,800
- ----------------------------------------------------------------------------------------------------------------
Edward A. Taber - Trustee None None
- ----------------------------------------------------------------------------------------------------------------
Edmund J. Cashman, Jr. - Trustee None None
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents fees paid to each trustee during the fiscal year ended August
31, 1998.
** Represents aggregate compensation paid to each trustee during the
calendar year ended December 31, 1998.
(A) Mr. Haugh retired as a trustee in September 1998.
Management Agreement
Legg Mason Fund Adviser, Inc. ("Manager"), 100 Light Street, Baltimore,
Maryland 21202, serves as the manager for the fund under a Management Agreement
dated July 18, 1988. The Management Agreement provides that, subject to the
overall direction by the Board of Trustees, the Manager will manage the
investment and other affairs of the fund. Under the Management Agreement, the
Manager is responsible for managing the fund's securities and for making
purchases and sales of securities consistent with the investment objectives and
policies described in the fund's Prospectus and this Statement of Additional
Information. The Manager is a wholly owned subsidiary of Legg Mason, Inc. which
is also the parent of Legg Mason Wood Walker, Incorporated.
The Manager has delegated the portfolio management functions for the
fund to the adviser,
8
<PAGE>
Western Asset Management Company. The Manager is obligated to furnish the fund
with office space and certain administrative services, as well as executive and
other personnel necessary for the operation of the fund. The Manager and its
affiliates also are responsible for the compensation of trustees and officers of
the fund who are employees of the Manager and/or its affiliates.
The Manager receives for its services a management fee, calculated
daily and payable monthly, based upon the average daily net assets of the fund
as follows: 0.50% on the first $500 million; 0.475% on the next $500 million;
0.45% on the next $500 million; 0.425% on the next $500 million and 0.4%
thereafter. During the fiscal years ended August 31, 1998, 1997 and 1996, the
fund paid $6,284,105, $6,110,012 and $5,896,533, respectively, to the Manager.
During the fiscal year ended August 31, 1996, Legg Mason contributed $400,000 to
offset a portion of the fund's net realized losses.
Under the Management Agreement, the Manager will not be liable for any
error of judgment or mistake of law or for any loss suffered by the fund in
connection with the performance of the Management Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or losses resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties or from reckless
disregard of its obligations or duties under the Agreement.
The Management Agreement terminates automatically upon assignment and
is terminable at any time without penalty by vote of the fund's Board of
Trustees, by vote of a majority of the outstanding voting securities or by the
Manager, on not less than 60 days' notice to the other party, and may be
terminated immediately upon the mutual written consent of the Manager and the
fund.
The fund pays all of its expenses which are not expressly assumed by
the Manager. These expenses include, among others, interest expense, taxes,
brokerage fees and commissions, expenses of preparing prospectuses, statements
of additional information, proxy statements and reports and of printing them for
and distributing them to existing shareholders, custodian charges, transfer
agency fees, compensation of the independent trustees, legal and audit expenses,
insurance expenses, expenses of registering and qualifying shares of the fund
for sale under federal and state law, governmental fees and expenses incurred in
connection with membership in investment company organizations.
The fund also is obligated to pay the expenses for maintenance of its
financial books and records, including computation of the Fund's net asset value
per share, and dividends. The fund also is liable for such nonrecurring expenses
as may arise, including litigation to which the Fund may be a party. The fund
may also have an obligation to indemnify the trustees and officers of the fund
with respect to litigation.
Under the Management Agreement, the fund has the non-exclusive right to
use the name "Legg Mason" until that Agreement is terminated, or until the right
is withdrawn in writing by the Manager.
Investment Advisory Agreement
The adviser, Western Asset Management Company, 117 East Colorado
Boulevard, Pasadena, CA 91105, an affiliate of Legg Mason, serves as investment
adviser to the Fund under an Investment Advisory Agreement dated July 18, 1988,
between the Adviser and the Manager ("Advisory Agreement"). The Advisory
Agreement was most recently approved by the Board of Trustees, including a
majority of the trustees who are not "interested persons" of the fund, the
Adviser or the Manager, on November [ ], 1998. Under the Advisory Agreement, the
Adviser is responsible, subject to the supervision of the Manager and the
general oversight of the fund's Board of Trustees, for the actual management of
the fund's assets, including the responsibility for making decisions and placing
orders to buy, sell or hold a particular security. For the Adviser's services to
the fund, the Manager (not the fund) pays the Adviser a fee, computed daily and
payable monthly, at an annual rate of 30% of the fee received by the Manager
from the fund. During the years ended August 31, 1998, 1997 and 1996, the
Manager paid the Adviser $1,885,232, $1,833,004 and
9
<PAGE>
$1,768,960, respectively, pursuant to the Advisory Agreement.
Under the Advisory Agreement, the Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Manager or
by the fund in connection with the performance of the Advisory Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under the Agreement.
The Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the fund's Board of Trustees,
by vote of a majority of the fund's outstanding voting securities, by the
Manager or by the Adviser, on not less than 60 days' notice to the fund and/or
the other party(ies). The Advisory Agreement will be terminated immediately upon
any termination of the Management Agreement or upon the mutual written consent
of the Adviser, the Manager and the fund.
The Fund's Distributor
Legg Mason Wood Walker, Inc., 100 Light Street, Baltimore, MD 21202,
acts as distributor of the fund's shares pursuant to an Underwriting Agreement.
The Underwriting Agreement obligates Legg Mason to promote the sale of fund
shares and to pay certain expenses in connection with its distribution efforts,
including expenses for the printing and distribution of prospectuses and
periodic reports used in connection with the offering to prospective investors
(after the prospectuses and reports have been prepared, set in type and mailed
to existing shareholders at the fund's expense), and for supplementary sales
literature and advertising costs.
The fund has adopted a Distribution and Shareholder Services Plan
("Plan") which, among other things, permits the fund to pay Legg Mason fees for
its services related to sales and distribution of shares and the provision of
ongoing services to shareholders. Under the Plan, the aggregate fees may not
exceed an annual rate of 0.15% of the fund's average daily net assets. However,
the Board has authorized payment of only 0.10% annually from the fund until
January 10, 1999. Distribution activities for which such payments may be made
include, but are not limited to, compensation to persons who engage in or
support distribution of shares, printing of prospectuses and reports for persons
other than existing shareholders, advertising, preparation and distribution of
sales literature, overhead, travel and telephone expenses. The Plan was approved
by the shareholders of the fund on March 8, 1996.
Effective January 10, 1997, the fund began compensating Legg Mason for
distribution costs and services at an annual rate equal to 0.10% of its average
daily net assets. During the years ended August 31, 1998 and 1997, the fund paid
Legg Mason $1,299,123 and $833,064, respectively, pursuant to the Underwriting
Agreement. The Plan specifies that the fund may not pay more in cumulative
distribution fees than 6.25% of total new gross assets, plus interest, as
specified in the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD"). Shareholder servicing fees paid under the
Plan are not subject to that limit. Legg Mason may pay all or a portion of the
fee to its financial advisors or to dealers with which Legg Mason has a dealer
agreement with respect to the fund. The continuation of the Plan was approved on
November [ ], 1998 by the Board of Trustees, including a majority of the
trustees who are not "interested persons" of the fund as that term is defined in
the 1940 Act and who have no direct or indirect financial interest in the
operation of the Plan or the Underwriting Agreement ("12b-1 Trustees").
In approving the continuation of the Plan, in accordance with the
requirements of Rule 12b-1, the trustees determined that there was a reasonable
likelihood that the Plan would benefit the fund and its shareholders. The
trustees considered, among other things, the extent to which the potential
benefits of the Plan to the fund's shareholders outweighed the costs of the
Plan; the likelihood that the Plan would succeed in producing such potential
benefits; the merits of certain possible alternatives to the Plan; and
10
<PAGE>
the extent to which the retention of assets and additional sales of shares of
the fund would be likely to maintain or increase the amount of compensation paid
by the fund to its Manager.
In considering the costs of the Plan, the trustees particularly
considered the fact that any payments made by the fund to Legg Mason under the
Plan would increase the fund's level of expenses in the amount of such payments.
Further, the trustees recognized that the Manager would earn greater management
fees if the fund's assets were increased, because such fees are calculated as a
percentage of the fund's assets and thus would increase if net assets increase.
The trustees further recognized that there can be no assurance that any of the
potential benefits described below would be achieved when the Plan is
implemented.
The trustees noted that the payment of commissions and service fees to
Legg Mason and its investment executives could motivate them to improve their
sales efforts with respect to the fund and to maintain and enhance the level of
services they provide to the fund's shareholders. These efforts, in turn, could
lead to increased sales and reduced redemptions, eventually enabling the fund to
achieve economies of scale and lower per share operating expenses. Any reduction
in such expenses would serve to offset, in whole or in part, the additional
expenses incurred by the fund in connection with the Plan. Furthermore, the
investment management of the fund could be enhanced, as net inflows of cash from
new sales might enable its portfolio manager to take advantage of attractive
investment opportunities, and reduced redemptions could eliminate the potential
need to liquidate attractive securities positions in order to raise the funds
necessary to meet the redemption requests.
The Plan will continue in effect only so long as it is approved at
least annually by the vote of a majority of the Board of Trustees, including a
majority of the 12b-1 Trustees, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Trustees or by a vote of a majority of the outstanding
voting shares. Any change in the Plan that would materially increase the
distribution cost to the fund requires shareholder approval; otherwise the Plan
may be amended by the trustees, including a majority of the 12b-1 Trustees, as
previously described.
In accordance with Rule 12b-1, the Plan provides that Legg Mason will
submit to the fund's Board of Trustees, and the trustees will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the candidates to serve as
Independent Trustees will be committed to the discretion of the Independent
Trustees.
During the year ended August 31, 1998, Legg Mason incurred the
following distribution and shareholder servicing expenses with respect to the
fund:
Compensation to sales personnel $ 894,000
Advertsing $ 63,000
Printing and mailing of prospectuses to prospective
shareholders $ 202,000
Other (Funds Marketing, Branch System Processing, Exec.
and Sales Mgmt, Funds Accounting and Training) $3,496,000
----------
Total expenses $4,655,000
==========
The foregoing are estimated and do not include all expenses fairly allocable to
Legg Mason's or its affiliates' efforts to distribute the fund. Legg Mason
receives payment under the plan regardless of the actual expenses it incurs.
11
<PAGE>
Additional Tax Information
The fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended.
To do so, the fund must distribute annually to its shareholders at least 90% of
its investment company taxable income (generally, net investment income plus any
net short-term capital gain) and must meet several additional requirements.
Among these requirements are the following: (1) at least 90% of the fund's gross
income each taxable year must be derived from dividends, interest and gains from
the sale or other disposition of securities, or other income derived with
respect to its business of investing in securities; (2) at the close of each
quarter of the fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. government securities,
and other securities, with those other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the fund's total
assets; and (3) at the close of each quarter of the fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities) of any one issuer.
By qualifying for treatment as a RIC, the fund (but not its
shareholders) will be relieved of federal income tax on the part of its
investment company taxable income that it distributes to its shareholders. If
the fund failed to qualify as a RIC for any taxable year, it would be taxed on
the full amount of its taxable income for that year without being able to deduct
the distributions it makes to its shareholders and the shareholders would treat
all those distributions as dividends (that is, ordinary income) to the extent of
the fund's earnings and profits.
The fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and any capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Additional Purchase And Redemption Information
Shares are sold at their net asset value without a sales charge on days
the New York Stock Exchange ("Exchange") is open for business. The procedure for
purchasing shares of the Fund is explained in the Prospectus under "How to
Invest".
Conversion to Federal Funds
It is the fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from shareholders must
be in federal funds or be converted into federal funds. This conversion must be
made before shares are purchased. Legg Mason or Boston Financial Data Services
("BFDS") acts as the shareholders' agent in depositing checks and converting
them to federal funds, normally within two to nine business days of receipt of
checks.
A cash deposit made after the daily cashiering deadline of the Legg
Mason office in which the deposit is made will be credited to your Legg Mason
brokerage account ("Brokerage Account") on the next business day following the
day of deposit, and the resulting free credit balance will be invested on the
second business day following the day of receipt.
Redemption By Wire
The fund redeems shares at the next computed net asset value after Legg
Mason receives the redemption request. Redemption procedures are explained in
the Prospectus under "How to Sell Your Shares". When payment for shares is in
the form of federal funds, the 10-day potential delay described in the
Prospectus does not apply.
Redemption in Kind
The fund reserves the right, under certain conditions, to honor any
request for a redemption, or combination of requests from the same shareholder
in any 90-day period, totalling $250,000 or 1% of the net assets of the fund,
whichever is less, by making payment in whole or in part in securities valued in
the same way as they would be valued for purposes of computing the fund's net
asset value per share. If payment is made in securities, a shareholder should
expect to incur brokerage expenses in converting
12
<PAGE>
those securities into cash and the market price of those securities will be
subject to fluctuation until they are sold. The fund does not redeem in kind
under normal circumstances, but would do so where the Adviser determines that it
would be in the best interests of the shareholders as a whole.
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
When you purchase shares through the Future First Systematic Investment
Plan, BFDS, the fund's transfer agent, will transfer funds from your Legg Mason
account or from your checking account to be used to buy shares of the fund. Legg
Mason, the fund's distributor, will send an account statement quarterly. The
transfer also will be reflected on your Legg Mason account statement or your
regular checking account statement. You may terminate the Future First
Systematic Investment Plan at any time without charge or penalty.
You may also buy additional shares of the fund through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow you, on a pre-authorized basis, to have $50 or more
automatically transferred monthly for investment in shares of the fund to:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
Attn: Legg Mason Funds
If the investor's check is not honored by the institution on which it
is drawn, the investor may be subject to extra charges in order to cover
collection costs. These charges may be deducted from the investor's account.
Systematic Withdrawal Plan
You may also elect to make systematic withdrawals from your fund
account of a minimum of $50 on a monthly basis if you own shares with a net
asset value of $5,000 or more. The amounts paid to you each month are obtained
by redeeming sufficient shares from your account to provide the withdrawal
amount that you have specified. The Systematic Withdrawal Plan is not currently
available for shares held in an Individual Retirement Account ("IRA"),
Simplified Employee Pension Plan ("SEP"), Savings Incentive Match Plan for
Employees ("SIMPLE") or other qualified retirement plan.
You may change the monthly amount to be paid to you without charge not
more than once a year by notifying Legg Mason or the affiliate with which you
have an account. Redemptions will be made at the net asset value determined as
of the close of the Exchange on the first day of each month. If the Exchange is
not open for business on that day, the shares will be redeemed at the net asset
value determined as of the close of the Exchange on the preceding business day.
The check for the withdrawal payment will usually be mailed to you on the next
business day following redemption. If you elect to participate in the Systematic
Withdrawal Plan, dividends and distributions on all shares in your fund account
must be automatically reinvested in fund shares. You may terminate the
Systematic Withdrawal Plan at any time without charge or penalty. The fund, its
transfer agent, Legg Mason and its affiliates also reserve the right to modify
or terminate the Systematic Withdrawal Plan at any time.
Withdrawal payments are treated as a sale of shares rather than as a
dividend. If the periodic withdrawals exceed reinvested dividends and
distributions, the amount of your original investment will be correspondingly
reduced.
Legg Mason Premier Asset Management Account/VISA Account
Shareholders of the fund who have cash or negotiable securities
(including fund shares) valued at $20,000 or more in accounts with Legg Mason
may subscribe to Legg Mason's Premier Asset
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Management Account ("Premier"). This program provides a direct link between a
shareholder's fund account and his or her Brokerage Account. Premier provides
shareholders with a convenient method to invest in the fund through their
Brokerage Accounts, which includes automatic daily investment of free credit
balances of $100 or more and automatic weekly investment of free credit balances
of less than $100.
Premier is a comprehensive financial service which combines a
shareholder's fund account, a preferred customer VISA Gold debit card, a Legg
Mason Brokerage Account and unlimited checkwriting with no minimum check amount.
Premier is offered as an exclusive preferred customer service for shareholders
of certain Legg Mason funds.
The VISA Gold debit card may be used to purchase merchandise or
services from merchants honoring VISA or to obtain cash advances (which a bank
may limit to $5,000 or less, per account per day) from any bank honoring VISA.
Checks, VISA charges and cash advances are posted to the shareholder's
margin account and create automatic same day redemptions if shares are available
in the fund. If fund shares have been exhausted, the debits will remain in the
margin account, reducing the cash available. The shareholder will receive one
consolidated monthly statement which details all fund transactions, securities
activity, check writing activity and VISA Gold purchases and cash advances.
BancOne Columbus ("BancOne"), 757 Carolyn Avenue, Columbus, Ohio 43271,
is the fund's agent for processing payment of VISA Gold debit card charges and
clearance of checks written on the Premier Account. Shareholders are subject to
BancOne's rules and regulations governing VISA accounts, including the right of
BancOne not to honor VISA drafts in amounts exceeding the authorization limit of
the shareholder's account at the time the VISA draft is presented for payment.
The authorization limit is determined daily by taking the shareholder's fund
account balance and subtracting (1) all shares purchased within 15 days by other
than federal funds wired; (2) all shares for which certificates have been
issued; and (3) any previously authorized VISA transaction.
PREFERRED CUSTOMER CARD SERVICES Unlike some other investment programs
which offer the VISA card privilege, Premier also includes travel/accident
insurance at no added cost when shareholders purchase travel tickets with their
Premier VISA Gold debit card. Coverage is provided through VISA and extends up
to $250,000.
If a VISA Gold debit card is lost or stolen, the shareholder should
report the loss immediately by contacting Legg Mason directly between the hours
of 8:30 a.m. and 5:00 p.m., or BancOne (collect) after hours at 1-614-248-4242.
Those shareholders who subscribe to the Premier VISA account privilege may be
liable for the unauthorized use of their VISA Gold debit card in amounts up to
$50.
Legg Mason is responsible for all Premier VISA Gold debit card
inquiries as well as billing and account resolutions. Simply call Legg Mason
Premier Client Services directly between 8:30 a.m. and 5:00 p.m., Eastern time,
at 1-800-253-0454 or 1-410-528-2066 with your account inquiries.
AUTOMATIC PURCHASES OF FUND SHARES For shareholders participating in
the Premier program who sell shares held in their Brokerage Account, any free
credit balances of $100 or more in a single account resulting from any such sale
will automatically be invested in shares of the fund on the same business day
the proceeds of sale are credited to the Brokerage Account. Free credit balances
of less than $100 will be invested in fund shares weekly.
Free credit balances arising from sales of Brokerage Account shares for
cash (i.e., same-day settlement), redemption of debt securities, dividend and
interest payments and cash deposits will be invested automatically in fund
shares on the next business day following the day the transaction is credited to
the Brokerage Account.
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Fund shares will receive the next dividend declared following purchase
(normally 12:00 noon, Eastern time, on the following business day). A purchase
order will not become effective until cash in the form of federal funds is
received by the fund.
HOW TO OPEN A PREMIER ACCOUNT To subscribe to Premier services, clients
must contact Legg Mason to execute both a Premier Agreement with Legg Mason and
a VISA Account Application and Agreement with BancOne. Legg Mason charges a fee
for the Premier service, which is currently $85 per year for individuals and
$100 per year for businesses and corporations. Legg Mason reserves the right to
alter or waive the conditions upon which a Premier account may be opened. Both
Legg Mason and BancOne reserve the right to terminate or modify any
shareholder's Premier services at their discretion.
You may request Premier Account status by filling out the Premier Asset
Management Account Agreement and Check Application which can be obtained from
your financial advisor. You will receive your VISA Gold debit card (if
applicable) from BancOne. The Premier VISA Gold debit card may be used at over 8
million locations, including 23,000 ATMs, in 24 countries around the world.
Premier checks will be sent to you directly. There is no limit on the number of
checks you may write against your Premier account.
Shareholders should be aware that the various features of the Premier
program are intended to provide easy access to assets in their accounts and that
the Premier account is not a bank account. Additional information about the
Premier program is available by calling your financial advisor or Legg Mason's
Premier Client Services.
Other Information Regarding Redemption
The fund reserves the right to modify or terminate the check, wire,
telephone or VISA Gold card redemption services described in the Prospectus and
this Statement of Additional Information at any time.
You may request the fund's checkwriting service by sending a written
request to Legg Mason. State Street Bank and Trust Company ("State Street"), the
fund's custodian, will supply you with checks which can be drawn on an account
of the fund maintained with State Street. When honoring a check presented for
payment, the fund will cause State Street to redeem exactly enough full and
fractional shares from your account to cover the amount of the check. Canceled
checks will be returned to you.
Check redemption is subject to State Street's rules and regulations
governing checking accounts. Checks should not be used to close a fund account
because when the check is written you will not know the exact total value of the
account, including accrued dividends, on the day the check clears. Persons who
obtained certificates for their shares may not use the checkwriting service.
The date of payment for a redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended except (1) for any
periods during which the Exchange is closed, (2) when trading in markets the
fund normally utilizes is restricted, or an emergency, as defined by rules and
regulations of the SEC, exists, making disposal of the fund's investments or
determination of its net asset value not reasonably practicable, or (3) for such
other periods as the SEC by regulation or order may permit for protection of the
fund's shareholders. In the case of any such suspension, you may either withdraw
your request for redemption or receive payment based upon the net asset value
next determined after the suspension is lifted.
Although the fund may elect to redeem any shareholder account with a
current value of less than $500, the fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
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Tax-Deferred Retirement Accounts And Plans
In general, income earned through the investment of assets of
qualified retirement accounts and plans is not taxed to the beneficiaries
thereof until the income is distributed to them. Investors who are considering
establishing such an account or plan should consult their attorneys or tax
advisers with respect to individual tax questions. The option of investing in
these accounts or plans through regular payroll deductions may be arranged with
a Legg Mason or affiliated financial advisor and your employer. Additional
information with respect to these accounts or plans is available upon request
from any Legg Mason or affiliated financial advisor.
Individual Retirement Account - IRA
Certain investors who have not reached age 70 1/2 may obtain tax
advantages by establishing IRAs. Specifically, if neither you nor your spouse is
an active participant in a qualified employer or government retirement plan, or
if either you or your spouse is an active participant in such a plan and your
adjusted gross income does not exceed a certain level, you may deduct cash
contributions made to an IRA in an amount for each taxable year not exceeding
the lesser of 100% of your and your spouse's earned income or $2,000 ($4,000 for
a married couple filing a joint return); notwithstanding the foregoing, however,
a married investor who is not an active participant in such a plan and files
jointly with his or her spouse (and their combined adjusted gross income does
not exceed $150,000) is not affected by the spouse's active participant status.
In addition, if your spouse is not employed and you file a joint return, you may
establish a separate IRA for your spouse and contribute up to a total of $4,000
to the two IRAs, provided that neither contribution exceeds $2,000. If your
employer's plan qualifies as a SEP, permits voluntary contributions and meets
certain other requirements, you may make voluntary contributions to that plan
that are treated as deductible IRA contributions. Furthermore, individuals whose
earnings (together with their spouse's earnings) do not exceed a certain level
may establish an "education IRA" and/or a "Roth IRA", although contributions to
these new types of IRAs (established by the Taxpayer Relief Act of 1997) are
nondeductible, withdrawals from them will not be taxable under certain
circumstances.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in shares of the fund through
IRA contributions up to certain limits, because all dividends on your fund
shares are then not immediately taxable to you or the IRA; they become taxable
only when distributed to you. To avoid penalties, your interest in an IRA must
be distributed, or start to be distributed, to you not later than the end of the
taxable year in which you attain age 70 1/2. Distributions made before age
59 1/2, in addition to being taxable, generally are subject to a penalty equal
to 10% of the distribution, except in the case of death or disability, when the
distribution is rolled over into another qualified plan or certain other
situations.
Simplified Employee Pension Plan - SEP
Legg Mason makes available to corporate and other employers a SEP for
investment in shares of the fund.
Savings Incentive Match Plan for Employees - SIMPLE
An employer with no more than 100 employees that does not maintain
another retirement plan instead may establish a SIMPLE either as separate IRAs
or as part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans, allows certain employees to make elective contributions of up to $6,000
per year and requires the employer to make matching contributions up to 3% of
each such employee's salary.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions
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(excluding, for example, certain periodic payments) from the foregoing
retirement plans (except IRAs and SEPs), unless the recipient transfers the
distribution directly to an "eligible retirement plan" (including IRAs and other
qualified plans) that accepts those distributions. Other distributions generally
are subject to regular wage withholding or withholding at the rate of 10%
(depending on the type and amount of the distribution), unless the recipient
elects not to have any withholding apply. Investors should consult their plan
administrator or tax adviser for further information.
Valuation Of Shares
The fund attempts to stabilize the value of a share at $1.00. Net asset
value will not be calculated on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
USE OF THE AMORTIZED COST METHOD The trustees have decided that the
best method for determining the value of portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the acquisition
cost as adjusted for amortization of premium or accretion of discount rather
than at current market value. The Board of Trustees periodically assesses the
accuracy and appropriateness of this method of valuation.
The fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with Rule 2a-7 under the 1940 Act. Under
that Rule, the trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the fund's investment objective.
Under the Rule, the fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the fund to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days' notice
or (2) at specified intervals, not exceeding one year, on no more than 30 days'
notice. A standby commitment entitles the fund to achieve same day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are techniques that
are defined as "puts" under the Rule, the fund does not consider them to be
"puts" as that term is used in the fund's investment limitations. Demand
features and standby commitments are features which enhance an instrument's
liquidity, and the investment limitation which proscribes puts is designed to
prohibit the purchase and sale of put and call options and is not designed to
prohibit the fund from using techniques which enhance the liquidity of portfolio
instruments.
MONITORING PROCEDURES The fund's procedures include monitoring the
relationship between the amortized cost value per share and net asset value per
share based upon available indications of market value. If there is a difference
of more than 0.5% between the two, the trustees will take any steps they
consider appropriate (such as shortening the dollar-weighted average portfolio
maturity) to minimize any material dilution or other potentially unfair results
arising from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS Rule 2a-7 requires the fund, if it wishes to
value its assets at amortized cost, to limit its investments to instruments
that, (i) in the opinion of the Adviser, present minimal credit risk and (ii)(a)
are rated in the two highest rating categories by at least two nationally
recognized statistical rating organizations ("NRSROs")(or one, if only one NRSRO
has rated the security) or, (b) if unrated, are determined to be of comparable
quality by the Adviser, all pursuant to procedures determined by the Board of
Trustees ("Eligible Securities"). Securities that were long-term when issued,
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but that have 397 days or less remaining to maturity, and that lack an
appropriate short-term rating, may be eligible if they are comparable in
priority and security to a rated short-term security, unless the former security
has a long-term rating below AA/Aa.
The fund 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 fund will not invest more than 1% of its total
assets or $1 million (whichever is greater) in the Second Tier Securities of a
single issuer.
The Rule requires the fund to maintain a dollar-weighted average
portfolio maturity appropriate to the objective of maintaining a stable net
asset value of $1.00 per share and in any event not more than 90 days. In
addition, under the Rule, no instrument with a remaining maturity (as defined by
the Rule) of more than 397 days can be purchased by the fund; except that the
fund may hold securities with maturities greater than 397 days as collateral for
repurchase agreements and other collateralized transactions of short duration.
Certain variable rate securities in which the fund invests may have a remaining
maturity of more than 397 days. However, pursuant to regulations of the SEC, the
fund is permitted to treat these securities as having a maturity of no more than
397 days, based on the times at which the interest rates of these securities are
reset and/or the fund is permitted to redeem them on demand.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the fund will
invest its available cash to reduce the average maturity to 90 days or less as
soon as possible.
It is the fund's usual practice to hold portfolio securities to
maturity and realize par, unless the Adviser determines that sale or other
disposition is appropriate in light of the fund's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the fund, computed by dividing the annualized daily income on the
fund's investment portfolio by the net asset value computed as above, may tend
to be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
How The Fund's Yield Is Calculated
The current annualized yield for the fund is based on a seven-day
period and is computed by determining the net change in the value of a
hypothetical account in the fund. The net change in the value of the account
includes the value of dividends and of additional shares purchased with
dividends, but does not include gains and losses or unrealized appreciation and
depreciation. In addition, the fund may use a compound effective annualized
yield quotation which is calculated as prescribed by SEC regulations, by adding
one to the base period return (calculated as described above), raising the sum
to a power equal to 365 divided by 7, and subtracting one.
The fund's yield may fluctuate daily depending upon such factors as the
average maturity of its securities, changes in investments, changes in interest
rates and variations in operating expenses. Therefore, current yield does not
provide a basis for determining future yields. The fact that the fund's
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current yield will fluctuate and that shareholders' principal is not guaranteed
or insured should be considered in comparing the fund's yield with yields on
fixed-income investments, such as insured savings certificates. In comparing the
yield of the fund to other investment vehicles, consideration should be given to
the investment policies of each, including the types of investments owned,
lengths of maturities of the portfolio, the method used to compute the yield and
whether there are any special charges that may reduce the yield.
Other Information
The fund's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to predict or indicate future results. The return on an investment in
the fund will fluctuate. In Performance Advertisements, the fund may compare its
taxable yield with data published by Lipper Analytical Services, Inc. for money
market funds ("Lipper"), CDA Investment Technologies, Inc. ("CDA"),
IBC/Donoghue's Money Market Fund Report ("Donoghue"), Morningstar Mutual Funds
("Morningstar") or Wiesenberger Investment Companies Service ("Wiesenberger") or
with the performance of recognized stock and other indexes, including (but not
limited to) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"),
the Dow Jones Industrial Average ("Dow Jones") and the Consumer Price Index as
published by the U.S. Department of Commerce.
The types of securities in which the fund invests are different from
those included in the Standard & Poor's and Dow Jones indices which track the
performance of the equity markets. The S&P 500 and Dow Jones are accepted as
broad-based measures of the equity markets. Calculation of those indices assumes
reinvestment of dividends and ignores brokerage and other costs of investing.
The fund also may refer in such materials to mutual fund performance rankings
and other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA, Donoghue, Morningstar or Wiesenberger. Performance Advertisements
also may refer to discussions of the Trust and comparative mutual fund data and
ratings reported in independent periodicals, including (but not limited to) THE
WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD,
BARRON'S, THE NEW YORK TIMES and FORTUNE.
The fund may also compare its performance with the performance of bank
certificates of deposit ("CDs") as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing the fund's performance to CD performance, investors should keep in
mind that bank CDs are insured in whole or part by an agency of the U.S.
Government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Fund shares are not insured or guaranteed
by the U.S. Government or any agency thereof and returns thereon will fluctuate.
While the fund seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that it will be able to do so.
In advertising, the fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. The fund may use other recognized
sources as they become available.
The fund may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.
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The fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
The fund may also include in advertising biographical information on
key investment and managerial personnel.
The fund may discuss Legg Mason's tradition of service. Since 1899,
Legg Mason and its affiliated companies have helped investors meet their
specific investment goals and have grown to provide a full spectrum of financial
services. Legg Mason affiliates serve as investment advisers for private
accounts and mutual funds with assets of more than $[ ] billion as of September
30, 1998.
In advertising, the fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.
Massachusetts Trust Law
The fund is a Massachusetts business trust formed on July 24, 1978.
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for obligations of the fund. To protect its shareholders, the
fund's Declaration of Trust, filed with the Commonwealth of Massachusetts,
expressly disclaims the liability of its shareholders for acts or obligations of
the fund. The Declaration requires notice of this disclaimer to be given in each
agreement, obligation or instrument the fund or its trustees enter into or sign.
In the unlikely event a shareholder, based on the mere fact of being a
shareholder, is held personally liable for the fund's obligations, the fund is
required to use its property to protect or compensate the shareholder. On
request, the fund will defend any claim made, and pay any judgment, against such
a shareholder for any act or obligation of the fund. Therefore, financial loss
resulting from liability as a shareholder will occur only if the fund itself
cannot meet its obligations to indemnify shareholders and pay judgments against
them.
Portfolio Transactions And Brokerage
Under the Advisory Agreement, the Adviser is responsible for the
execution of portfolio transactions. Debt securities are generally traded on a
"net" basis without a stated commission, through dealers acting for their own
account and not as brokers. Prices paid to a dealer in debt securities will
generally include a "spread", which is the difference between the prices at
which the dealer is willing to purchase and sell the specific security at the
time, and includes the dealer's normal profit. Some portfolio transactions may
be executed through brokers acting as agents. In selecting brokers or dealers,
the Adviser must seek the most favorable price (including the applicable dealer
spread) and execution for such transactions, subject to the possible payment as
described below of higher brokerage commissions for agency transactions to
brokers who provide research and analysis. The fund may not always pay the
lowest commission or spread available. Rather, in placing orders on behalf of
the fund, the Adviser also takes into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below) and any risk assumed by the executing
broker. The fund paid no brokerage commissions, nor did it allocate any
transactions to dealers for research, analysis, advice or similar services
during any of its last three fiscal years.
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Consistent with the policy of most favorable price and execution, the
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place orders
with brokers who provide supplemental investment and market research and
securities and economic analysis, and, for agency transactions, may pay to these
broker-dealers a higher brokerage commission than may be charged by other
brokers. Such research and analysis may be useful to the Adviser in connection
with services to clients other than the fund. The Adviser's fee is not reduced
by reason of its receiving such brokerage and research services.
The fund may not buy securities from, or sell securities to, Legg Mason
or its affiliated persons as principal. However, the fund's Board of Trustees
has adopted procedures in conformity with Rule 10f-3 under the 1940 Act whereby
the fund may purchase securities that are offered in underwritings in which Legg
Mason or any of its affiliated persons is a participant.
Investment decisions for the fund are made independently from those of
other funds and accounts advised by the Adviser. However, the same security may
be held in the portfolios of more than one fund or account. When two or more
accounts simultaneously engage in the purchase or sale of the same security, the
prices and amounts will be equitably allocated to each account. In some cases,
this procedure may adversely affect the price or quantity of the security
available to a particular account. In other cases, however, an account's ability
to participate in large-volume transactions may produce better executions and
prices.
The fund may not always hold portfolio securities to maturity, but may
sell a security to buy another which has a higher yield because of short-term
market movements. This may result in high portfolio turnover. The fund does not
anticipate incurring significant brokerage expense in connection with such
transactions, since ordinarily they will be made directly with the issuer or a
dealer on a net price basis.
The Fund's Custodian And Transfer And Dividend-Disbursing Agent
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105
serves as custodian of the fund's assets. Under a custody agreement with the
fund, the custodian holds the fund's securities and keeps all necessary accounts
and records. Boston Financial Data Services, P.O. Box 953, Boston, MA 02103
serves as transfer and dividend-disbursing agent and administrator of various
shareholder services. The transfer agent maintains shareholder account records
and handles the payment of dividends.
The Fund's Legal Counsel
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, serves as counsel to the fund.
The Fund's Independent Auditors
Ernst & Young LLP, 2 Commerce Square, 2001 Market Street, Philadelphia,
PA, has been selected by the Board of Trustees to serve as the fund's
independent auditors. The auditors perform an annual audit of the fund and
assist in the preparation of tax returns.
Financial Statements
The fund's Statement of Net Assets as of August 31, 1998; the Statement
of Operations for the year ended August 31, 1998; the Statement of Changes in
Net Assets for the years ended August 31, 1998 and 1997; the Financial
Highlights for the years ended August 31, 1994 through 1998; the Notes to
Financial Statements and the Report of Ernst & Young LLP, Independent Auditors,
are hereby incorporated by reference in this Statement of Additional Information
from the fund's annual report for the year ended August 31, 1998.
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Legg Mason Cash Reserve Trust
Part C. Other Information
-----------------
Item 23. Exhibits
(1) (a) Declaration of Trust (2)
(b) Amendment No. 1 to the Declaration of Trust (2)
(c) Amendment No. 2 to the Declaration of Trust (2)
(2) By-Laws (As Restated and Amended February 2, 1987) (2)
(3) Specimen Security - not applicable
(4) (a) Management Agreement (2)
(b) Investment Advisory Contract (2)
(5) Underwriting Agreement (1)
(6) Bonus, profit sharing or pension plans - none
(7) (a) Custodian Agreement (2)
(b) Amendment to Custodian Agreement (2)
(8) Transfer Agency and Service Agreement (2)
(9) Opinion of Counsel (2)
(10) Consent of Independent Auditors - filed herewith
(11) Financial statements omitted from Item 22 - none
(12) Not Applicable
(13) Plan pursuant to Rule 12b-1(1)
(14) Financial Data Schedule - filed herewith
(15) Plan pursuant to Rule 18f-3 - none
- ------------
(1) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 34 to the Registration Statement filed on December 31, 1996.
(2) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 35 to the Registration Statement filed on December 31, 1997.
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None
Item 25. Indemnification
---------------
Pursuant to Section 4 of Article XI of the Registrant's Declaration of
Trust, indemnification may be provided to the Registrant's present and former
Officers, Trustees, employees and agents to the fullest extent permitted by law
against claims and expenses reasonably incurred or paid by them by virtue of
serving or having served in such a capacity or in settlement of any such claims.
No indemnification may
<PAGE>
be provided under the Declaration of Trust against any liability to the Trust or
its shareholders by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of office.
Under Section 2 of Article XI of the Registrant's Declaration of Trust,
no Trustee or Officer of the Registrant shall be personally liable to any person
for incurring any debts, liabilities or obligations or in taking or omitting any
other actions for or in connection with the Registrant. Provided that the
Trustees and Officers have exercised reasonable care and have acted under the
belief that their actions are in the best interest of the Registrant, the
Trustees and Officers shall not be responsible or liable in any event for
neglect or wrongdoing by them or any employee, agent, investment adviser or
principal underwriter of the Registrant.
Section 11 of the Underwriting Agreement between the Registrant and Legg
Mason Wood Walker, Incorporated ("Underwriter") provides that the Registrant
will indemnify and hold harmless the Underwriter within the meaning of Section
15 of the Securities Exchange Act of 1933 or Section 20 of the Securities
Exchange Act of 1934, as amended, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (as from time to
time amended and supplemented) or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus, or any amendment
or supplement thereof.
Similarly, the Underwriter agrees to indemnify and hold harmless the
Registrant, each of its Trustees, each of its Officers who have signed the
Registration Statement and each other person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933,
("1933 Act") to the same extent as the foregoing indemnity from the Registrant
to the Underwriter but only with respect to statements or omissions, if any,
made in the Registration Statement or Prospectus or any amendment or supplement
thereof in reliance upon, and in conformity with, information furnished to the
Registrant with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
or supplement thereof.
Section 8 of the Management Agreement between the Registrant and Legg
Mason Fund Adviser, Inc. ("Manager") provides that the Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Registrant in connection with performance of the Management Agreement,
except for losses resulting from willful misfeasance, bad faith or gross
negligence in the Manager's performance of its duties, or by reason of the
Manager's reckless disregard of its obligations and duties under the Management
Agreement.
Pursuant to Section 8 of the Investment Advisory Agreement, Western Asset
Management Company ("Adviser") will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Registrant in connection with the
performance of the Investment Advisory Agreement, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser or
from the Adviser's reckless disregard of its obligations or duties under the
Investment Advisory Agreement.
Insofar as indemnification for liabilities arising under the 1933 Act, as
amended, may be permitted for Trustees, Officers and controlling persons of the
Registrant by the Registrant, pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by Trustees, Officers or controlling
persons of
<PAGE>
the Registrant in connection with the successful defense of any act, suit or
proceeding) is asserted by such Trustees, Officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
Registrant undertakes to carry out all indemnification provisions of its
Declaration of Trust and the above-described contracts in accordance with
Investment Company Act Release No. 11330 (September 4, 1980) and successor
releases.
Item 26. Business and Other Connections of Manager and Investment Adviser
----------------------------------------------------------------
I. Legg Mason Fund Adviser, Inc. ("Manager"), the Registrant's manager,
is a registered investment adviser incorporated on January 20, 1982. The Manager
is engaged primarily in the investment advisory business. The Manager also
serves as investment adviser or manager to nineteen open-end investment
companies. Information as to the officers and directors of the Manager is
included in its Form ADV filed on June 24, 1998 with the Securities and Exchange
Commission (registration number 801-16958) and is incorporated herein by
reference.
II. Western Asset Management Company ("Adviser"), the Registrant's
investment adviser, is a registered investment adviser incorporated on October
5, 1971. The Adviser is primarily engaged in the investment advisory business.
The Adviser also serves as investment adviser for open-end investment companies
and one closed-end investment company. Information as to the officers and
directors of the Adviser is included in its Form ADV filed on June 30, 1998 with
the Securities and Exchange Commission (registration number 801-08162) and is
incorporated herein by reference.
Item 27. Principal Underwriters
(a) Legg Mason Income Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Light Street Trust, Inc.
Legg Mason Focus Trust, Inc.
Western Asset Trust, Inc.
(b) The following table sets forth information concerning each director
and officer of the Registrant's principal underwriter, Legg Mason
Wood Walker, Incorporated ("LMWW").
<TABLE>
<CAPTION>
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------ -------------
<S><C>
Raymond A. Mason Chairman of the None
Board
John F. Curley, Jr. Vice Chairman Chairman of the
of the Board Board, President and
Trustee
</TABLE>
<PAGE>
<TABLE>
<S><C>
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive Trustee
Vice President and
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice Trustee
President and
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
F. Barry Bilson Senior Vice None
President and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 Director
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
</TABLE>
<PAGE>
<TABLE>
<S><C>
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
Joseph Sullivan Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
W. William Brab Senior Vice None
President
Deepak Chowdhury Senior Vice None
255 Alhambra Circle President
Coral Gables, FL 33134
Harry M. Ford, Jr. Senior Vice None
President
Dennis A. Green Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
One Battery Park Plaza President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
Seth J. Lehr Senior Vice None
1735 Market St President
Philadelphia, PA 19103
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
</TABLE>
<PAGE>
<TABLE>
<S><C>
Jonathan M. Pearl Senior Vice None
1777 Reisterstown Rd. President
Pikesville, MD 21208
John A. Pliakas Senior Vice None
125 High Street President
Boston, MA 02110
Gail Reichard Senior Vice None
President
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Robert J. Walker, Jr. Senior Vice None
200 Gibraltar Road President
Horsham, PA 19044
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
Joseph H. Davis, Jr. Vice President None
1735 Market Street
Philadelphia, PA 19380
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
John R. Gilner Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Mark C. Micklem Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
</TABLE>
<PAGE>
<TABLE>
<S><C>
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
K. Mitchell Posner Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl W. Riedy, Jr. Vice President None
Jeffrey M. Rogatz Vice President None
Thomas E. Robinson Vice President None
Douglas M. Schmidt Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
William A. Verch Vice President None
Lewis T. Yeager Vice President None
Joseph F. Zunic Vice President None
</TABLE>
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of such
an affiliated person.
Item 28. Location of Accounts and Records
--------------------------------
<PAGE>
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 29. Management Services
-------------------
None
Item 30. Undertakings
------------
Not applicable
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund, Legg Mason Cash Reserve Trust, has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore and State of
Maryland, on the 29 th day of October, 1998.
LEGG MASON CASH RESERVE TRUST
By: /s/ Marie K. Karpinski
______________________
Marie K. Karpinski
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S><C>
/s/ John F. Curley, Jr. Chairman of the Board,
__________________________ President and Trustee October 29, 1998
John F. Curley, Jr.
/s/ Edward A. Taber, III Trustee October 29, 1998
__________________________
Edward A. Taber, III
/s/ Edmund J. Cashman, Jr. Trustee October 29, 1998
__________________________
Edmund J. Cashman, Jr.
/s/ Arnold L. Lehman* Trustee October 29, 1998
__________________________
Arnold L. Lehman*
/s/ Jill E. McGovern* Trustee October 29, 1998
__________________________
Jill E. McGovern*
/s/ Richard G. Gilmore* Trustee October 29, 1998
__________________________
Richard G. Gilmore
/s/T. A. Rodgers* Trustee October 29, 1998
__________________________
T. A. Rodgers
/s/ Marie K. Karpinski Vice President and
__________________________ Treasurer October 29, 1998
Marie K. Karpinski
</TABLE>
*Signatures affixed by Marie K. Karpinski pursuant to a power of attorney dated
May 8, 1998, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director/Trustee of the following investment companies:
Legg Mason Cash Reserve Trust Legg Mason Value Trust, Inc.
Legg Mason Income Trust, Inc. Legg Mason Total Return Trust, Inc.
Legg Mason Global Trust, Inc. Legg Mason Special Investment Trust, Inc.
Legg Mason Tax Exempt Trust, Inc. Legg Mason Investors Trust, Inc.
Legg Mason Tax-Free Income Fund
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of Marie K.
Karpinski, Kathi D. Bair, Arthur J. Brown and Arthur C. Delibert my true and
lawful attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, any Registration
Statements on Form N-1A, all Pre-Effective Amendments to any Registration
Statements of the Funds, any and all subsequent Post-Effective Amendments to
said Registration Statements, any supplements or other instruments in connection
therewith, to file the same with the Securities and Exchange Commission and the
securities regulators of appropriate states and territories, and generally to do
all such things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the provisions
of the Securities Act of 1933 and the Investment Company Act of 1940, all
related requirements of the Securities and Exchange Commission and all
requirements of appropriate states and territories. I hereby ratify and confirm
all that said attorney-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
Signature Date
- --------- ----
/s/ Richard G. Gilmore May 8, 1998
__________________________
Richard G. Gilmore
/s/ T. A. Rodgers May 8, 1998
__________________________
T. A. Rodgers
/s/ Charles F. Haugh May 8, 1998
__________________________
Charles F. Haugh
/s/ Arnold L. Lehman May 8, 1998
__________________________
Arnold L. Lehman
/s/ Jill E. McGovern May 8, 1998
__________________________
Jill E. McGovern
/s/ Edward A. Taber, III May 8, 1998
__________________________
Edward A. Taber, III
/s/ Edmund J. Cashman, Jr. May 8, 1998
__________________________
Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. May 8, 1998
__________________________
John F. Curley, Jr.
/s/ Raymond A. Mason May 8, 1998
__________________________
Raymond A. Mason
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 36 to the Registration Statement (Form N-1A) (No.
2-62218) of Legg Mason Cash Reserve Trust of our report dated September 21,
1998, included in the 1998 Annual Report to Shareholders.
/s/ Ernst & Young LLP
_____________________
Philadelphia, Pennsylvania
October 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000276300
<NAME> LEGG MASON CASH RESERVE TRUST
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 1,425,761
<INVESTMENTS-AT-VALUE> 1,425,761
<RECEIVABLES> 30,566
<ASSETS-OTHER> 2,954
<OTHER-ITEMS-ASSETS> 48
<TOTAL-ASSETS> 1,459,329
<PAYABLE-FOR-SECURITIES> 31,952
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,765
<TOTAL-LIABILITIES> 36,717
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,422,553
<SHARES-COMMON-PRIOR> 1,342,622
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,422,612
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 74,042
<OTHER-INCOME> 0
<EXPENSES-NET> 10,210
<NET-INVESTMENT-INCOME> 63,832
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 63,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (63,832)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,532,879
<NUMBER-OF-SHARES-REDEEMED> (4,514,996)
<SHARES-REINVESTED> 62,048
<NET-CHANGE-IN-ASSETS> 79,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,285
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,210
<AVERAGE-NET-ASSETS> 1,313,172
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
