As filed with the Securities and Exchange Commission on December 20, 1999.
1933 Act File No. 2-62218
1940 Act File No. 811-2853
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No: [ ]
Post-Effective Amendment No: 37 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 30
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:
MARC R. DUFFY, ESQ. 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)
[X] on December 29, 1999 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on ____________, 1999 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on ____________, 1999 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.
Legg Mason Cash Reserve Trust
Contents of Registration Statement
<PAGE>
This registration statement consists of the following papers and documents:
Table of Contents
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
LEGG MASON
CASH RESERVE TRUST
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Investing in money market instruments to achieve stability of
principal and current income consistent with stability of
principal.
PROSPECTUS December 29, 1999
[LEGG MASON FUNDS LOG APPEARS HERE]
THE ART OF INVESTING (SM)
As with all mutual funds, the Securities and Exchange Commission
has not passed upon the adequacy of this prospectus, nor has it
approved or disapproved these securities. It is a criminal offense
to state otherwise.
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUND:
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<TABLE>
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1 Investment objective
2 Principal risks
4 Performance
5 Fees and expenses of the fund
6 Management
ABOUT YOUR INVESTMENT:
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<CAPTION>
<S> <C>
7 How to invest
9 How to sell your shares
10 Account policies
11 Services for investors
12 Dividends and taxes
13 Financial highlights
</TABLE>
<PAGE>
LEGG MASON CASH RESERVE TRUST
[GRAPHIC]
INVESTMENT OBJECTIVE
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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:
- it buys money market securities maturing in 397 days or less
- it maintains a dollar-weighted average portfolio maturity of
90 days or less
- 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:
- securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities
- 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
- commercial paper rated A-1 by Standard & Poor's ("S&P"),
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or
F-1 by Fitch Investors Service, Inc. and unrated commercial
paper that the adviser determines to be of comparable
quality
- 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
- U.S. dollar-denominated securities of foreign issuers
- asset-backed securities - i.e., securities that represent an
interest in a pool of assets, such as credit card
receivables or car loan receivables
- repurchase agreements
- variable and floating rate securities - i.e., securities
whose interest rates change at specified intervals so they
approximately equal current market rates
Legg Mason Cash Reserve Trust 1
<PAGE>
[GRAPHIC]
PRINCIPAL RISKS
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IN GENERAL:
As with all mutual funds, 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.
INTEREST RATE 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 S&P) that rate
companies or their securities; they are not guarantees.
OTHER RISKS -
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 or instrumentality. Accordingly, there may be some risk of
default by the issuer.
The risks generally associated with concentrating investments in the
banking industry include interest rate risk, credit risk and
regulatory developments relating to the banking industry. The bank
securities in which the fund may invest typically are not insured by
the federal government.
Investments in Eurodollar certificates of deposit also pose certain
risks of investing overseas, such as unfavorable economic or political
developments, imposition of taxes, payment restrictions or, in extreme
cases, seizure of deposits.
2
<PAGE>
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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.
Legg Mason Cash Reserve Trust 3
<PAGE>
[GRAPHIC]
PERFORMANCE
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The information below provides an indication of the risks of investing
in the fund by showing 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 (%)
[BAR CHART APPEARS HERE]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
8.75% 7.73% 5.83% 3.47% 2.78% 3.66% 5.32% 4.80% 4.90% 4.84%
DURING THE PAST TEN YEARS:
<TABLE>
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Quarter Ended Total Return
- --------------------- ------------------- --------------------
Best quarter: June 30, 1989 2.25%
Worst quarter : June 30, 1993 .68%
The fund's year-to-date return as of September 30, 1999 was 3.28%. For
the fund's current yield, call toll-free 1-800-822-5544.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998:
<CAPTION>
<S> <C>
1 Year 4.84%
5 Years 4.70%
10 Years 5.19%
</TABLE>
These figures include changes in principal value, reinvested dividends
and capital gain distributions, if any.
4
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[GRAPHIC]
FEES AND EXPENSES OF THE FUND
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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 service fee.
The fund charges no redemption fees.
The fees and expenses shown are for the fiscal year ended August 31,
1999 and are calculated as a percentage of average net assets.
<TABLE>
<CAPTION>
<S> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
- ------------------------------------------------------------------
Management fees .47%
Service (12b-1) fees .15%(a)
Other expenses .18%
- ----------------------------------------------- ------
Total Annual Fund Operating Expenses .80%
(a) Legg Mason has agreed to waive .05% of the 12b-1 service fee
indefinitely, reducing total expenses from .80% to .75%.
EXAMPLE
This example helps you compare the cost of investing in the fund with
the cost of investing in other mutual funds. Although your actual
costs may be higher or lower, you would pay the following expenses on
a $10,000 investment in the fund, assuming (1) a 5% return each year,
(2) the fund's operating expenses remain the same as shown in the
table above, and (3) you redeem all of your shares at the end of the
time periods shown.
<CAPTION>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
- ------------- ----------- ----------- -----------
$82 $ 255 $ 444 $ 990
</TABLE>
Legg Mason Cash Reserve Trust 5
<PAGE>
[GRAPHIC]
MANAGEMENT
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MANAGER AND ADVISER:
Legg Mason Fund Adviser, Inc., ("LMFA") 100 Light Street, Baltimore,
Maryland 21202, is the fund's manager. LMFA 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. LMFA acts as manager or investment adviser
to investment companies with aggregate assets of about $19 billion as
of September 30, 1999.
Western Asset Management Company ("Adviser"), 117 East Colorado
Boulevard, Pasadena, California 91105, is the fund's investment
adviser. 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 $51.6 billion as of September 30,
1999.
For its services, the fund paid the manager a fee of .47% of its
average daily net assets for the fiscal year ended August 31, 1999.
LMFA paid the Adviser a fee, 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, Inc. ("Distributor") distributes the fund's
shares. The fund has adopted a plan that allows it to pay shareholder
service fees. 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, Legg Mason has agreed to waive .05% of the 12b-1 service fee
indefinitely. At August 31, 1999, service fees payable were $146,000.
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 service fee that it receives from the fund for those sales.
LMFA, the Adviser and the Distributor are wholly owned subsidiaries of
Legg Mason, Inc., a financial services holding company.
6
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[GRAPHIC]
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 that has entered into an
agreement with the fund's distributor to sell shares of the Legg Mason family
of funds. A Legg Mason financial advisor will explain the shareholder services
available from our funds and answer any questions you may have. The minimum
initial investment for regular accounts and retirement accounts is $1,000 and
the minimum for each purchase of additional shares is $500.
Retirement accounts include traditional IRAs, spousal IRAs, education IRAs,
Roth IRAs, simplified employee pension plans, savings incentive match plans
for employees and other qualified retirement plans. Contact your Legg Mason
financial advisor or other entity offering the fund to discuss which one might
be appropriate for you.
<TABLE>
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<S> <C>
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 Call your financial advisor to transfer available cash balances in your brokerage account
OR WIRE 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 Contact your Legg Mason financial advisor to enroll in Legg Mason's Future First
SYSTEMATIC Systematic Investment Plan. Under this plan, you may arrange for automatic monthly
INVESTMENT 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 Arrangements may be made with some employers and financial institutions for regular
INVESTMENTS 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.
</TABLE>
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.
Legg Mason Cash Reserve Trust 7
<PAGE>
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
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:
<S> <C> <C>
If the purchase order is Shares will be purchased at the Such shares will begin to
received net asset value determined on the earn dividends on the
----------------------------- --------------------------------- --------------------------
BEFORE 12:00 NOON (E.S.T.) SAME DAY SAME DAY
AT 12:00 NOON OR AFTER,
BUT BEFORE 4:00 P.M. (E.S.T.) SAME DAY NEXT DAY
AFTER 4:00 P.M. (E.S.T.) NEXT DAY NEXT DAY
</TABLE>
If you do not make payment in federal funds, your order will be processed when
payment is converted into federal funds, which is usually completed in two
days, but may take up to ten days. Most bank wires are federal funds.
8
<PAGE>
[GRAPHIC]
HOW TO SELL YOUR SHARES
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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.
<TABLE>
<S> <C>
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 each check. 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 LEGG MASON HAS SPECIAL REDEMPTION PROCEDURES FOR INVESTORS WHO WISH TO PURCHASE
PURCHASES AT STOCKS, BONDS OR OTHER SECURITIES AT LEGG MASON. ONCE YOU'VE PLACED AN ORDER FOR
LEGG MASON 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.
</TABLE>
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 from the purchase date in order to allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
Legg Mason Cash Reserve Trust 9
<PAGE>
[GRAPHIC]
ACCOUNT POLICIES
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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
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:
- reject any order for shares or suspend the offering of
shares for a period of time
- change its minimum investment amounts
- delay sending out redemption proceeds for up to seven days.
This generally applies only in cases of very large
redemptions, excessive trading or during unusual market
conditions. The fund may delay redemptions beyond seven days,
or suspend redemptions, only as permitted by the SEC.
10
<PAGE>
[GRAPHIC]
SERVICES FOR INVESTORS
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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 (except Legg Mason Opportunity Trust) 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 charge 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:
- terminate or limit the exchange privilege of any shareholder
who makes more than four exchanges from the fund in one
calendar year
- terminate or modify the exchange privilege after 60 days'
notice to shareholders
Legg Mason Cash Reserve Trust 11
<PAGE>
[GRAPHIC]
DIVIDENDS AND TAXES
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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
(except Legg Mason Opportunity Trust).
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.
If the postal or other delivery service is unable to deliver your
check, your distribution option will automatically be converted to
having all dividends and other distributions reinvested in fund
shares. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
12
<PAGE>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
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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, is
incorporated by reference into the Statement of Additional Information
(see back cover) and is included in the annual report. The annual
report is available upon request by calling toll-free 1-800-822-5544.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- ------------------------------- ------ ------ ------ ------ ------
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 .04 .05 .05 .05 .05
Net realized gain (loss)
on investments (Nil) Nil Nil Nil Nil
-------- -------- -------- -------- --------
Total from investment
operations .04 .05 .05 .05 .05
Distributions:
Dividends from net
investment income (.04) (.05) (.05) (.05) (.05)
-------- -------- -------- -------- --------
Net asset value,
end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 4.46% 4.96% 4.84% 4.92% 5.08%
Ratios / Supplemental Data:
Ratio of expenses to average
net assets .75% .78% .75% .70% .71%
Ratio of net investment
income to average net assets 4.37% 4.86% 4.73% 4.81% 5.03%
Net assets, end of year
(in millions) $ 1,777 $ 1,423 $ 1,343 $ 1,224 $ 1,153
</TABLE>
Legg Mason Cash Reserve Trust 13
<PAGE>
LEGG MASON
CASH RESERVE TRUST
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The following additional information about the fund is available upon
request and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by
reference into (is considered part of) this prospectus. The SAI
provides further information and additional details about the fund and
its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - additional information about the
fund's investments will be available in the fund's annual and
semi-annual reports to shareholders. These reports will provide
detailed information about the fund's portfolio holdings and operating
results.
To request the SAI or any reports to shareholders, or to obtain
more information:
- call toll-free 1-800-822-5544
- visit us on the Internet via, http://www.leggmason.com
- write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and
copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be
obtained by calling the Commission at 1-202-942-8090. Reports and other
information about the fund are available on the SEC's Internet site at
http://www.sec.gov. Investors may also obtain this information, after
paying a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the Commission's Public
Reference Section, Washington, DC 20549-0102.
LMF-017 SEC file number: 811-2853
<PAGE>
LEGG MASON CASH RESERVE TRUST
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1999
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the fund's Prospectus dated December 29, 1999, 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
TABLE OF CONTENTS
Page
----
DESCRIPTION OF THE FUND 3
<PAGE>
INVESTMENT STRATEGIES AND RISKS 3
FUND POLICIES 5
MANAGEMENT OF THE FUND 7
THE FUND'S INVESTMENT ADVISER/MANAGER 9
THE FUND'S DISTRIBUTOR 11
ADDITIONAL TAX INFORMATION 13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 13
TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS 17
VALUATION OF FUND SHARES 18
PERFORMANCE INFORMATION 20
MASSACHUSETTS TRUST LAW 21
PORTFOLIO TRANSACTIONS AND BROKERAGE 22
THE FUND'S CUSTODIAN AND TRANSFER AND
DIVIDEND-DISBURSING AGENT 23
THE FUND'S LEGAL COUNSEL 23
THE FUND'S INDEPENDENT AUDITORS 23
FINANCIAL STATEMENTS 23
APPENDIX A 24
No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offerings made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the fund or its distributor. The Prospectus and this
Statement of Additional Information do not constitute offerings by any fund or
by the distributor in any jurisdiction in which such offerings may not lawfully
be made.
DESCRIPTION OF THE FUND
Legg Mason Cash Reserve Trust ("Cash Reserve Trust") is a diversified
open-end management investment company that was established as a Massachusetts
business trust on July 24, 1978.
INVESTMENT STRATEGIES AND RISKS
This section supplements the information in the Prospectus concerning
the investments the fund may make and the techniques the fund
<PAGE>
may use. 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. Rule 2a-7 under the
Investment Company Act of 1940 allows the fund to treat many variable and
floating rate securities as having a maturity equal to the time remaining until
the next interest rate reset, or until the fund can exercise a demand feature,
rather than the time remaining before the principal value of the security must
unconditionally be repaid.
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,
<PAGE>
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.
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.
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.
<PAGE>
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.
Restricted and Illiquid Securities
The fund may invest up to 10% of its net assets in illiquid securities
(securities which cannot be sold within seven days at approximately the price at
which the fund carries them). 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.
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.
FUND POLICIES
Cash Reserve Trust's investment objective is to seek stability of
principal and current income consistent with the stability of principal.
In addition to the investment objective, the fund has adopted certain
fundamental investment limitations, described below, that cannot be changed
without approval of shareholders.
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
<PAGE>
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 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
domestic 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. Domestic banks include U.S. branches of foreign
banks that are subject to the same regulation as domestic banks, and foreign
branches of domestic banks whose parent would be unconditionally liable in the
event that the foreign branch failed to pay on its instruments.
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
<PAGE>
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 be considered to be outside the limitation. Cash Reserve Trust will monitor
the level of borrowing and illiquid securities in its portfolio and will make
necessary adjustments to maintain required asset coverage and adequate
liquidity.
The fund 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.
Unless otherwise stated, the investment policies and limitations of the fund are
non-fundamental and can be changed by the Board of Trustees without shareholder
approval.
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;
President and/or Chairman of the Board and Director/Trustee of all Legg Mason
funds. 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.
<PAGE>
ARNOLD L. LEHMAN [7/18/44], Trustee; 200 Eastern Parkway, Brooklyn, NY.
Director, The Brooklyn Museum of Art; Director/Trustee of all Legg Mason funds.
Formerly: Director, Baltimore Museum of Art.
JILL E. McGOVERN [8/29/44], Trustee; 400 Seventh Street, NW, Washington, DC,
Chief Executive Officer of the Marrow Foundation. Director/Trustee of all Legg
Mason funds. Formerly: Executive Director of the Baltimore International
Festival (January 1991 - March 1993); and Senior Assistant to the President of
The Johns Hopkins University (1986 - 1991).
RICHARD G. GILMORE [6/9/27], Trustee; 10310 Tamo Shander Place, Bradenton,
Florida. Independent Consultant. Director of CSS Industries, Inc. (diversified
holding company whose subsidiaries are engaged in the manufacture and sale of
decorative paper products, business forms, and specialty metal packaging);
Director of PECO Energy Company (formerly Philadelphia Electric Company);
Director/Trustee of all Legg Mason funds. Formerly: Senior Vice President and
Chief Financial Officer of Philadelphia Electric Company (now PECO Energy
Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company the Girard Company; and Director of
Finance, City of Philadelphia.
T.A. RODGERS [10/22/34], Trustee; 2901 Boston Street, Baltimore, Maryland.
Principal, T. A. Rodgers & Associates (management consulting). Director/Trustee
of all Legg Mason funds. Formerly: Director and Vice President of Corporate
Development, Polk Audio, Inc. (manufacturer of audio components).
EDWARD A. TABER III* [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 (each
a registered investment adviser); President and/or Director/Trustee of all Legg
Mason funds except Legg Mason Tax Exempt Trust. Formerly: Executive Vice
President of T. Rowe Price-Fleming International, Inc. (1986-1992) and Director
of the Taxable Income Division at T. Rowe Price Associates, Inc. (1973-1992).
EDMUND J. CASHMAN, Jr. * [8/31/36], Trustee; Senior Executive Vice President and
Director of Legg Mason Wood Walker, Inc.; Officer and/or Director of various
other affiliates of Legg Mason, Inc.; Vice Chairman of the Board and Director of
Legg Mason Income Trust, Inc., President and Director of Legg Mason Tax Exempt
Trust, Inc., and President and Director of Legg Mason Tax-Free Income Funds.
G. PETER O'BRIEN [10/13/45], Trustee; Trustee of Colgate University;
Director/Trustee of all Legg Mason funds except Legg Mason Income Trust, Inc.,
and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity Capital
Markets Group of Merrill Lynch & Co. (1971-1999).
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; Vice President and
Treasurer of Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of all
Legg Mason funds; Vice President of Legg Mason.
<PAGE>
PATRICIA A. MAXEY* [7/10/67], Secretary; Secretary of two Legg Mason
funds; employee of Legg Mason, Inc., since November 1999.
BRIAN M. EAKES*, [12/9/69] Assistant Secretary and Assistant Treasurer; employee
of Legg Mason, Inc. since July 1995. Secretary/Assistant Secretary and/or
Assistant Treasurer of four Legg Mason funds. 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, Lehman, O'Brien, and Dr. McGovern.
As of December 1, 1999, 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, 1999, no persons or entities were known by the fund to
own of record 5% or more of the fund's outstanding shares.
COMPENSATION TABLE
The following table provides certain information relating to the compensation of
the fund's trustees for the fiscal year ended August 31, 1999. The fund has no
retirement plan for its trustees.
Name of Person and Position
Aggregate Compensation From Fund
Total Compensation From Fund and Fund Complex Paid to Trustees*
John F. Curley, Jr.,
Chairman of the Board and Trustee
None
None
Arnold L. Lehman, Trustee
$ 3600
$ 37,800
Jill E. McGovern, Trustee
<PAGE>
$ 3600
$ 37,800
Richard G. Gilmore, Trustee
$ 3600
$ 37,800
T.A. Rodgers, Trustee
$ 3600
$ 37,800
Edward A. Taber, III, Trustee
None
None
Edmund J. Cashman, Jr., Trustee
None
None
G. Peter O'Brien, Trustee
$ 900
$ 15,000
* Represents estimated aggregate compensation paid to each trustee during
the calendar year ended December 31, 1999. There are twelve open-end investment
companies in the Legg Mason complex (with a total of twenty-four funds).
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 FUND'S INVESTMENT ADVISER/MANAGER
Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, 100
<PAGE>
Light Street, Baltimore, Maryland 21202, is a wholly owned subsidiary of Legg
Mason, Inc., which is also the parent of Legg Mason Wood Walker, Inc. ("Legg
Mason"). LMFA serves as manager to the Fund under a management agreement between
Cash Reserve Trust and LMFA ("Management Agreement").
The Management Agreement provides that, subject to the overall direction by the
Board of Trustees, LMFA will manage the investment and other affairs of the
fund. Under the Management Agreement, LMFA 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.
LMFA has delegated the portfolio management functions for the fund to the
adviser, 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.
LMFA 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, 1999, 1998, and 1997, the fund paid $7,566,408,
$6,284,105 and $6,110,012, respectively, to LMFA.
Under the Management Agreement, LMFA 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 LMFA, on not
less than 60 days' notice to the other party, and may be terminated immediately
upon the mutual written consent of LMFA and the fund.
The fund pays all of its expenses which are not expressly assumed by LMFA. These
expenses include, among others, interest expense, taxes, brokerage fees and
commissions, expenses of preparing 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.
<PAGE>
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 LMFA.
Western Asset Management Company ("Adviser"), 117 East Colorado Boulevard,
Pasadena, CA 91105, an affiliate of Legg Mason, serves as investment adviser to
the fund pursuant to an Investment Advisory Agreement ("Advisory Agreement"),
between the Adviser and LMFA.
Under the Advisory Agreement, the Adviser is responsible, subject to the
supervision of LMFA 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, LMFA (not the fund) pays the Adviser a
fee, computed daily and payable monthly, at an annual rate of 30% of the fee
received by LMFA from the fund. During the years ended August 31, 1999, 1998 and
1997, LMFA paid the Adviser $2,269,922, $1,885,232 and $1,833,004, 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 LMFA 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 Advisory
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 LMFA 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, LMFA and the fund.
To mitigate against the possibility that the fund will be affected by personal
trading of employees, the corporation and LMFA have adopted policies that
restrict securities trading in the personal accounts of portfolio managers and
others who normally come into advance possession of information on portfolio
transactions. These policies comply, in all material respects, with the
recommendations of the Investment Company Institute.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the fund's shares pursuant to an Underwriting
Agreement with the fund. The Underwriting Agreement obligates Legg Mason to
promote the sale of fund shares and to pay
<PAGE>
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. Legg
Mason has agreed that it will not request payment of more than 0.10% annually
from the fund indefinitely. 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.
During the years ended August 31, 1999, 1998 and 1997, the fund paid Legg Mason
$1,546,661, $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.
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 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 LMFA.
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 LMFA would earn greater management fees if the
fund's assets were increased, because such fees are calculated as a percentage
of the fund's assets and thus would increase if net 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
<PAGE>
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 fund's 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 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"), 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 June 30, 1999, Legg Mason incurred the following
distribution and shareholder servicing expenses with respect to the fund:
Compensation to sales personnel $ 993,000
Advertising $ 299,000
Printing and mailing of prospectuses to prospective
shareholders $ 101,000
Other (Funds Marketing, Branch System Processing,
Executive and Sales Management, Funds Accounting
and Training) $4,193,000
Total expenses $5,586,000
The foregoing are estimated. Legg Mason receives payment under the plan
regardless of the actual expenses it incurs.
ADDITIONAL TAX INFORMATION
<PAGE>
The fund intends to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code").
The fund must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income plus any net
short-term capital gain) and 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.
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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, totaling $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 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
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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 $10,000 or more in accounts with Legg Mason may subscribe to
Legg Mason's Premier Asset Management Account ("Premier"). This program allows
shareholders to link their fund account and their 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 allows shareholders to
combine their fund account with a preferred customer VISA Gold debit card, a
Legg Mason Brokerage Account and unlimited checkwriting with no minimum check
amount.
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 be satisfied with
available cash or through the sale of securities in the Brokerage Account or, if
the Premier account has been established as a margin account, the debits will
remain in the margin account, reducing the cash available. The shareholder will
receive one
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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 after hours at 1-800-996-4324. 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 1-410-454-2066 with your account inquiries.
Automatic Purchases of Fund Shares Shareholders participating in the Premier
program who elect to establish a fund account will have free credit balances
resulting from the sale of securities in their Brokerage Account automatically
invested in shares of the fund. Amounts of $100 or more will be invested 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 securities 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.
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 the necessary Premier agreements. Legg Mason
charges a fee for the Premier service, which is currently $85
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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
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share.
TAX-DEFERRED RETIREMENT ACCOUNTS AND PLANS
In general, income earned through the investment of assets of qualified
retirement accounts and plans is not taxed to the beneficiaries thereof until
the income is distributed to them. Investors who are considering establishing
such an account or plan should consult their attorneys or tax advisers with
respect to individual tax questions. The option of investing in these accounts
or plans through regular payroll deductions may be arranged with a Legg Mason or
affiliated 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
<PAGE>
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 (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 FUND 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 Day and Christmas Day.
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
<PAGE>
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 established by the Board of Trustees
("Eligible Securities"). Securities that were long-term when issued, 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 A.
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.
<PAGE>
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 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.
PERFORMANCE 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
<PAGE>
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 independent third parties such as Ibbotson
Associates and Frontier Analytics, Inc. to compare the returns of various
capital markets and to show the value of a hypothetical investment in a capital
market. Typically, different indices are used to calculate the performance of
common stocks, corporate and government bonds and Treasury bills.
The fund may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is
<PAGE>
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 $94.9 billion as of September
30, 1999.
In advertising, the fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.
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's 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.
The Declaration of Trust authorizes the fund to issue an unlimited
number of shares. Each share of the fund gives the shareholder one vote in
trustee elections and other matters submitted to shareholders for vote.
Fractional shares have fractional voting rights. There is no cumulative voting
in the election of Trustees. Fund shares are fully paid and non-assessable, and
have no preemptive or conversion rights.
Special meetings of shareholders may be called by the Trustees or Chief
Executive Officer of the Trust and shall be called by the Trustees upon the
written request of shareholders owning at least one-tenth of the outstanding
shares entitled to vote. Shareholders shall be entitled to at least fifteen days
notice of any meeting.
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, the fund
believes that 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.
<PAGE>
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.
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 that 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
<PAGE>
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 (as
agent for State Street Bank & Trust Company) 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, Two Commerce Square, 2001 Market Street, Philadelphia, PA,
19103, 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, 1999; the Statement of
Operations for the year ended August 31, 1999; the Statement of Changes in Net
Assets for the years ended August 31, 1999 and 1998; the Financial Highlights
for the years ended August 31, 1995 through 1999; the Notes to Financial
Statements and the Report of Ernst & Young LLP are hereby incorporated by
reference in this Statement of Additional Information from the fund's annual
report for the year ended August 31, 1999.
APPENDIX A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc. ("Moody's") Ratings:
Corporate Bonds
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks
<PAGE>
appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper
The rating Prime-1 is the highest commercial paper rating assigned by Moody's
Issuers with a Prime-1 ("P-1") rating will normally have the following
characteristics: (1) leading market positions in well-established industries;
(2) high rates of return on funds employed; (3) conservative capitalization
structures with moderate reliance on debt and ample asset protection; (4) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (5) well-established access to a range of financial markets and
assured sources of alternate liquidity.
Description of Standard & Poor's ("S&P") Ratings:
Corporate Bonds
AAA-An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is still strong.
A-An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
<PAGE>
BBB-An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation. Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's adequate capacity to meet its financial commitment on the obligation.
B-An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC- An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity meet its financial commitment on the obligation.
CC-An obligation rated CC is currently highly vulnerable to nonpayment.
C- A subordinated debt or preferred stock obligation rated C is currently highly
vulnerable to nonpayment. The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued. A C also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D-An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action where payments
on an obligation are jeopardized. Plus (+) or minus (-)-The ratings from AA to
CCC may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
r- This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only mortgage
securities; and obligations with unusually risky interest terms, such as inverse
floaters.
Commercial Paper
A-1
A short-term obligation rated A-1 is rated in the highest category by S&P. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
<PAGE>
A-2
A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3
A short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Exhibits
Legg Mason Cash Reserves Trust
Part C. Other Information
Item 23. Exhibits
(a) (i) Declaration of Trust(1)
(ii) Amendment No.1 to Declaration of Trust(1)
(iii) Amendment No.2 to Declaration of Trust(1)
(b) By-laws (As Restated and Amended February 2, 1987)(1)
(c) Voting Trust Agreement-none
(d) (i) Management Agreement(1)
(ii) Investment Advisory Contract(1)
(e) Underwriting Agreement(2)
(f) Bonus, Profit Sharing or Pension Plans-none
(g) Custodian Agreement(1)
(h) Transfer Agency and Service Agreement(1)
(i) Opinion of Counsel-filed herewith
(j) Consent of Independent Auditors-filed herewith
(k) Financial Statements Omitted from Item 22-none
(l) Not Applicable
(m) Rule 12b-1 Plan(2)
(n) Financial Data Schedule-filed herewith
(o) Rule 18f-3 Plan-none
Item 24. Persons Controlled By or Under Common Control with
Registrant-None
(1) Incorporated herein by reference to corresponding Exhibit of
Post-Effective No. 35 to the Registration Statement filed on December 31, 1997.
(2) Incorporated herein by reference to corresponding Exhibit of
Post-Effective No. 34 to the Registration Statement filed on December 31, 1996.
<PAGE>
Item 25. Indemnification
This Item is incorporated by reference to Item 27 of Part C of Post-Effective
Amendment No. 35, SEC File No. 2-62218 to the Registration Statement filed on
December 31, 1997.
Item 26. Business and Other Connections of Manager and Investment Adviser
I. Legg Mason Fund Adviser, Inc. ("LMFA"), the Registrant's manager, is
a registered investment adviser incorporated on January 20, 1982. LMFA is
engaged primarily in the investment advisory business. LMFA also serves as
investment adviser or manager to thirteen open-end registered investment
companies. Information as to the officers and directors of LMFA is included in
its Form ADV which was most recently amended November 9, 1999, and is on file
with the Securities and Exchange Commission (registration number 801-16958) and
is incorporated herein by reference.
II. Western Asset Management Company ("Adviser"), investment adviser to
Legg Mason Cash Reserve Trust, is a registered investment adviser incorporated
on October 5, 1971. The Adviser is engaged primarily in the investment advisory
business. The Adviser also serves as investment adviser for seventeen 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 which was
most recently amended on June 22, 1999, and is on file with the Securities and
Exchange Commission (registration number 801-08162) and is incorporated herein
by reference.
Item 27. Principal Underwriters
(a) Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Light Street Trust, Inc.
Legg Mason Tax Exempt Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Focus Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, 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").
Name and Principal Business Address*
Position and Offices with Underwriter - LMWW
<PAGE>
Positions and Offices with Registrant
Raymond A. Mason
Chairman of the Board and Director
None
James W. Brinkley
President, Chief Operating Officer and Director
None
Edmund J. Cashman, Jr.
Senior Executive Vice President and Director
None
Richard J. Himelfarb
Senior Executive Vice President and Director
None
Timothy C. Scheve
Executive Vice President and Treasurer and Director
None
Edward A. Taber III
Senior Executive Vice President
President and Director
Robert A. Frank
Executive Vice President
None
Robert G. Sabelhaus
Executive Vice President
None
Charles A. Bacigalupo
Senior Vice President and Secretary
None
F. Barry Bilson
Senior Vice President
None
Thomas M. Daly, Jr.
Senior Vice President
None
Robert G. Donovan
Executive Vice President
None
Manoochehr Abbaei
Senior Vice President
None
Jeffrey W. Durkee
Senior Vice President
None
Thomas E. Hill
218 N. Washington Street
Suite 31
Easton, MD 21601
Senior Vice President
None
Arnold S. Hoffman
1735 Market Street
Philadelphia, PA 19103
Senior Vice President
None
Carl Hohnbaum
2500 CNG Tower
<PAGE>
625 Liberty Avenue
Pittsburgh, PA 15222
Senior Vice President
None
William B. Jones, Jr.
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Senior Vice President
None
Theodore S. Kaplan
Senior Vice President
None
Laura L. Lange
Senior Vice President
None
Marvin H. McIntyre
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Senior Vice President
None
Thomas P. Mulroy
Senior Vice President
None
Mark I. Preston
Senior Vice President
None
Thomas L. Souders
Senior Vice President and Chief Financial Officer
None
Joseph A. Sullivan
Senior Vice President
None
W. William Brab
Senior Vice President
None
Deepak Chowdhury
255 Alhambra Circle
Suite 810
Coral Gables, FL 33134
Senior Vice President
None
Harry M. Ford, Jr.
Senior Vice President
None
Dennis A. Green
Senior Vice President
None
Horace M. Lowman, Jr.
Senior Vice President and Asst. Secretary
None
Jonathan M. Pearl
Senior Vice President
None
Robert F. Price
Senior Vice President and General Counsel
None
Elisabeth N. Spector
<PAGE>
Senior Vice President
None
Richard L. Baker
Vice President
None
William H. Bass, Jr.
Vice President
None
Nathan S. Betnun
Vice President
None
John C. Boblitz
Vice President
None
Andrew J. Bowden
Vice President and Deputy General Counsel
None
D. Stuart Bowers
Senior Vice President
None
Edwin J. Bradley, Jr.
Vice President
None
Carol A. Brown
Vice President
None
Scott R. Cousino
Vice President
None
Thomas W. Cullen
Vice President
None
Charles J. Daley, Jr.
Vice President and Controller
None
Norman C. Frost, Jr.
Vice President
None
John R. Gilner
Vice President
None
Daniel R. Greller
Vice President
None
Richard A. Jacobs
Vice President
None
C. Gregory Kallmyer
56 West Main Street
Newark, DE 19702
Vice President
None
Kurt A. Lalomia
Vice President
None
James E. Furletti
Vice President
<PAGE>
None
Robert E. Patterson
Vice President and Deputy General Counsel
None
John A. Moag, Jr.
Vice President
None
Edward P. Meehan
12321 Sunset Hills Road
Suite 100
Reston, VA 20190
Vice President
None
Edward W. Lister, Jr.
Vice President
None
Theresa McGuire
Vice President
None
Julia A. McNeal
Vice President
None
Gregory B. McShea
Vice President
None
Thomas C. Merchant
Vice President and Assistant General Counsel
None
Paul Metzger
Vice President
None
Mark C. Micklem
1747 Pennsylvania Ave., N.W.
Washington, DC 20006
Vice President
None
Hance V. Myers, III
1100 Poydras St.
New Orleans, LA 70163
Vice President
None
Ann O'Shea
Vice President
None
Gerard F. Petrik, Jr.
Vice President
None
Douglas F. Pollard
Vice President
None
Judith L. Ritchie
Vice President
None
Thomas E. Robinson
Vice President
None
Theresa M. Romano
<PAGE>
Vice President
None
James A. Rowan
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Vice President
None
Douglas M. Schmidt
Vice President
None
B. Andrew Schmucker
1735 Market Street
Philadelphia, PA 19103
Vice President
None
Robert W. Schnakenberg
Vice President
None
Henry V. Sciortino
1735 Market St.
Philadelphia, PA 19103
Vice President
None
Chris A. Scitti
Vice President
None
Eugene B. Shepherd
1111 Bagby St.
Houston, TX 77002-2510
Vice President
None
Lawrence D. Shubnell
Vice President
None
Jane Soybelman
Vice President
None
Alexsander M. Stewart
Vice President
None
L. Kay Strohecker
Vice President
None
Joseph E. Timmins III
Vice President
None
Joyce Ulrich
Vice President
None
William A. Verch
Vice President
None
Sheila M. Vidmar
Vice President and Deputy General Counsel
None
Lewis T. Yeager
Vice President
<PAGE>
None
Carol Converso-Burton
Assistant Vice President
None
Diana L. Deems
Assistant Vice President and Assistant Controller
None
Ronald N. McKenna
Assistant Vice President
None
Suzanne E. Peluso
Assistant Vice President
None
Lauri F. Smith
Assistant Vice President
None
Janet B. Straver
Assistant Vice President
None
Leslee Stahl
Assistant Secretary
None
* 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
State Street Bank and Trust and Legg Mason Fund Advisers, Inc.
P.O. Box 1713 100 Light Street
Boston, MA 02105 Baltimore, MD 21202
Item 29. Management Services
None.
Item 30. Undertakings
None.
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Cash Reserve Trust,
certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Baltimore and State of
<PAGE>
Maryland, on the 20th day of December, 1999.
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
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
Chairman of the Board
/s/ John F. Curley, Jr.* President and Trustee December 20, 1999
- ------------------------
John F. Curley, Jr.*
/s/ Edward A. Taber, III* Trustee December 20, 1999
- -------------------------
Edward A. Taber, III*
/s/ Richard G. Gilmore* Trustee December 20, 1999
- -----------------------
Richard G. Gilmore*
/s/ Arnold L. Lehman* Trustee December 20, 1999
- ---------------------
Arnold L. Lehman*
/s/ Jill E. McGovern* Trustee December 20, 1999
- ---------------------
Jill E. McGovern*
/s/ T. A. Rodgers* Trustee December 20, 1999
- ------------------
T. A. Rodgers*
/s/ G. Peter O'Brien* Trustee December 20, 1999
- ---------------------
G. Peter O'Brien*
/s/ Edmund J. Cashman Jr.* Trustee December 20, 1999
- --------------------------
Edmund J. Cashman Jr.*
*Signatures affixed by Marc R. Duffy, Esq., pursuant to a power of attorney
dated November 12, 1999, a copy of which is filed herewith.
POWER OF ATTORNEY
I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' current Registration Statements on
Form N-1A):
LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser,
<PAGE>
Inc. acts as investment adviser or manager and for which the undersigned
individual serves as Director/Trustee hereby severally constitute and appoint
each of MARIE K. KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and
ARTHUR C. DELIBERT my true and lawful attorney-in-fact, with full power of
substitution, and with full power to sign for me and in my name in the
appropriate capacity and only for those above-listed companies for which I serve
as Director/Trustee, any Registration Statements on Form N-1A, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all subsequent
Post-Effective Amendments to said Registration Statements, and any and all
supplements or other instruments in connection therewith, to file the same with
the Securities and Exchange Commission and the securities regulators of
appropriate states and territories, and generally to do all such things in my
name and behalf in connection therewith as said attorney-in-fact deems necessary
or appropriate, to comply with the provisions of the Securities Act of 1933 and
the Investment Company Act of 1940, all related requirements of the Securities
and Exchange Commission and all requirements of appropriate states and
territories. I hereby ratify and confirm all that said attorney-in-fact or their
substitutes may do or cause to be done by virtue hereof. WITNESS my hand on the
date set forth below.
SIGNATURE DATE
/s/ Edmund J. Cashman, Jr. November 12, 1999
- --------------------------
Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. November 12, 1999
- -----------------------
John F. Curley, Jr.
/s/ Richard G. Gilmore November 12, 1999
- ----------------------
Richard G. Gilmore
/s/ Arnold L. Lehaman November 12, 1999
- --------------------
Arnold L. Lehman
/s/ Raymond A. Mason November 12, 1999
- --------------------
Raymond A. Mason
/s/ Jill E. McGovern November 12, 1999
- --------------------
Jill E. McGovern
/s/ Jennifer W. Murphy November 12, 1999
- ----------------------
Jennifer W. Murphy
/s/ G. Peter O'Brien November 12, 1999
- --------------------
G. Peter O'Brien
/s/ T. A. Rodgers November 12, 1999
- -----------------
T. A. Rodgers
/s/ Edward A. Taber, III November 12, 1999
- ------------------------
Edward A. Taber, III
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference 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 Number 37 to the Registration Statement (Form N-1A) (No. 2-
62218) of Legg Mason Cash Reserve Trust of our report dated September 24, 1999
included in its 1999 Annual Report to shareholders.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
December 15, 1999
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(202) 778-9000
December 15, 1999
Legg Mason Cash Reserve Trust
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
Dear Sir or Madam:
Legg Mason Cash Reserve Trust ("Trust") is an unincorporated voluntary
association organized under the laws of the Commonwealth of Massachusetts
pursuant to a Declaration of Trust dated July 24, 1978. You have requested our
opinion regarding certain matters in connection with the issuance of certain
shares of beneficial interest ("Shares") of the Trust. This opinion letter is
valid only during the time Post-Effective Amendment No. 37 to the Trust's
Registration Statement is effective and has not been superseded by another
post-effective amendment that has become effective.
We have, as counsel, participated in various business and other matters related
to the Trust. We have examined copies, either certified or otherwise proved to
be genuine, of the Declaration of Trust and By-Laws of the Trust, the minutes of
meetings of the Trustees and other documents relating to the organization and
operation of the Trust, and we generally are familiar with its business affairs.
Based on the foregoing, and the additional qualifications and other matters set
forth below, it is our opinion that as of the date hereof the Shares, when sold
in accordance with the Trust's Declaration of Trust, as amended, and By-laws and
the terms contemplated by Post-Effective Amendment No. 37 to the Trust's
Registration Statement, including receipt by the Trust of full payment for the
Shares and compliance with the 1933 Act and the 1940 Act, will have been legally
issued, fully paid and non-assessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust provides that Trustees shall use every reasonable means to
assure that all persons having dealings with the Trust shall be informed that
the property of the shareholders and the Trustees, officers, employees and
agents of the Trust shall not be subject to claims against or obligations of the
Trust to any extent whatsoever. The Declaration also provides that Trustees
shall cause to be inserted in any written agreement, undertaking or obligation
made or issued on behalf of the Trust an appropriate reference to the
Declaration, providing that neither the shareholders, the Trustees, the
officers, the employees nor any agent of the Trust shall be liable thereunder,
and that the other parties to such instrument shall look solely to the Trust
property for the payment of any claim thereunder or for the performance thereof;
but the omission of such provisions from any such instrument shall not render
any shareholder, Trustee, officer, employee or agent liable, nor shall the
Trustee, or any officer, agent or employee of the Trust be liable to anyone for
<PAGE>
such omission. If, notwithstanding this provision, any shareholder, Trustee,
officer, employee or agent shall be held liable to any other person by reason of
the omission of such provision from any such agreement, undertaking or
obligation, the shareholder, Trustee, officer, employee or agent shall be
entitled to indemnity and reimbursement out of the Trust property, as provided
in the Declaration. The Declaration further provides that the Trustees,
officers, employees or agents of the Trust shall have no power to bind any
shareholder personally or to call upon any shareholder for the payment of any
sum of money or assessment whatsoever, other than such as the shareholder may at
any time agree to pay by way of subscription to any shares or otherwise. Also,
no shareholder or former shareholder of the Trust shall be liable solely by
reason of his being or having been a shareholder for any debt, claim, action,
demand, suit, proceeding, judgment, decree, liability or obligation of any kind,
against, or with respect to the Trust arising out of any action taken or omitted
for or on behalf of the Trust, and the Trust shall be solely liable therefor and
resort shall be had solely to the Trust property for the payment or performance
thereof. The Declaration also provides that each shareholder or former
shareholder of the Trust shall be entitled to indemnity and reimbursement out of
the Trust property to the full extent of such liability and the costs of any
litigation or other proceedings in which such liability shall have been
determined, including, without limitation, the fees and disbursements of counsel
if, contrary to the provisions of the Declaration, such shareholder or former
shareholder of the Trust shall be held to personal liability. The Trust shall,
upon request by the shareholder or former shareholder, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon.
We hereby consent to the filing with the Securities and Exchange Commission of
this opinion in connection with Post-Effective Amendment No. 37 to the Trust's
Registration Statement on Form N-1A (File No. 2-62218). We also consent to the
reference to our firm in the Statement of Additional Information filed as part
of the Registration Statement.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Arthur J. Brown
-------------------
Arthur J. Brown
Legg Mason Cash Reserve Trust
December 15, 1999
Page 2
Arthur J. Brown
202.778.9046
Fax: 202.778.9100
[email protected]
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