LEGG MASON
CASH RESERVE TRUST
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Investing in money market instruments for stability of
principal and current income consistent with stability of principal.
PROSPECTUS December 20, 2000
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As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
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TABLE OF CONTENTS
About the fund:
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1 Investment objective
2 Principal risks
3 Performance
4 Fees and expenses of the fund
5 Management
About your investment:
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6 How to invest
7 How to sell your shares
8 Account policies
9 Services for investors
10 Distributions and taxes
11 Financial highlights
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LEGG MASON CASH RESERVE TRUST
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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:
o it buys money market securities maturing in 397 days or less
o it maintains a dollar-weighted average portfolio maturity of 90 days or
less
o it buys only high-quality money market securities determined by the
investment adviser to present minimal credit risk
High-quality money market securities in which the fund may invest include, but
are not limited to:
o securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
o securities representing deposits at domestic and foreign banks and savings
and loan institutions. The fund may at times invest greater than 25% of its
assets in such bank securities. These banks and institutions must have
capital surplus and undivided profits of over $100,000,000 or the principal
amount of the instruments must be insured by the Federal Deposit Insurance
Corporation
o commercial paper rated A-1 by Standard & Poor's ("S&P"), Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or F-1 by Fitch Investors Service, Inc.
("Fitch") and unrated commercial paper that the adviser determines to be of
comparable quality
o corporate bonds rated AAA or AA by S&P or Aaa or Aa by Moody's, and unrated
bonds that the adviser determines to be of comparable quality in every case
having a remaining maturity of 397 days or less
o U.S. dollar-denominated securities of foreign issuers
o asset-backed securities - i.e., securities that represent an interest in a
pool of assets, such as credit card receivables or car loan receivables
o repurchase agreements
o variable and floating rate securities - i.e., securities whose interest
rates change at specified intervals so they approximately equal current
market rates
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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.
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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, if any. 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 (%)
1999 4.51
1998 4.84
1997 4.90
1996 4.80
1995 5.32
1994 3.66
1993 2.78
1992 3.47
1991 5.83
1990 7.73
DURING THE PAST TEN CALENDAR YEARS:
Quarter Ended Total Return
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Best quarter: June 30, 1990 1.91%
Worst quarter: June 30, 1993 0.68%
The fund's year-to-date return as of September 30, 2000 was 4.23% (not
annualized). For the fund's current yield, call toll-free 1-800-822-5544.
Average Annual Total Returns
as of December 31, 1999:
1 Year 4.51%
5 Years 4.87%
10 Years 4.78%
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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 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.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
---------------------------------------------
Management fees 0.46%
Service (12b-1) fees 0.15%(a)
Other expenses 0.12%
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Total Annual Fund Operating Expenses 0.73%
(a) Legg Mason Wood Walker, Incorporated has agreed to waive 0.05% of the 12b-1
service fee indefinitely, reducing total expenses from 0.73% to 0.68%.
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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$75 $233 $406 $906
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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 has been
registered as an investment adviser since 1982.
Western Asset Management Company ("Western Asset"), 117 East Colorado Boulevard,
Pasadena, California 91105, is the fund's investment adviser. Western Asset 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. Western Asset acts as investment adviser to investment companies and
private accounts with aggregate assets of approximately $71 billion as of
September 30, 2000.
For its services, the fund paid LMFA a fee of 0.46% of its average daily net
assets for the fiscal year ended August 31, 2000. LMFA paid Western Asset a fee,
which is calculated daily and payable monthly, equal to 30% of LMFA's fee.
Distributor of the fund's shares:
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, distributes the fund's shares. The fund has adopted a
plan under rule 12b-1 that allows it to pay distribution and/or shareholder
service fees for the sale of its shares and for services provided to
shareholders. The fees are calculated daily and paid monthly.
Under the plan, the fund may pay Legg Mason an annual fee equal to 0.15% of the
fund's average daily net assets. However, Legg Mason has agreed to waive 0.05%
of the 12b-1 service fee indefinitely.
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.
Legg Mason may enter into agreements with other brokers to sell shares of the
fund. Legg Mason pays these brokers up to 90% of the service fee that it
receives from the fund for those sales.
LMFA, Western Asset and Legg Mason are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
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[icon] H O W T O I N V E S T
To open an account, contact a Legg Mason Financial Advisor, Legg Mason Funds
Investor Services ("FIS") or another entity that has entered into an agreement
with Legg Mason to sell shares of the fund. The minimum initial investment 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. The investment amount for an
education IRA is $500. Contact your financial adviser, FIS, or other entity
offering the fund to discuss which one might be appropriate for you.
Certain investment methods may be subject to lower minimum initial and
additional investments. Arrangements may also be made with some employers and
financial institutions for regular automatic monthly investments of $50 or more
in shares of the fund. Contact your financial adviser or FIS with any questions
regarding your investment options.
Once your account is open, you may use the following methods to purchase shares
of the fund:
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In Person Give your financial adviser a check for $500 or more
payable to the fund.
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Mail Mail your check, payable to the fund, for $500 or more
to your financial adviser or to Legg Mason Funds
Investor Services at P.O. Box 17023, Baltimore, MD
21297-0356.
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Telephone or Wire Call your financial adviser or FIS at 1-800-822-5544
to transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
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Internet or FIS clients may purchase shares of the fund through
TeleFund Legg Mason's Internet site at
http://www.leggmasonfunds.com or through a telephone
account management service "TeleFund" at
1-877-6-LMFUNDS.
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Future First Contact a Legg Mason Financial Advisor to enroll in
Systematic Legg Mason's Future First Systematic Investment Plan.
Investment Plan Under this plan, you may arrange for automatic monthly
investments in the fund of $50 or more. The transfer
agent will transfer funds monthly from your Legg Mason
account or from your checking/savings account to
purchase shares of the fund.
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Automatic Arrangements may be made with some employers and
Investments financial institutions for regular automatic monthly
investments of $50 or more in shares of the fund. You
may also reinvest dividends from certain unit
investment trusts in shares of the fund.
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Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
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:
Shares will be purchased Such shares will
If the purchase order at the net asset value begin to earn
is received next determined on dividends on the
before 12:00 noon, same day same day
Eastern time
12:00 noon or after, same day next day
but before 4:00 p.m.,
Eastern time
after 4:00 p.m., next day next day
Eastern time
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.
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[icon] H O W T O S E L L Y O U R S H A R E S
You may use any of the following methods to sell shares of the fund:
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Telephone Call your financial adviser or FIS at 1-800-822-5544 or
another authorized entity offering the fund to request a
redemption. Please have the following information ready when
you call: the name of the fund, the number of shares (or
dollar amount) to be redeemed and your shareholder account
number.
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 $12. Be sure
that your financial adviser has your bank account information
on file.
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Internet or FIS clients may request a redemption of fund shares through
TeleFund Legg Mason's Internet site at http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
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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 proceeds are to be paid to someone other than
the accountholder may require a signature guarantee. You may
obtain a signature guarantee from most banks or securities
dealers.
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Checkwriting The fund offers a free checkwriting service. You may write
checks to anyone in amounts of $500 or more. The fund's
transfer agent will redeem sufficient shares from your
account to pay the checks. You will continue to earn
dividends on your shares until the check clears at the
transfer agent. Please do not use your checks to close your
account.
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Securities Legg Mason has special redemption procedures for investors
Purchases at who wish to purchase stocks, bonds or other securities at
Legg Mason Legg Mason. Once you've placed an order for securities, and
have not indicated any other payment method, fund shares will
be redeemed on the settlement date for the amount due. Fund
shares may also be redeemed to cover debit balances in your
brokerage account.
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The fund will follow reasonable procedures to ensure the validity of any
telephone or Internet redemption request, such as requesting identifying
information from users or employing identification numbers. Unless you specify
that you do not wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser, FIS or another
authorized entity offering the fund.
Redemption orders will be processed promptly. Generally, proceeds from
redemption orders received before 11:00 a.m., Eastern time, will be sent that
same day. You will normally receive the proceeds within a week.
Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of distributions on such shares may be
delayed for up to ten 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.
Redemptions made through authorized entities other than Legg Mason may be
subject to transaction fees or other conditions established by those entities.
You should consult their program literature for further information.
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ACCOUNT POLICIES
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Calculation of net asset value:
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 regular trading on the New York Stock Exchange ("Exchange"),
normally 4:00 p.m., Eastern time, on every day the Exchange is open. The
Exchange is normally closed on all national holidays and Good Friday. Like most
other money market funds, the fund normally values its investments using the
amortized cost method.
Other:
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 will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
The fund reserves the right to:
o reject any order for shares or suspend the offering of shares for a period
of time,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions. The fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the Securities and
Exchange Commission ("SEC").
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SERVICES FOR INVESTORS
----------------------
For further information regarding any of the services below, please contact your
financial adviser 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. You should not purchase shares of the fund
when you are a participant in the plan.
Premier Account status:
Legg Mason offers a Premier Asset Management Account, which allows you to
combine your fund account with a preferred customer VISA Gold debit card, a Legg
Mason brokerage account with margin borrowing availability, and unlimited
checkwriting with no minimum check amount. Other services include the ability to
automatically transfer free credit balances in your brokerage account to your
fund account and the 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 $100 for individuals and $175 for
corporations and businesses.
Exchange privilege:
Fund shares may be exchanged for shares of any of the other Legg Mason funds or
the Bartlett funds, provided these funds are eligible for sale in your state of
residence. You can request an exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. An exchange of the fund's
shares will be treated as a sale of the shares and any gain on the transaction
may be subject to tax.
The fund reserves the right to:
o terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year.
o terminate or modify the exchange privilege after 60 days' notice to
shareholders.
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DISTRIBUTIONS AND TAXES
-----------------------
The fund declares dividends from its net investment income daily and pays them
monthly. Your dividends will be automatically reinvested in additional shares of
the fund, unless you elect to receive them in cash. To change your election, 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 net short-term capital gains, it will pay them at least once
every twelve months. If the postal or other delivery service is unable to
deliver your check, your dividend option will automatically be converted to
having all dividends reinvested in fund shares. No interest will accrue on
amounts represented by uncashed dividend or redemption checks. You may request
that your dividends be reinvested in shares of another Legg Mason fund.
Fund distributions of any net short-term capital gains are taxable to most
investors, whether received in cash or reinvested in additional shares of the
fund. Generally, those 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
adviser about federal, state and local tax considerations.
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FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you understand the fund's
financial performance for the past five 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>
Year ended August 31, 2000 1999 1998 1997 1996
The following information reflects financial results for a single share of the fund:
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------
Income from
investment operations:
Net investment income 0.05 0.04 0.05 0.05 0.05
Dividends from net
investment income (0.05) (0.04) (0.05) (0.05) (0.05)
------------------------------------------------------------------
Net asset value,
end of year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------
------------------------------------------------------------------
Total return 5.36% 4.46% 4.96% 4.84% 4.92%
Ratio / Supplemental Data:
Ratio of expenses to
average net assets 0.68% 0.75% 0.78% 0.75% 0.70%
Ratio of net investment
income to average net assets 5.25% 4.37% 4.86% 4.73% 4.81%
Net assets, end of year
(in millions) $1,950 $1,777 $1,423 $1,343 $1,224
</TABLE>
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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 SEC and is
incorporated by reference into (is considered part of) the 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 is available in the fund's annual and semi-annual reports to
shareholders. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR database
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 SEC's Public
Reference Section, Washington, D.C. 20549-0102.
LMF-017 SEC file number: 811-2853
