As filed with the Securities and Exchange Commission on July 31, 1997.
1933 Act File No. 2-75766
1940 Act File No. 811-3380
- --------------------------------------------------------------------------------
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: 24 [X]
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No: 25
----
LEGG MASON VALUE TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
111 South Calvert Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
CHARLES A. BACIGALUPO ARTHUR C. DELIBERT, ESQ.
111 South Calvert 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 July 31, 1997 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on , 1997 pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on , 1997 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.
Registrants have filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 and filed the notice required by such Rule for their most
recent fiscal year on May 30, 1997.
<PAGE>
Legg Mason Value Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Table of Contents
Cross Reference Sheets
Part A - Prospectus--Primary Shares
Prospectus--Navigator Shares
Part B -Statement of Additional Information
Part C -Other Information
Signature Page
Exhibits
<PAGE>
Legg Mason Value Trust, Inc. (Primary Shares)
Form N-1A Cross Reference Sheet
-------------------------------
Part A Item No. Prospectus Caption
- --------------- ------------------
1 Cover Page
2 Prospectus Highlights; Expenses
3 Financial Highlights; Performance Information
4 Investment Objectives and Policies; Description of each
Corporation/Trust and Its Shares
5 Expenses; The Funds' Management and Investment
Adviser; The Funds' Distributor
6 Prospectus Highlights; Dividends and Other Distributions;
Shareholder Services; Tax Treatment of Dividends and
Other Distributions; How Your Shareholder Account Is
Maintained; Description of each Corporation/Trust and Its
Shares
7 How You Can Invest In the Funds; How Your Shareholder
Account Is Maintained; How Net Asset Value Is
Determined; The Funds' Distributor
8 How You Can Redeem Your Primary Shares
9 Not Applicable
<PAGE>
Legg Mason Value Trust, Inc.
(Navigator Value Trust)
Form N-1A Cross Reference Sheet
-------------------------------
Part A Item No. Prospectus Caption
- --------------- ------------------
1 Cover Page
2 Expenses
3 Financial Highlights; Performance Information
4 Investment Objectives and Policies; Description of each
Corporation/Trust and Its Shares
5 Expenses; The Funds' Management and Investment
Adviser; The Funds' Distributor
6 Dividends and Other Distributions; Shareholder Services;
Tax Treatment of Dividends and Other Distributions;
How Your Shareholder Account Is Maintained;
Description of each Corporation/Trust and Its Shares
7 How To Purchase and Redeem Shares; How Your
Shareholder Account Is Maintained; How Net Asset Value
Is Determined; The Funds' Distributor
8 How To Purchase and Redeem Shares
9 Not Applicable
<PAGE>
Legg Mason Value Trust, Inc.
Primary Shares
Navigator Value Trust
Form N-1A Cross Reference Sheet
-------------------------------
Statement of Additional
Part B Item No. Information Caption
- --------------- -----------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Additional Information About Investment Limitations and
Policies; Portfolio Transactions and Brokerage
14 The Funds' Directors and Officers
15 The Funds' Directors and Officers
16 The Funds' Investment Adviser; The Funds' Distributor;
The Funds' Directors and Officers; The Funds'
Independent Accountants/Auditors; The Funds' Legal
Counsel; The Funds' Custodian and Transfer and
Dividend - Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Not Applicable
19 Valuation of Fund Shares; Additional Purchase and
Redemption Information
20 Additional Tax Information; Tax-Deferred Retirement
Plans
21 Portfolio Transactions and Brokerage; The Funds'
Distributor; The Funds' Custodian and Transfer and
Dividend - Disbursing Agent
22 Performance Information
23 Financial Statements
<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 4
Financial Highlights 5
Performance Information 7
Investment Objectives and Policies 8
How You Can Invest in the Funds 19
How Your Shareholder Account is Maintained 20
How You Can Redeem Your Primary Shares 20
How Net Asset Value is Determined 21
Dividends and Other Distributions 21
Tax Treatment of Dividends and Other Distributions 22
Shareholder Services 23
The Funds' Management and Investment Advisers 24
The Funds' Distributor 25
Description of Each Corporation /Trust and its Shares 26
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
INDEPENDENT ACCOUNTANTS /AUDITORS:
Coopers & Lybrand L.L.P.
217 East Redwood Street, Baltimore, Maryland 21202
Ernst & Young LLP
One North Charles Street, Baltimore, Maryland 21202
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ANY FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY ANY FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
(Recycled logo) PRINTED ON RECYCLED PAPER
LMF-001
LEGG MASON
EQUITY
FUNDS
VALUE TRUST, INC.
TOTAL RETURN TRUST, INC.
SPECIAL INVESTMENT
TRUST, INC.
AMERICAN LEADING
COMPANIES TRUST
BALANCED TRUST
PRIMARY SHARES
PUTTING YOUR FUTURE FIRST
PROSPECTUS
JULY 31, 1997
[LEGG MASON FUNDS LOGO]
<PAGE>
LEGG MASON EQUITY FUNDS -- PRIMARY SHARES
LEGG MASON VALUE TRUST , INC.
LEGG MASON TOTAL RETURN TRUST , INC.
LEGG MASON SPECIAL INVESTMENT TRUST , INC.
LEGG MASON AMERICAN LEADING COMPANIES TRUST
(A SERIES OF LEGG MASON INVESTORS TRUST , INC.)
LEGG MASON BALANCED TRUST
(A SERIES OF LEGG MASON INVESTORS TRUST , INC.)
This Prospectus sets forth concisely the information about the
funds that a prospective investor ought to know before investing. It
should be read and retained for future reference. A Statement of
Additional Information about the funds dated July 31, 1997 has been
filed with the Securities and Exchange Commission ("SEC") and, as
amended or supplemented from time to time, is incorporated herein by
reference. The Statement of Additional Information is available
without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers
listed below).
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE
NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
July 31, 1997
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
The LEGG MASON VALUE TRUST, INC. ("Value Trust") is a diversified,
open-end management investment company seeking long-term growth of
capital. Value Trust invests principally in those equity securities which
its investment adviser, Legg Mason Fund Adviser, Inc. ("Adviser" or
"Manager"), believes are undervalued and therefore offer above-average
potential for capital appreciation. The Adviser believes that Value Trust
shares may be appropriate for investments by Individual Retirement
Accounts, Self-Employed Individual Retirement Plans, Simplified Employee
Pension Plans, Savings Incentive Match Plans for Employees and other
qualified retirement plans (collectively referred to as "Retirement
Plans") whose principal investment objective is capital appreciation.
Other investors who seek capital appreciation may also invest in Value
Trust shares.
The LEGG MASON TOTAL RETURN TRUST, INC. ("Total Return Trust") is a
diversified, open-end management investment company seeking capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. In attempting to
achieve this objective, the Adviser selects a diversified portfolio,
composed of dividend-paying common stocks and securities convertible into
common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common
stock which do not pay current dividends but which offer prospects for
capital appreciation and future income; and debt instruments of various
maturities. The Adviser believes that Total Return Trust shares may be
appropriate for investments by Retirement Plans. Due to Total Return
Trust's investment objective, however, investors should not expect capital
appreciation comparable to funds devoted solely to growth, or income
comparable to funds devoted to maximum current income.
The LEGG MASON SPECIAL INVESTMENT TRUST, INC. ("Special Investment
Trust") is a diversified, open-end management investment company seeking
capital appreciation. Special Investment Trust invests principally in
equity securities of companies with market capitalizations of less than
$2.5 billion which, in the opinion of the Adviser, have one or more of the
following characteristics: they are not closely followed by, or are out of
favor with, investors generally, and the Adviser believes they are
undervalued in relation to their long-term earning power or asset values;
unusual developments have occurred which suggest the possibility that the
market value of the securities will increase; or they are involved in
actual or anticipated reorganizations or restructurings under the
Bankruptcy Code. Special Investment Trust also invests in the securities
of companies with larger capitalizations which have one or more of these
characteristics. Special Investment Trust may invest up to 35% of its
assets in debt securities rated below investment grade.
The LEGG MASON AMERICAN LEADING COMPANIES TRUST ("American Leading
Companies") is a professionally managed portfolio seeking long-term
capital appreciation and current income consistent with prudent investment
risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Investors Trust"), a diversified, open-end
management investment company. Under normal market conditions, American
Leading Companies will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion.
American Leading Companies' investment adviser, Legg Mason Capital
Management, Inc. ("LMCM"), defines a "Leading Company" as a company that,
in the opinion of LMCM, has attained a major market share in one or more
products or services within its industry(ies), and possesses the financial
strength and management talent to maintain or increase market share and
profit in the future. Such companies are typically well known as leaders
in their respective industries; most are found in the top half of the
Standard & Poor's Composite Index of 500 Stocks
2
<PAGE>
("S&P 500"). LMCM believes that American Leading Companies' shares may be
appropriate for investment by Retirement Plans.
The LEGG MASON BALANCED TRUST ("Balanced Trust") is a professionally
managed portfolio seeking long-term capital appreciation and current
income in order to achieve an attractive total investment return
consistent with reasonable risk. Balanced Trust is a separate series of
Investors Trust. Under normal conditions, Balanced Trust will invest no
more than 75% of its assets in equity securities. The term "equity
securities" includes, without limitation, common stocks and convertible
securities of domestic issuers, securities of closed-end investment
companies and U.S. dollar-denominated securities of foreign issuers,
including American Depositary Receipts ("ADRs") and Global Depositary
Receipts ("GDRs"). Balanced Trust will invest at least 25% of its
portfolio in fixed income securities. Bartlett & Co. ("Bartlett"), as
investment adviser, believes that Balanced Trust shares may be appropriate
for investment by Retirement Plans.
Value Trust, Total Return Trust, Special Investment Trust, American
Leading Companies and Balanced Trust (each a "Fund") each may invest a
significant portion of its assets in debt securities, and may invest to
some extent in securities rated below investment grade. Each Fund may
invest in foreign securities, which would expose it to the possibility of
currency fluctuations and other risks of foreign investing. Each Fund
(except American Leading Companies) may use futures contracts and/or
options for hedging or income purposes, which may expose it to the
potential for losses greater than the value of the Fund's investment in
such instruments.
Of course, there can be no assurance that any Fund will achieve its
objective. See "Investment Objectives and Policies," page 11, which also
includes a discussion of risks.
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
INVESTMENT ADVISERS:
Legg Mason Fund Adviser, Inc. (for Value Trust, Total Return Trust and
Special Investment Trust)
Legg Mason Capital Management, Inc. (for American Leading Companies)
Bartlett & Co. (for Balanced Trust)
PURCHASE METHODS:
Send bank/personal check or wire federal funds. There is a $1,000
minimum, generally, for initial purchases, and a $100 minimum, generally,
for subsequent purchases. Lower minimums for initial and subsequent
purchases apply for automatic investments. See "How You Can Invest in the
Funds," page 22.
REDEMPTION METHODS:
Redeem by calling your Legg Mason or affiliated financial advisor or
redeem by mail. See "How You Can Redeem Your Primary Shares," page 23.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 26.
DIVIDENDS:
Declared and paid quarterly for Value Trust, Total Return Trust and
Balanced Trust. Declared and paid after the end of each taxable year of
Special Investment Trust and American Leading Companies. See "Dividends
and Other Distributions," page 25.
REINVESTMENT:
All dividends and other distributions are automatically reinvested in
Primary Shares unless cash payments are requested.
3
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Primary
Shares of a Fund will bear directly or indirectly. The expenses and fees
set forth below are based on average net assets and annual Fund operating
expenses related to Primary Shares for the year ended March 31, 1997. For
Balanced Trust, which has a limited operating history prior to the date of
this Prospectus, other expenses are based on estimates for the current
fiscal year, and fees are adjusted for current expense limits and fee
waiver levels.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES(A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
----------------------------------------------
<S> <C>
Management fees
(after fee
waivers) 0.72% 0.75% 0.78% 0.64% 0.00%
12b-1 fees
(after fee
waivers) 0.95% 1.00% 1.00% 1.00% 0.30%
Other expenses 0.10% 0.18% 0.14% 0.31% 1.55%
----------------------------------------------
Total operating
expenses
(after fee
waivers) 1.77% 1.93% 1.92% 1.95% 1.85%
==============================================
</TABLE>
(A) The Manager and Legg Mason have voluntarily agreed to waive management
and 12b-1 fees to the extent necessary to limit total operating expenses
relating to Primary Shares (exclusive of taxes, brokerage commissions,
interest and extraordinary expenses) as follows: for Total Return Trust
and American Leading Companies, 1.95% of each Fund's average daily net
assets attributable to Primary Shares indefinitely; and for Balanced
Trust, 1.85% of average daily net assets attributable to Primary Shares
until July 31, 1998. In the absence of such waivers, the management fee,
12b-1 fee, other expenses and total operating expenses relating to
Primary Shares would have been as follows: for Total Return Trust, the
same as described above; for American Leading Companies, 0.75%, 1.00%,
0.31% and 2.06% of average net assets; and for Balanced Trust, 0.75%,
0.75%, 1.55% and 3.05% of average net assets.
For further information concerning the Funds' expenses, please see
"The Funds' Management and Investment Advisers" and "The Funds'
Distributor," pages 27-29. Because each Fund pays 12b-1 fees with respect
to Primary Shares, long-term investors in Primary Shares may pay more in
distribution expenses than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1)
a 5% annual rate of return and (2) redemption at the end of each time
period. The Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
----------------------------------------------------------
<S> <C>
1 Year $ 18 $ 20 $ 20 $ 20 $ 19
3 Years $ 56 $ 61 $ 60 $ 61 $ 58
5 Years $ 96 $104 $104 $ 105 N/A
10 Years $208 $225 $224 $ 227 N/A
</TABLE>
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same over the time periods shown. The above
tables and the assumption in the example of a 5% annual return are
required by regulations of the SEC applicable to all mutual funds. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT
THE PROJECTED OR ACTUAL PERFORMANCE OF, PRIMARY SHARES OF THE FUNDS. THE
ABOVE TABLE AND EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The actual expenses attributable to Primary Shares will depend
upon, among other things, the level of average net assets, the levels of
sales and redemptions of shares, the extent to which the Manager and/or
Legg Mason waive their fees and the extent to which Primary Shares incur
variable expenses, such as transfer agency costs.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the tables that follow has been audited
for Value Trust, Total Return Trust and Special Investment Trust by Coopers
& Lybrand L.L.P., independent accountants, and for American Leading
Companies and Balanced Trust, by Ernst & Young LLP, independent auditors.
Each Fund's financial statements for the year ended March 31, 1997 and the
report of Coopers & Lybrand L.L.P. or Ernst & Young LLP thereon are
included in their combined annual reports and are incorporated by reference
in the Statement of Additional Information. The combined annual reports are
available to shareholders without charge by calling your Legg Mason or
affiliated financial advisor or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
Investment Operations Distributions From:
---------------------------------------- ------------------------
Net Asset Net Net Realized Total Net
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on Total
of Year (Loss) Investments Operations Income Investments Distributions
--------------------------------------------------------------------------------------------------------------------
<S> <C>
VALUE TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 26.99 $ .13 $ 8.68 $ 8.81 $ (.16) $ (1.53) $ (1.69)
1996 20.21 .19 8.00 8.19 (.17) (1.24) (1.41)
1995 18.50 .10 1.70 1.80 (.05) (.04) (.09)
1994 17.81 .08 .92 1.00 (.11) (.20) (.31)
1993 15.69 .18 2.12 2.30 (.18) -- (.18)
1992 13.38 .25 2.34 2.59 (.28) -- (.28)
1991 14.19 .32 (.74) (.42) (.36) (.03) (.39)
1990 14.16 .33 .77 1.10 (.33) (.74) (1.07)
1989 12.14 .21 1.99 2.20 (.18) -- (.18)
1988 15.07 .21 (1.54) (1.33) (.20) (1.40) (1.60)
SPECIAL INVESTMENT TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 25.09 $ (.23) $ 3.10 $ 2.87 $ -- $ (1.41) $ (1.41)
1996 19.96 -- 5.60 5.60 -- (.47) (.47)
1995 21.56 (.06) (1.31) (1.37) -- (.23) (.23)
1994 17.91 (.11) 3.93 3.82 (.03) (.14) (.17)
1993 17.00 .03 1.66 1.69 -- (.78) (.78)
1992 14.59 .12 2.83 2.95 (.14) (.40) (.54)
1991 13.58 .18 2.42 2.60 (.27) (1.32) (1.59)
1990 11.84 .12 1.70 1.82 (.08) -- (.08)
1989 10.14 .06 1.65 1.71 (.01) -- (.01)
1988 12.80 .13 (1.825) (1.695) (.075) (.89) (.965)
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------
Net
Net Asset Investment Average Net Assets
Value, Expenses Income (Loss) Portfolio Commission End of
End of Total to Average to Average Turnover Rate Year
Year Return Net Assets Net Assets Rate Paid(E) (in thousands)
---------------------------------------------------------------------------------------------------------------
<S> <C>
VALUE TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 34.11 33.59% 1.77% .4% 10.5% $.0557 $2,236,400
1996 26.99 42.09% 1.82% .8% 19.6% -- 1,450,774
1995 20.21 9.77% 1.81% .5% 20.1% -- 986,325
1994 18.50 5.65% 1.82% .5% 25.5% -- 912,418
1993 17.81 14.76% 1.86% 1.1% 21.8% -- 878,394
1992 15.69 19.53% 1.90% 1.7% 39.4% -- 745,833
1991 13.38 (2.88)% 1.90% 2.5% 38.8% -- 690,053
1990 14.19 7.74% 1.86% 2.2% 30.7% -- 808,780
1989 14.16 18.33% 1.96% 1.6% 29.7% -- 720,961
1988 12.14 (8.42)% 1.97% 1.5% 47.8% -- 665,689
SPECIAL INVESTMENT TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 26.55 11.58% 1.92% (.9)% 29.2% $.0514 $ 947,684
1996 25.09 28.47% 1.96% -- 35.6% -- 792,240
1995 19.96 (6.37)% 1.93% (.2)% 27.5% -- 612,093
1994 21.56 21.35% 1.94% (.6)% 16.7% -- 565,486
1993 17.91 10.50% 2.00% .2% 32.5% -- 322,572
1992 17.00 20.46% 2.10% .8% 56.9% -- 201,772
1991 14.59 21.46% 2.30% 1.4% 75.6% -- 106,770
1990 13.58 15.37% 2.30% 1.0% 115.9% -- 68,240
1989 11.84 16.99% 2.50% .7% 122.4% -- 44,450
1988 10.14 (14.18)% 2.50% 1.0% 158.9% -- 43,611
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Investment Operations Distributions From:
---------------------------------------- ------------------------
Net Asset Net Net Realized Total Net
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on Total
of Period (Loss) Investments Operations Income Investments Distributions
--------------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL RETURN TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 16.45 $ .46 $ 3.47 $ 3.93 $ (.43) $ (.56) $ (.99)
1996 12.79 .48 3.69 4.17 (.51) -- (.51)
1995 13.54 .33 (.19) .14 (.29) (.60) (.89)
1994 13.61 .36 .24 .60 (.33) (.34) (.67)
1993 11.64 .39 1.89 2.28 (.31) -- (.31)
1992 9.64 .34 1.91 2.25 (.25) -- (.25)
1991 10.03 .28 (.31) (.03) (.29) (.07) (.36)
1990 10.06 .21 .15 .36 (.21) (.18) (.39)
1989 8.86 .15 1.18 1.33 (.13) -- (.13)
1988 11.63 .18 (1.35) (1.17) (.21) (1.39) (1.60)
AMERICAN LEADING COMPANIES
-- Primary Class
Years Ended Mar. 31,
1997 $ 12.23 $ .01(F) $ 3.00 $ 3.01 $ (.02) $ (.48) $ (.50)
1996 10.18 .07(F) 2.08 2.15 (.10) -- (.10)
1995 9.69 .12(F) .48 .60 (.11) -- (.11)
Sept. 1, 1993(A)-
Mar. 31, 1994 10.00 .06(F) (.34) (.28) (.03) -- (.03)
BALANCED TRUST
Oct. 1, 1996(B)-
Mar. 31, 1997 $ 10.00 $ .09(G) $ .11 $ .20 $ (.04) $ -- $ (.04)
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------
Net
Net Asset Investment Average Net Assets
Value, Expenses Income (Loss) Portfolio Commission End of
End of Total to Average to Average Turnover Rate Period
Period Return Net Assets Net Assets Rate Paid(E) (in thousands)
---------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL RETURN TRUST
-- Primary Class
Years Ended Mar. 31,
1997 $ 19.39 24.33% 1.93% 2.6% 38.4% $.0528 $ 380,458
1996 16.45 33.23% 1.95% 3.2% 34.7% -- 267,010
1995 12.79 1.09% 1.93% 2.5% 61.9% -- 194,767
1994 13.54 4.57% 1.94% 2.7% 46.6% -- 184,284
1993 13.61 19.88% 1.95%(H) 3.1%(H) 40.5% -- 139,034
1992 11.64 23.59% 2.34% 3.1% 38.4% -- 52,360
1991 9.64 (0.05)% 2.50% 3.1% 62.1% -- 22,822
1990 10.03 3.48% 2.39% 2.0% 39.2% -- 26,815
1989 10.06 15.16% 2.40% 1.6% 25.7% -- 30,102
1988 8.86 (10.17)% 2.30% 1.9% 50.1% -- 35,394
AMERICAN LEADING COMPANIES
-- Primary Class
Years Ended Mar. 31,
1997 $ 14.74 24.73% 1.95%(F) .05%(F) 55.7% $.0640 $ 104,812
1996 12.23 21.24% 1.95%(F) .69%(F) 43.4% -- 76,100
1995 10.18 6.24% 1.95%(F) 1.21%(F) 30.5% -- 59,985
Sept. 1, 1993(A)-
Mar. 31, 1994 9.69 (2.86)%(C) 1.95%(D,F) 1.14%(D,F) 21.0%(D) -- 55,022
BALANCED TRUST
Oct. 1, 1996(B)-
Mar. 31, 1997 $ 10.16 2.02%(C) 1.85%(D,G) 2.52%(D,G) 5.1%(D) $.0622 $ 17,948
</TABLE>
(A) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(B) FOR THE PERIOD OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS) TO MARCH 31,
1997.
(C) NOT ANNUALIZED
(D) ANNUALIZED
(E) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY EACH FUND.
(F) NET OF FEES WAIVED IN EXCESS OF A VOLUNTARY EXPENSE LIMITATION OF 1.95%
OF AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE ADVISER,
THE ANNUALIZED RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE
PERIOD SEPTEMBER 1, 1993 TO MARCH 31, 1994 AND FOR THE YEARS ENDED MARCH
31, 1995, 1996 AND 1997 WOULD HAVE BEEN 2.28%, 2.12%, 2.20%, AND 2.06%,
RESPECTIVELY.
(G) NET OF FEES WAIVED IN EXCESS OF A VOLUNTARY EXPENSE LIMITATION OF 1.85%
OF AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE ADVISER,
THE ANNUALIZED RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE
PERIOD OCTOBER 1, 1996 TO MARCH 31, 1997 WOULD HAVE BEEN 3.03%.
(H) NET OF FEES WAIVED IN EXCESS OF AN INDEFINITE VOLUNTARY EXPENSE
LIMITATION OF 1.95%.
6
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may quote the TOTAL RETURN of a class of
shares in advertisements or in reports or other communications to
shareholders. A mutual fund's total return is a measurement of the overall
change in value of an investment in the fund, including changes in share
price and assuming reinvestment of dividends and other distributions.
CUMULATIVE TOTAL RETURN shows the fund's performance over a specific
period of time. AVERAGE ANNUAL TOTAL RETURN is the average annual
compounded return that would have produced the same cumulative total
return if the fund's performance had been constant over the entire period.
Average annual returns, which differ from actual year-to-year results,
tend to smooth out variations in a fund's returns. For comparison
purposes, each Fund's total return is compared with total returns of the
Value Line Geometric Average, an index of approximately 1,700 stocks
("Value Line Index"), and the S&P 500, two unmanaged indexes of widely
held common stocks. No adjustment has been made for any income taxes
payable by shareholders.
The investment return and principal value of an investment in each
Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Returns of each Fund would
have been lower if the Advisers and/or Legg Mason had not waived certain
fees for the fiscal years ended March 31, as follows: 1989 through 1997
for Value Trust; 1986 through 1995 for Total Return Trust; 1986 through
1997 for Special Investment Trust; 1994 through 1997 for American Leading
Companies and 1997 for Balanced Trust.
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders,
which may be obtained without charge by calling your Legg Mason or
affiliated financial advisor or Legg Mason's Funds Marketing Department at
800-822-5544.
Total returns as of March 31, 1997 were as follows:
<TABLE>
<CAPTION>
SPECIAL AMERICAN
TOTAL RETURN INVESTMENT LEADING
VALUE TRUST TRUST TRUST COMPANIES
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +33.59% +24.33% +11.58% +24.73%
Five Years +152.62 +109.95 +79.97 N/A
Ten Years +242.48 +177.62 +204.97 N/A
Life of Class -- Value Trust(A) +1,198.81
Life of Class -- Total Return Trust(B) +229.92
Life of Class -- Special Investment Trust(C) +298.71
Life of Class -- American Leading Companies(D) +56.08
Life of Class -- Balanced Trust(E)
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +33.59% +24.33% +11.58% +24.73%
Five Years +20.36 +15.99 +12.47 N/A
Ten Years +13.10 +10.75 +11.80 N/A
Life of Class -- Value Trust(A) +18.70
Life of Class -- Total Return Trust(B) +11.08
Life of Class -- Special Investment Trust(C) +13.07
Life of Class -- American Leading Companies(D) +13.23
Life of Class -- Balanced Trust(E)
<CAPTION>
BALANCED VALUE LINE S&P STOCK
TRUST INDEX INDEX
------------------------------------------------------------------------------------------------------
<S> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year N/A +10.12% +19.83%
Five Years N/A +64.47 +113.90
Ten Years N/A +83.53 +251.02
Life of Class -- Value Trust(A) +349.29 +985.96
Life of Class -- Total Return Trust(B) +142.88 +431.51
Life of Class -- Special Investment Trust(C) +138.53 +401.75
Life of Class -- American Leading Companies(D) +28.89 +78.61
Life of Class -- Balanced Trust(E) +2.02% +4.07 +11.24
AVERAGE ANNUAL TOTAL RETURN
<S> <C>
Primary Class:
One Year N/A +10.12% +19.83%
Five Years N/A +10.46 +16.41
Ten Years N/A +6.26 +13.36
Life of Class -- Value Trust(A) +10.60 +17.34
Life of Class -- Total Return Trust(B) +8.14 +15.88
Life of Class -- Special Investment Trust(C) +8.03 +15.42
Life of Class -- American Leading Companies(D) +7.34 +17.57
Life of Class -- Balanced Trust(E) N/A -- --
</TABLE>
(A) INCEPTION OF VALUE TRUST -- APRIL 16, 1982.
(B) INCEPTION OF TOTAL RETURN TRUST -- NOVEMBER 21, 1985.
(C) INCEPTION OF SPECIAL INVESTMENT TRUST -- DECEMBER 30, 1985.
(D) INCEPTION OF AMERICAN LEADING COMPANIES -- SEPTEMBER 1, 1993.
(E) INCEPTION OF BALANCED TRUST -- OCTOBER 1, 1996.
The S&P 500 and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Unlike the figures presented for
the Funds, the S&P 500 and Value Line Index figures do not include
brokerage commissions and other costs of investing.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Fund's Board
of Directors without a shareholder vote. There can be no assurance that
any Fund will achieve its investment objective.
VALUE TRUST'S objective is long-term growth of capital. The Adviser
believes that the Fund's objective can best be met through the purchase of
securities that appear to be undervalued in relation to the long-term
earning power or asset value of their issuers. Securities may be
undervalued because of many factors, including market decline, poor
economic conditions, tax-loss selling or actual or anticipated unfavorable
developments affecting the issuer of the security. Any or all of these
factors may provide buying opportunities at attractive prices compared to
historical or market price-earnings ratios, book value, return on equity,
or the long-term prospects for the companies in question.
The Adviser believes that the securities of sound, well-managed
companies that may be temporarily out of favor due to earnings declines or
other adverse developments are likely to provide a greater total return
than securities with prices that appear to reflect anticipated favorable
developments and that are therefore subject to correction should any
unfavorable developments occur.
The Fund's policy of investing in securities that may be temporarily
out of favor differs from the investment approach followed by many other
mutual funds with similar investment objectives. Such mutual funds
typically do not invest in securities that have declined sharply in price,
are not widely followed, or are issued by companies that have reported
poor earnings or that have suffered a cyclical downturn in business. The
Adviser believes, however, that purchasing securities depressed by
temporary factors will provide investment returns superior to those
obtained when premium prices are paid for issues currently in favor.
The Fund invests primarily in companies with a record of earnings and
dividends, reasonable return on equity, and sound finances. The Fund may
from time to time invest in securities that pay no dividends or interest.
Current dividend income is not a prerequisite in the selection of equity
securities.
The Fund normally invests primarily in equity securities. It may
invest in debt securities, including government, corporate and money
market securities, for temporary defensive purposes and, consistent with
its investment objective, during periods when or under circumstances where
the Adviser believes the return on certain debt securities may equal or
exceed the return on equity securities. The Fund may invest in debt
securities of both foreign and domestic issuers of any maturity without
regard to rating, and may invest its assets in such securities without
regard to a percentage limit. The Adviser currently anticipates that under
normal market conditions, the Fund will invest no more than 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities not rated investment grade, i.e., not
rated at least BBB by Standard & Poor's ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by those entities,
deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which, in the Adviser's opinion,
offer prospects for capital appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers without regard to rating and
may invest its assets in such securities without regard to a percentage
limit. The Adviser currently anticipates that under normal market
conditions, the Fund will invest no more than 50% of its total assets in
intermediate-term and long-term debt securities, and no more than 5% of
its total assets
8
<PAGE>
in debt securities not rated investment grade, i.e., not rated at least
BBB by S&P or Baa by Moody's or, if unrated by those entities, deemed by
the Adviser to be of comparable quality.
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities, and securities convertible into equity securities, of
companies with market capitalizations of less than $2.5 billion which the
Adviser believes have one or more of the following characteristics:
1. The companies generally are not closely followed by, or are out of
favor with, investors, and appear to be undervalued in relation to their
long-term earning power or asset values. A security may be undervalued
because of many factors, including market decline, poor economic
conditions, tax-loss selling, or actual or anticipated developments
affecting the issuer.
2. The companies are experiencing unusual and possibly non-repetitive
developments which, in the opinion of the Adviser, may cause the market
values of the securities to increase. Such developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. The companies are involved in actual or anticipated reorganizations
or restructurings under the Bankruptcy Code. No more than 20% of the
Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
net assets may be invested in debt securities not rated at least BBB by
S&P, or Baa by Moody's, and securities unrated by those entities,
9
<PAGE>
deemed by the Adviser to be of comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be in issuers whose long-term debt is rated in one of the
four highest rating categories by S&P or Moody's or, if unrated by S&P or
Moody's, deemed by the Adviser to be of comparable quality.
AMERICAN LEADING COMPANIES' investment objective is to provide
long-term capital appreciation and current income consistent with prudent
investment risk. The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment, primarily in the common stocks of Leading Companies. The Fund
intends to maintain for its shareholders a portfolio of securities which
an experienced investor charged with fiduciary responsibility might select
under the Prudent Investor Rule, as described in the trust laws or court
decisions of many states, including New York. Under normal market
conditions, the Fund will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the S&P 500. Additionally,
LMCM's goal is to invest in companies having what LMCM believes is a
reasonable price/earnings ratio, and it will favor those companies with
well established histories of dividends and dividend growth rates. The
Fund may also invest in companies having capitalizations above or below $2
billion which LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM will not properly
assess the potential for an issuer's future growth, or that an issuer will
not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and policies require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. Under normal circumstances, the Fund
expects to own a minimum of 35 different securities. The Fund may also
invest in common stocks and securities convertible into common stocks
which do not pay current dividends but which offer prospects for capital
appreciation and future income. The Fund may invest in when-issued
securities, which may involve additional risks.
During periods when LMCM believes the return on certain debt
securities may equal or exceed the return on equity securities, the Fund
may invest up to 25% of its total assets in debt securities, including
government, corporate and money market securities, consistent with its
investment objective. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers. The debt securities in
which the Fund may invest will be rated at least A by S&P or Moody's, or
deemed by LMCM to be of comparable quality.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities not rated at least Ba by Moody's or BB by S&P or, if unrated by
those entities, deemed by LMCM to be of comparable quality.
BALANCED TRUST'S investment objective is to seek long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk.
10
<PAGE>
The Fund will invest in a combination of equity, debt and money market
securities in attempting to achieve its objective. Under normal
conditions, the Fund will invest no more than 75% of its assets in equity
securities. Bartlett will emphasize investments in dividend-paying equity
securities that, in the opinion of Bartlett, offer the potential for long-
term growth, and in common stocks or securities convertible into common
stock that do not pay current dividends but offer prospects for capital
appreciation and future income.
The Fund will invest at least 25% of its portfolio in fixed income
securities, including, without limitation, preferred stocks, bonds,
debentures, municipal obligations, and mortgage-related securities;
certificates of deposit; Treasury bills, notes, bonds and other
obligations of the U.S. Government, its agencies and instrumentalities;
commercial paper and other money market instruments rated not less than
A-1, P-1 or F-1 by Moody's, S&P or Fitch Investors Services ("Fitch"),
respectively; and repurchase agreements. No more than 5% of the Fund's
total assets may be invested in fixed income or convertible securities not
rated at least BBB or Baa at the time of purchase, or comparable unrated
securities. If an investment grade security purchased by the Fund
subsequently loses its investment grade rating, Bartlett will determine
whether to retain that security in the Fund's portfolio. The Fund may
invest in securities of any maturity, but, under normal circumstances,
expects to maintain its portfolio of fixed income securities so as to have
an average dollar-weighted maturity of between four and five years.
Balanced Trust is managed as a balanced fund and invests in equity and
debt securities. This approach attempts to "balance" the potential for
growth and greater volatility of stocks with the historically stable
income and more moderate average price fluctuations of fixed income
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Bartlett's
assessment of investment opportunities. It is currently anticipated that
the Fund will invest an average of 60% of its total assets in common and
preferred stocks and the remaining 40% in various fixed income securities.
These percentages may vary in attempting to increase returns or reduce
risk.
The Fund may also acquire securities on a when-issued and
delayed-delivery basis, and may purchase exchange-traded futures contracts
on stock indices and options thereon. The Fund may use derivatives, such
as options and futures, in its investment activities. No more than 15% of
the Fund's net assets may be invested in illiquid securities. The Fund may
also engage in reverse repurchase agreements.
At March 31, 1997, the annualized portfolio turnover rate for the
equity portion of the Fund's portfolio was 14.7% and the annualized
portfolio turnover rate for the fixed income portion was 5.4%. The Fund's
total annualized portfolio turnover rate at March 31, 1997 was 5.1%.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS:
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in repurchase agreements and
money market instruments, including high-quality short-term debt
securities. A repurchase agreement is an agreement under which either U.S.
government obligations or high-quality liquid debt securities are acquired
from a securities dealer or bank subject to resale at an agreed-upon price
and date. The securities are held for each Fund by a custodian bank as
collateral until resold and will be supplemented by additional collateral
if necessary to maintain a total value equal to or in excess of the value
of the repurchase agreement. Each Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed or prevented from exercising its rights to dispose
of the collateral securities, which may decline in value in the interim.
The Funds will enter into repurchase agreements only with financial
institutions determined by each Fund's adviser to present minimal risk of
default during the term of the agreement based on guidelines established
by the Funds' Boards of Directors. A Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% (for Value
Trust, Total Return Trust and Special Investment Trust) or 15% (for
American Leading Companies and Balanced Trust) of its net assets would be
invested in such agreements and other illiquid investments.
11
<PAGE>
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its net assets.
For further information concerning securities lending, see the Statement
of Additional Information.
PREFERRED STOCK
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, the
preferred stock is more attractively priced in light of the risks
involved. Preferred stock pays dividends at a specified rate and generally
has preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are subject to changes in interest rates and are more sensitive to
changes in the issuer's creditworthiness than are the prices of debt
securities.
CONVERTIBLE SECURITIES
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt
or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital
structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established
in the convertible security's governing instrument.
CORPORATE DEBT SECURITIES
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price
of some commodity. These securities may be convertible into preferred or
common equity, or may be bought as part of a unit containing common stock.
In selecting corporate debt securities for a Fund, its adviser reviews and
monitors the creditworthiness of each issuer and issue. The adviser also
analyzes interest rate trends and specific developments which it believes
may affect individual issuers.
U.S. GOVERNMENT SECURITIES
U.S. government securities include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by: (1) the
full faith and credit of the United States (e.g., certificates of the
Government National Mortgage Association ("GNMA") ); (2) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Bank
securities); (3) the discretionary authority of the U.S. Treasury to lend
to the issuer (e.g., Fannie Mae ("FNMA") securities); and (4) solely the
creditworthiness of the issuer (e.g., Federal Home Loan Mortgage
Corporation ("FHLMC") securities). Neither the U.S. Government nor any of
its agencies or instrumentalities guarantees the market value of the
securities they issue. Therefore, the market value of such securities can
be expected to fluctuate in response to changes in interest rates.
STRIPPED SECURITIES
Stripped securities are created by separating bonds into their
principal and interest components and selling each piece separately
(commonly referred to as IOs and POs). Stripped securities are more
volatile than other fixed-income securities in
12
<PAGE>
their response to changes in market interest rates. The value of some
stripped securities moves in the same direction as interest rates, further
increasing their volatility.
ZERO COUPON BONDS
Zero coupon bonds do not provide for cash interest payments but
instead are issued at a significant discount from face value. Each year, a
holder of such bonds must accrue a portion of the discount as income.
Because each Fund is required to pay out substantially all of its income
each year, including income accrued on zero coupon bonds, a Fund may have
to sell other holdings to raise cash necessary to make the payout. Because
issuers of zero coupon bonds do not make periodic interest payments, their
prices can be very volatile when market interest rates change.
CLOSED-END INVESTMENT COMPANIES
Each Fund may invest in the securities of closed-end investment
companies. Such investments may involve the payment of substantial
premiums above the net asset value of such issuers' portfolio securities,
and the total return on such investments will be reduced by the operating
expenses and fees of such investment companies, including advisory fees. A
Fund will invest in such funds, when, in the adviser's judgment, the
potential benefits of such investment justify the payment of any
applicable premium or sales charge.
FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. These risks are intensified when investing in countries
with developing economies and securities markets, also known as "emerging
markets." Moreover, securities of many foreign issuers may be less liquid
and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation, withholding taxes and
limitations on the use or removal of funds or other assets.
The Funds may also invest in ADRs, which are securities issued by
banks evidencing their ownership of specific foreign securities. ADRs may
be sponsored or unsponsored; issuers of securities underlying unsponsored
ADRs are not contractually obligated to disclose material information in
the U.S. Accordingly, there may be less information available about such
issuers than there is with respect to domestic companies and issuers of
securities underlying sponsored ADRs. Although ADRs are denominated in
U.S. dollars, the underlying security often is not; thus, the value of the
ADR may be subject to exchange controls and variations in the exchange
rate. The Funds may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank
evidencing its ownership of the underlying foreign securities.
Although not a fundamental policy subject to shareholder vote, the
advisers currently anticipate that Value Trust, Total Return Trust,
Special Investment Trust and American Leading Companies will each invest
no more than 25% of its total assets in foreign securities. Bartlett
currently anticipates that Balanced Trust will not invest more than 10% of
its total assets in foreign securities, either directly or through ADRs or
GDRs.
ILLIQUID SECURITIES
Value Trust, Total Return Trust, and Special Investment Trust may each
invest up to 10% of its net assets in illiquid securities. American
Leading Companies and Balanced Trust may each invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be expected to be sold within seven days at approximately the price
at which they are valued. Due to the absence of an active trading market,
a Fund may have difficulty valuing or disposing of illiquid securities
promptly. Securities whose sale is legally restricted are often considered
illiquid. Foreign securities that are freely tradable in their country of
origin or in their principal market are not considered restricted
securities even if they are not registered for sale in the U.S.
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WHEN-ISSUED SECURITIES
Each Fund may enter into commitments to purchase securities on a
when-issued basis. Such securities are often the most efficiently priced
and have the best liquidity in the bond market. When a Fund purchases
securities on a when-issued basis, it assumes the risks of ownership,
including the risk of price fluctuation, at the time of purchase, not at
the time of receipt. However, a Fund does not have to pay for the
obligations until they are delivered to it. This is normally 7 to 15 days
later, but could be considerably longer in the case of some
mortgage-backed securities. Use of this practice would have a leveraging
effect on a Fund. To meet its payment obligation, a Fund will establish a
segregated account with its custodian and maintain cash or appropriate
liquid obligations in an amount at least equal to the payment that will be
due. A Fund may sell the securities subject to a when-issued purchase,
which may result in a gain or loss.
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST, SPECIAL INVESTMENT TRUST AND BALANCED TRUST:
Each of Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust can invest in futures and options transactions, including
puts and calls. Because such investments "derive" their value from the
value of the underlying security, index, or interest rate on which they
are based, they are sometimes referred to as "derivative" securities. Such
investments involve risks that are different from those presented by
investing directly in the securities themselves. While utilization of
options, futures contracts and similar instruments may be advantageous to
a Fund, if its adviser is not successful in employing such instruments in
managing the Fund's investments, the Fund's performance will be worse than
if the Fund did not make such investments.
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. A Fund
may sell an interest rate futures contract to offset price changes of debt
securities it already owns. This strategy is intended to minimize any
price changes in the debt securities a Fund owns (whether increases or
decreases) caused by interest rate changes, because the value of the
futures contract would be expected to move in the opposite direction from
the value of the securities owned by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be
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limited to the amount of the premium it received. If stock prices remain
the same over time, it is likely that the Fund will also profit, because
it should be able to close out the option at a lower price. If stock
prices fall, the Fund would expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, when writing call
options the Fund would give up some ability to participate in security
price increases.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the advisers in managing the Funds'
portfolios. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the adviser is not
successful in employing such instruments in managing a Fund's investments
or in predicting interest rate changes, the Fund's performance will be
worse than if the Fund did not make such investments. It is possible that
there will be imperfect correlation, or even no correlation, between price
movements of the investments being hedged and the options or futures used.
It is also possible that a Fund may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to
do so, or that a Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions and that a
Fund may be unable to close out or liquidate its hedged position. In
addition, the Funds will pay commissions and other costs in connection
with such investments, which may increase each Fund's expenses and reduce
its yield. A more complete discussion of the possible risks involved in
transactions in options and futures contracts is contained in the
Statement of Additional Information. Each Fund's current policy is to
limit options and futures transactions to those described above. The Funds
may purchase and write both over-the-counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
AMERICAN LEADING COMPANIES:
Although American Leading Companies may not invest in futures
transactions, it may to a limited extent sell covered call options on any
security in which it is permitted to invest for the purpose of enhancing
income. American Leading Companies may not invest in any other form of
option transaction.
A call option is "covered" if, at all times the option is outstanding,
the Fund holds the underlying security or a right to obtain that security
at no additional cost. The risks of selling covered call options are
described above.
As a non-fundamental policy, the Fund will not sell a covered call
option if, as a result, the value of the portfolio securities underlying
all outstanding covered call options would exceed 25% of the value of the
equity securities held by the Fund.
FOR EACH FUND:
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract is an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. By entering into a
foreign currency contract, a Fund "locks in" the exchange rate between the
currency it will deliver and the currency it will receive for the duration
of the contract. A Fund may enter into these contracts for the purpose of
hedging against risk arising from its investment in securities denominated
in foreign currencies or when it
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anticipates investing in such securities. Forward currency contracts
involve certain costs and risks, including the risk that currency
movements will not be accurately predicted, causing a Fund to sustain
losses on these contracts.
THE FOLLOWING DISCUSSION OF INVESTMENTS AND RISKS APPLIES ONLY TO BALANCED
TRUST:
MUNICIPAL OBLIGATIONS
Municipal obligations include obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which
municipal obligations may be issued include the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and the
making of loans to other public institutions and facilities. In addition,
certain types of industrial development bonds ("IDBs") and private
activity bonds ("PABs") are issued by or on behalf of public authorities
to finance various privately operated facilities, including certain
pollution control facilities, convention or trade show facilities, and
airport, mass transit, port or parking facilities.
Municipal obligations also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term debt obligations. Such notes may be issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of
bond placements or other revenues.
Municipal obligations also include municipal lease obligations. These
obligations, which are issued by state and local governments to acquire
land, equipment and facilities, typically are not fully backed by the
municipality's credit, and, if funds are not appropriated for the
following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to the
Fund. "Certificates of Participation" are participations in municipal
lease obligations or installment sales contracts. Each certificate
represents a proportionate interest in or right to the lease purchase
payments made.
The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. "General obligation" bonds are
secured by the issuer's pledge of its faith, credit and taxing power.
"Revenue" bonds are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a
special excise tax or other specific revenue source such as the corporate
user of the facility being financed. IDBs and PABs are usually revenue
bonds and are not payable from the unrestricted revenues of the issuer.
The credit quality of IDBs and PABs is usually directly related to the
credit standing of the corporate user of the facilities.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent interests in pools of mortgages.
Mortgage-related securities may be issued by governmental or government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. In contrast, mortgage-related securities provide monthly
payments which consist of interest and, in most cases, principal. In
effect, these payments are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments to holders of mortgage-related securities are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure. Some mortgage-related securities entitle the
holders to receive all interest and principal payments owed on the
mortgages in the pool, net of certain fees, regardless of whether or not
the mortgagors actually make the payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. The volume of prepayments of
principal on a pool of mortgages underlying a particular mortgage-
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related security will influence the yield of that security. Increased
prepayment of principal may limit the Fund's ability to realize the
appreciation in the value of such securities that would otherwise
accompany declining interest rates. An increase in mortgage prepayments
could cause the Fund to incur a loss on a mortgage-related security that
was purchased at a premium. On the other hand, a decrease in the rate of
prepayments, resulting from an increase in market interest rates, among
other causes, may extend the effective maturities of mortgage-related
securities, increasing their sensitivity to changes in market interest
rates. In determining the average maturity of the fixed-income portion of
the Fund, Bartlett must apply certain assumptions and projections about
the maturity and prepayment of mortgage-related securities; actual
prepayment rates may differ.
GOVERNMENT MORTGAGE-RELATED SECURITIES
GNMA pass-through securities are considered to have a very low risk of
default in that (i) the underlying mortgage loan portfolio is comprised
entirely of government-backed loans and (ii) the timely payment of both
principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. Government -- regardless of whether they have been
collected. GNMA pass-through securities are, however, subject to the same
market risk as comparable debt securities. Therefore, the effective
maturity and market value of the Fund's GNMA securities can be expected to
fluctuate in response to changes in interest rate levels.
FHLMC, a corporate instrumentality of the U.S. Government, issues
mortgage participation certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. The mortgage loans in FHLMC's
portfolio are not government backed; rather, the loans are either
uninsured with loan-to-value ratios of 80% or less, or privately insured
if the loan-to-value ratio exceeds 80%. FHLMC, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of approved
seller/servicers, including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through
certificates issued by FNMA ("FNMA certificates") are guaranteed as to
timely payment of principal and interest by FNMA, not the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are considered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, or GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Each
class of obligations is scheduled to receive periodic interest payments
according to the coupon rate on the obligations. However, all monthly
principal payments and any prepayments from the collateral pool are paid
first to the "Class 1" bondholders. The principal payments are such that
the Class 1 obligations are scheduled to be completely repaid no later
than, for example, five years after the offering date. Thereafter, all
payments of principal are allocated to the next most senior class of bonds
until that class of bonds has been fully repaid. Although full payoff of
each class of bonds is contractually required by a certain date, any or
all classes of obligations may be paid off sooner than expected because of
an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities, resulting in higher
risks.
The market for conventional pools is smaller and less liquid than the
market for the government and government-related mortgage pools.
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THE FOLLOWING DISCUSSION OF RISKS APPLIES TO EACH FUND AS NOTED:
RISKS OF DEBT SECURITIES
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times
of rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater
are such variations.
RISKS OF LOWER-RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated C by Moody's and S&P are bonds on
which no interest is being paid and which can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
However, debt securities, regardless of their ratings, generally have a
higher priority in the issuer's capital structure than do equity
securities.
Lower-rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the
financial condition of the issuers. Highly leveraged issuers may also
experience financial stress during periods of rising interest rates.
Lower-rated debt securities are also sometimes referred to as "junk
bonds."
The market for lower-rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At
certain times in the past, the prices of many lower-rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, the yields on
lower-rated debt securities rose dramatically, reflecting the risk that
holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can
be no assurance that such declines will not recur.
The market for lower-rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit
a Fund's ability to sell such securities at fair value. Judgment plays a
greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower-rated debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. Such
ratings are relative and subjective, and are not absolute standards of
quality. Unrated debt securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers. If
securities are rated investment grade by one rating organization and below
investment grade by the other, the adviser may rely on the rating that it
believes is more accurate. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) are analyzed
by the adviser to determine, to the extent possible, that the planned
investment is sound.
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders 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.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Fund policies, unless described as fundamental, can be changed
by action of its respective Board of Directors.
The fundamental restrictions applicable to each Fund include a
prohibition on investing 25% or more of its total assets in the securities
of issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U.S.
Government, its
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agencies or instrumentalities and repurchase agreements with respect
thereto).
HOW YOU CAN INVEST IN THE FUNDS
You may purchase Primary Shares of the Funds through a brokerage
account with Legg Mason, with an affiliate that has an agreement with Legg
Mason, or with an unaffiliated entity having an agreement with Legg Mason
("Financial Advisor or Service Provider"). Your Financial Advisor or
Service Provider will be pleased to explain the shareholder services
available from the Funds and answer any questions you may have. Documents
available from your Financial Advisor or Service Provider should be
completed if you invest in shares of the Funds through a Retirement Plan.
Investors who are considering establishing a Retirement Plan may wish
to consult their attorneys or tax advisers with respect to individual tax
questions. Your Financial Advisor or Service Provider can make available
to you forms of plans. The option of investing in these plans through
regular payroll deductions may be arranged with Legg Mason and your
employer. Additional information with respect to these plans is available
upon request from a Financial Advisor or Service Provider.
Clients of certain institutions that maintain omnibus accounts with
the Funds' transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Funds' distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.
The minimum initial investment in Primary Shares for each Fund
account, including investments made by exchange from other Legg Mason
funds and investments in a Retirement Plan, is $1,000, and the minimum
investment for each purchase of additional shares is $100, except as noted
below. The minimum amount for subsequent investments in a Retirement Plan
will be waived if an investment will bring the investment for the year to
the maximum amount permitted under the Internal Revenue Code of 1986, as
amended ("Code"). For those investing through the Funds' Future First
Systematic Investment Plan, payroll deduction plans and plans involving
automatic payment of funds from financial institutions or automatic
investment of dividends from certain unit investment trusts, minimum
initial and subsequent investments are lower. Each Fund may change these
minimum amount requirements at its discretion.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares of the Funds:
1. THROUGH A FINANCIAL ADVISOR OR SERVICE PROVIDER
Shares may be purchased through a Financial advisor. A Financial
Advisor or Service Provider will be pleased to open an account for you,
explain to you the shareholder services available from the Funds and
answer any questions you may have. After you have established an account,
you can order shares from your Financial Advisor or Service Provider in
person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Funds of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Funds' transfer agent, to transfer funds each month from
your checking account. Please contact a Financial Advisor or Service
Provider for further information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be
possible for dividends from certain unit investment trusts to be invested
automatically in shares. Persons interested in establishing such automatic
investment programs should contact the Funds through a Financial Advisor
or Service Provider.
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Primary Share purchases will be processed at the net asset value next
determined after your Financial Advisor or Service Provider has received
your order; payment must be made within three business days to Legg Mason.
Orders received by your Financial Advisor or Service Provider before the
close of regular trading on the New York Stock Exchange ("Exchange")
(normally 4:00 p.m. Eastern time) ("close of the Exchange") on any day the
Exchange is open will be executed at the net asset value determined as of
the close of the Exchange on that day. Orders received by your Financial
Advisor or Service Provider after the close of the Exchange or on days the
Exchange is closed will be executed at the net asset value determined as
of the close of the Exchange on the next day the Exchange is open. See
"How Net Asset Value is Determined," page 21. Each Fund reserves the right
to reject any order for its shares or to suspend the offering of shares
for a period of time.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or receipt. Shares may not be held in, or
transferred to, an account with any brokerage firm that does not have an
agreement with Legg Mason. The Funds no longer issue share certificates.
HOW YOU CAN REDEEM YOUR PRIMARY SHARES
There are two ways you can redeem your Primary Shares. First, you may
give your Financial Advisor or Service Provider an order for redemption of
your shares in person or by telephone. 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. Second, you may send a written request for redemption to: [insert
complete Fund name], c/o Legg Mason Funds Processing, P.O. Box 1476,
Baltimore, Maryland 21203-1476.
Requests for redemption received by your Financial Advisor or Service
Provider before the close of the Exchange on any day when the Exchange is
open, will be transmitted to BFDS, transfer agent for the Funds, for
redemption at the net asset value per share determined as of the close of
the Exchange on that day. Requests for redemption received by your
Financial Advisor or Service Provider after the close of the Exchange will
be executed at the net asset value determined as of the close of the
Exchange on its next trading day. A redemption request received by your
Financial Advisor or Service Provider may be treated as a request for
repurchase and, if it is accepted, your shares will be purchased at the
net asset value per share determined as of the next close of the Exchange.
Proceeds from your redemption will settle in your brokerage account
two business days after trade date. The proceeds of your redemption or
repurchase may be more or less than your original cost. If the shares to
be redeemed or repurchased were paid for by check (including certified or
cashier's checks), within 10 business days of the redemption or repurchase
request, the proceeds will not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
Written requests for redemption must be in "good order." A redemption
request will be considered to be received in "good order" only if:
1. You have indicated in writing the number of Primary Shares (or
dollar amount) to be redeemed, the complete Fund name and your shareholder
account number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock
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exchange or other entity described in Rule 17Ad-15 under the Securities
Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of shares, contact your Legg Mason or
affiliated financial advisor.
The Funds will not be responsible for the authenticity of redemption
instructions received by telephone, provided they follow reasonable
procedures to identify the caller. The Funds may request identifying
information from callers or employ identification numbers. The Funds may
be liable for losses due to unauthorized or fraudulent instructions if
they do not follow reasonable procedures. Telephone redemption privileges
are available automatically to all shareholders unless certificates have
been issued. Shareholders who do not wish to have telephone redemption
privileges should call their Financial Advisor or Service Provider for
further instructions.
Because of the relatively high cost of maintaining small accounts,
each Fund may elect to close any account with a current value of less than
$500 by redeeming all of the shares in the account and mailing the
proceeds to you. However, the Funds will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
If a Fund elects to redeem the shares in your account, you will be
notified that your account is below $500 and will be allowed 60 days to
make an additional investment to avoid having your account closed.
To redeem your Legg Mason Fund retirement account, a Distribution
Request Form must be completed and returned to Legg Mason Client Services
for processing. This form can be obtained from your Financial Advisor or
Service Provider or Legg Mason Client Services in Baltimore, Maryland.
Upon receipt of your form, your shares will be redeemed at the net asset
value per share determined as of the next close of the Exchange.
To the extent permitted by law, each Fund reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of
its Adviser, the Fund could be adversely affected by immediate payment.
(The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption suspended.)
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Primary Share of each Fund is determined daily as
of the close of the Exchange, on every day that the Exchange is open, by
subtracting the liabilities attributable to Primary Shares from the total
assets attributable to such shares and dividing the result by the number
of Primary Shares outstanding. Securities owned by each Fund for which
market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by each Fund's Board of Directors.
Where a security is traded on more than one market, which may include
foreign markets, the securities are generally valued on the market
considered by each Fund's adviser to be the primary market. Securities
with remaining maturities of 60 days or less are valued at amortized cost.
Each Fund will value its foreign securities in U.S. dollars on the basis
of the then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Primary Shares out of its
investment company taxable income (which generally consists of net
investment income, any net short-term capital gain and any net gains from
certain foreign currency transactions) attributable to those shares. Value
Trust, Total Return Trust and Balanced Trust declare and pay dividends
from net investment income quarterly; they pay dividends from any net
short-term capital gains and net gains from foreign currency transactions
annually. Special Investment Trust and American Leading Companies declare
and pay dividends from investment company taxable income following the end
of each taxable year. Each Fund also distributes substantially all of its
net capital gain (the excess of net long-term capital gain over net
short-term capital loss) after the end of the taxable year in which the
gain is realized. A second distribution of net capital gain may be
necessary in some years to avoid imposition of the
21
<PAGE>
excise tax described under the heading "Additional Tax Information" in the
Statement of Additional Information. Dividends and other distributions, if
any, on shares held in a Retirement Plan and by shareholders maintaining a
Systematic Withdrawal Plan generally are reinvested in Primary Shares of
the distributing Fund on the payment dates. Other shareholders may elect
to:
1. Receive both dividends and other distributions in Primary Shares of
the distributing Fund;
2. Receive dividends in cash and other distributions in Primary Shares
of the distributing Fund;
3. Receive dividends in Primary Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in the corresponding class of shares of another Legg Mason
fund. Please contact your Financial Advisor or Service Provider for
additional information about this option.
If no election is made, both dividends and other distributions are
credited to your Fund account in Primary Shares of the distributing Fund
at the net asset value of the shares determined as of the close of the
Exchange on the reinvestment date. Shares received pursuant to any of the
first three (reinvestment) elections above also are credited to your
account at that net asset value. Shareholders electing to receive
dividends and/or other distributions in cash will be sent a check or will
have their Legg Mason account credited after the payment date. You may
elect at any time to change your option by notifying the applicable Fund
in writing at: [insert complete Fund name], c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476. Your election
must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid to shareholders as of
that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income and net
capital gain that is distributed to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Primary Shares) are taxable to its
shareholders (other than Retirement Plans and other tax-exempt investors)
as ordinary income to the extent of the Fund's earnings and profits.
Distributions of each Fund's net capital gain (whether paid in cash or
reinvested in Primary Shares), when designated as such, are taxable to
those shareholders as long-term capital gain, regardless of how long they
have held their Fund shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. Each Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. Each Fund also is required to withhold 31%
of all dividends and capital gain distributions payable to such
shareholders who otherwise are subject to backup withholding.
A redemption of Primary Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Primary Shares for shares of any other Legg Mason
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege." If Fund shares are purchased within 30
days before or after redeeming at a loss other shares of the same Fund
(regardless of class), all or part of that loss will not be deductible and
instead will increase the basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal
22
<PAGE>
income tax. Accordingly, an investor should recognize that a purchase of
Fund shares immediately prior to the record date for a dividend or other
distribution could cause the investor to incur tax liabilities and should
not be made solely for the purpose of receiving the dividend or other
distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, you may also be subject to state, local or foreign
taxes on distributions from the Funds, depending on the laws of your home
state and locality. A portion of the dividends paid by the Funds
attributable to direct U.S. government obligations is not subject to state
and local income taxes in most jurisdictions. Each Fund's annual notice to
shareholders regarding the amount of dividends identifies this portion.
Prospective shareholders are urged to consult their tax advisers with
respect to the effects of this investment on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends, capital gain
distributions and shares purchased through the Future First Systematic
Investment Plan or through automatic investments).
An account statement will be sent to you monthly unless there has been
no activity in the account or you are purchasing shares only through the
Future First Systematic Investment Plan or through automatic investments,
in which case an account statement will be sent quarterly. Reports will be
sent to each Fund's shareholders at least semiannually showing its
portfolio and other information; the annual report for each Fund will
contain financial statements audited by its respective independent
accountants/auditors.
Shareholder inquiries should be addressed to: [insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan with respect to that Fund. Please contact your Financial
Advisor or Service Provider for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares of a Fund for the corresponding class of shares of any of the Legg
Mason Funds, provided that such shares are eligible for sale in your state
of residence.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by exchange from a fund on which the same
or higher initial sales charge previously was paid. There is no charge for
the exchange privilege, but each Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from that Fund in one calendar year. To obtain further
information concerning the exchange privilege and prospectuses of other
Legg Mason funds, or to make an exchange, please contact your Financial
Advisor or Service Provider. To effect an exchange by telephone, please
call your Financial Advisor or Service Provider with the information
described in "How You Can Redeem Your Primary Shares," page 20. The other
factors relating to telephone redemptions described in that section apply
also to telephone exchanges. Please read the prospectus for the other
fund(s) carefully before you invest by exchange. Each Fund reserves the
right to modify
23
<PAGE>
or terminate the exchange privilege upon 60 days' notice to shareholders.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc. (a financial
services holding company), serves as investment adviser to each of those
Funds. The Adviser administers and acts as the portfolio manager for each
Fund and has responsibility for the actual investment management of the
Funds, including the responsibility for making decisions and placing
orders to buy, sell or hold a particular security. The Adviser acts as
adviser, manager or consultant to eighteen investment company portfolios
which had aggregate assets under management of approximately $8.0 billion
as of June 30, 1997. The Adviser's address is 111 South Calvert Street,
Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Nancy T. Dennin has primary responsibility for the
day-to-day management of Total Return Trust. Prior to April 1, 1997, Mrs.
Dennin and Mr. Miller were co-managers of Total Return Trust. Mr. Miller
has also been primarily responsible for the day-to-day management of
Special Investment Trust since its inception in 1985.
Mr. Miller is a portfolio manager and President of the Adviser. Mrs.
Dennin is a Senior Vice President of the Adviser.
The Adviser receives for its services a management fee from each Fund,
calculated daily and payable monthly. The Adviser receives a fee at an
annual rate of 1.0% of Value Trust's average daily net assets for the
first $100 million of average net assets; 0.75% of average daily net
assets between $100 million and $1 billion; and 0.65% of average daily net
assets exceeding $1 billion. The Adviser receives from Total Return Trust
a management fee at an annual rate of 0.75% of the average daily net
assets of the Fund. The Adviser receives from Special Investment Trust a
management fee at an annual rate of 1.0% of the average daily net assets
of the Fund for the first $100 million of average net assets; 0.75% of
average daily net assets between $100 million and $1 billion; and 0.65% of
average daily net assets exceeding $1 billion. For Total Return Trust, the
Adviser has agreed to waive indefinitely its fees in any month to the
extent Total Return Trust's expenses related to Primary Shares (exclusive
of taxes, interest, brokerage and extraordinary expenses) exceed during
any month an annual rate of 1.95% of the Fund's average daily net assets.
This agreement is voluntary and may be terminated by the Adviser at any
time. During the fiscal year ended March 31, 1997, Value Trust paid a
management fee of 0.72% of its average daily net assets, Total Return
Trust paid a management fee of 0.75% of its average daily net assets, and
Special Investment Trust paid a management fee of 0.78% of its average
daily net assets.
MANAGER
Pursuant to separate management agreements with American Leading
Companies and Balanced Trust (each a "Management Agreement"), which were
approved by the Investors Trust's Board of Directors, Legg Mason Fund
Adviser, Inc. ("Manager") serves as the Funds' manager. The Funds pay the
Manager, pursuant to the respective Management Agreements, a management
fee equal to an annual rate of 0.75% of each Fund's respective average
daily net assets. Each Fund pays all its other expenses which are not
assumed by the Manager. The Manager has agreed to waive its fees for each
Fund for expenses related to Primary Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) as follows: for American Leading
Companies, 1.95% of average net assets attributable to Primary Shares
indefinitely; and for Balanced Trust, 1.85% of average net assets
attributable to Primary Shares until July 31, 1998. These
24
<PAGE>
agreements are voluntary and may be terminated by the Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays LMCM a fee, computed daily and
payable monthly, at an annual rate equal to 40% of the fee received by the
Manager, or 0.30% of the Fund's average daily net assets.
LMCM manages private accounts with a value as of June 30, 1997 of
approximately $1.1 billion. The address of LMCM is 111 South Calvert
Street, Baltimore, MD 21202.
E. Robert Quasman is a Senior Investment Manager for LMCM and has been
primarily responsible for the day-to-day management of American Leading
Companies since October 1996. Prior to that, Mr. Quasman was Director of
Research for Legg Mason for over six years.
BARTLETT
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to Balanced Trust pursuant to the terms of an
Investment Advisory Agreement with the Manager, which was approved by the
Trust's Board of Directors. Bartlett manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays Bartlett a fee, computed daily
and paid monthly, at an annual rate equal to 66 2/3% of the fee received
by the Manager, or 0.50% of the Fund's average daily net assets. Bartlett
acts as adviser to individuals, corporations, pension and profit sharing
plans and trust accounts, as well as to investment company portfolios
which had aggregate assets under management of approximately $2.6 billion
as of June 30, 1997. The address of Bartlett is 36 East Fourth Street,
Cincinnati, Ohio 45202.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage the
Fund. Both are senior portfolio managers of Bartlett. Mr. Rabiner has been
employed by Bartlett since 1983 and has served since then as Director of
its Fixed Income Group. He is a member of Bartlett's Management Committee
and Investment Policy Committee. Mr. Uible has been employed by Bartlett
since 1980. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. He is a member of
Bartlett's Management Committee and Investment Policy Committee.
BROKERAGE
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUNDS' DISTRIBUTOR
Legg Mason, a wholly owned subsidiary of Legg Mason, Inc., is the
distributor of each Fund's shares pursuant to a separate Underwriting
Agreement with each Fund. Each Underwriting Agreement obligates Legg Mason
to pay certain expenses in connection with the offering of shares,
including any compensation to its financial advisors, the printing and
distribution of prospectuses, statements of additional information and
periodic reports used in connection with the offering to prospective
investors, after the prospectuses, statements of additional information
and reports have been prepared, set in type and mailed to existing
shareholders at the Fund's expense, and for any supplementary sales
literature and advertising costs.
Legg Mason has an agreement with the Funds' transfer agent to assist
it with some of its duties. For this assistance, Legg Mason was paid the
following amounts by the transfer agent for the year ended March 31, 1997:
Value Trust, $262,000; Total Return Trust, $53,000; Special Investment
Trust, $195,000; American Leading Companies, $22,000 and Balanced Trust,
$2,000.
The Board of Directors of each Fund has adopted a Distribution and
Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the
25
<PAGE>
Investment Company Act of 1940 ("1940 Act"). The Plan provides that as
compensation for its ongoing services to investors in Primary Shares and
its activities and expenses related to the sale and distribution of
Primary Shares, Legg Mason receives from each Fund an annual distribution
fee payable from the assets attributable to Primary Shares, of up to:
0.75% of the average daily net assets attributable to Primary Shares of
the Total Return Trust, Special Investment Trust and American Leading
Companies, 0.70% of the average daily net assets attributable to Primary
Shares of Value Trust and 0.50% of the average daily net assets
attributable to Primary Shares of Balanced Trust; and an annual service
fee equal to 0.25% of the average daily net assets attributable to Primary
Shares of each of the Funds. The distribution fee and service fee are
calculated daily and paid monthly. The fees received by Legg Mason during
any year may be more or less than its cost of providing distribution and
shareholder services for Primary Shares. Legg Mason has agreed to waive
indefinitely distribution fees in any month to the extent the Total Return
Trust's and American Leading Companies' expenses related to Primary Shares
(exclusive of taxes, interest, brokerage costs and extraordinary expenses)
exceed an annual rate of 1.95% each of Total Return Trust's and American
Leading Companies average daily net assets. Legg Mason has also agreed to
waive until July 31, 1998 distribution fees in any month to the extent the
Balanced Trust's expenses related to Primary Shares (exclusive of taxes,
interest, brokerage costs and extraordinary expenses) exceed an annual
rate of 1.85% of Balanced Trust's average daily net assets attributable to
Primary Shares.
NASD rules limit the amount of annual distribution and service fees
that may be paid by mutual funds and impose a ceiling on the cumulative
distribution fees received. Each Fund's Plan complies with those rules.
Legg Mason may enter into agreements with unaffiliated dealers to sell
Primary Shares of each Fund. Legg Mason pays such dealers up to 90% of the
distribution and shareholder service fees that it receives from a Fund
with respect to shares sold by the dealers.
The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION/TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each have authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of Incorporation of
Investors Trust authorize issuance of one billion shares of par value
$.001 per share of American Leading Companies and 250 million shares of
par value $.001 per share of Balanced Trust. Each corporation may issue
additional series of shares. Each Fund currently offers two Classes of
Shares -- Class A (known as "Primary Shares") and Class Y (known as
"Navigator Shares"). The two Classes represent interests in the same pool
of assets. A separate vote is taken by a Class of Shares of a Fund if a
matter affects just that Class of Shares. Each Class of Shares may bear
certain differing Class-specific expenses and sales charges, which may
affect performance.
Investors may obtain more information concerning the Navigator Class
from their financial advisor or any person making available to them shares
of the Primary Class, or by calling 1-800-822-5544.
The Boards of Directors of the Funds do not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Boards will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of the Funds are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Funds are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract, and approval of a plan of
distribution pursuant to Rule 12b-1). Each Fund will call a special
meeting of the shareholders at the request of 10% or more of the
26
<PAGE>
shares entitled to vote; shareholders wishing to call such a meeting
should submit a written request to their respective Fund at 111 South
Calvert Street, Baltimore, Maryland 21202, stating the purpose of the
proposed meeting and the matters to be acted upon.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
27
<PAGE>
THE
NAVIGATOR
CLASS
OF THE
LEGG MASON
EQUITY FUNDS
Putting Your Future First
GROWTH
Navigator Class of Value Trust
Navigator Class of American Leading Companies Trust
GROWTH & INCOME
Navigator Class of Total Return Trust
Navigator Class of Balanced Trust
AGGRESSIVE GROWTH
Navigator Class of Special Investment Trust
PROSPECTUS
JULY 31, 1997
This wrapper is not part of the prospectus.
Addresses
Distributor:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000 800 o 822 o 5544
Authorized Dealer:
Fairfield Group, Inc.
200 Gibraltar Road
Horsham, PA 19044
Transfer and Shareholder Servicing Agent:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
Counsel:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036-1800
Independent Accountants/Auditors:
Coopers & Lybrand L.L.P.
217 East Redwood Street
Baltimore, Maryland 21202
Ernst & Young LLP
One North Charles Street
Baltimore, Maryland 21202
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by any Fund or its distributor. The Prospectus does not
constitute an offering by any Fund or by the principal underwriter in any
jurisdiction in which such offering may not lawfully be made.
[LEGG MASON FUNDS LOGO]
<PAGE>
NAVIGATOR EQUITY FUNDS
PROSPECTUS
JULY 31, 1997
LEGG MASON VALUE TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES TRUST,
A SERIES OF LEGG MASON INVESTORS TRUST, INC.
LEGG MASON BALANCED TRUST,
A SERIES OF LEGG MASON INVESTORS TRUST, INC.
Shares of Navigator Value Trust, Navigator Total Return Trust, Navigator
Special Investment Trust, Navigator American Leading Companies and Navigator
Balanced Trust (collectively referred to as ("Navigator Shares") represent
separate classes ("Navigator Classes") of common stock in Legg Mason Value
Trust, Inc. ("Value Trust"), Legg Mason Total Return Trust, Inc. ("Total Return
Trust"), Legg Mason Special Investment Trust, Inc. ("Special Investment Trust"),
Legg Mason American Leading Companies Trust ("American Leading Companies") and
Legg Mason Balanced Trust ("Balanced Trust") (each a "Fund"), respectively.
The Navigator Classes of Shares, described in this Prospectus, are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own funds and funds for which they act in
a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust Company")
for which Trust Company exercises discretionary investment management
responsibility (such institutional investors are referred to collectively as
"Institutional Clients") and accounts of the customers with such Clients
("Customers") are referred to collectively as ("Customer Accounts"), to
qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million, and to The Legg Mason Profit Sharing Plan and
Trust. Navigator Shares may not be purchased by individuals directly, but
Institutional Clients may purchase shares for Customer Accounts maintained for
individuals.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
Funds dated July 31, 1997 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information is
available without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed on the
following page).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Navigator Shares are sold and redeemed without any purchase or redemption
charge imposed by the Funds, although Institutional Clients may charge their
Customer Accounts for services provided in connection with the purchase or
redemption of shares. See "How to Purchase and Redeem Shares." Each Fund will
pay management fees to Legg Mason Fund Adviser, Inc., but Navigator Shares pay
no distribution fees.
VALUE TRUST is a diversified, open-end management investment company seeking
long-term growth of capital. Value Trust invests principally in those equity
securities which its investment adviser, Legg Mason Fund Adviser, Inc.
("Adviser" or "Manager"), believes are undervalued and therefore offer
above-average potential for capital appreciation.
TOTAL RETURN TRUST is a diversified, open-end management investment company
seeking capital appreciation and current income in order to achieve an
attractive total investment return consistent with reasonable risk. In
attempting to achieve this objective, the Adviser selects a diversified
portfolio, composed of dividend-paying common stocks and securities convertible
into common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common stock
which do not pay current dividends but which offer prospects for capital
appreciation and future income; and debt instruments of various maturities.
Total Return Trust may write covered put and call options. Due to Total Return
Trust's investment objective, however, investors should not expect capital
appreciation comparable to funds devoted solely to growth, or income comparable
to funds devoted to maximum current income.
SPECIAL INVESTMENT TRUST is a diversified, open-end management investment
company seeking capital appreciation. Special Investment Trust invests
principally in equity securities of companies with market capitalizations of
less than $2.5 billion which, in the opinion of
<PAGE>
the Adviser, have one or more of the following characteristics: they are not
closely followed by, or are out of favor with, investors generally, and the
Adviser believes they are undervalued in relation to their long-term earning
power or asset values; unusual developments have occurred which suggest the
possibility that the market value of the securities will increase; or they are
involved in actual or anticipated reorganizations or restructurings under the
Bankruptcy Code. Special Investment Trust also invests in the securities of
companies with larger capitalizations which have one or more of these charac-
teristics. Special Investment Trust may invest up to 35% of its net assets in
debt securities rated below investment grade.
AMERICAN LEADING COMPANIES is a professionally managed portfolio seeking
long-term capital appreciation and current income consistent with prudent
investment risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Investors Trust"), a diversified open-end management
investment company. Under normal market conditions, American Leading Companies
will invest at least 75% of its total assets in a diversified portfolio of
dividend-paying common stocks of Leading Companies that have market
capitalizations of at least $2 billion. The Fund's investment adviser, Legg
Mason Capital Management, Inc. ("LMCM"), defines a "Leading Company" as a
company that, in the opinion of LMCM, has attained a major market share in one
or more products or services within its industry(ies), and possesses the
financial strength and management talent to maintain or increase market share
and profit in the future. Such companies are typically well known as leaders in
their respective industries; most are found in the top half of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500").
BALANCED TRUST is a professionally managed portfolio seeking long-term
capital appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. Balanced Trust is a separate
series of the Investors Trust. Under normal conditions, Balanced Trust will
invest no more than 75% of its assets in equity securities. The term "equity
securities" includes, without limitation, common stocks and convertible
securities of domestic issuers, securities of closed-end investment companies
and U.S. dollar-denominated securities of foreign issuers, including American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). Balanced
Trust will invest at least 25% of its portfolio in fixed income securities.
TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Performance Information 5
Investment Objectives and Policies 7
How To Purchase and Redeem Shares 17
How Shareholder Accounts are
Maintained 18
How Net Asset Value is Determined 18
Dividends and Other Distributions 18
Tax Treatment of Dividends and
Other Distributions 19
Shareholder Services 20
The Funds' Management and Investment Advisers 20
The Funds' Distributor 22
Description of each Corporation/Trust
and its Shares 22
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
2
<PAGE>
EXPENSES
The purpose of the following tables is to assist an investor in
understanding the various costs and expenses that an investor in Navigator
Shares of a Fund will bear directly or indirectly. The expenses and fees set
forth below are based on average net assets and annual Fund operating expenses
related to Navigator Shares of Value Trust, Total Return Trust, Special
Investment Trust and American Leading Companies for the year ended March 31,
1997. For Balanced Trust, other expenses are based on estimates for the initial
period of operations of Navigator Balanced Trust.
ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES (A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
---------------------------------------------------
<S> <C>
Management fees
(after fee
waivers) 0.72% 0.75% 0.78% 0.64% 0.00%
12b-1 fees None None None None None
Other expenses 0.05% 0.11% 0.07% 0.22% 1.10%
--------------------------------------------------
Total operating
expenses (after
fee waivers) 0.77% 0.86% 0.85% 0.86% 1.10%
==================================================
</TABLE>
(A) The Manager has voluntarily agreed to waive the management fee to the extent
necessary to limit total operating expenses relating to Navigator Shares
(exclusive of taxes, brokerage commissions, interest and extraordinary
expenses) as follows: for Total Return Trust and American Leading Companies,
0.95% of each Fund's average daily net assets attributable to Navigator
Shares indefinitely; and for Balanced Trust, 1.10% of average daily net
assets attributable to Navigator Shares until July 31, 1998. In the absence
of such waivers, the management fee, other expenses and total operating
expenses relating to Navigator Shares would have been as follows: for Total
Return Trust, the same as described above; for American Leading Companies,
0.75%, 0.22% and 0.97% of average net assets; and for Balanced Trust, 0.75%,
1.10% and 1.85% of average net assets.
For further information concerning the Funds' expenses, please see "The
Funds' Management and Investment Advisers," page 23.
EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Navigator Shares over various time periods assuming (1) a
5% annual rate of return and (2) redemption at the end of each time period. The
Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
-----------------------------------------------------------
<S> <C>
1 Year $ 8 $ 9 $ 9 $ 9 $11
3 Years $ 25 $ 27 $ 27 $ 27 $35
5 Years $ 43 $ 48 $ 47 $ 48 N/A
10 Years $ 95 $106 $105 $ 106 N/A
</TABLE>
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same over the time periods shown. The above tables and the
assumption in the example of a 5% annual return are required by regulations of
the SEC applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A
PREDICTION OF, AND DOES NOT REPRESENT THE PROJECTED OR ACTUAL PERFORMANCE OF,
NAVIGATOR SHARES OF THE FUNDS. THE ABOVE TABLE AND EXAMPLE SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The actual expenses attributable to Navigator
Shares will depend upon, among other things, the level of average net assets,
the levels of sales and redemptions of shares, the extent to which the Manager
waives its fees and the extent to which Navigator Shares incur variable
expenses, such as transfer agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table that follows has been audited
for Value Trust, Total Return Trust and Special Investment Trust by Coopers
& Lybrand L.L.P., independent accountants, and for American Leading
Companies and Balanced Trust, by Ernst & Young LLP, independent auditors.
Each Fund's financial statements for the year ended March 31, 1997 and the
report of Coopers & Lybrand L.L.P. or Ernst & Young LLP thereon are
included in their combined annual reports and are incorporated by reference
in the Statement of Additional Information. The combined annual reports are
available to shareholders without charge by calling your Legg Mason or
affiliated financial advisor or Legg Mason's Funds Marketing Department at
800-822-5544.
<TABLE>
<CAPTION>
Investment Operations Distributions From:
---------------------------------------- ------------------------
Net Asset Net Net Realized Total Net
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on Total
of Period (Loss) Investments Operations Income Investments Distributions
--------------------------------------------------------------------------------------------------------------------
<S> <C>
VALUE TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 27.08 $ 41 $ 8.75 $ 9.16 $ (.41) $ (1.53) $ (1.94)
1996 20.27 .43 8.02 8.45 (.40) (1.24) (1.64)
1995(B) 18.76 .12 1.40 1.52 (.01) -- (.01)
SPECIAL INVESTMENT TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 25.26 $ .02 $ 3.17 $ 3.19 $ -- $ (1.41) $ (1.41)
1996 20.03 .09 5.78 5.87 (.17) (.47) (.64)
1995(B) 19.11 .07 .85 .92 -- -- --
TOTAL RETURN TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 16.52 $ .65 $ 3.48 $ 4.13 $ (.56) $ (.56) $ (1.12)
1996 12.83 .62 3.72 4.34 (.65) -- (.65)
1995(B) 12.66 .15 .25 .40 (.06) (.17) (.23)
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------
Net
Net Asset Investment Average Net Assets
Value, Expenses Income (Loss) Portfolio Commission End of
End of Total to Average to Average Turnover Rate Year
Period Return Net Assets Net Assets Rate PaidA (in thousands)
---------------------------------------------------------------------------------------------------------------
<S> <C>
VALUE TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 34.30 34.97% .77% 1.4% 10.5% $.0557 $ 83,752
1996 27.08 43.53% .82% 1.8% 19.6% -- 52,332
1995(B) 20.27 8.11%(C) .82%(D) 1.8%(D) 20.1% -- 36,519
SPECIAL INVESTMENT TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 27.04 12.81% .85% .1% 29.2% $.0514 $ 41,415
1996 25.26 29.85% .88% 1.0% 35.6% -- 35,731
1995(B) 20.03 4.81%(C) .90%(D) 1.0%(D) 27.5% -- 26,123
TOTAL RETURN TRUST
-- Navigator Class
Years Ended Mar. 31,
1997 $ 19.53 25.67% .86% 3.7% 38.4% $.0528 $ 10,048
1996 16.52 34.67% .94% 4.2% 34.7% -- 7,058
1995(B) 12.83 2.28%(C) .86%(D,E) 3.6%(D,E) 61.9% -- 4,823
</TABLE>
(A) PURSUANT TO SEC REGULATIONS EFFETIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE AVERAGE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY THE FUNDS.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NOT ANNUALIZED
(D) ANNUALIZED
(E) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF A VOLUNTARY EXPENSE
LIMITATION OF .95% FROM INCEPTION TO MARCH 31, 1997.
<TABLE>
<CAPTION>
Investment Operations Distributions From:
---------------------------------------- ------------------------
Net Asset Net Net Realized Total Net
Value, Investment and Unrealized From Net Realized
Beginning Income Gain (Loss) on Investment Investment Gain on Total
of Period (Loss) Investments Operations Income Investments Distributions
--------------------------------------------------------------------------------------------------------------------
<S> <C>
AMERICAN LEADING COMPANIES
-- Navigator Class
Oct. 4, 1996(A) to
Mar. 31, 1997 $ 13.30 $ .07(B) $ 1.94 $ 2.01 $ (.12) $ (.48) $ (.60)
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------
Net
Net Asset Investment Average Net Assets
Value, Expenses Income (Loss) Portfolio Commission End of
End of Total to Average to Average Turnover Rate Period
Period Return Net Assets Net Assets Rate Paid(E) (in thousands)
---------------------------------------------------------------------------------------------------------------
<S> <C>
AMERICAN LEADING COMPANIES
-- Navigator Class
Oct. 4, 1996(A) to
Mar. 31, 1997 $ 14.71 15.16%(C) .86%(B,D) .98%(B,D) 55.7% $.0640 $ 55
</TABLE>
(A) FOR THE PERIOD OCTOBER 4, 1996 (COMMENCEMENT OF SALE OF NAVIGATOR SHARES)
TO MARCH 31, 1997.
(B) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 0.95% OF
AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE ADVISER, THE
ANNUALIZED RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD
OCTOBER 4, 1996 TO MARCH 31, 1997 WOULD HAVE BEEN 0.97%.
(C) NOT ANNUALIZED
(D) ANNUALIZED
(E) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY EACH FUND.
4
<PAGE>
PERFORMANCE INFORMATION
From time to time the Funds may quote the TOTAL RETURN of a class of shares
in advertisements or in reports or other communications to shareholders. A
mutual fund's total return is a measurement of the overall change in value of an
investment in the fund, including changes in share price and assuming
reinvestment of dividends and other distributions. CUMULATIVE TOTAL RETURN shows
the fund's performance over a specific period of time. AVERAGE ANNUAL TOTAL
RETURN is the average annual compounded return that would have produced the same
cumulative total return if the fund's performance had been constant over the
entire period. Average annual returns, which differ from actual year-to-year
results, tend to smooth out variations in a fund's returns. For comparison
purposes, each Fund's total return is compared with total returns of the Value
Line Geometric Average, an index of approximately 1,700 stocks ("Value Line
Index"), and the S&P 500, two unmanaged indexes of widely held common stocks. No
adjustment has been made for any income taxes payable by shareholders.
The investment return and principal value of an investment in each Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns of each Fund would have been lower if the
Advisers and/or Legg Mason had not waived certain fees for the fiscal years
ended March 31, as follows: 1989 through 1997 for Value Trust; 1986 through 1995
for Total Return; 1986 through 1997 for Special Investment; 1994 through 1997
for American Leading Companies and 1997 for Balanced Trust.
5
<PAGE>
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders, which
may be obtained without charge by calling your Legg Mason or affiliated
financial advisor or Legg Mason's Funds Marketing Department at
800-822-5544.
Total returns as of March 31, 1997 are shown below.
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING BALANCED VALUE LINE
VALUE TRUST TRUST INVESTMENT TRUST COMPANIES TRUST INDEX
---------------------------------------------------------------------------------
<S> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +33.59% +24.33% +11.58% +24.73% N/A +10.12%
Five Years +152.62 +109.95 +79.97 N/A N/A +64.47
Ten Years +242.48 +177.62 +204.97 N/A N/A +83.53
Life of Class -- Value Trust(A) +1,198.81 +349.29
Life of Class -- Total Return Trust(B) +229.92 +142.88
Life of Class -- Special Investment
Trust(C) +298.71 +138.53
Life of Class -- American Leading
Companies(D) +56.08 +28.89
Life of Class -- Balanced Trust(E) +2.02 +4.07
Navigator Class:
One Year +34.97 +25.67 +12.81 N/A N/A +10.12
Life of Class(F) +109.42 +73.10 +53.53 +15.16 N/A +43.13
<CAPTION>
S&P STOCK
INDEX
---------
<S> <C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +19.83%
Five Years +113.90
Ten Years +251.02
Life of Class -- Value Trust(A) +985.96
Life of Class -- Total Return Trust(B) +431.51
Life of Class -- Special Investment
Trust(C) +401.75
Life of Class -- American Leading
Companies(D) +78.61
Life of Class -- Balanced Trust(E) +11.24
Navigator Class:
One Year +19.83
Life of Class(F) +73.68
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING BALANCED VALUE LINE
VALUE TRUST TRUST INVESTMENT TRUST COMPANIES TRUST INDEX
---------------------------------------------------------------------------------
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +33.59% +24.33% +11.58% +24.73% N/A +10.12%
Five Years +20.36 +15.99 +12.47 N/A N/A +10.46
Ten Years +13.10 +10.75 +11.80 N/A N/A +6.26
Life of Class -- Value Trust(A) +18.70 +10.60
Life of Class -- Total Return Trust(B) +11.08 +8.14
Life of Class -- Special Investment
Trust(C) +13.07 +8.03
Life of Class -- American Leading
Companies(D) +13.23 +7.34
Life of Class -- Balanced Trust(E) N/A --
Navigator Class:
One Year +34.97 +25.67 +12.81 N/A N/A +10.12
Life of Class(F) +37.25 +26.50 +20.16 N/A N/A +16.61
<CAPTION>
S&P STOCK
INDEX
---------
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +19.83%
Five Years +16.41
Ten Years +13.36
Life of Class -- Value Trust(A) +17.34
Life of Class -- Total Return Trust(B) +15.88
Life of Class -- Special Investment
Trust(C) +15.42
Life of Class -- American Leading
Companies(D) +17.57
Life of Class -- Balanced Trust(E) --
Navigator Class:
One Year +19.83
Life of Class(F) +26.70
</TABLE>
(A) INCEPTION OF VALUE TRUST -- APRIL 16, 1982.
(B) INCEPTION OF TOTAL RETURN TRUST -- NOVEMBER 21, 1985.
(C) INCEPTION OF SPECIAL INVESTMENT TRUST -- DECEMBER 30, 1985.
(D) INCEPTION OF AMERICAN LEADING COMPANIES -- SEPTEMBER 1, 1993.
(E) INCEPTION OF BALANCED TRUST -- OCTOBER 1, 1996.
(F) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR SHARES
OF VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST) TO MARCH
31, 1997; AND FOR THE PERIOD OCTOBER 10, 1996 (COMMENCEMENT OF SALE OF
NAVIGATOR SHARES OF AMERICAN LEADING COMPANIES) TO MARCH 31, 1997.
The S&P 500 and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Unlike the figures presented for
the Funds, the S&P 500 and Value Line Index figures do not include
brokerage commissions and other costs of investing.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Fund's Board
of Directors without a shareholder vote. There can be no assurance that
any Fund will achieve its investment objective.
VALUE TRUST'S objective is long-term growth of capital. The Adviser
believes that the Fund's objective can best be met through the purchase of
securities that appear to be undervalued in relation to the long-term
earning power or asset value of their issuers. Securities may be
undervalued because of many factors, including market decline, poor
economic conditions, tax-loss selling or actual or anticipated unfavorable
developments affecting the issuer of the security. Any or all of these
factors may provide buying opportunities at attractive prices compared to
historical or market price-earnings ratios, book value, return on equity,
or the long-term prospects for the companies in question.
The Adviser believes that the securities of sound, well-managed
companies that may be temporarily out of favor due to earnings declines or
other adverse developments are likely to provide a greater total return
than securities with prices that appear to reflect anticipated favorable
developments and that are therefore subject to correction should any
unfavorable developments occur.
The Fund's policy of investing in securities that may be temporarily
out of favor differs from the investment approach followed by many other
mutual funds with similar investment objectives. Such mutual funds
typically do not invest in securities that have declined sharply in price,
are not widely followed, or are issued by companies that have reported
poor earnings or that have suffered a cyclical downturn in business. The
Adviser believes, however, that purchasing securities depressed by
temporary factors will provide investment returns superior to those
obtained when premium prices are paid for issues currently in favor.
The Fund invests primarily in companies with a record of earnings and
dividends, reasonable return on equity, and sound finances. The Fund may
from time to time invest in securities that pay no dividends or interest.
Current dividend income is not a prerequisite in the selection of equity
securities.
The Fund normally invests primarily in equity securities. It may
invest in debt securities, including government, corporate and money
market securities, for temporary defensive purposes and, consistent with
its investment objective, during periods when or under circumstances where
the Adviser believes the return on certain debt securities may equal or
exceed the return on equity securities. The Fund may invest in debt
securities of both foreign and domestic issuers of any maturity without
regard to rating, and may invest its assets in such securities without
regard to a percentage limit. The Adviser currently anticipates that under
normal market conditions, the Fund will invest no more than 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities not rated investment grade, i.e., not
rated at least BBB by Standard & Poor's ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by those entities,
deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which, in the Adviser's opinion,
offer prospects for capital appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers without regard to rating and
may invest its assets in such securities without regard to a percentage
limit. The Adviser currently anticipates that under normal market
conditions, the Fund will invest no more than 50% of its total assets in
intermediate-term and long-term debt securities, and no more than 5% of
its total assets in debt securities not rated investment grade, i.e., not
rated at least BBB by S&P or Baa by Moody's or, if unrated by those
entities, deemed by the Adviser to be of comparable quality.
7
<PAGE>
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities, and securities convertible into equity securities, of
companies with market capitalizations of less than $2.5 billion which the
Adviser believes have one or more of the following characteristics:
1. The companies generally are not closely followed by, or are out of
favor with, investors, and appear to be undervalued in relation to their
long-term earning power or asset values. A security may be undervalued
because of many factors, including market decline, poor economic
conditions, tax-loss selling, or actual or anticipated developments
affecting the issuer.
2. The companies are experiencing unusual and possibly non-repetitive
developments which, in the opinion of the Adviser, may cause the market
values of the securities to increase. Such developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. The companies are involved in actual or anticipated reorganizations
or restructurings under the Bankruptcy Code. No more than 20% of the
Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
net assets may be invested in debt securities not rated at least BBB by
S&P, or Baa by Moody's, and securities unrated by those entities, deemed
by the Adviser to be of comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be in issuers whose long-term debt is rated in one of the
four highest rating categories by S&P or Moody's or, if unrated by S&P or
Moody's, deemed by the Adviser to be of comparable quality.
8
<PAGE>
AMERICAN LEADING COMPANIES' investment objective is to provide
long-term capital appreciation and current income consistent with prudent
investment risk. The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment, primarily in the common stocks of Leading Companies. The Fund
intends to maintain for its shareholders a portfolio of securities which
an experienced investor charged with fiduciary responsibility might select
under the Prudent Investor Rule, as described in the trust laws or court
decisions of many states, including New York. Under normal market
conditions, the Fund will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the S&P 500. Additionally,
LMCM's goal is to invest in companies having what LMCM believes is a
reasonable price/earnings ratio, and it will favor those companies with
well established histories of dividends and dividend growth rates. The
Fund may also invest in companies having capitalizations above or below $2
billion which LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM will not properly
assess the potential for an issuer's future growth, or that an issuer will
not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and policies require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
During periods when LMCM believes the return on certain debt
securities may equal or exceed the return on equity securities, the Fund
may invest up to 25% of its total assets in debt securities, including
government, corporate and money market securities, consistent with its
investment objective. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers. The debt securities in
which the Fund may invest will be rated at least A by S&P or Moody's, or
deemed by LMCM to be of comparable quality.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities not rated at least Ba by Moody's or BB by S&P or, if unrated by
those entities, deemed by LMCM to be of comparable quality.
BALANCED TRUST'S investment objective is to seek long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. The Fund will invest in
a combination of equity, debt and money market securities in attempting to
achieve its objective. Under normal conditions, the Fund will invest no
more than 75% of its assets in equity securities. Bartlett & Co.
("Bartlett"), as investment adviser, will emphasize investments in
dividend-paying equity securities that, in the opinion of Bartlett, offer
the potential for long-term growth, and in common stocks or securities
convertible into common stock that do not pay current dividends but offer
prospects for capital appreciation and future income.
The Fund will invest at least 25% of its portfolio in fixed income
securities, including, without limitation, preferred stocks, bonds,
debentures, municipal obligations and mortgage-related securities;
certificates of deposit; Treasury bills, notes, bonds and other
obligations of the U.S. Government, its agencies and instrumentalities;
commercial paper and other money market instruments rated not less than
A-1, P-1 or F-1 by Moody's,
9
<PAGE>
S&P or Fitch Investors Services ("Fitch"), respectively; and repurchase
agreements. No more than 5% of the Fund's total assets may be invested in
fixed income or convertible securities not rated at least BBB or Baa at
the time of purchase, or comparable unrated securities. If an investment
grade security purchased by the Fund subsequently loses its investment
grade rating, Bartlett will determine whether to retain that security in
the Fund's portfolio. The Fund may invest in securities of any maturity,
but, under normal circumstances, expects to maintain its portfolio of
fixed income securities so as to have an average dollar-weighted maturity
of between four and five years.
Balanced Trust is managed as a balanced fund and invests in equity and
debt securities. This approach attempts to "balance" the potential for
growth and greater volatility of stocks with the historically stable
income and more moderate average price fluctuations of fixed income
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Bartlett's
assessment of investment opportunities. It is currently anticipated that
the Fund will invest an average of 60% of its total assets in common and
preferred stocks and the remaining 40% in various fixed income securities.
These percentages may vary in attempting to increase returns or reduce
risk.
The Fund may also acquire securities on a when-issued and
delayed-delivery basis, and may purchase exchange-traded futures contracts
on stock indices and options thereon. The Fund may use derivatives, such
as options and futures, in its investment activities. No more than 15% of
the Fund's net assets may be invested in illiquid securities. The Fund may
also engage in reverse repurchase agreements.
At March 31, 1997, the annualized portfolio turnover rate for the
equity portion of the Fund's portfolio was 14.7% and the annualized
portfolio turnover rate for the fixed income portion was 5.4%. The Fund's
total annualized portfolio turnover rate at March 31, 1997 was 5.1%.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS:
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in repurchase agreements and
money market instruments, including high-quality short-term debt
securities. A repurchase agreement is an agreement under which either U.S.
government obligations or high-quality liquid debt securities are acquired
from a securities dealer or bank subject to resale at an agreed-upon price
and date. The securities are held for each Fund by a custodian bank as
collateral until resold and will be supplemented by additional collateral
if necessary to maintain a total value equal to or in excess of the value
of the repurchase agreement. Each Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed or prevented from exercising its rights to dispose
of the collateral securities, which may decline in value in the interim.
The Funds will enter into repurchase agreements only with financial
institutions determined by each Fund's adviser to present minimal risk of
default during the term of the agreement based on guidelines established
by the Funds' Boards of Directors. A Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% (for Value
Trust, Total Return Trust and Special Investment Trust) or 15% (for
American Leading Companies and Balanced Trust) of its net assets would be
invested in such agreements and other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its net assets.
For further information concerning securities lending, see the Statement
of Additional Information.
PREFERRED STOCK
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, the
preferred stock is more attractively priced in light of the risks
involved. Preferred stock pays dividends at a specified rate and generally
has preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are subject to changes in interest rates and are more sensitive to
changes in the issuer's creditworthiness than are the prices of debt
securities.
CONVERTIBLE SECURITIES
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security
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entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or
is redeemed, converted or exchanged. Before conversion, convertible
securities ordinarily provide a stream of income with generally higher
yields than those of common stocks of the same or similar issuers, but
lower than the yield on non-convertible debt. Convertible securities are
usually subordinated to comparable-tier non-convertible securities but
rank senior to common stock in a corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established
in the convertible security's governing instrument.
CORPORATE DEBT SECURITIES
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price
of some commodity. These securities may be convertible into preferred or
common equity, or may be bought as part of a unit containing common stock.
In selecting corporate debt securities for a Fund, its adviser reviews and
monitors the creditworthiness of each issuer and issue. The adviser also
analyzes interest rate trends and specific developments which it believes
may affect individual issuers.
U.S. GOVERNMENT SECURITIES
U.S. government securities include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by: (1) the
full faith and credit of the United States (e.g., certificates of the
Government National Mortgage Association ("GNMA")); (2) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Bank
securities); (3) the discretionary authority of the U.S. Treasury to lend
to the issuer (e.g., Fannie Mae ("FNMA") securities); and (4) solely the
creditworthiness of the issuer (e.g., Federal Home Loan Mortgage
Corporation ("FHLMC") securities). Neither the U.S. Government nor any of
its agencies or instrumentalities guarantees the market value of the
securities they issue. Therefore, the market value of such securities can
be expected to fluctuate in response to changes in interest rates.
STRIPPED SECURITIES
Stripped securities are created by separating bonds into their
principal and interest components and selling each piece separately
(commonly referred to as IOs and POs). Stripped securities are more
volatile than other fixed-income securities in their response to changes
in market interest rates. The value of some stripped securities moves in
the same direction as interest rates, further increasing their volatility.
ZERO COUPON BONDS
Zero coupon bonds do not provide for cash interest payments but
instead are issued at a significant discount from face value. Each year, a
holder of such bonds must accrue a portion of the discount as income.
Because each Fund is required to pay out substantially all of its income
each year, including income accrued on zero coupon bonds, a Fund may have
to sell other holdings to raise cash necessary to make the payout. Because
issuers of zero coupon bonds do not make periodic interest payments, their
prices can be very volatile when market interest rates change.
CLOSED-END INVESTMENT COMPANIES
Each Fund may invest in the securities of closed-end investment
companies. Such investments may involve the payment of substantial
premiums above the net asset value of such issuers' portfolio securities,
and the total return on such investments will be reduced by the operating
expenses and fees of such investment companies, including advisory fees. A
Fund will invest in such funds, when, in the adviser's judgment, the
potential benefits of such investment justify the payment of any
applicable premium or sales charge.
FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform
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accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. These risks are intensified when investing in countries
with developing economies and securities markets also known as "emerging
markets." Moreover, securities of many foreign issuers may be less liquid
and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation, withholding taxes and
limitations on the use or removal of funds or other assets.
The Funds may also invest in ADRs, which are securities issued by
banks evidencing their ownership of specific foreign securities. ADRs may
be sponsored or unsponsored; issuers of securities underlying unsponsored
ADRs are not contractually obligated to disclose material information in
the U.S. Accordingly, there may be less information available about such
issuers than there is with respect to domestic companies and issuers of
securities underlying sponsored ADRs. Although ADRs are denominated in
U.S. dollars, the underlying security often is not; thus, the value of the
ADR may be subject to exchange controls and variations in the exchange
rate. The Funds may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank
evidencing its ownership of the underlying foreign securities.
Although not a fundamental policy subject to shareholder vote, the
advisers currently anticipate that Value Trust, Total Return Trust,
Special Investment Trust and American Leading Companies will each invest
no more than 25% of its total assets in foreign securities. Bartlett
currently anticipates that Balanced Trust will not invest more than 10% of
its total assets in foreign securities, either directly or through ADRs or
GDRs.
ILLIQUID SECURITIES
Value Trust, Total Return Trust, and Special Investment Trust may each
invest up to 10% of its net assets in illiquid securities. American
Leading Companies and Balanced Trust may each invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be expected to be sold within seven days at approximately the price
at which they are valued. Due to the absence of an active trading market,
a Fund may have difficulty valuing or disposing of illiquid securities
promptly. Securities whose sale is legally restricted are often considered
illiquid. Foreign securities that are freely tradable in their country of
origin or in their principal market are not considered restricted
securities even if they are not registered for sale in the U.S.
WHEN-ISSUED SECURITIES
Each Fund may enter into commitments to purchase securities on a
when-issued basis. Such securities are often the most efficiently priced
and have the best liquidity in the bond market. When a Fund purchases
securities on a when-issued basis, it assumes the risks of ownership,
including the risk of price fluctuation, at the time of purchase, not at
the time of receipt. However, a Fund does not have to pay for the
obligations until they are delivered to it. This is normally 7 to 15 days
later, but could be considerably longer in the case of some
mortgage-backed securities. Use of this practice would have a leveraging
effect on a Fund. To meet its payment obligation, a Fund will establish a
segregated account with its custodian and maintain cash or appropriate
liquid obligations in an amount at least equal to the payment that will be
due. A Fund may sell the securities subject to a when-issued purchase,
which may result in a gain or loss.
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST AND BALANCED TRUST:
Each of Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust can invest in futures and options transactions, including
puts and calls. Because such investments "derive" their value from the
value of the underlying security, index, or interest rate on which they
are based, they are sometimes referred to as "derivative" securities. Such
investments involve risks that are different from those presented by
investing directly in the securities themselves. While utilization of
options, futures contracts and similar instruments may be advantageous to
a Fund, if its adviser is not successful in employing such instruments in
managing the Fund's investments, the Fund's performance will be worse than
if the Fund did not make such investments.
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to
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the liquidation of securities positions. A Fund may sell an interest rate
futures contract to offset price changes of debt securities it already
owns. This strategy is intended to minimize any price changes in the debt
securities a Fund owns (whether increases or decreases) caused by interest
rate changes, because the value of the futures contract would be expected
to move in the opposite direction from the value of the securities owned
by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, when writing call
options the Fund would give up some ability to participate in security
price increases.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the advisers in managing the Funds'
portfolio. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the adviser is not
successful in employing such instruments in managing a Fund's investments
or in predicting interest rate changes, the Fund's performance will be
worse than if the Fund did not make such investments. It is possible that
there will be imperfect correlation, or even no correlation, between price
movements of the investments being hedged and the options or futures used.
It is also possible that a Fund may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to
do so, or that a Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions and that a
Fund may be unable to close out or liquidate hedged positions. In
addition, the Funds will pay commissions and other costs in connection
with such investments, which may increase each Fund's expenses and reduce
its yield. A more complete discussion of the possible risks involved in
transactions in options and futures contracts is contained in the
Statement of Additional Information. Each Fund's current policy is to
limit options and futures transactions to those described above. The Funds
may purchase and write both over-the-counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
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options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
AMERICAN LEADING COMPANIES:
Although American Leading Companies may not invest in futures
transactions, it may to a limited extent sell covered call options on any
security in which it is permitted to invest for the purpose of enhancing
income. American Leading Companies may not invest in any other form of
option transaction.
A call option is "covered" if, at all times the option is outstanding,
the Fund holds the underlying security or a right to obtain that security
at no additional cost. The risks of selling covered call options are
described above.
As a non-fundamental policy, the Fund will not sell a covered call
option if, as a result, the value of the portfolio securities underlying
all outstanding covered call options would exceed 25% of the value of the
equity securities held by the Fund.
FOR EACH FUND:
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract is an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. By entering into a
foreign currency contract, a Fund "locks in" the exchange rate between the
currency it will deliver and the currency it will receive for the duration
of the contract. A Fund may enter into these contracts for the purpose of
hedging against risk arising from its investment in securities denominated
in foreign currencies or when it anticipates investing in such securities.
Forward currency contracts involve certain costs and risks, including the
risk that anticipated currency movements will not be accurately predicted,
causing a Fund to sustain losses on these contracts.
THE FOLLOWING DISCUSSION OF INVESTMENTS AND RISKS APPLIES ONLY TO BALANCED
TRUST:
MUNICIPAL OBLIGATIONS
Municipal obligations include obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which
municipal obligations may be issued include the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and the
making of loans to other public institutions and facilities. In addition,
certain types of industrial development bonds ("IDBs") and private
activity bonds ("PABs") are issued by or on behalf of public authorities
to finance various privately operated facilities, including certain
pollution control facilities, convention or trade show facilities, and
airport, mass transit, port or parking facilities.
Municipal obligations also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term debt obligations. Such notes may be issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of
bond placements or other revenues.
Municipal obligations also include municipal lease obligations. These
obligations, which are issued by state and local governments to acquire
land, equipment and facilities, typically are not fully backed by the
municipality's credit, and, if funds are not appropriated for the
following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to the
Fund. "Certificates of Participation" are participations in municipal
lease obligations or installment sales contracts. Each certificate
represents a proportionate interest in or right to the lease purchase
payments made.
The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. "General obligation" bonds are
secured by the issuer's pledge of its faith, credit and taxing power.
"Revenue" bonds are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a
special excise tax or other specific revenue source such as the corporate
user of the facility being financed. IDBs and PABs are usually revenue
bonds and are not payable from the unrestricted revenues of the issuer.
The credit quality of IDBs and PABs is usually directly related to the
credit standing of the corporate user of the facilities.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent interests in pools of mortgages.
Mortgage-related securities may be issued by governmental or government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities
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which normally provide for periodic payment of interest in fixed amounts
with principal payments at maturity or specified call dates. In contrast,
mortgage-related securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments to holders of
mortgage-related securities are caused by repayments resulting from the
sale of the underlying residential property, refinancing or foreclosure.
Some mortgage-related securities entitle the holders to receive all
interest and principal payments owed on the mortgages in the pool, net of
certain fees, regardless of whether or not the mortgagors actually make
the payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. The volume of prepayments of
principal on a pool of mortgages underlying a particular mortgage-related
security will influence the yield of that security. Increased prepayment
of principal may limit the Fund's ability to realize the appreciation in
the value of such securities that would otherwise accompany declining
interest rates. An increase in mortgage prepayments could cause the Fund
to incur a loss on a mortgage-related security that was purchased at a
premium. On the other hand, a decrease in the rate of prepayments,
resulting from an increase in market interest rates, among other causes,
may extend the effective maturities of mortgage-related securities,
increasing their sensitivity to changes in market interest rates. In
determining the average maturity of the fixed-income portion of the Fund,
Bartlett must apply certain assumptions and projections about the maturity
and prepayment of mortgage-related securities; actual prepayment rates may
differ.
GOVERNMENT MORTGAGE-RELATED SECURITIES
GNMA pass-through securities are considered to have a very low risk of
default in that (i) the underlying mortgage loan portfolio is comprised
entirely of government-backed loans and (ii) the timely payment of both
principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. Government -- regardless of whether they have been
collected. GNMA pass-through securities are, however, subject to the same
market risk as comparable debt securities. Therefore, the effective
maturity and market value of the Fund's GNMA securities can be expected to
fluctuate in response to changes in interest rate levels.
FHLMC, a corporate instrumentality of the U.S. Government, issues
mortgage participation certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. The mortgage loans in FHLMC's
portfolio are not government backed; rather, the loans are either
uninsured with loan-to-value ratios of 80% or less, or privately insured
if the loan-to-value ratio exceeds 80%. FHLMC, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of approved
seller/servicers, including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through
certificates issued by FNMA ("FNMA certificates") are guaranteed as to
timely payment of principal and interest by FNMA, not the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are considered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, or GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Each
class of obligations is scheduled to receive periodic interest payments
according to the coupon rate on the obligations. However, all monthly
principal payments and any prepayments from the collateral pool are paid
first to the "Class 1" bondholders. The principal payments are such that
the Class 1 obligations are scheduled to be completely repaid no later
than, for example, five years after the offering date. Thereafter, all
payments of principal are allocated to the next most senior class of bonds
until that class of bonds has been fully repaid.
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Although full payoff of each class of bonds is contractually required by a
certain date, any or all classes of obligations may be paid off sooner
than expected because of an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities, resulting in higher
risks.
The market for conventional pools is smaller and less liquid than the
market for the government and government-related mortgage pools.
THE FOLLOWING DISCUSSION OF RISKS APPLIES TO EACH FUND AS NOTED:
RISKS OF DEBT SECURITIES
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times
of rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater
are such variations.
RISKS OF LOWER-RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated C by Moody's and S&P are bonds on
which no interest is being paid and which can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
However, debt securities, regardless of their ratings, generally have a
higher priority in the issuer's capital structure than do equity
securities.
Lower-rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the
financial condition of the issuers. Highly leveraged issuers may also
experience financial stress during periods of rising interest rates.
Lower-rated debt securities are also sometimes referred to as "junk
bonds."
The market for lower-rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At
certain times in the past, the prices of many lower-rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, the yields on
lower-rated debt securities rose dramatically, reflecting the risk that
holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can
be no assurance that such declines will not recur.
The market for lower-rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit
a Fund's ability to sell such securities at fair value. Judgment plays a
greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower-rated debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. Such
ratings are relative and subjective, and are not absolute standards of
quality. Unrated debt securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers. If
securities are rated investment grade by one rating organization and below
investment grade by the other, the adviser may rely on the rating that it
believes is more accurate. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) are analyzed
by the adviser to determine, to the extent possible, that the planned
investment is sound.
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders 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.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Fund policies, unless described as fundamental, can be changed
by action of its respective Board of Directors.
The fundamental restrictions applicable to each Fund include a
prohibition on investing 25%
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or more of its total assets in the securities of issuers having their
principal business activities in the same industry (with the exception of
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements with respect thereto).
HOW TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield may purchase Navigator Shares from
Fairfield, the principal offices of which are located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Other investors eligible to purchase
Navigator Shares may purchase them through a brokerage account with Legg
Mason.
Customers of certain Institutional Clients that maintain omnibus
accounts with the Funds' transfer agent may obtain shares through those
Institutions. Such Institutional Clients may receive payments from the
Funds' distributor for account servicing, and may receive payments from
their customers for other services performed. Investors otherwise eligible
to purchase Navigator Shares can purchase them from Legg Mason without
receiving or paying for such other services.
Institutional Clients purchasing or holding Navigator Shares on behalf
of their Customers are responsible for the transmission of purchase and
redemption orders (and the delivery of funds) to a Fund on a timely basis.
Purchase of Shares
The minimum investment is $50,000 for the initial purchase of
Navigator Shares of each Fund and $100 for each subsequent investment.
Each Fund may change these minimum amounts at its discretion.
Institutional Clients may set different minimums for their Customers'
investments in accounts invested in Navigator Shares.
Share purchases will be processed at the net asset value next
determined after Legg Mason or Fairfield has received your order; payment
must be made within three business days to the selling organization.
Orders received by Legg Mason or Fairfield before the close of regular
trading on the New York Stock Exchange ("Exchange") (normally 4:00 p.m.
Eastern time) ("close of the Exchange") on any day the Exchange is open
will be executed at the net asset value determined as of the close of the
Exchange on that day. Orders received by Legg Mason or Fairfield after the
close of the Exchange or on days the Exchange is closed will be executed
at the net asset value determined as of the close of the Exchange on the
next day the Exchange is open. See "How Net Asset Value is Determined" on
page 21.
Each Fund reserves the right to reject any order for its shares or to
suspend the offering of shares for a period of time, or to waive any
minimum investment requirements. In addition to Institutional Clients
purchasing shares directly from Fairfield, Navigator Shares may be
purchased through procedures established by Fairfield in connection with
requirements of Customer Accounts of various Institutional Clients.
No sales charge is imposed by any of the Funds in connection with the
purchase of Navigator Shares. Depending upon the terms of a particular
Customer Account, however, Institutional Clients may charge their
Customers fees for automatic investment and other cash management services
provided in connection with investments in a Fund. Information concerning
these services and any applicable charges will be provided by the
Institutional Clients. This Prospectus should be read by Customers in
connection with any such information received from the Institutional
Clients. Any such fees, charges or other requirements imposed by an
Institutional Client upon its Customers will be in addition to the fees
and requirements described in this Prospectus.
Redemption of Shares
Shares may ordinarily be redeemed by a shareholder via telephone, in
accordance with the procedures described below. However, Customers of
Institutional Clients wishing to redeem shares held in Customer Accounts
at the Institution may redeem only in accordance with instructions and
limitations pertaining to their Account at the Institution.
Fairfield clients can make telephone redemption requests by calling
Fairfield at 1-800-441-3885. Legg Mason clients should call their
financial advisor at 1-800-822-5544. Callers should have available the
number of shares (or dollar amount) to be redeemed and their account
number.
Orders for redemption received by Legg Mason or Fairfield before the
close of the Exchange, on any day when the Exchange is open, will be
transmitted to Boston Financial Data Services ("BFDS"), transfer agent for
the Funds, for redemption at the net asset value per share determined as
of the close of the Exchange on that day. Requests for redemption received
by Legg Mason or Fairfield after the close of the Exchange will be
executed at the net asset value determined as of the close of the Exchange
on its next trading day. A redemption request received by Legg Mason or
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Fairfield may be treated as a request for repurchase and, if it is
accepted by Legg Mason, your shares will be purchased at the net asset
value per share determined as of the next close of the Exchange.
Shareholders may have their telephone redemption requests paid by a
direct wire to a domestic commercial bank account previously designated by
the shareholder, or mailed to the name and address in which the
shareholder's account is registered with the respective Fund. Such
payments will normally be transmitted on the next business day following
receipt of a valid request for redemption. The proceeds of redemption or
repurchase may be more or less than the original cost. If the shares to be
redeemed or repurchased were paid for by check (including certified or
cashier's checks) within 10 business days of the redemption or repurchase
request, the proceeds may not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
To the extent permitted by law, each Fund reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of
the adviser, that Fund could be adversely affected by immediate payment.
(The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption suspended.)
Each Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. Each Fund may request identifying
information from callers or employ identification numbers. Each Fund may
be liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their financial advisor for further instructions.
Because of the relatively high cost of maintaining small accounts, a
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
the investor. However, the Funds will not redeem accounts that fall below
$500 solely as a result of a reduction in net asset value per share. If a
Fund elects to redeem the shares in an account, the investor will be
notified that the account is below $500 and will be allowed 60 days in
which to make an additional investment in order to avoid having the
account closed.
HOW SHAREHOLDER ACCOUNTS ARE MAINTAINED
A shareholder account is established automatically for each investor.
Any shares the investor purchases or receives as a dividend or other
distribution will be credited directly to the account at the time of
purchase or receipt. Shares may not be held in, or transferred to, an
account with any brokerage firm other than Fairfield, Legg Mason or their
affiliates. The Funds no longer issue share certificates.
Navigator Shares sold to Institutional Clients acting in a fiduciary,
advisory, custodial or other similar capacity on behalf of persons
maintaining Customer Accounts at Institutional Clients will normally be
held of record by the Institutional Clients. Therefore, in the context of
Institutional Clients, references in this Prospectus to shareholders mean
the Institutional Clients rather than their Customers.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Navigator Share of each Fund is determined daily
as of the close of the Exchange, on every day that the Exchange is open,
by subtracting the liabilities attributable to Navigator Shares from the
total assets attributable to such shares and dividing the result by the
number of Navigator Shares outstanding. Securities owned by each Fund for
which market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by each Fund's Board of Directors.
Where a security is traded on more than one market, which may include
foreign markets, the securities are generally valued on the market
considered by each Fund's adviser to be the primary market. Securities
with remaining maturities of 60 days or less are valued at amortized cost.
Each Fund will value its foreign securities in U.S. dollars on the basis
of the then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which generally consists of net
investment income, net short-term capital gain and net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust and Balanced Trust declare and pay dividends from net
investment income quarterly; they pay dividends from any net short-term
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capital gains and net gains from foreign currency transactions annually.
Special Investment Trust and American Leading Companies declare and pay
dividends from investment company taxable income following the end of each
taxable year. Each Fund also distributes substantially all of its net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) after the end of the taxable year in which the gain is
realized. A second distribution of net capital gain may be necessary in
some years to avoid imposition of the excise tax described under the
heading "Additional Tax Information" in the Statement of Additional
Information. Shareholders may elect to:
1. Receive both dividends and other distributions in Navigator Shares
of the distributing Fund;
2. Receive dividends in cash and other distributions in Navigator
Shares of the distributing Fund;
3. Receive dividends in Navigator Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Navigator fund. Please contact a
financial advisor for additional information about this option. Qualified
retirement plans that obtained Navigator Shares through exchange generally
receive dividends and other distributions in additional shares.
If no election is made, both dividends and other distributions are
credited to the Institutional Client's account in Navigator Shares of the
distributing Fund at the net asset value of the shares determined as of
the close of the Exchange on the reinvestment date. Shares received
pursuant to any of the first three (reinvestment) elections above also are
credited to your account at that net asset value. If an investor elects to
receive dividends and/or other distributions in cash, a check will be
sent. Investors purchasing through Fairfield may elect at any time to
change the distribution option by notifying the applicable Fund in writing
at: [insert complete Fund name], c/o Fairfield Group, Inc., 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Those purchasing through Legg Mason
should write to: [insert complete Fund name], c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476. An election
must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid to shareholders as of
that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Code"), so that it will be relieved of federal income tax on that part
of its investment company taxable income and net capital gain that is
distributed to its shareholders.
Dividends from a Fund's investment company taxable income (whether
paid in cash or reinvested in Navigator Shares) are taxable to their
shareholders (other than qualified retirement plans and other tax-exempt
investors) as ordinary income to the extent of that Fund's earnings and
profits. Distributions of a Fund's net capital gain (whether paid in cash
or reinvested in Navigator Shares), when designated as such, are taxable
to those shareholders as long-term capital gain, regardless of how long
they have held their Fund shares.
Each Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. Each Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. Each Fund also is required to withhold 31%
of all dividends and capital gain distributions payable to such
shareholders who otherwise are subject to backup withholding.
A redemption of Navigator Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Navigator Shares for shares of any other Navigator
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," below. If Fund shares are purchased
within 30 days before or after redeeming at a loss other shares of the
same Fund (regardless of class), all or part of that loss will not be
deductible and instead will increase the basis of the newly purchased
shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Navigator shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur
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<PAGE>
tax liabilities and should not be made solely for the purpose of receiving
the dividend or other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, an investor may also be subject to state, local or
foreign taxes on distributions from the Funds, depending on the laws of
its home state and locality. A portion of the dividends paid by the Funds
attributable to direct U.S. government obligations is not subject to state
and local income taxes in most jurisdictions. Each Fund's annual notice to
shareholders regarding the amount of dividends identifies this portion.
Prospective shareholders are urged to consult their tax advisers with
respect to the effects of this investment on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
Every shareholder of record will receive a confirmation of each new
share transaction with a Fund. In addition, Legg Mason clients will
receive a monthly statement, which will also show the total number of
shares being held in safekeeping by the Funds' transfer agent for the
account of the shareholder.
Confirmations for each purchase and redemption transaction (except a
reinvestment of dividends or other distributions) of Navigator Shares made
by Institutional Clients acting in a fiduciary, advisory, custodial, or
other similar capacity on behalf of persons maintaining Customer Accounts
at Institutional Clients will be sent to the Institutional Client by the
transfer agent. Beneficial ownership of shares by Customer Accounts will
be recorded by the Institutional Client and reflected in the regular
account statements provided by them to their customers.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; the annual reports for the
Funds will contain financial statements audited by their respective
independent accountants/auditors.
Shareholder inquiries should be addressed to "[insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476," or "[insert complete Fund name], c/o Fairfield Group, Inc.,
200 Gibraltar Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for a
corresponding class of shares of any of the Legg Mason Funds, the Legg
Mason Cash Reserve Trust, the Navigator Money Market Fund, Inc. and the
Navigator Tax-Free Money Market Fund, Inc., provided the shares to be
acquired are eligible for sale under applicable state securities laws.
Investments by exchange into other Navigator funds are made at the per
share net asset value next determined on the same business day as
redemption of the Fund shares you wish to exchange. To obtain further
information concerning the exchange privilege and prospectuses of other
Navigator funds, or to make an exchange, please contact your financial
advisor. To effect an exchange by telephone, please call your financial
advisor with the information described in the section "How to Purchase and
Redeem Shares," page 20. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges.
Please read the prospectus for the other fund(s) carefully before you
invest by exchange. Each Fund reserves the right to modify or terminate
the exchange privilege upon 60 days' notice to shareholders.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc. (a financial
services holding company), serves as investment adviser to each of those
Funds. The Adviser administers and acts as the portfolio manager for each
Fund and has responsibility for the actual investment management of the
Funds, including the responsibility for making decisions and placing
orders to buy, sell or hold a particular security. The Adviser acts as
adviser, manager or consultant to eighteen investment company portfolios
which had aggregate assets under management of approximately $8.0 billion
as of June 30, 1997. The Adviser's
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address is 111 South Calvert Street, Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Nancy T. Dennin has primary responsibility for the
day-to-day management of Total Return Trust. Prior to April 1, 1997, Mrs.
Dennin and Mr. Miller were co-managers of Total Return Trust. Mr. Miller
has also been primarily responsible for the day-to-day management of the
Special Investment Trust since its inception in 1985.
Mr. Miller is a portfolio manager and President of the Adviser. Mrs.
Dennin is a Senior Vice President of the Adviser.
The Adviser receives for its services a management fee from each Fund,
calculated daily and payable monthly. The Adviser receives a fee at an
annual rate of 1.0% of the Value Trust's average daily net assets for the
first $100 million of average net assets; 0.75% of average daily net
assets between $100 million and $1 billion; and 0.65% of average daily net
assets exceeding $1 billion. The Adviser receives from Total Return Trust
a management fee at an annual rate of 0.75% of the average daily net
assets of the Fund. The Adviser receives from Special Investment Trust a
management fee at an annual rate of 1.0% of the average daily net assets
of the Fund for the first $100 million of average net assets; 0.75% of
average daily net assets between $100 million and $1 billion; and 0.65% of
average daily net assets exceeding $1 billion. For the Total Return Trust,
the Adviser has agreed to waive indefinitely its fees in any month to the
extent the Total Return Trust's expenses related to Navigator Shares
(exclusive of taxes, interest, brokerage and extraordinary expenses)
exceed during any month an annual rate of 0.95% of the Fund's average
daily net assets. This agreement is voluntary and may be terminated by the
Adviser at any time. During the fiscal year ended March 31, 1997, Value
Trust paid a management fee of 0.72% of its average daily net assets,
Total Return Trust paid a management fee of 0.75% of its average daily net
assets, and Special Investment Trust paid a management fee of 0.78% of its
average daily net assets.
MANAGER
Pursuant to separate management agreements with American Leading
Companies and Balanced Trust (each a "Management Agreement"), which were
approved by the Investors Trust's Board of Directors, Legg Mason Fund
Adviser, Inc. ("Manager") serves as the Funds' manager. The Funds pay the
Manager, pursuant to the respective Management Agreements, a management
fee equal to an annual rate of 0.75% of each Fund's average daily net
assets attributable to Navigator Shares. Each Fund pays all its other
expenses which are not assumed by the Manager. The Manager has agreed to
waive its fees for each Fund for expenses related to Navigator Shares
(exclusive of taxes, interest, brokerage and extraordinary expenses) as
follows: for American Leading Companies, 0.95% of average net assets
attributable to Navigator Shares indefinitely; and for Balanced Trust,
1.10% of average net assets attributable to Navigator Shares until July
31, 1998. These agreements are voluntary and may be terminated by the
Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays LMCM a fee, computed daily and
payable monthly, at an annual rate equal to 40% of the fee received by the
Manager, or 0.30% of the Fund's average daily net assets attributable to
Navigator Shares.
LMCM manages private accounts with a value as of June 30, 1997 of
approximately $1.1 billion. The address of LMCM is 111 South Calvert
Street, Baltimore, MD 21202.
E. Robert Quasman is a Senior Investment Manager for LMCM and has been
primarily responsible for the day-to-day management of American Leading
Companies since October 1996. Prior to that, Mr. Quasman was Director of
Research for Legg Mason for over six years.
BARTLETT
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to Balanced Trust pursuant to the terms of an
Investment Advisory Agreement with the Manager, which was approved by the
Trust's Board of Directors. Bartlett manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays Bartlett a fee, computed daily
and paid monthly, at an annual rate equal to 66 2/3% of the fee received
by
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the Manager, or 0.50% of the Fund's average daily net assets. Bartlett
acts as adviser to individuals, corporations, pension and profit sharing
plans and trust accounts, as well as to two investment company portfolios
which had aggregate assets under management of approximately $2.6 billion
as of June 30, 1997. The address of Bartlett is 36 East Fourth Street,
Cincinnati, Ohio 45202.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage the
Fund. Both are senior portfolio managers of Bartlett. Mr. Rabiner has been
employed by Bartlett since 1983 and has served since then as Director of
its Fixed Income Group. He is a member of Bartlett's Management Committee
and Investment Policy Committee. Mr. Uible has been employed by Bartlett
since 1980. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. He is a member of
Bartlett's Management Committee and Investment Policy Committee.
BROKERAGE
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUNDS' DISTRIBUTOR
Legg Mason, a wholly owned subsidiary of Legg Mason, Inc., is the
distributor of each Fund's shares pursuant to a separate Underwriting
Agreement with each Fund. Each Underwriting Agreement obligates Legg Mason
to pay certain expenses in connection with the offering of shares,
including any compensation to its financial advisors, the printing and
distribution of prospectuses, statements of additional information and
periodic reports used in connection with the offering to prospective
investors, after the prospectuses, statements of additional information
and reports have been prepared, set in type and mailed to existing
shareholders at the Fund's expense, and for any supplementary sales
literature and advertising costs. Legg Mason also assists BFDS with
certain of its duties as transfer agent; for the year ended March 31,
1997, Legg Mason received from BFDS $262,000, $53,000, $195,000, $22,000
and $2,000 for performing such services in connection with Value Trust,
Total Return Trust, Special Investment Trust, American Leading Companies
and Balanced Trust, respectively.
Fairfield, a wholly owned subsidiary of Legg Mason, Inc., is a
registered broker-dealer with principal offices located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Fairfield may sell Navigator Shares
pursuant to a Dealer Agreement with the Funds' Distributor, Legg Mason.
Neither Fairfield nor Legg Mason receives compensation from the Funds for
selling Navigator Shares.
The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION / TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each have authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of Incorporation of
Investors Trust authorize issuance of one billion shares of par value
$.001 per share of American Leading Companies and 250 million shares of
par value $.001 per share of Balanced Trust. Each corporation may issue
additional series of shares. Each Fund currently offers two Classes of
Shares -- Class A (known as "Primary Shares") and Class Y (known as
"Navigator Shares"). The two Classes represent interests in the same pool
of assets. A separate vote is taken by a Class of Shares of a Fund if a
matter affects just that Class of Shares. Each Class of Shares may bear
certain differing Class-specific expenses and sales charges, which may
affect performance.
The Boards of Directors of the Funds do not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Boards will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of each Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of each Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters
(including the election of directors, approval of an advisory contract,
and approval of a plan of distribution pursuant to Rule 12b-1). Each Fund
will call a special meeting of the shareholders at the request of 10% or
more of the shares entitled to
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<PAGE>
vote; shareholders wishing to call such a meeting should submit a written
request to the Fund at 111 South Calvert Street, Baltimore, Maryland
21202, stating the purpose of the proposed meeting and the matters to be
acted upon. The address of BFDS is P.O. Box 953, Boston, Massachusetts
02103.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
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<PAGE>
LEGG MASON EQUITY FUNDS
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.:
Legg Mason American Leading Companies Trust
Legg Mason Balanced Trust
PRIMARY SHARES
NAVIGATOR SHARES
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1997
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Shares or for Navigator
Shares (both dated July 31, 1997), as appropriate, which have been filed with
the Securities and Exchange Commission ("SEC"). Copies of the Prospectuses are
available without charge from the Funds' distributor, Legg Mason Wood Walker,
Incorporated ("Legg Mason"), at (410) 539-0000.
The LEGG MASON VALUE TRUST, INC. ("Value Trust") is a mutual fund
seeking long-term growth of capital. Value Trust invests principally in those
equity securities which its investment adviser, Legg Mason Fund Adviser, Inc.
("Adviser" or "Manager"), believes are undervalued and therefore offer
above-average potential for capital appreciation. Other investors who seek
capital appreciation may also invest in Value Trust shares.
The LEGG MASON TOTAL RETURN TRUST, INC. ("Total Return Trust") is a
mutual fund seeking capital appreciation and current income in order to achieve
an attractive total investment return consistent with reasonable risk. In
attempting to achieve this objective, the Adviser selects a diversified
portfolio, composed of dividend-paying common stocks and securities convertible
into common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks or securities convertible into common stock
which do not pay current dividends but which offer prospects for capital
appreciation and future income; and debt instruments of various maturities.
The LEGG MASON SPECIAL INVESTMENT TRUST, INC. ("Special Investment
Trust") is a mutual fund seeking capital appreciation. Special Investment Trust
invests principally in equity securities of companies with market
capitalizations of less than $2.5 billion which, in the opinion of the Adviser,
have one or more of the following characteristics: they are not closely followed
by, or are out of favor with, investors generally, and the Adviser believes they
are undervalued in relation to their long-term earning power or asset values;
unusual developments have occurred which suggest the possibility that the market
value of the securities will increase; or they are involved in actual or
anticipated reorganizations or restructurings under the Bankruptcy Code. Special
Investment Trust may also invest in the securities of companies with larger
capitalizations which have one or more of these characteristics.
The LEGG MASON AMERICAN LEADING COMPANIES TRUST ("American Leading
Companies"), a diversified, professionally managed portfolio, is a separate
series of Legg Mason Investors Trust, Inc., an open-end investment company
("Trust"). American Leading Companies seeks long-term capital appreciation
<PAGE>
and current income consistent with prudent investment risk. American Leading
Companies normally will seek to achieve its investment objective by investing
not less than 75% of its total assets in the dividend-paying common stocks of
Leading Companies that have market capitalizations of at least $2 billion.
American Leading Companies' investment adviser, Legg Mason Capital Management,
Inc. ("LMCM"), defines a "Leading Company" as a company that, in the opinion of
LMCM, has attained a major market share in one or more products or services
within its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies typically are well known as leaders in their respective industries;
most are found in the top half of the Standard & Poor's Composite Index of 500
Stocks ("S&P 500").
The LEGG MASON BALANCED TRUST ("Balanced Trust"), a diversified,
professionally managed portfolio, is a separate series of the Trust. Balanced
Trust seeks long-term capital appreciation and current income in order to
achieve an attractive total investment return consistent with reasonable risk.
Under normal conditions, Balanced Trust will invest no more than 75% of its
assets in equity securities. The term "equity securities" includes, without
limitation, common stocks, convertible securities of domestic issuers,
securities of closed-end investment companies and U.S. dollar-denominated
securities of foreign issuers, including American Depositary Receipts ("ADRs")
and Global Depositary Receipts ("GDRs"). Balanced Trust will invest at least 25%
of its portfolio in fixed income securities.
Shares of Navigator Value Trust, Navigator Total Return Trust,
Navigator Special Investment Trust, Navigator American Leading Companies and
Navigator Balanced Trust (collectively referred to as "Navigator Shares")
represent interests in Value Trust, Total Return Trust, Special Investment
Trust, American Leading Companies and Balanced Trust, respectively, that are
currently offered for sale only to institutional clients of the Fairfield Group,
Inc. ("Fairfield") for investment of their own monies and monies for which they
act in a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust
Company") for which Trust Company exercises discretionary investment management
responsibility (such institutional investors are referred to collectively as
"Institutional Clients" and accounts of the customers with Institutional
Clients ("Customers") are referred to collectively as "Customer Accounts"), to
qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million, and to The Legg Mason Profit Sharing Plan
and Trust. The Navigator Class of Shares may not be purchased by individuals
directly, but Institutional Clients may purchase shares for Customer Accounts
maintained for individuals.
The Primary Class of shares of Value Trust, Total Return Trust, Special
Investment Trust, American Leading Companies and Balanced Trust (collectively
referred to as "Primary Shares") is offered for sale to all other investors and
may be purchased directly by individuals.
Navigator and Primary Shares of Value Trust, Total Return Trust,
Special Investment Trust, American Leading Companies and Balanced Trust (each
a "Fund") are sold and redeemed without any purchase or redemption charge,
although institutions may charge their Customer Accounts for services
provided in connection with the purchase or redemption of Navigator Shares.
Each Fund pays management fees to the Adviser/Manager. Primary Shares pay a
12b-1 distribution fee, but Navigator Shares pay no distribution fees.
See "The Funds' Distributor."
LEGG MASON WOOD WALKER,
Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410) 539-0000 (800) 822-5544
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT LIMITATIONS AND POLICIES
In addition to the investment objective of each Fund described in the
Prospectus, each Fund has adopted certain fundamental investment limitations
that cannot be changed except by vote of its shareholders. Value Trust, Total
Return Trust and Special Investment Trust each may not:
1. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes, in an aggregate amount not to exceed 10% of
the value of the total assets of the respective Fund at the time of borrowing;
provided that borrowings, including reverse repurchase agreements, in excess of
5% of such value will be only from banks (although not a fundamental policy
subject to shareholder approval, each Fund will not purchase securities if
borrowings, including reverse purchase agreements, exceed 5% of its total
assets);
2. With respect to 75% of total assets, invest more than 5% of its
total assets (taken at market value) in securities of any one issuer, other than
the U.S. Government, or its agencies and instrumentalities, or purchase more
than 10% of the voting securities of any one issuer;
3. Purchase securities on "margin," except for short-term credits
necessary for clearance of portfolio transactions and except that each Fund may
make margin deposits in connection with the use of futures contracts and options
on futures contracts;
4. Invest 25% or more of its total assets (taken at market value) in
any one industry;
5. Purchase or sell commodities and commodity contracts, but this
limitation shall not prevent each Fund from purchasing or selling options and
futures contracts;
6. Underwrite the securities of other issuers, except insofar as each
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;
7. Make loans, except loans of portfolio securities and except to the
extent that the purchase of a portion of an issue of publicly distributed notes,
bonds or other evidences of indebtedness or deposits with banks and other
financial institutions may be considered loans;
8. Purchase or sell real estate, except that each Fund may invest in
securities collateralized by real estate or interests therein or in securities
issued by companies that invest in real estate or interests therein (as a
non-fundamental policy changeable without a shareholder vote, each Fund will not
purchase or sell interests in real estate limited partnerships);
9. Make short sales of securities or maintain a short position, except
that each Fund may (a) make short sales and maintain short positions in
connection with its use of options, futures contracts and options on futures
contracts and (b) sell short "against the box;" or
10. Issue senior securities, except as permitted under the Investment
Company Act of 1940 ("1940 Act").
American Leading Companies and Balanced Trust each may not:
1. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed 5% of the
value of its total assets at the time of borrowings. (Although not a fundamental
policy subject to shareholder approval, the Fund will repay any money borrowed
before any portfolio securities are purchased);
2
<PAGE>
2. Issue senior securities, except as permitted under the 1940 Act;
3. Engage in the business of underwriting the securities of other
issuers except insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, in disposing of a portfolio security;
4. Buy or hold any real estate; provided, however, that instruments
secured by real estate or interests therein are not subject to this limitation;
5. With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at market value) in securities of any one issuer, other than
the U.S. Government, its agencies and instrumentalities, or purchase more than
10% of the voting securities of any one issuer;
6. Purchase or sell any commodities or commodities contracts, except
that the Fund may purchase or sell currencies, interest rate and currency
futures contracts, options on currencies, securities, and securities indexes and
options on interest rate and currency futures contracts;
7. Make loans, except loans of portfolio securities and except to the
extent the purchase of notes, bonds or other evidences of indebtedness, the
entry into repurchase agreements, or deposits with banks and other financial
institutions may be considered loans;
8. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the securities of issuers having their
principal business activities in the same industry. This limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements with respect thereto.
The foregoing limitations may be changed with respect to a Fund by "the
vote of a majority of the outstanding voting securities" of that Fund, a term
defined in the 1940 Act to mean the vote (a) of 67% or more of the voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present, or (b) of more than 50%
of the outstanding voting securities of the Fund, whichever is less.
American Leading Companies and Balanced Trust:
The following are some of the non-fundamental limitations which
American Leading Companies and Balanced Fund currently observe. Each Fund may
not:
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<PAGE>
1. Buy securities on "margin," except for short-term credits necessary
for clearance of portfolio transactions and except that the Fund may make margin
deposits in connection with the use of permitted currency futures contracts and
options on currency futures contracts;
2. Make short sales of securities or maintain a short position, except
that the Fund may sell short "against the box". This limit does not apply to
short sales and short positions in connection with its use of options, futures
contracts and options on futures contracts (Neither Fund intends to make short
sales in excess of 5% of its net assets during the coming year);
In addition, as a non-fundamental limitation, American Leading
Companies may not purchase or sell interest rate and currency futures contracts,
options on currencies, securities, and securities indexes and options on
interest rate and currency futures contracts, provided, however, that the Fund
may sell covered call options on securities and may purchase options to the
extent necessary to close out its position in one or more call options.
American Leading Companies and Balanced Trust each interprets
fundamental investment limitation (4) to prohibit investment in real estate
limited partnerships.
If a fundamental or non-fundamental percentage limitation set forth
above is complied with at the time an investment is made, a later increase or
decrease in percentage resulting from a change in value of portfolio securities,
in the net asset value of a Fund, or in the number of securities an issuer has
outstanding, will not be considered a violation of any limitation.
4
<PAGE>
Unless otherwise stated, the investment policies and limitations
contained in this Statement of Additional Information are not fundamental, and
can be changed without shareholder approval.
The following information applies to each Fund unless otherwise stated:
Foreign Securities
- ------------------
The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause a Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result in losses to a Fund due to subsequent declines in value of the portfolio
security or, if a Fund has entered into a contract to sell the security, could
result in liability to the purchaser.
Since each Fund may invest in securities denominated in currencies
other than the U.S. dollar and since each Fund may hold foreign currencies, a
Fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rates between such currencies and the U.S. dollar.
Changes in the currency exchange rates may influence the value of each Fund's
shares, and also may affect the value of dividends and interest earned by that
Fund and gains and losses realized by that Fund. Exchange rates are determined
by the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments, other economic and
financial conditions, government intervention, speculation and other factors.
In addition to purchasing foreign securities, each Fund may invest in
ADRs. Generally, ADRs, in registered form, are denominated in U.S. dollars and
are designed for use in the domestic market. Usually issued by a U.S. bank or
trust company, ADRs are receipts that demonstrate ownership of the underlying
securities. For purposes of each Fund's investment policies and limitations,
ADRs are considered to have the same classification as the securities underlying
them. Balanced Trust may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank evidencing
its ownership of the underlying foreign securities.
Illiquid Securities
- -------------------
Value Trust, Total Return Trust and Special Investment Trust each may
invest up to 10% of its net assets in illiquid securities. American Leading
Companies and Balanced Trust each may invest up to 15% of its net assets in
illiquid securities. For this purpose, "illiquid securities" are those that
cannot be disposed of within seven days for approximately the price at which the
Fund values the security. Illiquid securities include repurchase agreements with
terms of greater than seven days and restricted securities other than those the
Adviser/LMCM or Bartlett, investment adviser to Balanced Trust, has determined
are liquid pursuant to guidelines established by each Fund's Board of Directors.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the Securities
Act of 1933, or pursuant to an exemption from registration. A Fund may be
required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.
5
<PAGE>
SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to each Fund, acting
pursuant to guidelines established by such Fund's Board of Directors, may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated,
restricted securities in each Fund's portfolio may adversely affect that Fund's
liquidity.
Debt Securities
- ---------------
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's ("S&P") represent the opinions of those agencies. Such ratings are
relative and subjective, and are not absolute standards of quality. Unrated debt
securities are not necessarily of lower quality than rated securities, but they
may not be attractive to as many buyers. A description of the ratings assigned
to corporate debt obligations by Moody's and S&P is included in Appendix A.
In addition to ratings assigned to individual bond issues, each adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which a Fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial conditions of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
may be a wide variation in the quality of bonds, both within a particular
classification and between classifications. A bond issuer's obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer; litigation
or other conditions may also adversely affect the power or ability of bond
issuers to meet their obligations for the payment of principal and interest.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by each Fund's adviser to determine, to
the extent possible, that the planned investment is sound.
If a security rated A or above at the time of purchase by American
Leading Companies is subsequently downgraded to a rating below A, LMCM will
consider that fact in determining whether to dispose of the security, but will
dispose of it if necessary to insure that no more than 5% of net assets are
invested in debt securities rated below A. If one rating agency has rated a
security A or better and another agency has rated it below A, LMCM may rely on
the higher rating in determining to purchase or retain the security. Bonds rated
A may be given a "+" or "-" by the rating agency. The Fund considers bonds
denominated A, A+ or A- to be included in the rating A.
Convertible Securities
- ----------------------
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with generally higher yields than those of common stocks of the same
or similar issuers, but lower than the yield of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible securities but rank senior to common stock in a corporation's
capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. The price of a convertible
security often reflects variations in the price of the underlying common stock
in a way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established in the
convertible security's governing instrument, which may be less than the ultimate
conversion value.
6
<PAGE>
Many convertible securities are rated below investment grade or, if
unrated, are considered of comparable quality. American Leading Companies does
not intend to purchase any convertible securities rated below BB by S&P or below
Ba by Moody's or, if unrated, deemed by LMCM to be of comparable quality.
Moody's describes securities rated Ba as having "speculative elements; their
future cannot be considered 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."
Value Trust, Total Return Trust and Special Investment Trust:
If an investment grade security purchased by Value Trust, Total Return
Trust or Special Investment Trust is subsequently given a rating below
investment grade, the Adviser will consider that fact in determining whether to
retain that security in that Fund's portfolio, but is not required to dispose of
it.
American Leading Companies and Balanced Trust:
When-Issued Securities
- ----------------------
Each Fund may enter into commitments to purchase securities on a
when-issued basis. When a Fund purchases securities on a when-issued basis, it
assumes the risks of ownership at the time of the purchase, not at the time of
receipt. However, the Fund does not have to pay for the obligations until they
are delivered to it. This is normally seven to 15 days later, but could be
longer. Use of this practice would have a leveraging effect on the Fund.
American Leading Companies does not currently expect that its
commitment to purchase when-issued securities will at any time exceed, in the
aggregate, 5% of its net assets.
To meet its payment obligation under a when-issued commitment, a Fund
will establish a segregated account with its custodian and maintain cash or
appropriate liquid securities, in an amount at least equal in value to that
Fund's commitments to purchase when-issued securities.
A Fund may sell the securities underlying a when-issued purchase, which
may result in capital gains or losses.
American Leading Companies:
Covered Call Options
- --------------------
The Fund may write covered call options on securities in which it is
authorized to invest. Because it can be expected that a call option will be
exercised if the market value of the underlying security increases to a level
greater than the exercise price, the Fund might write covered call options on
securities generally when LMCM believes that the premium received by the Fund
will exceed the extent to which the market price of the underlying security will
exceed the exercise price. The strategy may be used to provide limited
protection against a decrease in the market price of the security, in an amount
equal to the premium received for writing the call option less any transaction
costs. Thus, in the event that the market price of the underlying security held
by the Fund declines, the amount of such decline will be offset wholly or in
part by the amount of the premium received by the Fund. If, however, there is an
increase in the market price of the underlying security and the option is
exercised, the Fund would be obligated to sell the security at less than its
market value. The Fund would give up the ability to sell the portfolio
securities used to cover the call option while the call option was outstanding.
In addition, the Fund could lose the ability to participate in an increase in
the value of such securities above the exercise price of the call option because
such an increase would likely be
7
<PAGE>
offset by an increase in the cost of closing out the call option (or could be
negated if the buyer chose to exercise the call option at an exercise price
below the securities' current market value).
If the Fund desires to close out its obligation under a call option it
has sold, it will have to purchase an offsetting option. The value of an option
position will reflect, among other things, the current market price of the
underlying security, futures contract or currency, the time remaining until
expiration, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security, and general market
conditions. Accordingly, when the price of the security rises toward the strike
price of the option, the cost of offsetting the option will negate to some
extent the benefit to the Fund of the price increase of the underlying security.
For this reason, the successful use of options as an income strategy depends
upon the Adviser's ability to forecast the direction of price fluctuations in
the underlying market or market sector.
The Fund may write exchange-traded options. The ability to establish
and close out positions on the exchange is subject to the maintenance of a
liquid secondary market. Although the Fund intends to write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, because the Fund must maintain a covered
position with respect to any call option it writes on a security, the Fund may
not sell the underlying security during the period it is obligated under such
option. This requirement may impair the Fund's ability to sell a portfolio
security or make an investment at a time when such a sale or investment might be
advantageous.
The Fund will not enter into an options position that exposes it to an
obligation to another party unless it owns an offsetting ("covering") position
in securities or other options. The Fund will comply with guidelines established
by the SEC with respect to coverage of these strategies by mutual funds, and, if
the guidelines so require, will set aside cash and/or appropriate liquid
securities in a segregated account with its custodian in the amount prescribed,
as marked-to-market daily. Securities positions used for cover and securities
held in a segregated account cannot be sold or closed out while the strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
The following information applies to Balanced Trust:
Mortgage-Related Securities
- ---------------------------
Mortgage-related securities represent an ownership interest in a pool
of residential mortgage loans. These securities are designed to provide monthly
payments of interest, and in most instances, principal to the investor. The
mortgagor's monthly payments to his/her lending institution are "passed-through"
to investors such as the Fund. Most issuers or poolers provide guarantees of
payments, regardless of whether or not the mortgagor actually makes the payment.
The guarantees made by issuers or poolers are backed by various forms of credit,
insurance and collateral. They may not extend to the full amount of the pool.
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of one- to four-family homes. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages,
growing-equity mortgages, graduated-payment mortgages and other types.
All poolers apply standards for qualification to lending institutions
which originate mortgages for the pools. Poolers also establish credit standards
and underwriting criteria for individual mortgages included in
8
<PAGE>
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
The majority of mortgage-related securities currently available are
issued by governmental or government-related organizations formed to increase
the availability of mortgage credit. The largest government-sponsored issuer of
mortgage-related securities is the Government National Mortgage Association
("GNMA"). GNMA certificates ("GNMAs") are interests in pools of loans insured by
the Federal Housing Administration or by the Farmer's Home Administration
("FHA"), or guaranteed by the Veterans Administration ("VA"). Fannie Mae
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") each issue
pass-through securities which are guaranteed as to principal and interest by
FNMA and FHLMC, respectively.
The average life of mortgage-related securities varies with the
maturities and the nature of the underlying mortgage instruments, as well as
with market interest rates. For example, GNMAs tend to have a longer average
life than FHLMC participation certificates ("PCs") because there is a tendency
for the conventional and privately-insured mortgages underlying FHLMC PCs to
repay at faster rates than the FHA and VA loans underlying GNMAs. In addition,
the term of a security may be shortened by unscheduled or early payments of
principal and interest on the underlying mortgages. The occurrence of mortgage
pre-payments is affected by various factors, including the level of interest
rates, general economic conditions, the location and age of the mortgaged
property and other social and demographic conditions.
In determining the dollar-weighted average maturity of the fixed income
portion of the portfolio, Bartlett will follow industry practice in assigning an
average life to the mortgage-related securities of the Fund unless the interest
rate on the mortgages underlying such securities is such that Bartlett
believes a different prepayment rate is likely. For example, where a GNMA
has a high interest rate relative to the market, that GNMA is likely to have a
shorter overall maturity than a GNMA with a market rate coupon.
Moreover, Bartlett may deem it appropriate to change the projected average
life for a Fund's mortgage-related security as a result of fluctuations in
market interest rates and other factors.
Quoted yields on mortgage-related securities are typically based on the
maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
average life yield. Reinvestment of the prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yield of the
Fund. The compounding effect from the reinvestments of monthly payments received
by the Fund will increase the yield to shareholders compared to bonds that pay
interest semi-annually.
Like other debt securities, the value of mortgage-related securities
will tend to rise when interest rates fall, and fall when rates rise. The value
of mortgage-related securities may also change because of changes in the
market's perception of the creditworthiness of the organization that issued or
guaranteed them. In addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
Municipal Obligations
- ---------------------
The municipal obligations in which the Fund may invest include
municipal leases and participation interests therein. These obligations, which
may take the form of a lease, an installment purchase or a conditional sales
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities, such as fire and sanitation
vehicles, telecommunications equipment and other capital assets. Rather than
holding such obligations directly, the Fund may purchase a participation
interest in a municipal lease obligation from a bank or other third party. A
participation interest gives the Fund a specified, undivided pro-rata interest
in the total amount of the obligation.
9
<PAGE>
Municipal lease obligations have risks distinct from those associated
with general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt. These
may include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchase or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. The debt- issuance limitations are deemed inapplicable because of the
inclusion in many leases and contracts of "non- appropriation" clauses providing
that the governmental user has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
In determining the liquidity of a municipal lease obligation, Bartlett
will distinguish between simple or direct municipal leases and municipal
lease-backed securities, the latter of which may take the form of a lease-backed
revenue bond or other investment structure using a municipal lease-purchase
agreement as its base. While the former may present special liquidity issues,
the latter are based on a well established method of securing payment of a
municipal obligation. The Fund's investment in municipal lease obligations and
participation interests therein will be treated as illiquid unless Bartlett
determines, pursuant to guidelines established by the Board of Directors, that
the security could be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the security.
An issuer's obligations under its municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Code, and laws that may be enacted
by Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of issuers to meet their obligations for
the payment of interest and principal on their municipal obligations may be
materially and adversely affected.
The United States Supreme Court has held that Congress may subject the
interest on municipal obligations to federal income tax. It can be expected
that, as in the past, proposals will be introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. Proposals also may be introduced in state
legislatures which could affect the state tax treatment of the Fund's
distributions. If any such proposals were enacted, the availability of municipal
obligations for investment by the Fund and the value of its assets could be
materially and adversely affected. In such event, the Fund would re-evaluate its
investment objective and policies and consider changes in its structure or
possible dissolution.
The following information applies to Value Trust, Total Return Trust, Special
Investment Trust and Balanced Trust:
Futures Contracts
- -----------------
Each Fund may from time to time purchase or sell futures contracts. In
the purchase of a futures contract, the purchaser agrees to buy a specified
underlying instrument at a specified future date. In the sale of a futures
contract, the seller agrees to sell the underlying instrument at a specified
future date. The price at which the purchase or sale will take place is fixed at
the time the contract is entered into. Some currently available contracts are
based on specific securities, such as U.S. Treasury bonds or notes, and some are
based on indexes of securities such as S&P 500. Futures contracts can be held
until their delivery dates, or can be closed out before then, if a liquid
secondary market is available. A futures contract is closed out by entering into
an opposite position in an identical futures contract (for example, by
purchasing a contract on the same instrument and with the same delivery date as
a contract the party had sold) at the current price as determined on the futures
exchange.
10
<PAGE>
As the purchaser or seller of a futures contract, a Fund would not be
required to deliver or pay for the underlying instrument unless the contract is
held until the delivery date. However, the Fund would be required to deposit
with its custodian, in the name of the futures broker (known as a futures
commission merchant, or "FCM"), a percentage of the contract's value. This
amount, which is known as initial margin, generally equals 10% or less of the
value of the futures contract. Unlike margin in securities transactions, initial
margin on futures contracts does not involve borrowing to finance the futures
transactions. Rather, initial margin is in the nature of a good faith deposit or
performance bond, and would be returned to that Fund when the futures position
is terminated, after all contractual obligations have been satisfied. Initial
margin may be maintained either in cash or appropriate liquid securities.
The value of a futures contract tends to increase and decrease with the
value of the underlying instrument. The purchase of a futures contract will tend
to increase exposure to positive and negative price fluctuations in the
underlying instrument in the same manner as if the underlying instrument had
been purchased directly. By contrast, the sale of a futures contract will tend
to offset both positive and negative market price changes.
As the contract's value fluctuates, payments known as variation margin
or maintenance margin are made to or received from the FCM. If the contract's
value moves against the Fund, (i.e., the Fund's futures position declines in
value), the Fund may be required to make payments to the FCM, and, conversely,
the Fund may be entitled to receive payments from the FCM if the value of the
Fund's futures position increases. This process is known as "marking-to-market"
and takes place on a daily basis. Variation margin does not involve borrowing to
finance the futures transactions, but rather represents a daily settlement of
the Fund's obligations to or from a clearing organization.
Options on Securities, Indexed Securities and Futures Contracts
- ---------------------------------------------------------------
PURCHASING PUT OR CALL OPTIONS By purchasing a put (or call) option, a
Fund obtains the right (but not the obligation) to sell (or buy) the underlying
instrument at a fixed strike price. The option's underlying instrument may be a
specific security, an indexed security or a futures contract. The option may
give the Fund the right to sell (or buy) only on the option's expiration date,
or may be exercisable at any time up to and including that date. In return for
this right, the Fund pays the current market price for the option (known as the
option premium).
A Fund may terminate its position in an option it has purchased by
allowing the option to expire, closing it out in the secondary market at its
current price, if a liquid secondary market exists, or by exercising it. If the
option is allowed to expire, the Fund will lose the entire premium paid.
WRITING PUT OR CALL OPTIONS By writing a put (or call) option, a Fund
takes the opposite side of the transaction from the option's purchaser (or
seller). In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the option's underlying instrument (or to sell or
deliver the option's underlying instrument) if the other party to the option
chooses to exercise it. When writing an option on a futures contract, a Fund
will be required to make margin payments to an FCM as described above for
futures contracts.
Before exercise, a Fund may seek to terminate its position in an option
it has written by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for an option the Fund has written,
however, the Fund must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
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<PAGE>
Over-the-counter and Exchange-traded Options
- --------------------------------------------
Each Fund may purchase and write both over-the-counter ("OTC") and
exchange-traded options. Exchange-traded options in the United States are issued
by a clearing organization affiliated with the exchange on which the option is
listed which, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between a Fund and its
contra-party with no clearing organization guarantee. Thus, when a Fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make/take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund, as well as the loss of the expected benefit of the transaction.
Currently, options on debt securities are primarily traded on the OTC market.
Exchange markets for options on debt securities exist, but the ability to
establish and close out positions on the exchanges is subject to the maintenance
of a liquid secondary market.
Value Trust, Total Return Trust and Special Investment Trust each may
invest up to 10% and Balanced Trust may invest up to 15% of its assets in
illiquid securities. The term "illiquid securities" includes purchased OTC
options. Assets used as cover for OTC options written by the Fund also will be
deemed illiquid securities, unless the OTC options are sold to qualified dealers
who agree that the Fund may repurchase any OTC options it writes for a maximum
price to be calculated by a formula set forth in the option agreement. The cover
for an OTC option subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
Cover for Options and Futures Strategies
- ----------------------------------------
No Fund will use leverage in its hedging strategies involving
options and futures contracts. Fund will hold securities, options or
futures positions whose values are expected to offset ("cover") its obligations
under the transactions. No Fund will enter into hedging strategies
involving options and futures contracts that expose the Fund to an obligation to
another party unless it owns either (i) an offsetting ("covered") position in
securities, options or futures contracts or (ii) has cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with guidelines established by the
SEC with respect to coverage of these strategies by mutual funds and, if the
guidelines so require, will set aside cash and/or appropriate liquid securities
in a segregated account with its custodian in the amount prescribed. Securities,
options or futures contracts used for cover and securities held in a segregated
account cannot be sold or closed out while the strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede the portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
Risks of Futures and Related Options Trading
- --------------------------------------------
Successful use of futures contracts and related options depends upon
the ability of the adviser to assess movements in the direction of overall
securities and interest rates, which requires different skills and techniques
than assessing the value of individual securities. Moreover, futures contracts
relate not to the current price level of the underlying instrument, but to the
anticipated price level at some point in the future; trading of stock index
futures may not reflect the trading of the securities that are used to formulate
the index or even actual fluctuations in the index itself. There is, in
addition, the risk that movements in the price of the futures contract will not
correlate with the movements in the prices of the securities being hedged. Price
distortions in the marketplace, such as result from increased participation by
speculators in the futures market, may also impair the correlation between
movements in the prices of futures contracts and movements in the prices of the
hedged securities. If the price of the futures contract moves less than the
price of securities that are subject to the hedge, the hedge will not be fully
effective; however, if the price of the securities being hedged has moved in an
unfavorable direction, a Fund normally would be in a better position than if it
had not
12
<PAGE>
hedged at all. If the price of securities being hedged has moved in a favorable
direction, this advantage may be partially offset by losses on the futures
position.
Options have a limited life and thus can be disposed of only within a
specific time period. Positions in futures contracts may be closed out only on
an exchange or board of trade that provides a secondary market for such futures
contracts. Although each Fund intends to purchase and sell futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market, there is no assurance that such a market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position and, in the event of adverse price movements, the Fund would
continue to be required to make variation margin payments.
Purchasers of options on futures contracts pay a premium in cash at the
time of purchase which, in the event of adverse price movements, could be lost.
Sellers of options on futures contracts must post initial margin and are subject
to additional margin calls that could be substantial in the event of adverse
price movements. In addition, a Fund's activities in the futures markets may
result in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
The exchanges may impose limits on the amount by which the price of a
futures contract or related option is permitted to change in a single day. If
the price of a contract moves to the limit for several consecutive days, a Fund
may be unable during that time to close its position in that contract and may
have to continue making payments of variation margin. A Fund may also be unable
to dispose of securities or other instruments being used as "cover" during such
a period.
Risks of Options Trading
- ------------------------
The success of each Fund's option strategies depends on many factors,
the most significant of which is the adviser's ability to assess movements in
the overall securities and interest rate markets.
The exercise price of the options may be below, equal to or above the
current market value of the underlying securities or indexes. Purchased options
that expire unexercised have no value. Unless an option purchased by a Fund is
exercised or unless a closing transaction is effected with respect to that
position, the Fund will realize a loss in the amount of the premium paid and any
transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although each
Fund intends to purchase or write only those exchange-traded options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Closing transactions with respect to OTC options may be effected only by
negotiating directly with the other party to the option contract. Although each
Fund will enter into OTC options with dealers capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
In the event of insolvency of the contra-party, a Fund may be unable to
liquidate or exercise an OTC option, and could suffer a loss of its premium.
Also, the contra-party, although solvent, may refuse to enter into closing
transactions with respect to certain options, with the result that a Fund would
have to exercise those options which it has purchased in order to realize any
profit. With respect to options written by a Fund, the inability to enter into a
closing transaction may result in material losses to that Fund. For example,
because each Fund must maintain a covered position with respect to any call
option it writes on a security or index, a Fund may not sell the underlying
security or currency (or invest any cash, government securities or short-term
debt securities used to cover an index option) during the period it is obligated
under the option. This requirement may impair a Fund's ability to sell a
portfolio security or make an investment at a time when such a sale or
investment might be advantageous.
13
<PAGE>
Options on indexes are settled exclusively in cash. If a Fund writes a
call option on an index, the Fund will not know in advance the difference, if
any, between the closing value of the index on the exercise date and the
exercise price of the call option itself, and thus will not know the amount of
cash payable upon settlement. In addition, a holder of an index option who
exercises it before the closing index value for that day is available runs the
risk that the level of the underlying index may subsequently change.
Each Fund's activities in the options markets may result in higher
portfolio turnover rates and additional brokerage costs.
Additional Limitations on Futures and Options
- ---------------------------------------------
As a non-fundamental policy, each Fund will write a put or call on a
security only if (a) the security underlying the put or call is permitted by the
investment policies of that Fund, and (b) the aggregate value of the securities
underlying the calls or obligations underlying the puts determined as of the
date the options are sold does not exceed 25% of that Fund's net assets.
Under regulations adopted by the Commodity Futures Trading Commission
("CFTC"), futures contracts and related options may be used by each Fund (a) for
hedging purposes, without quantitative limits, and (b) for other purposes to the
extent that the amount of margin deposit on all such non-hedging futures
contacts owned by the Fund, together with the amount of premiums paid by that
Fund on all such non-hedging options held on futures contracts, does not exceed
5% of the market value of that Fund's net assets.
The foregoing limitations, as well as those set forth in the prospectus
regarding each Fund's use of futures and related options transactions, do not
apply to options attached to, or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options, such as rights, certain debt securities and indexed
securities.
The above limitations on each Fund's investments in futures contracts
and options may be changed as regulatory agencies permit. However, each Fund
will not modify the above limitations to increase its permissible futures and
options activities without supplying additional information, as appropriate, in
a current Prospectus or Statement of Additional Information.
Indexed Securities
- ------------------
Indexed securities are securities whose prices are indexed to the
prices of securities indexes, currencies or other financial statistics. Indexed
securities typically are debt securities or deposits whose value at maturity
and/or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities fluctuates (either directly or
inversely, depending upon the instrument) with the performance of the index,
security, currency or other instrument to which they are indexed and may also
14
<PAGE>
be influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the security, and their value may substantially decline if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations and certain U.S. government agencies. The Funds
will only purchase indexed securities of issuers which the Adviser/Bartlett
determines present minimal credit risks and will monitor the issuer's
creditworthiness during the time the indexed security is held. The
Adviser/Bartlett will use its judgment in determining whether indexed securities
should be treated as short-term instruments, bonds, stock or as a separate asset
class for purposes of each Fund's investment allocations, depending on the
individual characteristics of the securities. Each Fund currently does not
intend to invest more than 5% of its total assets in indexed securities. Indexed
securities may fluctuate according to a multiple of changes in the underlying
instrument and, in that respect, have a leverage-like effect on a Fund.
Forward Currency Contracts
- --------------------------
Each Fund may use forward currency contracts to protect against
uncertainty in the level of future exchange rates. No Fund will speculate with
forward currency contracts or foreign currencies.
Each Fund may enter into forward currency contracts with respect to
specific transactions. For example, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such payment, as the case
may be, by entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying transaction. A Fund will thereby be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between the
date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
Each Fund also may use forward currency contracts in connection with
portfolio positions to lock-in the U.S. dollar value of those positions or to
shift the Fund's exposure to foreign currency fluctuations from one country to
another. For example, when the adviser believes that the currency of a
particular foreign country may suffer a substantial decline relative to the U.S.
dollar or another currency, it may enter into a forward currency contract to
sell the amount of the former foreign currency approximating the value of some
or all of a Fund's securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used.
At or before the maturity date of a forward currency contract requiring
a Fund to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, a Fund
may close out a forward currency contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. A Fund would
realize a gain or loss as a result of entering into such an offsetting forward
currency contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and the offsetting contract.
The precise matching of the forward contract amount and the value of
the securities involved will not generally be possible because the future value
of such securities in a foreign currency will change as a consequence of market
movements in the value of those securities between the date the forward currency
contract is entered into and the date it matures. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot (i.e.,
cash) market (and bear the expense of such purchase) if the
15
<PAGE>
market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver under the forward contract and the decision is made
to sell the security and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds the
amount of foreign currency a Fund is obligated to deliver under the forward
contract. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward currency contracts involve the risk that anticipated
currency movements will not be accurately predicted, causing a Fund to sustain
losses on these contracts and transaction costs. Each Fund may enter into
forward contracts or maintain a net exposure to such contracts only if (1) the
consummation of the contracts would not obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency or (2) the Fund maintains cash, U.S.
government securities or other appropriate liquid securities in a segregated
account in an amount not less than the value of the Fund's total assets
committed to the consummation of the contract.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. Each Fund will deal only with banks, broker/dealers or other financial
institutions which the adviser deems to be of high quality and to present
minimum credit risk. The use of forward currency contracts does not eliminate
fluctuations in the prices of the underlying securities each Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In addition,
although forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currencies, at the same time they limit any potential
gain that might result should the value of the currencies increase.
Although each Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. Each Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
For each Fund:
Portfolio Lending
- -----------------
Each Fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized institutional
borrowers of securities, provided that cash or equivalent collateral, equal to
at least 100% of the market value of the securities loaned, is continuously
maintained by the borrower with the Fund. During the time portfolio securities
are on loan, the borrower will pay the Fund an amount equivalent to any
dividends or interest paid on such securities, and the Fund may invest the cash
collateral and earn income, or it may receive an agreed upon amount of interest
income from the borrower who has delivered equivalent collateral. These loans
are subject to termination at the option of the Fund or the borrower. Each Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. Each Fund does not have
the right to vote securities on loan, but would terminate the loan
16
<PAGE>
and regain the right to vote if that were considered important with respect to
the investment. The risks of securities lending are similar to those of
repurchase agreements. Each Fund presently does not intend to lend more than 5%
of its portfolio securities at any given time.
Repurchase Agreements
- ---------------------
Repurchase agreements are usually for periods of one week or less, but
may be for longer periods. The Funds will not enter into repurchase agreements
of more than seven days' duration if more than 15% of net assets (with respect
to American Leading Companies and Balanced Trust) or more than 10% of net assets
(with respect to Value Trust, Total Return Trust and Special Investment Trust)
would be invested in such agreements and other illiquid investments. To the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, a Fund might suffer a loss. If
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund could be delayed or limited. However,
each Fund has adopted standards for the parties with whom it may enter into
repurchase agreements, including monitoring by each fund's adviser of the
creditworthiness of such parties which the Fund's Board of Directors believes
are reasonably designed to assure that each party presents no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase agreement.
When a Fund enters into a repurchase agreement, it will obtain as
collateral from the other party securities equal in value to 102% of the amount
of the repurchase agreement (or 100%, if the securities obtained are U.S.
Treasury bills, notes or bonds). Such securities will be held by a custodian
bank or an approved securities depository or book-entry system.
ADDITIONAL TAX INFORMATION
The following is a general summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any federal, state or local taxes that might be applicable to them.
General
- -------
Each Fund intends to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
("Code"). In order to do so, each 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 any net gains
from certain foreign currency transactions) ("Distribution Requirement")
and must meet several additional requirements. For each Fund, these
requirements include the following: (1) at least 90% of the Fund's gross
income each taxable year must be derived from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward currency contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months -- options or futures
contracts (other than those on foreign currencies), or foreign currencies (or
options, futures or forward contracts thereon) that are not directly
related to that Fund's principal business of investing in securities (or
options and futures with respect thereto) ("Short-Short Limitation");
(3) 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, securities of other RICs 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 that Fund's total assets and that does
not represent more than 10% of the issuer's outstanding voting securities;
and (4) at the close of each quarter of the Fund's taxable year, not more than
25% of the value of its total
17
<PAGE>
assets may be invested in the securities (other than U.S. government securities
or the securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax ("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 capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Dividends and interest received by each Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Dividends and Other Distributions
- ---------------------------------
Dividends and other distributions declared by a Fund in December of any
year and payable to its shareholders of record on a date in that month will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 if the distributions are paid by the Fund during the following
January. Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from each Fund's investment company taxable
income (whether paid in cash or reinvested in Fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
for any Fund may not exceed the aggregate dividends received by that Fund for
the taxable year from domestic corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax. Distributions
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss) made by each Fund do not qualify for the
dividends-received deduction.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Passive Foreign Investment Companies
- ------------------------------------
Each Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of that stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
Pursuant to proposed regulations, open-end RICs, such as the Funds,
would be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of such a
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
18
<PAGE>
Options, Futures, Forward Currency Contracts and Foreign Currencies
- -------------------------------------------------------------------
The use of hedging instruments, such as writing (selling) and
purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses each Fund
realizes in connection therewith.
Gains from the dispostition of foreign currencies (except certain gains
that may be excluded by future regulations) -- and gains from options derived by
American Leading Companies or from options, futures and forward currency
contracts derived by Value Trust, Total Return Trust, Special Investment Trust
or Balanced Trust, with respect to its business of investing in securities or
foreign currencies -- will qualify as permissible income under the Income
Requirement. However, income from the disposition of options (other than those
on foreign currencies) (with respect to American Leading Companies) and options
and futures contracts (other than those on foreign currencies) (with respect to
Value Trust, Total Return Trust , Special Investment Trust and Balanced Trust)
will be subject to the Short-Short Limitation if they are held for less than
three months. For Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust, income from the disposition of foreign currencies and options,
futures and forward contracts thereon also will be subject to the Short-Short
Limitation if they are held for less than three months and are not directly
related to a Fund's principal business of investing in securities (or options
and futures with respect thereto). For American Leading Companies, income from
the disposition of foreign currencies that are not directly related to its
principal business of investing in securities (or options with respect thereto)
also will be subject to the Short-Short Limitation if they are held for less
than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures, forward currency contracts and/or
foreign currency positions beyond the time when it otherwise would be
advantageous to do so, in order for it to continue to qualify as a RIC.
Regulated futures contracts and options that are subject to section
1256 of the Code (collectively, "Section 1256 contracts") and are held by a Fund
at the end of each taxable year will be required to be "marked-to-market" for
federal income tax purposes (that is, treated as having been sold at that time
at market value). Any unrealized gain or loss recognized under this
mark-to-market rule will be added to any realized gains and losses on section
1256 contracts actually sold by the Fund during the year, and the resulting gain
or loss will be treated (without regard to the holding period) as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. These rules may
operate to increase the amount of dividends, which will be taxable to
shareholders, that must be distributed to meet the Distribution Requirement and
avoid imposition of the Excise Tax, without providing the cash with which to
make the distributions. Each Fund may elect to exclude certain transactions from
Section 1256, although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income when
distributed to a Fund's shareholders).
When a covered call option written (sold) by a Fund expires, the Fund
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a Fund terminates its obligations under
such an option by entering into a closing transaction, the Fund realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less than (or exceeds) the premium received when the option was
written. When a covered call option written by a Fund is exercised, the Fund is
treated as having sold the underlying security, producing long-term or
short-term capital gain or loss,
19
<PAGE>
depending on the holding period of the underlying security and whether the sum
of the option price received upon the exercise plus the premium received when
the option was written exceeds or is less than the basis of the underlying
security.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each Fund offers two classes of shares, known as Primary Shares and
Navigator Shares. Primary Shares are available from Legg Mason and certain of
its affiliates. Navigator Shares are currently offered for sale only to
Institutional Clients, to qualified retirement plans managed on a discretionary
basis and having net assets of at least $200 million, and to The Legg Mason
Profit Sharing Plan and Trust. Navigator Shares may not be purchased by
individuals directly, but Institutional Clients may purchase shares for Customer
Accounts maintained for individuals. Primary Shares are available to all other
investors.
Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
- ----------------------------------------------------------------------------
If you invest in Primary Shares, the Prospectus for those shares
explains that you may buy Primary Shares through the Future First Systematic
Investment Plan. Under this plan you may arrange for automatic monthly
investments in Primary Shares of $50 or more by authorizing Boston Financial
Data Services ("BFDS"), each Fund's transfer agent, to transfer funds each month
from your checking account to be used to buy Primary Shares at the per share net
asset value determined on the day the funds are sent from your bank. You will
receive a quarterly account statement. You may terminate the Future First
Systematic Investment Plan at any time without charge or penalty. Forms to
enroll in the Future First Systematic Investment Plan are available from any
Legg Mason or affiliated office.
Investors in Primary Shares may also buy Primary Shares through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow the investor, on a pre-authorized basis, to have $50 or
more automatically transferred monthly for investment in shares of a Fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution it is drawn
on, the investor may be subject to extra charges in order to cover collection
costs. These charges may be deducted from the investor's shareholder account.
Systematic Withdrawal Plan
- --------------------------
If you own Primary Shares with a net asset value of $5,000 or more,
you may also elect to make systematic withdrawals from your Fund account of a
minimum of $50 on a monthly basis. The amounts paid to you each month are
obtained by redeeming sufficient shares from your account to provide the
withdrawal amount that you have specified. The Systematic Withdrawal Plan is not
currently available for shares held in an Individual Retirement Account ("IRA"),
Self-Employed Individual Retirement Plan ("Keogh Plan"), 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
Primary Shares' net asset value per share determined as of the close of regular
trading of the New York Stock Exchange ("Exchange") (normally 4:00 p.m., eastern
time) ("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 per
share net asset value determined as of the close of regular trading 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
20
<PAGE>
and other distributions on all Primary Shares in your account must be
automatically reinvested in Primary Shares. You may terminate the Systematic
Withdrawal Plan at any time without charge or penalty. Each Fund, its transfer
agent, and Legg Mason 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 or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and distributions, the
amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund in
which you have an account if you maintain a Systematic Withdrawal Plan, because
you may incur tax liabilities in connection with such purchases and withdrawals.
No Fund will knowingly accept purchase orders from you for additional shares
if you maintain a Systematic Withdrawal Plan unless your purchase is equal
to at least one year's scheduled withdrawals. In addition, if you maintain a
Systematic Withdrawal Plan you may not make periodic investments under the
Future First Systematic Investment Plan.
Other Information Regarding Redemption
- --------------------------------------
The date of payment for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended, by a Fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) 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 (iii) for
such other periods as the SEC by regulation or order may permit for protection
of each 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.
Each Fund reserves the right, under certain conditions, to honor any
request or combination of requests for redemption 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
will be subject to fluctuation in the market price of those securities until
they are sold. Each 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 Fund's shareholders as a whole.
VALUATION OF FUND SHARES
Net asset value of a Fund share is determined daily for each Class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that Class, less liabilities
attributable to that Class, by the number of shares of that Class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
As described in the Prospectuses, securities for which market quotations are
readily available are valued at current market value. Securities traded on an
exchange or NASD National Market System securities are normally valued at last
sale prices. Other over-the-counter securities, and securities traded on
exchanges for which there is no sale on a particular day (including debt
securities), are valued at the mean of latest closing bid and asked prices.
Securities with remaining maturities of 60 days or less are valued at amortized
cost. Securities and other assets quoted in foreign currencies will be valued in
U.S. dollars based on the currency exchange rates prevailing at the time of the
valuation. All other securities are valued at fair value as determined by or
under the direction of the appropriate Fund's Board of Directors. Premiums
received on the
21
<PAGE>
sale of call options are included in the net asset value of each Class, and the
current market value of options sold by a Fund will be subtracted from net
assets of each Class.
PERFORMANCE INFORMATION
The following tables show the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in each Fund at commencement of
operations of each class of Fund shares. The tables assume that all dividends
and other distributions are reinvested in each respective Fund. They include the
effect of all charges and fees applicable to the respective class of shares the
Fund has paid. (There are no fees for investing or reinvesting in the Funds
imposed by the Funds, and there are no redemption fees.) They do not include the
effect of any income tax that an investor would have to pay on distributions.
Performance data is only historical, and is not intended to indicate any Fund's
future performance.
Value Trust:
<TABLE>
<CAPTION>
Primary Shares
- --------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of Income
Fiscal Year Capital Gain Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1983* $16,160 $ 241 $16,401
1984 18,870 555 19,425
1985 23,583 1,100 24,683
1986 32,556 1,954 34,510
1987 35,503 2,421 37,924
1988 32,268 2,461 34,729
1989 37,650 3,459 41,109
1990 39,891 4,399 44,290
1991 37,701 5,313 43,014
1992 44,210 7,204 51,414
1993 50,184 8,819 59,003
1994 52,789 9,548 62,337
1995 57,817 10,610 68,427
1996 82,356 14,870 97,226
1997 110,379 19,502 129,881
</TABLE>
* April 16, 1982 (commencement of operations) to March 31, 1983.
22
<PAGE>
<TABLE>
<CAPTION>
Navigator Shares
- ----------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of Income
Fiscal Year Capital Gain Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1995* $10,805 $ 6 $10,811
1996 15,249 268 15,517
1997 20,886 636 21,522
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1997 would have been $68,220, and the investor would
have received a total of $20,007 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1997 would have
been $18,790, and the investor would have received a total of $1,913 in
distributions. If the Adviser had not waived certain fees in the 1983-1997
fiscal years, returns would have been lower.
Total Return Trust:
<TABLE>
<CAPTION>
Primary Shares
- --------------
Value of Original Shares Plus Value of Shares
Shares Obtained Through Acquired Through
Reinvestment of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1986* $10,780 - $10,780
1987 11,673 $ 211 11,884
1988 10,295 380 10,675
1989 11,690 603 12,293
1990 11,875 846 12,721
1991 11,499 1,216 12,715
1992 13,885 1,830 15,715
1993 16,234 2,605 18,839
1994 16,637 3,064 19,701
1995 16,593 3,482 20,075
1996 21,342 5,194 26,536
1997 26,102 6,890 32,992
</TABLE>
* November 21, 1985 (commencement of operations) to March 31, 1986.
23
<PAGE>
<TABLE>
<CAPTION>
Navigator Shares
- ----------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of Income
Fiscal Year Capital Gain Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1995* $10,203 $ 160 $10,363
1996 13,106 668 13,774
1997 15,989 1,321 17,310
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1997 would have been $19,390, and the investor would
have received a total of $6,320 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1997 would have
been $15,282, and the investor would have received a total of $1,563 in
distributions. If the Adviser had not waived certain fees in the 1986-1995
fiscal years, returns would have been lower.
Special Investment Trust:
<TABLE>
<CAPTION>
Primary Shares
- --------------
Value of Shares
Value of Original Shares Plus Shares Acquired Through
Obtained Through Reinvestment of Reinvestment of Income Total
Fiscal Year Capital Gain Distributions Dividends Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1986* $11,530 - $11,530
1987 13,051 $ 23 13,074
1988 11,107 113 11,220
1989 12,982 144 13,126
1990 14,890 253 15,143
1991 17,777 615 18,392
1992 21,249 905 22,154
1993 23,528 953 24,481
1994 28,511 1,197 29,708
1995 26,707 1,108 27,815
1996 34,291 1,442 35,733
1997 38,345 1,526 39,871
</TABLE>
* December 30, 1985 (commencement of operations) to March 31, 1986.
24
<PAGE>
<TABLE>
<CAPTION>
Navigator Shares
- ----------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of Income
Fiscal Year Capital Gain Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1995* $10,481 - $10,481
1996 13,489 $121 13,610
1997 15,224 129 15,353
</TABLE>
* December 1, 1994 (commencement of operations) to March 31, 1995.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1997 would have been $26,550, and the investor would
have received a total of $6,492 in distributions. With respect to Navigator
Shares, if the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1997 would have
been $14,150, and the investor would have received a total of $1,076 in
distributions. If the Adviser had not waived certain fees in the 1986-1997
fiscal years, returns would have been lower.
American Leading Companies:
<TABLE>
<CAPTION>
Primary Shares
- --------------
Value of Original Shares Plus Value of Shares
Shares Obtained Through Acquired Through
Reinvestment of Capital Gain Reinvestment of
Fiscal Year Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1994* $ 9,690 $ 24 $ 9,714
1995 10,180 140 10,320
1996 12,230 283 12,513
1997 15,242 366 15,608
</TABLE>
* September 1, 1993 (commencement of operations) to March 31, 1994.
<TABLE>
<CAPTION>
Navigator Shares
- ----------------
Value of Original Shares Plus Value of Shares
Shares Obtained Through Acquired Through
Reinvestment of Capital Gain Reinvestment of Income
Fiscal Year Distributions Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1997* $11,428 $88 $11,516
</TABLE>
* October 10, 1996 (commencement of operations) to March 31, 1997.
With respect to Primary Shares, if the investor had not reinvested
dividends and other distributions, the total value of the hypothetical
investment as of March 31, 1997 would have been $14,740, and the investor would
have received a total of $735 in distributions. With respect to Navigator
Shares, if the investor had not
25
<PAGE>
reinvested dividends and other distributions, the total value of the
hypothetical investment as of March 31, 1997 would have been $11,060, and the
investor would have received a total of $444 in distributions. If the Adviser
had not waived certain fees in the 1994-1997 fiscal years, returns would have
been lower.
Balanced Trust:
<TABLE>
<CAPTION>
Primary Shares
- --------------
Value of Original Shares Plus Value of Shares
Shares Obtained Through Acquired Through
Reinvestment of Capital Gain Reinvestment of
Fiscal Year Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------------------------------------------------
<S><C>
1997* $10,160 $42 $10,202
</TABLE>
* October 1, 1996 (commencement of operations) to March 31, 1997.
If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of March 31, 1997 would have
been $10,160, and the investor would have received a total of $43 in
distributions.
The table above is based only on Primary Shares of Balanced Trust. As
of the date of this Statement of Additional Information, Navigator Shares of
Balanced Trust have no performance history of their own.
Total Return Calculations
- -------------------------
Average annual total return quotes used in each Fund's advertising and
other promotional materials ("Performance Advertisements") are calculated
separately for each Class according to the following formula:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of that period
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by a Fund are assumed to have been reinvested
at net asset value on the reinvestment dates during the period.
From time to time each Fund may compare the performance of a Class of
Shares in advertising and sales literature to the performance of other
investment companies, groups of investment companies or various market indices.
One such market index is the S&P 500, a widely recognized, unmanaged index
composed of the capitalization-weighted average of the prices of 500 of the
largest publicly traded stocks in the U.S. The S&P 500 includes reinvestment of
all dividends. It takes no account of the costs of investing or the tax
consequences of distributions. The Funds invest in many securities that are not
included in the S&P 500.
Each Fund may also cite rankings and ratings, and compare the return of
a Class with data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc., Wiesenberger Investment Company Services, Value
Line, Morningstar, and other services or publications that monitor, compare
and/or
26
<PAGE>
rank the performance of investment companies. Each Fund may also refer in such
materials to mutual fund performance rankings, ratings, comparisons with funds
having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, FINANCIAL WORLD, MONEY
Magazine, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES.
Each Fund may compare the investment return of a Class to the return on
certificates of deposit and other forms of bank deposits, and may quote from
organizations that track the rates offered on such deposits. Bank deposits are
insured by an agency of the federal government up to specified limits. In
contrast, Fund shares are not insured, the value of Fund shares may fluctuate,
and an investor's shares, when redeemed, may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit, which remains at a specified rate for a specified period of time,
the return of each Class of Shares will vary.
Fund advertisements may reference the history of the distributor and
its affiliates, the education and experience of the portfolio manager, and the
fact that the portfolio manager engages in value investing. With value
investing, the Adviser invests in those securities it believes to be undervalued
in relation to the long-term earning power or asset value of their issuers.
Securities may be undervalued because of many factors, including market decline,
poor economic conditions, tax-loss selling, or actual or anticipated unfavorable
developments affecting the issuer of the security. The Adviser believes that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total return than securities with prices that appear to reflect
anticipated favorable developments and that are therefore subject to correction
should any unfavorable developments occur.
In advertising, each 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. Each Fund may use other recognized
sources as they become available.
Each Fund may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.
Each Fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.
Each Fund may also include in advertising biographical information on
key investment and managerial personnel.
Each Fund may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should consider
their ability to purchase shares through low price levels.
27
<PAGE>
Each 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 provided a full spectrum of financial
services. Legg Mason affiliates serve as investment advisers for private
accounts and mutual funds with assets of more than $43 billion as of March 31,
1997.
In advertising, each 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.
Lipper Analytical Services, Inc., an independent rating service which
measures the performance of most U.S. mutual funds, reported that Value Trust's
total return of Primary Shares ranked 2 among 2358 general equity funds it
measured during the one year ended June 30, 1997. For the five years ended June
30, 1997, Value Trust's total return ranked 17 among 827 general equity funds
and for the ten years ended June 30, 1997, Value Trust's total return ranked 79
among 471 general equity funds. Of course, there can be no assurance that
results similar to those achieved by Value Trust in the past will be realized in
future periods. Rankings may have been different if the adviser had not waived
certain fees during the periods in question. From time to time, performance
rankings and ratings as reported in national financial publications such as
Money Magazine, Forbes and Barron's may be used in describing Value Trust's
performance.
TAX-DEFERRED RETIREMENT PLANS - PRIMARY SHARES
In general, income earned through the investment of assets of qualified
retirement plans is not taxed to the beneficiaries of such plans until the
income is distributed to them. Primary Share investors who are considering
establishing an IRA, Keogh Plan, SEP, SIMPLE or other qualified retirement plan
should consult their attorneys or other tax advisers with respect to individual
tax questions. The option of investing in these plans with respect to Primary
Shares through regular payroll deductions may be arranged with a Legg Mason or
affiliated financial advisor and your employer. Additional information with
respect to these plans is available upon request from any Legg Mason or
affiliated financial advisor.
Individual Retirement Account -- IRA
- ------------------------------------
Certain Primary Share investors 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 and your adjusted gross income does
not exceed a certain level, each of you may deduct cash contributions made to an
IRA in an amount for each taxable year not exceeding the lesser of 100% of your
earned income or $2,000. 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 permits voluntary
contributions and meets certain requirements, you may make voluntary
contributions to that plan that are treated as deductible IRA contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Primary Shares through IRA
contributions, up to certain limits, because all dividends and other
distributions 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 or where the distribution is rolled over into another
qualified plan or certain other situations.
28
<PAGE>
Self-Employed Individual Retirement Plan -- Keogh Plan
- ------------------------------------------------------
Legg Mason makes available to self-employed individuals a Plan and
Trustee Agreement for a Keogh Plan through which Primary Shares may be
purchased. Primary Share investors have the right to use a bank of their own
choice to provide these services at their own cost. There are penalties for
distributions from a Keogh Plan prior to age 59 1/2, except in the case of death
or disability.
Simplified Employee Pension Plan -- SEP
- ---------------------------------------
Legg Mason makes available to corporate and other employers a SEP for
investment in Primary Shares.
Savings Incentive Match Plan for Employees - SIMPLE
- ---------------------------------------------------
Although a salary reduction SEP, or SARSEP, may no longer be
established, 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, will allow certain employees to make elective
contributions of up to $6,000 per year and will require 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 at the
rate of 10% (depending on the type and amount of the distribution), unless the
recipient elects not to have any withholding apply.
THE FUNDS' DIRECTORS AND OFFICERS
Each Fund's officers are responsible for the operation of the Fund
under the direction of the Board of Directors. The officers and directors of the
Funds and their principal occupations during the past five years are set forth
below. An asterisk (*) indicates officers and/or directors who are "interested
persons" of the Funds as defined by the 1940 Act. The business address of each
officer and director is 111 South Calvert Street, Baltimore, Maryland 21202,
unless otherwise indicated.
RAYMOND A. MASON* [9/28/36], Chairman of the Board and Director of
Value Trust, Total Return Trust and Special Investment Trust; Chairman of the
Board and President of Legg Mason, Inc. (financial services holding company);
Director of Environmental Elements Corporation (manufacturer of pollution
control equipment); Officer and/or Director of various other affiliates of Legg
Mason.
JOHN F. CURLEY, JR.* [7/24/39], President and Director of Value Trust,
Total Return Trust and Special Investment Trust; Chairman of the Board and
Director of the Trust; Vice Chairman and Director of Legg Mason, Inc. and Legg
Mason Wood Walker, Incorporated; 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.; Chairman of the
Board and Director of three Legg Mason funds; Chairman of the Board, President
and Trustee of one Legg Mason fund; Chairman of the Board and Trustee of one
Legg Mason fund.
RICHARD G. GILMORE [6/9/27], Director of each Fund; 948 Kennett Way, West
Chester, Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are engaged in the manufacture
and sale of decorative paper products, business forms, and specialty metal
packaging); Director of PECO Energy Company (formerly Philadelphia Electric
Company); Director/Trustee of five other Legg Mason funds. Formerly: Senior Vice
President and Chief
29
<PAGE>
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.
CHARLES F. HAUGH [12/27/25], Director of each Fund; 14201 Laurel Park
Drive, Suite 104, Laurel, Maryland. Real Estate Developer and Investor;
President and Director of Resource Enterprises, Inc. (real estate brokerage);
Chairman of Resource Realty LLC (management of retail and office space); Partner
in Greater Laurel Health Park Ltd. Partnership (real estate investment and
development); Director/Trustee of five other Legg Mason funds.
ARNOLD L. LEHMAN [7/18/44], Director of each Fund; The Baltimore Museum
of Art, Art Museum Drive, Baltimore, Maryland. Director of the Baltimore Museum
of Art; Director/Trustee of five other Legg Mason funds.
JILL E. McGOVERN [8/29/44], Director of each Fund; 1500 Wilson
Boulevard, Arlington, Virginia. Chief Executive Officer of the Marrow
Foundation. Director/Trustee of five other 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).
T. A. RODGERS [10/22/34], Director of each Fund; 2901 Boston Street,
Baltimore, Maryland. Principal, T. A. Rodgers & Associates (management
consulting); Director/Trustee of five other 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], Director of each Fund; President of
the Trust; Executive Vice President of Legg Mason, Inc. and Legg Mason Wood
Walker, Inc.; Vice Chairman and Director of Legg Mason Fund Adviser, Inc.;
President and Director/Trustee of four Legg Mason funds. Formerly: Executive
Vice President of T. Rowe Price- Fleming International, Inc. (1986-1992) and
Director of the Taxable Fixed Income Division at T. Rowe Price Associates, Inc.
(1973-1992).
The executive officers of the Funds, other than those who also serve as
directors, are:
MARIE K. KARPINSKI* [1/1/49], Vice President and Treasurer of each
Fund; Treasurer of the Adviser; Vice President and Treasurer of six other Legg
Mason funds; Vice President of Legg Mason.
KATHI D. BAIR* [12/15/64], Secretary or Assistant Treasurer or
Assistant Secretary of each Fund; Secretary/Assistant Treasurer/Assistant
Secretary of four other Legg Mason funds.
The Nominating Committee of the Board of Directors is responsible for
the selection and nomination of disinterested directors. The Committee is
composed of Messrs. Haugh, Gilmore, Lehman, Rodgers and Dr. McGovern.
Officers and directors of a Fund who are "interested persons" of the
Fund receive no salary or fees from the Fund. Each Director of a Fund who is not
an interested person of the Fund ("Independent Directors") receives an annual
retainer and a per meeting fee based on the average net assets of each Fund at
December 31, as follows:
December 31 Annual Per Meeting
Avg. Net Assets Retainer Fee
--------------- -------- ---
Up to $250 million $600 $150
$250 mill - $1 bill $1,200 $300
30
<PAGE>
Over $1 billion $2,000 $400
On July 1, 1997, the directors and officers of each Fund beneficially
owned in the aggregate less than 1% of that Fund's outstanding shares.
On July 1, 1997, the Legg Mason Profit Sharing Plan and Trust, 7 East
Redwood Street, Baltimore, MD 21202 owned of record and beneficially the
following percentages of the outstanding shares of the Navigator Classes:
Navigator Class of Value Trust 81.39%
Navigator Class of Total Return Trust 99.53%
Navigator Class of Special Investment Trust 98.73%
On July 1, 1997, Wood County Trust Co, 181 2nd Street South, Wisconsin
Rapids, WI 54494, owned of record and beneficially 13.23% of the outstanding
shares of the Navigator Class of Value Trust.
As of the same date, SMICO & CO, P.O. Box 307, Smith Center, Kansas
66967, owned of record and beneficially 100% of the outstanding shares of the
Navigator Class of American Leading Companies.
The following table provides certain information relating to the
compensation of the Funds' directors for the fiscal year ended March 31, 1997.
None of the Legg Mason funds has any retirement plan for its directors.
COMPENSATION TABLE
- ------------------
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Aggregate Aggregate Compensation Aggregate From Each
Name of Compensation Compensation From Special Compensation Fund and Fund
Person and From Value From Total Investment From Investors Complex Paid to
Position Trust* Return Trust* Trust* Trust* Directors**
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Raymond A.
Mason -
Chairman of the
Board
and Director None None None None None
- ---------------------------------------------------------------------------------------------------------------------
John F. Curley,
Jr. -
President and
Director None None None None None
- ---------------------------------------------------------------------------------------------------------------------
Edward A.
Taber, III -
Director None None None None None
- ---------------------------------------------------------------------------------------------------------------------
Richard G.
Gilmore - $3,600 $2,000 $2,000 $2,000 $23,600
Director
- ---------------------------------------------------------------------------------------------------------------------
Charles F.
Haugh - $3,600 $2,000 $2,000 $2,000 $25,600
Director
- ---------------------------------------------------------------------------------------------------------------------
Arnold L.
Lehman - $3,600 $2,000 $2,000 $2,000 $25,600
Director
- ---------------------------------------------------------------------------------------------------------------------
Jill E.
McGovern - $3,600 $2,000 $2,000 $2,000 $25,600
Director
- ---------------------------------------------------------------------------------------------------------------------
T. A. Rodgers -
Director $3,600 $2,000 $2,000 $2,000 $23,600
</TABLE>
31
<PAGE>
* Represents fees paid to each director during the fiscal year ended March
31, 1997.
** Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1996. There are nine open-end
investment companies in the Legg Mason Complex (with a total of
seventeen funds).
THE FUNDS' INVESTMENT ADVISER/MANAGER
The Adviser, a Maryland Corporation, is located at 111 South Calvert
Street, Baltimore, Maryland 21202. The Adviser is a wholly owned subsidiary of
Legg Mason, Inc., which is also the parent of Legg Mason, Bartlett and LMCM. The
Adviser serves as investment adviser to Value Trust, Total Return Trust and
Special Investment Trust and as manager to American Leading Companies and
Balanced Trust under separate Investment Advisory and Management Agreements with
each Fund ("Advisory Agreement" with respect to Value Trust, Total Return Trust
and Special Investment Trust and "Management Agreement" with respect to American
Leading Companies and Balanced Trust). The Advisory Agreement for Value Trust
originally became effective as of April 19, 1982 and was approved by the
shareholders of Value Trust on July 20, 1984. The Advisory Agreement for Total
Return Trust originally became effective as of August 5, 1985 and was approved
by the shareholders of Total Return Trust on July 17, 1986. The Advisory
Agreement for Special Investment Trust originally became effective as of
December 10, 1985 and was approved by the shareholders of Special Investment
Trust on July 17, 1986. The Management Agreement for American Leading Companies
originally became effective as of August 2, 1993. The Management Agreement for
Balanced Trust became effective on July 31, 1996.
The Advisory Agreement (for Value Trust and Total Return Trust) and the
Management Agreement (for American Leading Companies and Balanced Trust) were
most recently approved by each Fund's Board of Directors, including a majority
of the directors who are not "interested persons" of the Fund or the
Adviser/Manager, on November 15, 1996. On the same date, the Board of Directors
of Special Investment Trust, including a majority of the directors who are not
"interested persons" of the Fund or the Adviser, approved that Fund's
Advisory Agreement subject to an amendment which introduced a breakpoint with
respect to the compensation paid to the Adviser (see below).
Each Advisory Agreement and Management Agreement provides that, subject
to overall direction by the Fund's Board of Directors, the Adviser/Manager
manages or oversees the investment and other affairs of each Fund. The
Adviser/Manager is responsible for managing each Fund consistent with the Fund's
investment objective and policies described in its Prospectuses and this
Statement of Additional Information. The Adviser/Manager also is obligated to
(a) furnish the Fund with office space and executive and other personnel
necessary for the operation of each Fund; (b) supervise all aspects of each
Fund's operations; (c) bear the expense of certain informational and purchase
and redemption services to each Fund's shareholders; (d) arrange, but not pay
for, the periodic updating of prospectuses, proxy material, tax returns and
reports to shareholders and state and federal regulatory agencies; and (e)
report regularly to each Fund's officers and directors. In addition, the Adviser
paid Value Trust's, Total Return Trust's and Special Investment Trust's
organizational expenses and has agreed to reimburse Value Trust and Special
Investment Trust for auditing fees and compensation of those Funds' independent
directors. The Adviser/Manager and its affiliates pay all compensation of
directors and officers of each Fund who are officers, directors or employees of
the Adviser. Each Fund pays all of its expenses which are not expressly assumed
by the Adviser/Manager. These expenses include, among others, interest expense,
taxes, brokerage fees and commissions, expenses of preparing and printing
prospectuses, proxy statements and reports to shareholders and of distributing
them to existing shareholders, custodian charges, transfer agency fees,
distribution fees to Legg Mason, each Fund's distributor, compensation of the
independent directors, legal and audit expenses, insurance expense, shareholder
meetings, proxy solicitations, expenses of registering and qualifying Fund
shares for sale under federal and state law, governmental fees and expenses
incurred in connection with membership in investment company organizations. Each
Fund also is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party. Each Fund may also have an
obligation to indemnify its directors and officers with respect to litigation.
32
<PAGE>
The Adviser/Manager receives for its services to each Fund a management
fee, calculated daily and payable monthly. The Adviser receives from Value Trust
a management fee at an annual rate of 1% of the average daily net assets of that
Fund for the first $100 million of average daily net assets, 0.75% of average
daily net assets between $100 million and $1 billion, and 0.65% of average daily
net assets exceeding $1 billion. The Adviser receives from Total Return Trust a
management fee at an annual rate of 0.75% of the average daily net assets of
that Fund. The Adviser receives from Special Investment Trust a management fee
at an annual rate of 1% of the average daily net assets of that Fund for the
first $100 million of average daily net assets, 0.75% of average daily net
assets between $100 million and $1 billion, and 0.65% of average daily net
assets exceeding $1 billion. The Manager receives from American Leading
Companies and Balanced Trust management fees at an annual rate of 0.75% of the
average daily net assets of each Fund. The Manager has agreed to waive its fees
for Total Return Trust, American Leading Companies and Balanced Trust for
expenses related to Primary Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) in excess of the following amounts: for Total Return
Trust and American Leading Companies, 1.95% of average net assets attributable
to Primary Shares indefinitely; and for Balanced Trust, 1.85% of average net
assets attributable to Primary Shares until July 31, 1998. The Manager has
agreed to waive its fees for Total Return Trust, American Leading Companies and
Balanced Trust for expenses related to Navigator Shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) in excess of the following
amounts: for Total Return Trust and American Leading Companies, 0.95% of average
net assets attributable to Navigator Shares indefinitely; and for Balanced
Trust, 1.10% of average net assets attributable to Navigator Shares until July
31, 1998.
For the fiscal years ended March 31, 1997, 1996 and 1995, management fees
of $13,199,924, $9,588,819 and $7,519,155, respectively were received from Value
Trust; $2,404,297, $1,768,271 and $1,502,358, respectively, were received from
Total Return Trust; and $7,272,943, $5,696,555 and $4,849,166,
respectively, were received from Special Investment Trust.
For the fiscal years ended March 31, 1997, 1996 and 1995, the Manager
received management fees of $643,329 (prior to fees waived of $94,059), $515,120
(prior to fees waived of $170,819) and $431,577 (prior to fees waived of
$94,444), respectively, from American Leading Companies.
For the period October 1, 1996 (commencement of operations) to March 31,
1997, all management fees were waived by the Manager for Balanced Trust.
Under each Advisory Agreement or (with respect to American Leading
Companies and Balanced Trust) Management Agreement, each Fund has the
non-exclusive right to use the name "Legg Mason" until that Agreement is
terminated, or until the right is withdrawn in writing by the Adviser/Manager.
LMCM, 111 South Calvert Street, Baltimore, MD 21202, an affiliate of Legg
Mason, serves as investment adviser to American Leading Companies pursuant to an
Investment Advisory Agreement dated August 2, 1993, between LMCM and the Manager
("Advisory Agreement"). The Advisory Agreement was most recently approved by the
Board of Directors, including a majority of the directors who are not
"interested persons" (as that term is defined in the 1940 Act) of the Trust, the
Adviser or the Manager, on November 15, 1996. The Advisory Agreement was
approved by Legg Mason Fund Adviser, Inc., as the Fund's sole shareholder, on
August 2, 1993.
Under the Advisory Agreement, LMCM is responsible, subject to the general
supervision of the Manager and the Trust's Board of Directors, for the actual
management of the Fund's assets, including responsibility for making decisions
and placing orders to buy, sell or hold a particular security. For LMCM's
services to the Fund, the Manager (not the Fund) pays LMCM a fee, computed daily
and payable monthly, at an annual rate equal to 40% of the fee received by the
Manager from the Fund, net of any waivers by the Manager.
For the fiscal years ended March 31, 1997, 1996 and 1995, the Manager paid
$219,733, $137,720 and $134,853, respectively to LMCM on behalf of the Fund.
33
<PAGE>
Bartlett, 36 East Fourth Street, Cincinnati, Ohio 45202, an affiliate of
Legg Mason, serves as investment adviser to Balanced Trust pursuant to an
Investment Advisory Agreement dated July 31, 1996, between Bartlett and the
Manager ("Advisory Agreement"). The Advisory Agreement was most recently
approved by the Board of Directors, including a majority of the directors who
are not "interested persons" (as that term is defined in the 1940 Act) of the
Trust, Bartlett or the Manager, on November 15, 1996. The Advisory Agreement was
approved by Legg Mason Fund Adviser, Inc., as the Fund's sole shareholder, on
July 31, 1996.
Under the Advisory Agreement, Bartlett is responsible, subject to the
general supervision of the Manager and the Trust's Board of Directors, for the
actual management of the Fund's assets, including responsibility for making
decisions and placing orders to buy, sell or hold a particular security. For
Bartlett's services to the Fund, the Manager (not the Fund) pays Bartlett a fee,
computed daily and payable monthly, at an annual rate equal to 66 2/3% of the
fee received by the Manager from the Fund, net of any waivers by the Manager.
For the period October 1, 1996 (commencement of operations) to March 31,
1997, Bartlett waived its advisory fees on behalf of Balanced Trust.
Under each Advisory Agreement and (with respect to American Leading
Companies and Balanced Trust) Management Agreement, the Adviser/Manager/LMCM/
Bartlett will not be liable for any error of judgment or mistake of law or for
any loss by a Fund in connection with the performance of the Advisory Agreement
or Management 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 of its obligations or
duties under the respective Agreement.
Each Advisory Agreement and (with respect to American Leading Companies and
Balanced Trust) Management Agreement terminates automatically upon assignment
and is terminable at any time without penalty by vote of the respective Fund's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities, or by the Adviser/Manager/LMCM/Bartlett, on not less than 60 days'
notice to the other party to the Agreement, and may be terminated immediately
upon the mutual written consent of all parties to the Agreement.
To mitigate the possibility that a Fund will be affected by personal
trading of employees, each Corporation and the Adviser/Manager 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio turnover rate is computed by dividing the lesser of purchases
or sales of securities for the period by the average value of portfolio
securities for that period. Short-term securities are excluded from the
calculation. For the fiscal years ended March 31, 1997 and 1996, the portfolio
turnover rates for Value Trust were 10.5% and 19.6%, respectively; the portfolio
turnover rates for Total Return Trust were 38.4% and 34.7%, respectively; the
portfolio turnover rates for Special Investment Trust were 29.2% and 35.6%,
respectively; and the portfolio turnover rates for American Leading Companies
were 55.7% and 43.4%, respectively. For the period October 1, 1996 (commencement
of operations) to March 31, 1997, the annualized portfolio turnover rate for
Balanced Trust was 5.1%.
Under the Advisory Agreement with each Fund, each Fund's adviser is
responsible for the execution of the Fund's portfolio transactions and must seek
the most favorable price and execution for such transactions, subject to the
possible payment, as described below, of higher brokerage commissions to brokers
who provide research and analysis. Each Fund may not always pay the lowest
commission or spread
34
<PAGE>
available. Rather, in placing orders for a Fund each Fund's 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.
Consistent with the policy of most favorable price and execution, each
Fund's adviser may give consideration to research, statistical and other
services furnished by brokers or dealers to each Fund's adviser for its use, may
place orders with brokers who provide supplemental investment and market
research and securities and economic analysis and may pay to these brokers a
higher brokerage commission than may be charged by other brokers. Such services
include, without limitation, advice as to the value of securities; the
advisability of investing in, purchasing, or selling securities; advice as to
the availability of securities or of purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Such research and analysis may be useful to each Fund's adviser in connection
with services to clients other than the Fund whose brokerage generated the
service. The Adviser's/LMCM's/Bartlett's fee is not reduced by reason of its
receiving such brokerage and research services.
From time to time each Fund may use Legg Mason as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Legg Mason will not exceed "usual and customary brokerage commissions."
Rule 17e-1 under the 1940 Act defines "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In the over-the-counter
market, each Fund generally deals with responsible primary market-makers unless
a more favorable execution can otherwise be obtained.
For the fiscal years ended March 31, 1997, 1996 and 1995, Legg Mason
received no brokerage commissions from Value Trust, no brokerage commissions
from Total Return Trust, and $0, $16,563 and $0, respectively, from Special
Investment Trust. Value Trust paid total brokerage commissions of $693,443,
$347,670 and $397,268, respectively; Total Return Trust paid total brokerage
commissions of $386,786, $235,364 and $360,860, respectively; and Special
Investment Trust paid total brokerage commissions of $1,066,917, $698,545 and
$883,607, respectively, during the fiscal years ended March 31, 1997, 1996 and
1995.
For the fiscal years ended March 31, 1997, 1996 and 1995, American Leading
Companies paid total brokerage commissions of $120,631, $61,067 and $75,165,
respectively. Legg Mason received no brokerage commissions from American Leading
Companies for the same periods.
For the period October 1, 1996 (commencement of operations) to March 31,
1997, Balanced Trust paid total brokerage commissions of $23,144. Legg Mason
received no brokerage commissions from Balanced Trust for the same period.
Except as permitted by SEC rules or orders, each Fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated persons as
principal. Each Fund's Board of Directors has adopted procedures in conformity
with Rule 10f-3 under the 1940 Act whereby the Fund may purchase securities that
are offered in certain underwritings in which Legg Mason or any of its
affiliated persons is a participant. These procedures, among other things, limit
each Fund's investment in the amount of securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated persons
is a participant so that: (i) a Fund together with all other registered
investment companies having the same adviser, may not purchase more than 4% of
the principal amount of the offering of such class or $500,000 in principal
amount, whichever is greater, but in no event greater than 10% of the principal
amount of the offering; and (ii) the consideration to be paid by a Fund in
purchasing the securities being offered may not exceed 3% of the total assets of
that Fund. In addition, a Fund may not purchase securities during the existence
of an underwriting if Legg Mason is the sole underwriter for those securities.
35
<PAGE>
Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg Mason
from executing transactions on an exchange for its affiliates, such as the
Funds, unless the affiliate expressly consents by written contract. Each Fund's
Advisory Agreement expressly provides such consent.
Among the broker-dealers regularly used by each respective Fund during the
fiscal year ended March 31, 1997, Value Trust at that date owned shares of the
following parent companies: 1,654,000 shares of The Bear Stearns Companies, Inc.
at a market value of $43,411,000; Total Return Trust at that date owned shares
of the following parent companies: 407,000 shares of The Bear Stearns Companies,
Inc. at a market value of $10,677,000; Special Investment Trust at that date
owned shares of the following parent companies: 551,000 shares of The Bear
Stearns Companies, Inc. at a market value of $14,470,000; American Leading
Companies at that date owned shares of the following parent companies: 18,000
shares of J.P. Morgan & Co. Incorporated at a market value of $1,769,000; and
Balanced Trust at that date owned shares of the following parent companies:
6,000 shares of Salomon, Inc. at a market value of $289,000.
Investment decisions for each Fund are made independently from those of
other funds and accounts advised by the Adviser, LMCM or Bartlett. 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 FUNDS' DISTRIBUTOR
Legg Mason acts as distributor of the Funds' shares pursuant to a separate
Underwriting Agreement with each Fund. The Underwriting Agreement obligates Legg
Mason to promote the sale of Fund shares and to pay certain expenses in
connection with its distribution efforts, including expenses for the printing
and distribution of prospectuses and periodic reports used in connection with
the offering to prospective investors (after the prospectuses and reports have
been prepared, set in type and mailed to existing shareholders at the Fund's
expense), and for supplementary sales literature and advertising costs.
Fairfield Group, Inc., a wholly owned subsidiary of Legg Mason, Inc., with
principal offices at 200 Gibraltar Road, Horsham, Pennsylvania, may act as a
dealer for Navigator Shares pursuant to a Dealer Agreement with Legg Mason.
Neither Legg Mason nor Fairfield receives any compensation from any Fund for its
activities in selling Navigator Shares.
Each 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 Primary Shares and the provision
of ongoing services to Primary Class shareholders. Payments are made only from
assets attributable to Primary Shares. Under the Plans, the aggregate fees may
not exceed an annual rate of each Fund's average daily net assets attributable
to Primary Shares as follows: 1.00% for Total Return Trust, Special Investment
Trust and American Leading Companies; 0.75% for Balanced Trust and 0.95% for
Value Trust. Distribution activities for which such payments may be made
include, but are not limited to, compensation to persons who engage in or
support distribution and redemption 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,
all with respect to Primary Shares only.
The Plan was most recently approved by the shareholders of Value Trust on
July 20, 1984 and on July 17, 1986 for both the Total Return Trust and Special
Investment Trust. The Plan was approved by Legg Mason Fund Adviser, Inc., as
sole shareholder of American Leading Companies, on August 2, 1993. The Plan has
been amended, effective July 1, 1993, to make clear that, of the aggregate 1.00%
fees with respect to Total Return Trust, Special Investment Trust and American
Leading Companies, 0.75% is paid for distribution services and 0.25% is paid for
ongoing services to shareholders; with respect to Balanced Trust,
36
<PAGE>
0.50% is paid for distribution services and 0.25% is paid for ongoing services
to shareholders; and with respect to Value Trust, 0.70% is paid for distribution
services and 0.25% is paid for ongoing services to shareholders. The amendments
also specify that each Fund may not pay more in cumulative distribution fees
than 6.25% of total new gross assets attributable to Primary Shares, plus
interest, as specified in the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. ("NASD"). Legg Mason may pay all or a portion of the
fee to its investment executives. Continuation of the Plans was most recently
approved on November 15, 1996 by the Board of Directors of each respective Fund
including a majority of the directors who are not "interested persons" of each
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 Directors").
With respect to Primary Shares, Legg Mason has also agreed to waive its
fees for Total Return Trust, American Leading Companies and Balanced Trust as
described under "The Funds' Investment Adviser/Manager."
In approving the continuation of the Plan, in accordance with the
requirements of Rule 12b-1, the directors determined that there was a reasonable
likelihood that each Plan would benefit the respective Fund and its Primary
Class shareholders. The directors considered, among other things, the extent to
which the potential benefits of the Plan to the Fund's Primary Class
shareholders could outweigh 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 each Fund's Primary Shares would be likely to
maintain or increase the amount of compensation paid by that Fund to the
Adviser/Manager.
In considering the costs of the Plans, the directors gave particular
attention to the fact that any payments made by a Fund to Legg Mason under the
Plan would increase the Fund's level of expenses in the amount of such payments.
Further, the directors recognized that the Adviser/Manager would earn greater
management fees if a Fund's assets were increased, because such fees are
calculated as a percentage of a Fund's assets and thus would increase if net
assets increase. The directors further recognized that there can be no assurance
that any of the potential benefits described below would be achieved if the
Plans were implemented.
Among the potential benefits of the Plans, the directors 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
each Fund's Primary Shares and to maintain and enhance the level of services
they provide to each Fund's Primary Class shareholders. These efforts, in turn,
could lead to increased sales and reduced redemptions, eventually enabling each
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 each Fund in connection with its Plan.
Furthermore, the investment management of each Fund could be enhanced, as net
inflows of cash from new sales might enable its portfolio manager to take
advantage of attractive investment opportunities, and reduced redemptions could
eliminate the potential need to liquidate attractive securities positions in
order to raise the funds necessary to meet the redemption requests.
Each 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 Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. Each Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting Primary Shares. Any change in a Plan that would materially increase the
distribution cost to a Fund requires shareholder approval; otherwise the Plan
may be amended by the directors, including a majority of the 12b-1 Directors, as
previously described.
In accordance with Rule 12b-1, each Plan provides that Legg Mason will
submit to the Fund's Board of Directors, and the directors 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
37
<PAGE>
in effect, the selection and nomination of the Independent Directors will be
committed to the discretion of such Independent Directors.
For the fiscal years ended March 31, 1997, 1996 and 1995, Value Trust paid
Legg Mason $16,863,796, $11,760,195 and $8,917,520, respectively in distribution
and service fees under the Plan, from assets attributable to Primary Shares. For
the same fiscal years, Total Return Trust paid Legg Mason 3,120,818, $2,297,095
and $1,964,257, respectively; Special Investment Trust paid Legg Mason
$8,965,838, $6,955,948 and $5,917,557, respectively; and American Leading
Companies paid Legg Mason $857,522, $686,826 and $575,436, respectively, in
fees under the Plan. For the period October 1, 1996 (commencement of operations)
to March 31, 1997, Balanced Trust paid distribution and service fees of $45,587
(prior to fees waived of $26,398).
During the year ended March 31, 1997, Legg Mason incurred the following
expenses with respect to Primary Shares:
<TABLE>
<CAPTION>
Special American
Total Return Investment Leading Balanced
Value Trust Trust Trust Companies Trust
-------------------------------------------------------------------
<S><C>
Compensation to sales $11,209,000 $2,012,000 $5,861,000 $556,000 $18,000
personnel
Advertising 121,000 16,000 22,000 23,000 1,000
Printing and mailing of
prospectuses to
prospective
shareholders 138,000 58,000 81,000 72,000 12,000
Other 3,002,000 835,000 2,541,000 370,000 16,000
-------------------------------------------------------------------
Total expenses $14,470,000 $2,921,000 $8,505,000 $1,021,000 $47,000
===================================================================
</TABLE>
The foregoing are estimated and do not include all expenses fairly
allocable to Legg Mason's or its affiliates' efforts to distribute Primary
Shares.
THE FUNDS' CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105, serves as custodian of each Fund's assets. Boston Financial
Data Services, P.O. Box 953, Boston, Massachusetts 02103, serves as transfer and
dividend-disbursing agent, and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from BFDS for its services. Shareholders who request an
historical transcript of their account will be charged a fee based upon the
number of years researched. Each Fund reserves the right, upon 60 days' written
notice, to make other charges to investors to cover administrative costs.
THE FUNDS' LEGAL COUNSEL
Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W., Washington, D.C.
20036, serves as counsel to each Fund.
THE FUNDS' INDEPENDENT ACCOUNTANTS/AUDITORS
Coopers & Lybrand L.L.P., 217 East Redwood Street, Baltimore, Maryland
21202, has been selected by the Directors to serve as independent accountants
for Value Trust, Total Return Trust and Special Investment Trust. Ernst & Young
LLP, One North Charles Street, Baltimore, Maryland 21201, has been
38
<PAGE>
selected by the Directors to serve as independent auditors for American Leading
Companies and Balanced Trust.
FINANCIAL STATEMENTS
The Statement of Net Assets as of March 31, 1997; the Statements of
Operations for the year ended March 31, 1997; the Statements of Changes in Net
Assets for the years ended March 31, 1997 and 1996; the Financial Highlights for
all periods; the Notes to Financial Statements and the Report of the Independent
Accountants, each with respect to Value Trust, Total Return Trust and Special
Investment Trust, are included in the combined annual report for the year ended
March 31, 1997, and are hereby incorporated by reference in this Statement of
Additional Information.
The Statement of Net Assets as of March 31, 1997; the Statements of
Operations for the year ended March 31, 1997; the Statements of Changes in Net
Assets for the years ended March 31, 1997 and 1996 (with respect to American
Leading Companies) and for the period October 1, 1996 (commencement of
operations) to March 31, 1997 (with respect to Balanced Trust); the Financial
Highlights for all periods; the Notes to Financial Statements and the Report of
the Independent Auditors, each with respect to American Leading Companies and
Balanced Trust, are included in the combined annual report for the year ended
March 31, 1997, and are hereby incorporated by reference in this Statement of
Additional Information.
39
<PAGE>
Appendix A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc. ("Moody's") corporate bond
ratings:
- -------------------------------------------------------------------------
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 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 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.
Description of Standard & Poor's ("S&P") corporate bond ratings:
- ----------------------------------------------------------------
AAA-This is the highest rating assigned by S&P to an obligation and
indicates an extremely strong capacity to pay principal and interest.
40
<PAGE>
AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC-Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
41
<PAGE>
Table of Contents
Page
----
Additional Information About
Investment Limitations and Policies
Additional Tax Information
Additional Purchase and Redemption
Information
Valuation of Fund Shares
Performance Information
Tax-Deferred Retirement Plans
The Funds' Directors and Officers
The Funds' Investment Adviser/Manager
Portfolio Transactions and Brokerage
The Funds' Distributor
The Funds' Custodian and Transfer and
Dividend-Disbursing Agent
The Funds' Legal Counsel
The Funds' Independent Accountants/Auditors
Financial Statements
Appendix A
No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by any Fund or its distributor. The Prospectuses
and the Statement of Additional Information do not constitute offerings by the
Funds or by the distributor in any jurisdiction in which such offerings may not
lawfully be made.
Legg Mason Wood Walker, Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
P.O. Box 1476
Baltimore, Maryland 21203-1476
(410)539-0000 (800)822-5544
<PAGE>
Legg Mason Value Trust, Inc.
Part C. Other Information
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements: The financial statements of Legg Mason
Value Trust, Inc. for the year ended March 31, 1997 and the
report of the independent accountants thereon are incorporated
into the Fund's Statement of Additional Information (Part B)
by reference to the Annual Report to Shareholders for the same
period. The Fund's Financial Data Schedule appears as Exhibit
27.
(b) Exhibits
(1) (a) Charter -- filed herewith
(b) Amendment to Charter (dated April 24, 1992) -- filed
herewith
(c) Articles Supplementary (dated August 1, 1994) --
filed herewith
(2) (a) By-Laws as Amended and Restated -- filed herewith
(b) Amendment to By-Laws (effective February 19, 1992) --
filed herewith
(3) Voting Trust Agreement - none
(4) Specimen Security -- not applicable
(5) (a) Investment Advisory and Management Agreement --filed
herewith
(6) (a) Amended Underwriting Agreement(1)
(b) Dealer Agreement with respect to Navigator Shares(1)
(7) Bonus, profit sharing or pension plans - none
(8) Custodian Agreement -- filed herewith
(a) Addendum dated February 9, 1988 -- filed herewith
(b) Addendum dated February 25, 1988 --filed herewith
(c) Addendum dated August 12, 1988 -- filed herewith
(d) Addendum dated May 28, 1996 -- filed herewith
(9) Transfer Agency and Service Agreement -- filed
herewith
(10) Opinion of Counsel -- filed herewith
(11) Other opinions, appraisals, rulings and consents -
Accountant's consent -- filed herewith
(12) Financial statements omitted from Item 23 - none
(13) Agreements for providing initial capital -- filed
herewith
(14) (a) Prototype IRA Plan(2)
(b) Prototype Corporate Simplified Employee
Pension Plan(2)
(c) Prototype Keogh Plan(2)
(15) Amended Plan pursuant to Rule 12b-1(1)
(16) Schedule for Computation of Performance Quotations
-- filed herewith
(17) Financial Data Schedule -- filed herewith as
Exhibit 27
(18) Plan Pursuant to Rule 18f-3 -- none
- ------------
(1) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 22 to the initial Registration Statement, SEC File No.
2-75766, filed July 31, 1996.
<PAGE>
(2) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 12 to the initial Registration Statement, SEC File No.
2-75766.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class (as of July 15, 1997)
- -------------- ---------------------
Shares of Capital Stock,
($.001 par value)
Legg Mason Value Trust, Inc. -
Primary Shares 127,151
Navigator Value Trust 23
Item 27. Indemnification
---------------
Article SEVENTH of the Registrant's Articles of Incorporation provides
that: "The Corporation shall indemnify its present and past directors, officers,
employees, and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or enterprise, to the maximum
extent permitted by applicable law, in such manner as may be provided in the
ByLaws; provided, that no director, officer, investment adviser or principal
underwriter of the Corporation shall be indemnified against any liability to the
Corporation or its stockholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Corporation may purchase
insurance against any liability which may be asserted against or incurred by any
director or officer in such capacity or arising out of his status as such
(whether or not indemnification with respect to such liability is permitted
under these Articles of Incorporation or any provision of law), as the Board of
Directors may determine."
Article VIII of the Registrant's By-laws provides: "The Corporation
shall indemnify its past and present Directors, officers, employees, and agents,
and persons who are serving or have served at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or enterprise, to the maximum extent provided and allowed
by Md. Corp. and Assns. Code ss.2-418, as amended from time to time."
"Notwithstanding anything herein to the contrary, no director, officer,
investment adviser or principal underwriter of the Corporation shall be
indemnified for any liability, whether or not there is an adjudication of
liability, arising by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office or in performance of its contract. Subject to the limitation of any
applicable law, the determination of whether or not there has been such
disabling conduct may be determined by (1) a final decision on the merits by a
court or other body before whom the proceeding was brought that such
<PAGE>
person to be indemnified was not liable by reason of such disabling conduct, or
(2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that such person to be indemnified was not liable by
reason of such disabling conduct, by (i) the vote of a majority of a quorum of
directors who are neither "interested persons", as defined in the Investment
Company Act of 1940 ("disinterested directors") nor parties to the proceeding,
or (ii) whether or not such quorum is obtainable, if a majority of a quorum
of disinterested directors so directs, by an independent legal counsel in a
written opinion."
"Notwithstanding anything herein to the contrary, no expenses
(including attorneys' fees) incurred by the Corporation's Directors and officers
in any pending proceeding shall be paid by the Corporation in advance unless
such person to be indemnified, or someone on his behalf, undertakes to repay the
advance unless it is ultimately determined that he is entitled to
indemnification and (1) such person provides security for his undertaking, (2)
the Corporation is insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of the disinterested directors who are
not parties to the proceeding, or an independent legal counsel (chosen by a
majority of a quorum of disinterested directors) in a written opinion, shall
determine, based upon a review of readily available facts, that there is reason
to believe that such person will ultimately be entitled to indemnification."
Pursuant to the Registrant's agreement with its principal underwriter,
the Registrant has agreed to indemnify the underwriter from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which it or any controlling person may
incur, under the Investment Company Act of 1940, or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registrant's registration statement or prospectus
or arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading; provided, however, that the indemnity agreement,
to the extent that it might require indemnity of any person who is a controlling
person and who is also a director of the Registrant, may not inure to the
benefit of such person unless a court of competent jurisdiction shall determine,
or it shall have been determined by controlling precedent, that such result
would not be against public policy as expressed in the Investment Company Act of
1940; and further provided that in no event shall anything contained in the
indemnity agreement be so construed as to protect the underwriter against any
liability to the Registrant or its security holders to which the underwriter
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its reckless
disregard of any obligations and duties under the underwriting agreement.
Pursuant to the Registrant's agency agreement with State Street Bank
and Trust Company ("State Street"), as transfer and dividend disbursing agent,
the Registrant has agreed to indemnify and hold State Street harmless from all
loss, cost, damage and expense, including reasonable expenses for counsel,
incurred by it in the performance of its duties under the agency agreement, or
the functions of transfer agent and dividend disbursing agent, or as a result of
acting upon any instruction believed by it to have been executed by a duly
authorized officer of the Registrant; provided, that this indemnification shall
not apply to actions or omissions of State Street in cases of its own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Manager and Investment
Adviser
--------------------------------------------------------
I. Legg Mason Fund Adviser, Inc. ("Adviser"), the Registrant's investment
adviser, is a registered investment adviser incorporated on January 20, 1982.
The Adviser is engaged primarily in the investment advisory business. The
Adviser serves as investment adviser or manager to seventeen open-end
investment companies or portfolios. Information as to the officers and
directors of the Adviser is included in its Form ADV filed on June 28, 1996
with the Securities and Exchange Commission (registration number 801-16958)
and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Legg Mason Cash Reserve Trust
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Western Asset Trust, Inc.
(b) The following table sets forth information concerning each
director and officer of the Registrant's principal
underwriter, Legg Mason Wood Walker, Incorporated ("LMWW").
Position and Positions and
Name and Principal Offices with Offices with
Business Address* Underwriter - LMWW Registrant
- ------------------ ------------------ -------------
<PAGE>
Raymond A. Mason Chairman of the Chairman of the
Board Board and
Director
John F. Curley, Jr. Vice Chairman President and
of the Board Director
James W. Brinkley President and None
Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive Vice None
President and
Director
Edward A. Taber III Senior Executive Vice Director
President and
Director
Robert A. Frank Executive Vice None
President and
Director
Robert G. Sabelhaus Executive Vice None
President and
Director
Charles A. Bacigalupo Senior Vice None
President,
Secretary and
Director
Thomas M. Daly, Jr. Senior Vice None
President and
Director
Jerome M. Dattel Senior Vice None
President and
Director
Robert G. Donovan Senior Vice None
President and
Director
Thomas E. Hill Senior Vice None
One Mill Place President and
Easton, MD 21601 Director
<PAGE>
Arnold S. Hoffman Senior Vice None
1735 Market Street President and
Philadelphia, PA 19103 Director
Carl Hohnbaum Senior Vice None
24th Floor President and
Two Oliver Plaza Director
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Laura L. Lange Senior Vice None
President and
Director
Marvin H. McIntyre Senior Vice None
1747 Pennsylvania President and
Avenue, N.W. Director
Washington, D.C. 20006
Mark I. Preston Senior Vice None
President and
Director
F. Barry Bilson Senior Vice None
President and
Director
M. Walter D'Alessio, Jr. Director None
1735 Market Street
Philadelphia, PA 19103
Harry M. Ford, Jr. Senior Vice None
President
William F. Haneman, Jr. Senior Vice None
One Battery Park Plaza President
New York, New York 10005
Theodore S. Kaplan Senior Vice None
President and
General Counsel
Horace M. Lowman, Jr. Senior Vice None
President and
Asst. Secretary
Seth J. Lehr Senior Vice None
1735 Market St. President
Philadelphia, PA 19103
<PAGE>
Robert L. Meltzer Senior Vice None
One Battery Park Plaza President
New York, NY 10004
John A. Pliakas Senior Vice None
99 Summer Street President
Boston, MA 02101
Gail Reichard Senior Vice None
7 E. Redwood St. President
Baltimore, MD 21202
Timothy C. Scheve Senior Vice None
President and
Treasurer
Elisabeth N. Spector Senior Vice None
President
Joseph Sullivan Senior Vice None
President
Cheryl Allen Vice President None
221 West Sixth St.
Austin, TX 78701
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Andrew J. Bowden Vice President None
D. Stuart Bowers Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Edwin J. Bradley, Jr. Vice President None
Scott R. Cousino Vice President None
John R. Gilner Vice President None
Terrence R. Duvernay Vice President None
1100 Poydras St.
New Orleans, LA 70163
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
<PAGE>
Edward W. Lister, Jr. Vice President None
Marie K. Karpinski Vice President Vice President
and Treasurer
Anne S. Morse Vice President None
1735 Market St.
Philadelphia, PA 19103
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Jonathan M. Pearl Vice President None
1777 Reisterstown Rd.
Pikesville, MD 21208
Douglas F. Pollard Vice President None
Carl W. Riedy, Jr. Vice President None
Robert W. Schnakenberg Vice President None
1111 Bagby St.
Houston, TX 77002
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris Scitti Vice President None
7 E. Redwood St.
Baltimore, MD 21202
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Alexsander M. Stewart Vice President None
One World Trade Center
New York, NY 10048
F. James Tennies Vice President, None
Asst. Secretary &
Asst. General Counsel
Robert S. Trio Vice President None
1747 Pennsylvania Ave.
Washington, DC 20006
Lewis T. Yeager Vice President None
7 E. Redwood St.
Baltimore, MD 21202
<PAGE>
Joseph F. Zunic Vice President None
- -----------
* All addresses are 111 South Calvert 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 30. Location of Accounts and Records
--------------------------------
State Street Bank and Trust Company
P. O. Box 1713
Boston, Massachusetts 02105
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
Registrant hereby undertakes to provide each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Value Trust, Inc.
certifies that it meets all the requirements for effectiveness in this
Post-Effective Amendment No. 24 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 Maryland, on the 28th day of
July, 1997.
LEGG MASON VALUE TRUST, INC.
by: /s/ John F. Curley, Jr.
-----------------------
John F. Curley, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 24 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
- --------- ----- ----
/s/ Raymond A. Mason Chairman of the Board July 28, 1997
- -------------------- and Director
Raymond A. Mason
/s/ John F. Curley, Jr. President and Director July 28, 1997
- -----------------------
John F. Curley, Jr.
/s/ Edward A. Taber, III Director July 28, 1997
- ------------------------
Edward A. Taber, III
/s/ Richard G. Gilmore* Director July 28, 1997
- -----------------------
Richard G. Gilmore
/s/ Charles F. Haugh* Director July 28, 1997
- ---------------------
Charles F. Haugh
/s/ Arnold L. Lehman* Director July 28, 1997
- ---------------------
Arnold L. Lehman
/s/ Jill E. McGovern* Director July 28, 1997
- ---------------------
Jill E. McGovern
/s/ T. A. Rodgers* Director July 28, 1997
- ------------------
T.A. Rodgers
/s/ Marie K. Karpinski Vice President July 28, 1997
- ---------------------- and Treasurer
Marie K. Karpinski
*Signatures affixed by Marie K. Karpinski pursuant to powers of attorney, dated
May 18, 1992, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director of Legg Mason Value Trust, Inc. (the
"Fund") hereby severally constitute and appoint Marie K. Karpinski, Arthur J.
Brown, and Dana L. Platt and each of them singly my true and lawful
attorney-in-fact, with full power of substitution, and with full power to sign
for me and in my name in the appropriate capacity, any and all Post-Effective
Amendments to the Fund's registration statement, any registration statements on
Form N-14, any supplements or other instruments in connection therewith, 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,
and all related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
Signature Date
- --------- ----
/s/ Richard G. Gilmore May 18, 1992
- ----------------------
Richard G. Gilmore
/s/ Charles F. Haugh May 18, 1992
- --------------------
Charles F. Haugh
/s/ Arnold L. Lehman May 18, 1992
- --------------------
Arnold L. Lehman
/s/ Jill E. McGovern May 18, 1992
- --------------------
Jill E. McGovern
/s/ T. A. Rodgers May 18, 1992
- -----------------
T. A. Rodgers
ARTICLES OF INCORPORATION
OF
LEGG MASON VALUE TRUST, INC.
FIRST: I, Richard J. Himelfarb, whose post office address is 100 South
Charles Street, Baltimore, Maryland 21201, being more than eighteen years of
age, do under any by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, associate myself as incorporator with
the intention of forming a corporation.
SECOND: Name. The name of the corporation (hereinafter called the
"Corporation") is LEGG MASON VALUE TRUST, INC.
THIRD: Corporate Purposes. The purposes for which the Corporation is
formed and the business or objects to be transacted, carried on and promoted by
it, are as follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise, sell, assign,
negotiate, transfer, lend, trade in, deal in, pledge, exchange or
otherwise dispose of or turn to account or realize upon, Securities
(which term "Securities: shall for the purposes of this Article,
without limitation of the generality thereof, be deemed to include any
stocks, shares, bonds, debentures, notes, bills, or other evidence of
indebtedness, negotiable or non-negotiable instruments, certificates of
deposit, bankers' acceptances, fixed time deposits, letters of credit,
commercial paper, finance paper, repurchase and reverse repurchase
agreements, mortgages or other obligations, and any certificates,
receipts, warrants, options or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein or with respect
thereto, or in any property or assets) created or issued by any
persons, firms, associations, partnerships, corporations, syndicates,
banks, savings
<PAGE>
institutions, combinations, organizations, governments, or
subdivisions, agencies, or instrumentalities thereof; and to exercise,
as owner or holder of any Securities, all rights, powers and privileges
in respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of any
and all Securities;
(2) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise) any
property, real or personal, and any interest therein;
(3) To borrow money and issue notes or other evidences of
indebtedness;
(4) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions, for such purposes and for
such amount or kind of consideration (including, without limitation
thereof, Securities), as its Board of Directors may determine and
without the need for stockholder approval, and as now or hereafter
permitted by the laws of Maryland and by these Articles of
Incorporation; provided, however, that the consideration per share to
be received by the Corporation upon the sale of any shares of its
capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time as of which the computation
of such net asset value shall be made in accordance with the provisions
of Article NINTH;
(5) To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its capital stock, in
any manner and to the extent now or hereafter permitted by the laws of
Maryland and by these Articles of Incorporation;
(6) To conduct its business in all its branches and exercise
any or all of its corporate rights and powers at one or more offices in
Maryland and elsewhere in any part of the world, without restriction or
limit as to extent;
- 2 -
<PAGE>
(7) to do any and all such further acts and things and to
exercise any and all such further powers as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to,
or inference from, the terms of any other clause of this or any other
Article of these Articles of Incorporation, and shall each be regarded
as independent, and construed as powers as well as objects and
purposes, and the enumeration of specific purposes, objects and powers
shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Corporation now or
hereafter conferred by the laws of Maryland.
FOURTH: Address and Resident Agent: The post office address of the
place at which the principal office of the Corporation in the State of Maryland
will be located is 7 East Redwood Street, Baltimore, Maryland 21203.
The Corporation's resident agent is Charles A. Bacigalupo, 7 East
Redwood Street, Baltimore, Maryland 21203. Said resident agent is a citizen of
the State of Maryland and actually resides therein.
FIFTH: Capital Stock. (1) The total number of shares of capital stock
which the Corporation shall have authority to issue is 100,000,000 shares of
common Stock, of the par value of one tenth of one cent ($0.001) per share and
of the aggregate par value of $100,000.00. The Board of Directors of the
Corporation is authorized to classify or reclassify any unissued stock of the
Corporation from time to time by setting or changing the preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of such stock.
(2) (a) At all meetings of stockholders each
stockholder of the Corporation shall be entitled to one vote for each
share of stock standing in his name on the books of the Corporation on
the date, fixed in accordance with the By-Laws, for determination of
stockholders entitled to vote at such meeting. Any fractional share
shall carry proportionately all the rights of a whole share, including
the right to vote and the right to
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<PAGE>
receive dividends. The presence in person or by proxy of the holders of
one-third of the shares of capital stock of the Corporation outstanding
and entitled to vote thereat shall constitute a quorum at any meeting
of the shareholders. If at any meeting of the shareholders there shall
be less than a quorum present, the shareholders present at such meeting
may, without further notice, adjourn the same from time to time until a
quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted
had the meeting not been adjourned.
(b) Each holder of the capital stock of the
Corporation, upon request to the Corporation in such form as the Board
of Directors may determine, accompanied by surrender of any stock
certificate or certificates which may have been issued for such stock,
in proper form for transfer, shall be entitled to require the
Corporation to redeem all or any part of the shares of capital stock
standing in the name of such holder on the books of the Corporation, at
the net asset value of such shares. The method of computing such net
asset value, the time as of which such net asset value shall be
computed and the time within which the Corporation shall make payment
therefor shall be determined as hereinafter provided in Article NINTH
of these Articles of Incorporation. Notwithstanding the foregoing, the
Board of Directors of the Corporation may suspend the right of the
holders of the capital stock of the Corporation to require the
Corporation to redeem shares of such capital stock
(i) for any period (A) during which the New
York Stock Exchange is closed other than the customary weekend
and holiday closings, or (b) during which trading on the New
York Stock Exchange is restricted;
(ii) for any period during which an
emergency, as defined by rules of the Securities and Exchange
Commission or any successor thereto, exists as a result of
which (A) disposal by the
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<PAGE>
Corporation of securities owned by it is not reasonably
practicable, or (B) it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets;
or
(iii) for such other periods as the
Securities and Exchange Commission or any successor thereto
may order permit for the protection of security holders of the
Corporation.
(c) The Corporation shall have the right to require
the redemption of all shares of capital stock owned or held by any one
stockholder and having an aggregate per share net asset value, as
determine at any time, of $500.00 or less; provided, that the
Corporation shall give any such stockholder at least 60 days' notice of
the effective date of such redemption. If, prior to the effective date
of such redemption, the aggregate per share net asset value of the
shares owned or held by such stockholder shall increase to $500.00 or
more, the redemption shall automatically be cancelled.
(d) The Corporation shall also have the right to
require the redemption of any shares of capital stock, or to reject any
order for the purchase of shares or refuse to give effect on the
Corporation's books to the transfer of its shares, if at any time or
times, in the opinion of the Board of Directors, the concentration in
the ownership of the Corporation's shares of capital stock might cause
the Corporation to be deemed a personal holding company within the
meaning of the Internal Revenue Code, as then in effect.
(e) All shares of the capital stock of the
Corporation now or hereafter authorized shall be subject to redemption
and be redeemable, in the sense used in the General Law of the State of
Maryland authorizing the formation of corporations, at the redemption
price for any such shares, determined in the manner set out in these
Articles of Incorporation or in any amendment thereto. In the
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<PAGE>
absence of any specification by the Board of Directors as to the
purposes for which shares of the capital stock of the Corporation are
redeemed or repurchased by it, all shares so redeemed or repurchased
shall be deemed to be acquired for retirement in the sense contemplated
by the laws of the State of Maryland and the number of the authorized
shares of the capital stock of the Corporation shall not be reduced by
the number of any shares redeemed or repurchased by it.
(3) Notwithstanding any provision of the laws of Maryland
requiring a greater proportion than a majority of the votes of all
classes or of any class of stock entitled to be cast, to take or
authorize any action, any such action may nevertheless be taken or
authorized upon the concurrence of a majority of the aggregate of the
votes entitled to be cast thereon by the stockholders of the
Corporation and any action taken or authorized in accordance with this
provision of this Article FIFTH shall be valid and effective.
(4) No holder of stock of the Corporation shall, as such
holder, have any right to purchase or subscribe for any shares of the
capital stock of the Corporation of any class which it may issue or
sell (whether out of the number of shares authorized by these Articles
of Incorporation, or out of any shares of the capital stock of the
Corporation acquired by it after the issue thereof, or otherwise) or
for any obligations convertible into any such stock, other than such
right, if any, as the Board of Directors, in its discretion, may
determine.
(5) All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
SIXTH: Board of Directors. The number of directors of the Corporation
shall be three, and the names of those who shall act as such until the first
annual meeting of stockholders or until their successors are duly chosen and
qualified are as follows:
Raymond A. Mason
Edmund J. Cashman
Kenneth S. Battye
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<PAGE>
However, the By-Laws of the Corporation may fix the number of
directors at a number greater than that named in these Articles of Incorporation
and may authorize the Board of Directors, by the vote of a majority of the
entire Board of Directors, to increase or decrease the number of directors fixed
by these Articles of Incorporation or by the By-Laws within a limit specified in
the By-Laws, provided that in no case shall the number of directors be less than
three, and to fill the vacancies created by any such increase in the number of
directors. Unless otherwise provided by the By-Laws of the Corporation, the
directors of the Corporation need not be stockholders therein.
SEVENTH: Indemnification. The Corporation shall indemnify its
present and past directors, officers, employees, and agents, and persons who are
serving or have served at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
enterprise, to the maximum extent permitted by applicable law, in such manner as
may be provided in the By-Laws; provided, that no director or officer of the
Corporation shall be indemnified against any liability to the Corporation or its
stockholders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Corporation may purchase insurance
against any liability which may be asserted against or incurred by any director
or officer in such capacity or arising out of his status as such (whether or not
indemnification with respect to such liability is permitted under these Articles
of Incorporation or any provision of law), as the Board of Directors may
determine.
EIGHTH: Miscellaneous. The following provisions are hereby
adopted for the purpose of defining, limiting and regulating the powers of the
Corporation and of the directors and stockholders.
(1) The By-Laws of the Corporation may divide the
directors of the Corporation into classes and prescribe the tenure of
the office of the several classes, but no class shall be elected for a
period shorter than that from the time of the election following the
division into classes until the next annual meeting and thereafter for
a period shorter than the interval between annual meetings or for a
longer period than five years, and the term of office of a least one
class shall expire each
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<PAGE>
year. Notwithstanding the foregoing, no such division into class shall
be made prior to the first annual meeting of stockholders of the
Corporation.
(2) Any director may be removed at any time, with or without
cause, in such lawful manner as may be provided in the Bylaws of the
Corporation.
(3) Unless the By-Laws otherwise provide, the Board of
Director of the Corporation shall have power to hold their meetings, to
have an office or offices and, subject to the provisions of the laws of
Maryland, to keep the books of the Corporation outside of said State at
such places as may from time to time be designated by them.
(4) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject nevertheless, to the
express provisions of the laws of Maryland, of these Articles of
Incorporation and of the By-Laws of the Corporation.
(5) Shares of stock in other corporations shall be voted by
the President or a Vice-President, or such officer or officers of the
Corporation as the Board of Directors shall designate for the purpose,
or by a proxy or proxies thereunto duly authorized by the Board of
Directors, except as otherwise ordered by vote of the holders of a
majority of the shares of the capital stock of the Corporation
outstanding and entitled to vote in respect thereto.
(6) (a) the Corporation may enter into an investment advisory
or management or supervisory contract or contracts, an exclusive or
non-exclusive underwriting or distributing contract or contracts, and
other contracts with any company or companies, including Legg Mason
Wood Walker, Incorporated and any company which is a subsidiary or
affiliate thereof, and may otherwise do business with such a company,
notwithstanding that any one or more directors, officers, or employees
of the Corporation may be a stockholder, director, officer, trustee,
member, or employee of such company, and in the absence of fraud the
Corporation and such company
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<PAGE>
may deal freely with each other, and no such contract or transaction
between the Corporation and such company shall be invalidated or in any
way affected thereby, nor shall any director, officer, or employee of
the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any other person, merely by reason of such
relationship, for any loss incurred by it or him under or by reason of
any such contract or transaction or accountable for any profit realized
directly or indirectly therefrom; provided, that nothing herein shall
protect any director or officer of the Corporation against any
liability to the Corporation or to its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.
(b) The Corporation is adopting its corporate name
through permission of Legg Mason Wood Walker, Incorporated; and if it
shall enter into an investment advisory or management or supervisory
contract with such company or any of its affiliates, as authorized
herein, the Corporation shall make appropriate covenants that upon the
termination of such contract for any cause it will, at the request of
such company, eliminate all reference to such company from its
corporate name and will not thereafter transact business in a corporate
name using the words Legg Mason in any form or combination whatsoever,
or otherwise use the words Legg Mason as a part of the Corporation are
hereby made binding upon it, its directors, officers, stockholders,
creditors and all other persons claiming under or through it.
NINTH: Net Asset Value. For purposes of the computation of net asset
value, as in these Articles of Incorporation referred to, the following rules
shall apply:
(1) The net asset value of each share of capital
stock of the Corporation shall be determined at such times as the Board
of Directors shall prescribe by resolution, but at least once each
week. In the absence of such a resolution,
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<PAGE>
the net asset value per share shall be determined as of the close of
business of the New York Stock Exchange on each business day of the
Corporation.
(2) The net asset value of each share of capital
stock of the Corporation for purposes of redemption shall be as next
determined pursuant to paragraphs 1 and 4 of this Article NINTH after
receipt by the Corporation of a redemption request in proper form,
including surrender of any certificate issued for such share, or if
providing to the contrary, such net asset value shall be determined in
accordance with any provision of the Investment Company Act of 1940,
and rule or regulation thereunder, or any rule or regulation made or
adopted by any securities association registered under the Securities
Exchange Act of 1934 of which the Corporation is a member.
(3) The net asset value of each share of the capital
stock of the Corporation for the purpose of the sale of such capital
stock shall be as next determined pursuant to paragraphs 1 and 4 of
this Article NINTH after receipt and acceptance of any unconditional
order therefor by the Corporation, or if providing to the contrary,
such net asset value shall be determined in accordance with any
provision of the Investment Company Act of 1940, and rule or regulation
thereunder, or any rule or regulation made or adopted by any securities
association registered under the Securities Exchange Act of 1934 of
which the Corporation is a member.
(4) The net asset value of each share of the capital
stock of the Corporation at any particular time shall be the quotient
obtained by dividing the value of the net assets of the Corporation
(i.e., the value of the assets of the Corporation less its actual and
accrued liabilities exclusive of capital stock and surplus) by the
total number of shares of capital stock outstanding. The assets and
liabilities of the Corporation shall be determined in accordance with
generally accepted accounting principles; provided, however, that in
determining the value of the assets of the Corporation for the purpose
of obtaining the net asset value, the Board of Directors shall adopt a
method of valuation which is in compliance with the
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<PAGE>
provisions of the Investment Company Act of 1940 and the rules and
regulations thereunder or with any exemptive order issued by the
Securities and Exchange Commission.
For the purposes hereof
(A) Capital stock subscribed for shall be deemed to
be outstanding as of the time any unconditional order is accepted and
entered on the books of the Corporation, and the sales price in
currency has been determined. The net sales price thereof shall
thereupon be deemed to be an asset of the Corporation; and
(B) Capital stock for which a proper request for
redemption has been made or which are subject to redemption by the
Corporation shall be deemed to be outstanding until the time as of
which the redemption price is determined. After such time such stock
shall be deemed no longer outstanding and until paid, the price thereof
shall be deemed to be a liability of the Corporation.
(5) In addition to or in lieu of the foregoing, the Board of
Directors is empowered, in its absolute discretion, to establish other
bases or times, or both, for determining the net asset value of each
share of the capital stock of the Corporation.
(6) Payment of the net asset value of capital stock of the
Corporation for which a proper request for redemption has been made
shall be made by the Corporation at such times as the Board of
Directors may determine after receipt of such request and surrender of
any certificates for such stock to the Corporation for such purpose.
Any such payment may be made in portfolio securities of the Corporation
and/or in cash, as the Board of Directors shall deem advisable, and no
stockholder shall have a right, other than as determined by the Board
of Directors, to have his shares redeemed in kind. The amount of any
payment to be made in portfolio securities shall be determined by the
Board of Directors.
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<PAGE>
TENTH: Amendments. From time to time any of the provisions of
these Articles of Incorporation may be amended, altered or repealed, upon the
vote of the majority of the aggregate of the votes entitled to be cast thereon,
and other provisions which might under the statutes of the State of Maryland at
the time in force be lawfully contained in articles of incorporation may be
added or inserted upon the vote of the majority of the aggregate of the votes
entitled to be cast thereon, and all rights at any time conferred upon the
stockholders of the Corporation by these Articles of Incorporation are granted
subject to the provisions of this Article TENTH. The Corporation shall notify
the stockholders in its next subsequent regular report to the stockholders of
any amendment of these Articles of Incorporation.
The term "these Articles of Incorporation" as used herein and
in the By-Laws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended and restated.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation and acknowledge the same to be my act on the 20th day of January,
1982.
/s/ Richard J. Himelfarb
------------------------
Richard J. Himelfarb
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Exhibit 1(b)
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
LEGG MASON VALUE TRUST, INC.
LEGG MASON VALUE TRUST, INC., a Maryland corporation, having its
principal office in Maryland in the City of Baltimore, Maryland (hereinafter
called the "Corporation"), desiring to amend its Articles of Incorporation,
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST:
Article THIRD of the Articles of Incorporation of the Corporation is
amended to read in its entirety as follows:
"THIRD: The purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, are as
follows:
(1) To hold, invest and reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, sell, assign, negotiate,
transfer, lend, trade in, deal in, pledge, exchnage or otherwise dispose of or
turn to account or realize upon, securities (which term "securities" shall, for
the purposes of these Articles of Incorporation, without limiting the generality
thereof, be deemed to include any stocks, shares, bonds, debentures, bills,
notes, or other evidence of indebtedness, negotiable or non-negotiable
instruments, certificates of deposit, bankers' acceptances, fixed time deposits,
letters of credit, commercial paper, finance paper, repurchase and reverse
repurchase agreements, mortgages or other obligations and any warrants, options
or other instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interests therein or
with respect thereto or in any property or assets); created or issued by any
<PAGE>
persons, firms, associations, partnerships, corporations, syndicates, banks,
savings institutions, combinations, organizations, governments or subdivisions,
agencies or instrumentalities thereof; and to exercise, as owner or holder of
any Securities, all rights, powers and privileges in respect thereof; and to do
any and all acts and things for the preservation, protection, improvement and
enhancement in value of any and all such Securities.
(2) To purchase and sell (or write) options on securities, indices, futures
contracts and other financial instruments and enter into closing transactions in
connection therewith; to enter into all types of commodities, contracts,
including without limitation the purchase and sale of futures contracts on
securities, indices and other financial instruments; and to employ all kinds of
hedging techniques and investment management strategies.
(3) To acquire (by purchase, lease or otherwise) and to hold, use, maintain,
develop and dispose of (by sale or otherwise) any property, real or personal,
and any interest therein.
(4) To borrow money and issue notes or other evidences of indebtedness.
(5) To issue and sell shares of its own capital stock in such amounts and on
such terms and conditions, for such purposes and for such amount or kind of
consideration (including, without limitation thereof, Securities), as the Board
of Directors may determine and without the need for stockholder approval and as
now or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation; provided, however, that the consideration per share to be
received by the Corporation upon the sale of any shares of its capital stock
shall not be less than the net asset value per share of such capital stock
outstanding at the time as of which the computation of such net asset value
shall be named in accordance with the provisions of Article NINTH.
(6) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the stockholders of the
Corporation) shares of its capital stock, in any manner and to the extent now or
hereafter permitted by the laws of Maryland and by these Articles of
Incorporation.
(7) To conduct its business in all its branches and exercise any or all of its
corporate rights and powers at one or more offices in Maryland and elsewhere in
any part of the world without restriction or limit as to extent.
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<PAGE>
(8) To do any and all such further acts and things to exercise any and all such
further powers as may be necessary, incidental, relative, conducive, appropriate
or desirable for the accomplishment, carrying out or attainment of all or any of
the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Articles of Incorporation,
and shall each be regarded as independent and construed as powers as well as
objects and purposes, and the enumeration of specific purposes, objects and
powers shall not be construed to limit or restrict in any manner the meaning of
general terms or the general powers of the Corporation now or hereafter
conferred by the laws of Maryland.
SECOND:
The foregoing amendment was advised by the Board of Directors on
September 20, 1991 and approved by the shareholders on February 19, 1992.
IN WITNESS WHEREOF, LEGG MASON VALUE TRUST, INC., has caused these
presents to be signed in its name and on its behalf by its President and its
corporate seal to be hereunto affixed and attested to by its Assistant Secretary
on this 24 day of April, 1992.
LEGG MASON VALUE TRUST, INC.
By: /s/ John F. Curley, Jr.
------------------------
John F. Curley, Jr.
President
Attest:
/s/ C.A. Bacigalupo
- ---------------------
Charles A. Bacigalupo
Assistant Secretary
-3-
<PAGE>
CERTIFICATE
THE UNDERSIGNED, President of LEGG MASON VALUE TRUST, INC., who
executed on behalf of said Corporation the foregoing Articles of Amendment, of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ John F.Curley, Jr.
-----------------------
John F. Curley, Jr.
President
-4-
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
LEGG MASON VALUE TRUST, INC.
FIRST: The Board of Directors ("Board") of Legg Mason Value Trust,
Inc., a Maryland Corporation ("Corporation") organized on January 20, 1982, has,
by action on May 13, 1994, increased the aggregate number of shares of capital
stock that the Corporation has authority to issue from one hundred million
(100,000,000) to two hundred million (200,000,000) shares.
All one hundred million (100,000,000) shares of capital stock that the
Corporation previously was authorized to issue, whether or not outstanding, have
been designated as Class A shares. The additional one hundred million
(100,000,000) shares of capital stock that the Corporation is newly authorized
to issue have been classified as Class Y shares.
The par value of the shares of capital stock of the Corporation remains
one tenth of one cent ($0.001) per share. Immediately before the increase in the
aggregate number of authorized shares described herein, the aggregate par value
of all of the authorized shares was hundred thousand (100,000) dollars; as
increased, the aggregate par value of all of the shares is two hundred thousand
(200,000) dollars.
The Class A and Class Y shares shall represent investment in the same
pool of assets and shall have the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption, except as set forth below:
(1) The net asset values of Class A shares and Class Y shares shall be
calculated separately. In calculating the net asset values,
(a) Each class shall be charged with the transfer agency fees
and Rule 12b-1 fees (or equivalent fees by any other name)
attributable to that class, and not with the transfer agency
fees and Rule 12b-1 fees (or equivalent fees by any other
name) attributable to any other class;
(b) Each class shall be charged separately with such
other expenses as may be permitted by SEC rule or order
and as the board of directors shall deem appropriate;
(c) All other fees and expenses shall be charged to both
classes, in the proportion that the net asset value of
that class bears to the net asset value of the Corporation
(or the series thereof to which they belong), except as
the Securities and Exchange Commission may otherwise require;
<PAGE>
(2) Dividends and other distributions shall be paid on Class A shares
and Class Y shares at the same time. The amounts of all dividends and
other distributions shall be calculated separately for Class A shares
and Class Y shares. In calculating the amount of any dividend or other
distribution,
(a) Each class shall be charged with the transfer agency fees
and Rule 12b-1 fees (or equivalent fees by any other name)
attributable to that class, and not with the transfer agency
fees and Rule 12b-1 fees (or equivalent fees by any other
name) attributable to any other class;
(b) Each class shall be charged separately with such
other expenses as may be permitted by SEC rule or order
and as the board of directors shall deem appropriate;
(c) All other fees and expenses shall be charged to both
classes, in the proportion that the net asset value of
that class bears to the net asset value of the Corporation
(or the series thereof to which they belong), except as
the Securities and Exchange Commission may otherwise require;
(3) Each class shall vote separately on matters pertaining only to that
class, as the directors shall from time to time determine. On all other
matters, all classes shall vote together, and every share, regardless
of class, shall have an equal vote with every other share.
SECOND: The Corporation is registered with the U.S. Securities and
Exchange Commission as an open-end investment company under the Investment
Company Act of 1940.
THIRD: The total number of shares of capital stock that the Corporation
has authority to issue has been increased by the Board of Directors in
accordance with Section 2-105(c) of the Maryland General Corporation Law.
FOURTH: The reclassification described herein was effected by the Board
of Directors of the Corporation pursuant to a power contained in Article FIFTH
(1) of the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned President of Legg Mason Value
Trust, Inc. hereby executes these Articles Supplementary on behalf of the
Corporation, and hereby acknowledges these Articles Supplementary to be the act
of the Corporation and further states under the penalties for perjury that, to
the best of his knowledge, information and belief, the matters and facts set
forth herein are true in all material respects.
<PAGE>
Date: July , 1994 /s/ John F. Curley
-------------------
John F. Curley, Jr.
President
Attest: /s/ Blanche P. Roche
--------------------
Secretary
Baltimore, Maryland (ss)
Subscribed and sworn to before me this th day of , 1994.
/s/ Melody N. McFaddin
- ----------------------
Notary Public
My commission expires January 20, 1997
LEGG MASON VALUE TRUST, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
ARTICLE I.1. Place of Meeting. All meetings of the
stockholders shall be held at the principal office of the corporation in
Baltimore, Maryland, except that the Board of Directors may fix a different
place of meeting within the United States which shall be specified in each
notice of the meeting.
ARTICLE I.2. Annual Meetings. The Corporation need not hold an
annual meeting in any year in which none of the following is to be acted upon by
the stockholders as required under the Investment Company Act of 1940:
(1) Election of Directors;
(2) Approval of the Investment Advisory
Agreement;
(3) Ratification of the selection of independent
public accountants; and
(4) Approval of a Distribution Agreement.
ARTICLE I.3 Special Meetings. Special meetings of the
stockholders may be called at any time by the Chairman of the Board of
Directors. Special meetings of the stockholders shall be called by the Secretary
upon the written request of the holders of shares entitled to vote not less than
10% of all the shares entitled to be voted at such meeting, provided that (a)
such request shall state the purposes of such meeting and the matters proposed
to be acted on, and (b) the stockholders requesting such meeting shall have paid
to the Corporation the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary shall determine and specify to such
stockholders. No special meeting need be called upon the request of the holders
of shares entitled to vote less than a majority of any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding 12 months.
ARTICLE I.4 Notice of Meeting of Stockholders. Not less than
ten days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the general
nature of the business proposed to be transacted at any special meeting), shall
be given to each stockholder entitled to vote thereat by leaving the same with
him or at his residence or usual place of business or by mailing it, postage
prepaid, and addressed to him at his address as it appears upon the books of the
Corporation.
<PAGE>
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by proxy
or to any stockholder who, in writing executed and filed with the records of the
meeting, either before or after the holding thereof, waives such notice.
ARTICLE I.5. Closing of Transfer Books; Record Dates. The
Board of Directors may fix the time, not exceeding twenty days preceding the
date of any meeting of stockholders, any dividend payment date or any date for
the allotment of rights, during which the books of the Corporation shall be
closed against transfers of stock. If such books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at lest ten days immediately
preceding against transfers of stock as aforesaid, the Board of Directors may
fix, in advance, a date, not exceeding ninety days and not less than ten days
preceding the date of any meeting of stockholders, and not exceeding ninety days
preceding any dividend payment date or any date for the allotment of rights as a
record date for the determination of the stockholders entitled to notice of and
to vote at such meeting, or entitled to receive such dividends or rights, as the
case may be; and only stockholders of record on such date shall be entitled to
notice of and to vote at such meeting or to receive such dividends or rights, as
the case may be.
ARTICLE I.6. Quorum; Adjournment of Meetings. The presence in
person or by proxy of the holders of record of one-third of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, shall constitute a quorum at all meetings of the stockholders. If at
any meeting of the stockholders there shall be less than a quorum present, the
stockholders present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might have been lawfully
transacted had the meeting not been adjourned. This ARTICLE I.6 may be altered,
amended, or repealed only upon the affirmative vote of the holders of the
majority of the aggregate of the votes entitled to be case thereon.
ARTICLE I.7 Voting and Inspectors. At all meetings of
stockholders every stockholder of record entitled to vote thereat shall be
entitled to one vote for each share of stock standing in his name on the books
of the Corporation (and such stockholders of record holding fractional shares
shall have proportionate voting rights as provided in the Articles of
Incorporation) on the date for the determination of stockholders entitled to
vote at such meeting, either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized attorney. No proxy
which is dated more
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than eleven months before the meeting at which it is offered shall be accepted,
unless such proxy shall, on its face, name a longer period for which it is to
remain in force,
All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided in the Articles of Incorporation or in these By-Laws or by specific
statutory provision superseding the restrictions and limitations contained in
the Articles of Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior
thereto may, or, if they have not so acted, the chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the stock entitled to
vote at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
The chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken upon the request
of the holders of ten percent (10%) of the stock entitled to vote on such
election or matter.
ARTICLE I.8 Conduct of Stockholders' Meetings. The meetings of
the stockholders shall be presided over by the Chairman of the Board, or if he
shall not be present, by the President or a Vice President, or if neither of
them is present, by a chairman to be elected at the meeting. The Secretary of
the Corporation, if present, shall act as secretary, of such meetings, or if he
is not present, an Assistant Secretary shall so act; if neither the Secretary
nor an Assistant Secretary is present, then the meeting shall elect its
secretary.
ARTICLE I.9. Concerning Validity of Proxies, Ballots, Etc. At
every meeting of the stockholders, all proxies shall be received and canvassed
by the Secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless inspectors of election shall have been appointed as
provided in ARTICLE I.7, in which event such inspectors of election shall decide
all such questions.
ARTICLE I.10. Action Without Meeting. Any action to be taken
by stockholders may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action in writing and the consents are filed
with the records of stockholders' meetings.
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ARTICLE II
BOARD OF DIRECTORS
ARTICLE II.1. Number and Tenure of Office. The business and
property of the Corporation shall be conducted and managed under the direction
of a Board of Director consisting of three Directors, which number may be
increased as provided in ARTICLE II.3. Each Director shall hold office until his
successor is duly elected and qualified or until his earlier death, resignation
or removal. Directors need not be stockholders.
ARTICLE II.2. Vacancies. In case of any vacancy in the Board
of Directors through death, resignation, removal, or other cause, a majority of
the remaining Directors, although such majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the next meeting of
the stockholders of the Corporation and until his successor is duly elected and
qualified, unless in the case of removal of a Director the stockholders shall
have filled the vacancy caused by such removal, as provided in ARTICLE II.15
hereof.
ARTICLE II.3. Increase or Decrease in Number of Directors. The
Board of Directors, by the vote of a majority of the entire Board, may increase
the number of Directors to a number not exceeding thirteen, and may elect
Directors to fill the vacancies created by any such increase in the number of
Directors until the next meeting and until their successors are duly elected and
qualified. The Board of Directors, by the vote of a majority of the entire
Board, may likewise decrease the number of Directors to a number not less than
three.
ARTICLE II.4. Election of Entire New Board. If at any time
after the first annual meeting of stockholders of the Corporation a majority of
the Directors in office shall consist of Directors elected by the Board of
Directors, a special meeting of the stockholders shall be called forthwith for
the purpose of electing the entire Board of Directors, and the terms of office
of the Directors then in office shall terminate upon the election and
qualification of such Board of Directors. This ARTICLE II.4 may be altered,
amended or repealed only upon the affirmative vote of the holders of a majority
of all the shares of the capital stock of the Corporation at the time
outstanding and entitled to vote.
ARTICLE II.5. Place of Meeting. The Directors may hold their
meetings, have one or more offices, and keep the books of the Corporation
outside the State of Maryland, at any office or offices of the Corporation or at
any other place as they may from time to time by resolution determine, or, in
the case of meetings, as shall be specified or fixed in the respective notices
or waivers of notice thereof.
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ARTICLE II.6. Regular and Annual Meetings. Regular and annual
meetings of the Board of Directors shall be held at such time and on such
notice, if any, as the Board of Directors from time to time may determine. No
notice of any regular meeting need be in writing.
ARTICLE II.7. Special Meetings. Special meetings of the Board
of Directors may be held from time to time upon call of the President or of a
majority of the Directors, by oral or telegraphic or written notice duly served
on or sent or mailed to each Director not less than one day before such meeting.
No notice need be given to any Director who attends in person or to any Director
who, in writing executed and filed with the records of such meeting either
before or after the holding thereof, waives such notice. Such notice or waiver
of notice need not state the purpose or purposes of such meeting.
ARTICLE II.8 Telephone Meetings. Members of the Board of
Directors or any committee of the Board may participate in a meeting by means of
a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
ARTICLE II.9 Quorum. One-third of the Directors shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation, by these
By-laws or by any contract or agreement to which the Corporation is a party.
ARTICLE II.10 Executive Committee. The Board of Directors may,
in each year, by the affirmative vote of a majority of the entire Board, elect
from the Directors an Executive Committee to consist of such number of Directors
(not less than three) as the Board may from time to time determine. The Board of
Directors by such affirmative vote shall have power at any time to change the
members of such Committee and may fill vacancies in the Committee by election
from the Directors. When the Board of Directors is not in session, the Executive
Committee shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to be affixed to
all papers which may require it), except as provided by law or by any contract
or agreement to which the Corporation is a party, and except the power to
increase or decrease the size of, or fill vacancies on, the Board, to remove or
appoint executive officers, to dissolve or
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change the permanent membership of the Executive Committee, or to make or amend
the By-Laws of the Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
ARTICLE II.11. Investment Committee. The Board of Directors
may appoint an Investment Committee consisting of three or more members, at
least one of whom shall be a member of the Board of Directors. The Board of
Directors may remove any member and may appoint new, alternate or additional
members of the Investment Committee. It shall be the function of the Investment
Committee to advise the Board of Directors as to the investment Committee to
advise the Board of Directors as to the investment of the assets of the
Corporation. The Investment Committee shall have no power or authority to make
any contract or incur any liability whatever or to take any action binding upon
the Corporation, the officers, the Board of Directors or the stockholders.
ARTICLE II.12. Other Committees. The Board of Directors, by
the affirmative vote of a majority of the entire Board, may appoint other
committees which shall in each case consist of such number of members (not less
than two) and shall have and may exercise such powers as the Board may determine
in the resolution appointing them. A majority of all members of any such
committee may determine its action and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to change the members and powers of any such
committee, to fill vacancies, and to discharge any such committee.
ARTICLE II.13. Action Without Meeting. Any action to be taken
by the Board of Directors, the Executive Committee, or any other committee of
the Board may be taken without a meeting if all the members thereof consent to
the action in writing and the consents are filed with the minutes of the Board,
the Executive Committee, or such other committee, as the case may be.
ARTICLE II.14. Compensation of Directors. No Director shall
receive any stated salary or fees from the Corporation for his services as a
Director if he is, other than by being a Director, affiliated (as such term is
defined by the Investment Company Act of 1940) with the Corporation, its
investment adviser, or its principal underwriter. Except as provided in the
preceding sentence, Directors shall be entitled to receive such compensation
from the Corporation for their services as may from time to time be voted by the
Board of Directors.
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ARTICLE 11.15. Removal of Directors. At any stockholder'
meeting at which a quorum is present, the stockholders of the Corporation may
remove any Director, with or without cause, by the affirmative vote of a
majority of all the votes entitled to be cast for the election of Directors, and
at the same meeting the stockholders may by like vote elect a qualified person
as Director to replace the Director so removed.
ARTICLE III
OFFICERS
ARTICLE III.1. Executive Officers. The executive officers of
the Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. These may include a
Chairman of the board, a President, one or more Vice Presidents (the number
thereof to be determined by the Board of Directors), a Secretary and a
Treasurer. The Board of Directors or the Executive Committee may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
ARTICLE III.2. Term of Office. the term of office of all
officers shall be one year and until their respective successors are chosen and
qualified; provided, however, that any officer may be removed from office at any
time, with or without cause, by vote of a majority of the entire Board of
Directors.
ARTICLE III.3. Powers and Duties. The Chairman of the board of
Directors shall, if present, preside at all meetings of the Board of Directors
and at all meetings of stockholders. He shall also be a member of the Chairman
of any executive Committee or Investment Committee. The President shall be the
chief executive officer. Subject to the foregoing, the officers of the
Corporation shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and Directors or the Executive
Committee.
ARTICLE III.4. Surety Bonds. The Board of Directors may
require any officer or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the federal Investment Company Act of
1940, as amended, and the rules
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and regulations of the Securities and Exchange Commission) to the Corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
hands.
ARTICLE IV
CAPITAL STOCK
ARTICLE IV.1. Certificates of Stock. Certificates for shares
of stock shall be in such form as the Board of Directors may from time to time
prescribe. No certificate shall be valid unless it is signed by the President or
a Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation and sealed with its
seal or unless it bears the facsimile signatures of such officers and a
facsimile of such seal. In case any officer who has signed any certificate
ceases to be an officer of the Corporation before the certificate is issued, the
certificate may nevertheless be issued by the Corporation with the same effect
as if the officer had not ceased to be such officer as of the date of its issue.
ARTICLE IV.2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder of record
thereof in person or by his duly authorized attorney or legal representative,
(i) if a certificate or certificates have been issued for such shares upon
surrender and cancellation of certificates for the same number of shares of the
same class, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require, or (ii) as otherwise
prescribed by the Board of Directors.
ARTICLE IV.3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
office of the Corporation in Baltimore, Maryland, or, if the Corporation employs
a transfer agent, at the offices of the transfer agent of the Corporation.
ARTICLE IV.4 Lost, Stolen or Destroyed Certificates. The Board
of Directors or the Executive Committee may determine the conditions upon which
a new certificate of stock of the Corporation of any class may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to the
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Corporation and the transfer agent, if any, to indemnify it and such transfer
agent against any and all loss or claims which may arise by reason of the issue
of a new certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate
seal, in such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board
of Directors.
ARTICLE VII
CUSTODY OF SECURITIES
ARTICLE VII.1. Employment of a Custodian. The Corporation
shall place and at all times maintain in the custody of a Custodian (including
any sub-custodian for the Custodian) all funds, securities and similar
investments owned by the Corporation. The Custodian (and any sub-custodian)
shall be a bank having not less than $2,000,000 aggregate capital, surplus and
undivided profits and shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
ARTICLE VII.2. Action Upon Termination of Custodian Agreement.
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian, but in the vent that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of Directors shall
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the Custodian shall deliver and
pay over all property of the Corporation held by it as specified in such vote.
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ARTICLE VII.3. Other Arrangements. The Corporation may make
such other arrangements for the custody of its assets (including deposit
arrangements) as may be required by any applicable law, rule or regulation.
ARTICLE VIII
INDEMNIFICATION
ARTICLE VIII.1. Indemnification of Officers, Directors
Employees and Agents. The Corporation shall indemnify its present and past
Directors, officers, employees, and agents, and persons who are serving or have
served at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or enterprise,
to the maximum extent provided and allowed by Md. Corp. and Assns. Code
ss.2-418, as amended from to time.
ARTICLE VIII.2. Limitations of Indemnification.
(a) Notwithstanding anything herein to the contrary, no
Director, officer, investment adviser, or principal underwriter of the
Corporation shall be indemnified for any liability, whether or not there is an
adjudication of liability, arising by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office or in performance of its contract. Subject to the limitation of any
applicable law, the determination of whether or not there has been such
disabling conduct may be determined by (1) a final decision on the merits by a
court or other body before whom the proceeding was brought that such person to
be indemnified was not liable by reason of such disabling conduct, or (2) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that such person to be indemnified was not liable by reason of such
disabling conduct, by (i) the vote of a majority of a quorum of directors who
are neither "interested persons", as defined in the Investment Company Act of
1940 ("disinterested directors") nor parties to the proceeding, or (ii) whether
or not such quorum is obtainable, if a majority of a quorum of disinterested
directors so directs, by an independent legal counsel in a written opinion.
(b) Notwithstanding any thing herein to the contrary, no
expenses (including attorneys' fees) incurred by the Corporation's Directors and
officers in any pending proceeding shall be paid by the Corporation in advance
unless such person to be indemnified, or someone on his behalf, undertakes to
repay the advance, unless it is ultimately determined that he is entitled to
indemnification and (1) such person provides security for his undertaking, (2)
the Corporation is insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of the disinterested directors who are
not parties to the
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proceeding, or an independent legal counsel (chosen by a majority of a quorum of
disinterested directors) in a written opinion, shall determine, based upon a
review of readily available facts, that there is reason to believe that such
person will ultimately be entitled to indemnification.
ARTICLE IX
INVESTMENT LIMITATIONS
The Corporation may not:
(a) Borrow money, except for temporary purposes in an
aggregate amount not to exceed 5% of the value of the total assets of the
Corporation at the time of borrowing;
(b) Mortgage, pledge or hypothecate any of its assets, except
to the extent necessary to secure borrowings permitted by subparagraph (a),
provided that the deposit in escrow of underlying securities in connection with
the writing of call options is not deemed to be a pledge;
(c) Purchase securities on "margin";
(d) Invest more than 5% of its total assets (taken at market
value) in the securities of any one issuer, other than the U.S. Government or
its agencies and instrumentalities;
(e) Purchase more than 10% of the voting securities or more
than 10% of all the securities of any one issuer, or invest to control or manage
any company;
(f) Invest more than 25% of the total assets of the
Corporation (taken at market value) in securities of issuers in any one
industry;
(g) Purchase securities issued by any other investment
company, except in connection with a merger, consolidation, acquisition or
reorganization or by purchase in the open market of securities of closed-end
investment companies where no underwriter or dealer's commission or profit,
other than a customary brokerage commission, is involved and only if immediately
thereafter not more than 10% of the Corporation's total assets (taken at market
value) would be invested in such securities;
(h) Deal with its Directors or officers, or firms they are
associated with, in the purchase or sale of securities of other issuers, except
as broker;
(i) Purchase or sell any commodity or commodity future
contracts, or any oil, gas or mineral exploration or development program;
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(j) Underwrite the securities of other issuers, except that
the Corporation may invest in securities that are not readily marketable without
registration under the Securities Act of 1933 if immediately after the making of
such investment not more than 5% of the value of its total assets (taken at
cost) would be so invested;
(k) Invest more than 5% of its total assets (taken at market
value) in securities of companies which, including their predecessors, have been
in operation for less than three years or in equity securities which are not
readily marketable;
(l) Make loans, except loans of portfolio securities and
except to the extent that the purchase of notes, bonds or debt obligations, or
the entry into repurchase agreements, or deposits may be considered loans;
(m) Write or purchase put, call, straddle or spread options
except that the Corporation may sell covered call options with respect to its
portfolio securities listed on a national securities exchange or quoted on
NASDAQ and enter into purchase closing transactions with respect to call options
so listed or quoted; or
(n) Purchase or sell real estate, provided that the
Corporation may invest in securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein.
If a percentage restriction described above is complied with
at the time an investment is made, a later increase or decrease in percentage
resulting from a change in values of portfolio securities or in the amount of
net assets of the Corporation will not be considered a violation of any of those
restrictions.
ARTICLE X
AMENDMENTS
ARTICLE X.1. General. Except as provided in ARTICLE X.2
hereof, all By-Laws of the Corporation, whether adopted by the Board of
Directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new By-Laws may be made, by the affirmative vote of a majority of
either:
(a) the holders of record of the outstanding shares of stock
of the Corporation entitled to vote at any annual or special meeting, the notice
or waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law; or
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(b) the entire Board of Directors at any regular or special
meeting, the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration, repeal or new By-Law.
ARTICLE X.2. Amendment by Stockholders Only.
(a) No amendment of any Article of these By-Laws shall be made
except by the stockholders of the Corporation, if the By-Laws provide that such
Article shall not be amended, altered or repealed except by the stockholders.
(b) From and after the issue of any shares of the capital
stock of the Corporation, no amendment of this Article X or of Article IX shall
be made except by the stockholders of the Corporation.
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Exhibit 2(b)
AMENDMENT TO THE BY-LAWS
OF
LEGG MASON VALUE TRUST, INC.
(Effective February 19, 1992)
Upon recommendation of the Board of Directors of Legg Mason Value Trust, Inc.
("Corporation") and the affirmative vote of a majority of the outstanding shares
of the Corporation, as defined by the Investment Company Act of 1940, as
amended, the Corporation's By-laws are hereby amended as follows:
1. Article IX of the Corporation's By-laws is hereby repealed.
2. Article X, Section X.2. is hereby amended to provide in its
entirety:
Section 11.02. Amendment By Stockholders Only.
-------------------------------
(a) No amendment of any Article of these By-laws shall be made
except by the stockholders of the Corporation if the By-laws
provide that such Article may not be amended, altered or
repealed except by the stockholders.
(b) From and after the issue of any shares of the capital
stock of the Corporation, no amendment of this Article IX
shall be made except by the stockholders of the Corporation.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, made this 23 day of
April, 1982, by and between Legg Mason Value Trust, Inc., a Maryland corporation
(the "Fund"), and Legg Mason Fund Adviser, Inc., a Maryland corporation (the
"Adviser").
WHEREAS, the Fund is registered as an open-end, diversified investment
company under the Investment Company Act of 1940 (the "1940 Act") and has
registered its shares of common stock for sale to the public under the
Securities Act of 1933 and various state securities laws; and
WHEREAS, the Fund wishes to retain the Adviser to provide investment
advisory, management, and administrative services to the Fund; and
WHEREAS, the Adviser is willing to furnish such services on the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Fund shall at all times keep the Adviser fully informed with
regard to the securities owned by it, its funds available, or to become
available, for investment, and generally as to the condition of its affairs. It
shall furnish the Adviser with such other documents and information with regard
to its affairs as the Adviser may from time to time reasonably request.
2. (a) Subject to the direction and control of the Fund's Board of
Directors, the Adviser shall regularly provide the Fund with investment
research, advice, management and supervision and shall furnish a continuous
investment program for the Fund's portfolio of securities consistent with the
Fund's investment goals and policies. The Adviser shall determine from time to
time what securities will be purchased, retained or sold by the Fund, and shall
implement those decisions, all subject to the provisions of the Fund's Articles
of Incorporation and By-laws, the 1940 Act, the applicable rules and regulations
of the Securities and Exchange Commission, and other applicable federal and
state law, as well as the investment goals and policies of the Fund. The Adviser
shall also provide advice and recommendations with respect to other aspects of
the business and affairs of the Fund, and shall perform such other functions of
management and supervision as may be directed by the Board of Directors of the
Fund.
(b) The Fund hereby authorizes any entity or person associated with
the Adviser which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(2)(iv).
3. (a) The Adviser, at its expense, shall supply the Board of Directors
and officers of the Fund with all statistical information and reports reasonably
required by them and reasonably available to the Adviser and
<PAGE>
shall furnish the Fund with office facilities, including space, furniture and
equipment and all personnel reasonably necessary for the operation of the Fund.
The Adviser shall reimburse the Fund for all auditing and accounting expenses
and for the fees of the Fund's independent directors. The Adviser shall assume
all organizational expenses of the Fund. The Adviser shall maintain all books
and records with respect to the Fund's securities transactions and keep the
Fund's books of account in accordance with all applicable federal and state laws
and regulations. The Adviser shall authorize and permit any of its directors,
officers and employees, who may be elected as directors or officers of the Fund,
to serve in the capacitites in which they are elected.
(b) Other than as herein specifically indicated, the Adviser
shall not be responsible for the Fund's expenses. Specifically, the Adviser will
not be responsible, except to the extent of the reasonable compensation of
employees of the Fund whose services may be used by the Adviser hereunder, for
any of the following expenses of the Fund, which expenses shall be borne by the
Fund: legal expenses; interest, taxes, governmental fees or membership dues;
brokerage commissions or charges, if any; fees of custodians, transfer agents,
registrars or other agents; expenses of preparing share certificates; expenses
relating to the redemption or repurchase of the Fund's shares; expenses of
registering and qualifying Fund shares for the sale under applicable federal and
state law; expenses of preparing, setting in print, printing and distributing
prospectuses, reports, notices and dividends to Fund shareholders; cost of
stationary; costs of stockholders and other meetings of the Fund; traveling
expenses of officers, directors and employees of the Fund, if any; and the
Fund's pro rata portion of premiums on any fidelity bond and other insurance
covering the Fund and its officers and directors.
4. No director, officer or employee of the Fund shall receive from the
Fund any salary or other compensation as such director, officer or employee
while he is at the same time a director, officer, or employee of the Adviser or
any affiliated company of the Adviser. This paragraph shall not apply to
directors, executive committee members, consultants and other persons who are
not regular members of the Adviser's or any affiliated company's staff.
5. As compensation for the services performed and the facilities
furnished and expenses assumed by the Adviser, including the services of any
consultants retained by the Adviser, the Fund shall pay the Adviser, as promptly
as possible after the last day of each month, a fee, calculated daily, of 1%
annually of the Fund's first $100 million in average daily net assets; and 3/4
of 1% annually of average daily net assets in excess of $100 million. The first
payment of the fee shall be made as promptly as possible at the end of the month
next succeeding the effective date of this Agreement, and shall constitute a
full payment of the fee due the Adviser for all services prior to that date. If
this Agreement is terminated as of any date not the last day of a month, such
fee shall be paid as promptly as possible after such date of termination, shall
be based on the average daily net assets of the Fund in that period from the
beginning of such month to such date of termination, and shall be that
proportion of such average daily net assets as the number of business days in
such period bears to the number of business days in such month. The average
daily net assets of the Fund shall in all cases be based only on business days
and be computed as the time of
2
<PAGE>
the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Board of Directors of the Fund. Each such
payment shall be accompanied by a report of the Fund prepared either by the Fund
or by a reputable firm of independent accountants which shall show the
amount properly payable to the Adviser under this Agreement and the detailed
computation thereof.
6. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder, in good faith, and shall not
be responsible for any action of the Board of Directors of the Fund in following
or declining to follow any advice or recommendations of the Adviser; provided,
that nothing in this Agreement shall protect the Adviser against any liability
to the Fund or its stockholders to which it would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder.
7. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Adviser who may also be a director,
officer, or employee of the Fund, to engage in any other business or to devote
his time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature, nor to limit or
restrict the right of the Adviser to engage in any other business or to render
services of any kind, including investment advisory and management services, to
any other corporation, firm, individual or association.
8. As used in this Agreement, the terms "securities", and "net assets",
shall have the meanings ascribed to them in the Articles of Incorporation of the
Fund; and the terms "assignment", "interested person", and "majority of the
outstanding voting securities" shall have the meanings given to them by Section
2(a) of the 1940 Act, subject to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
9. Subject to the provision of paragraphs 10 and 12 below, this
Agreement will remain in effect for one year from the date of its execution and
from year to year thereafter, provided that the Adviser does not notify the Fund
in writing at least sixty (60) days prior to the expiration date in any year
that it does not wish continuance of the Agreement for an additional year.
10. This Agreement shall terminate automatically in the event of its
assignment by the Adviser and shall not be assignable by the Fund without the
consent of the Adviser. This Agreement may also be terminated at any time,
without the payment of any penalty, by the Board of Directors of the Fund or by
vote of a majority of the outstanding voting securities of the Fund by sixty
(60) days' written notice addressed to the Adviser at its principal place of
business.
11. In the event this Agreement is terminated by either party or upon
written notice from the Adviser at any time, the Fund hereby agrees that it will
eliminate from its corporate name any reference to the name of "Legg Mason." The
Fund shall have the non-exclusive use of the name "Legg Mason" in whole or in
part only so long as this Agreement is effective or until such notice is given.
3
<PAGE>
12. This Agreement shall be submitted for approval to the Board of
Directors of the Fund annually and shall continue in effect only so long as
specifically approved annually by vote of a majority of the directors of the
Fund who are not parties to this Agreement or interested persons of such
parties, cast in person at a meeting called for that purpose, and either by vote
of the holders of a majority of the outstanding voting securities of the Fund or
by majority vote of the Fund's Board of Directors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON VALUE TRUST, INC.
By: /s/ Charles A. Bacigalupo By: /s/ John F. Curley
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Charles A. Bacigalupo By: /s/ Ernest C. Kiehne
4
CUSTODIAN CONTRACT
Between
LEGG MASON VALUE TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By It.......... 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian.............................. 1
2.1 Holding Securities.................................... 1
2.2 Delivery of Securities................................ 1
2.3 Registration of Securities............................ 4
2.4 Bank Accounts......................................... 4
2.5 Payments for Shares................................... 4
2.6 Investment and Availability of Federal Funds.......... 5
2.7 Collection of Income.................................. 5
2.8 Payment of Fund Monies................................ 5
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased....................... 6
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund................................. 6
2.11 Appointment of Agents................................. 7
2.12 Deposit of Fund Assets in Securities System........... 7
2.13 Ownership Certificates for Tax Purposes............... 9
2.14 Proxies............................................... 9
2.15 Communications Relating to Fund
Portfolio Securities.................................. 9
2.16 Proper Instructions................................... 9
2.17 Actions Permitted Without Express Authority........... 10
2.18 Evidence of Authority................................. 10
3. Duties of Custodian With Respect to the Books
<PAGE>
of Account and Calculation of Net Asset Value
and Net Income................................................. 10
4. Records........................................................ 11
5. Opinion of Fund's Independent Accountant....................... 11
6. Reports to Fund by Independent Public Accountant............... 11
7. Compensation of Custodian...................................... 11
8. Responsibility of Custodian.................................... 12
9. Effective Period, Termination and Amendment.................... 12
10. Successor Custodian............................................ 13
11. Interpretive and Additional Provisions......................... 13
12. Massachusetts Law to Apply..................................... 14
13. Prior Contracts; Assignment.................................... 14
14. Headings....................................................... 14
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Legg Mason Value Trust, Inc., a corporation
organized and existing under the laws of Maryland (the "Fund") and State Street
Bank and Trust Company (the "Custodian").
WITNESSETH, that in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the terms and conditions hereof. The Fund agrees to deliver to the
Custodian all securities and cash owned by the Fund, and all payments of income,
payments of principal or capital distributions received by the Fund with respect
to all securities owned by the Fund from time to time, and the cash
consideration received by the Fund for such new or treasury shares of the
capital stock, $0.001 par value ("Shares") of the Fund as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of
the Fund held or received by the Fund and not delivered to the Custodian.
The Custodian may from time to time employ one or more sub-custodians,
but only after the prior express written consent of the Fund in accordance with
an applicable vote by the Board of Directors, and provided that the Custodian
shall have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian
------------------------------------------------------------------------
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property, including all
securities owned by the Fund, other than securities which are
maintained pursuant to Section 2.12 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as a
"Securities System."
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions (as defined in Section 2.16 hereof), which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
by the Custodian of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
<PAGE>
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) To the broker selling the same for examination in accordance with the
"street delivery" custom;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or
pursuant to provisions for conversion contained in such securities,
or pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, options, rights or similar
securities, the surrender thereof in the exercise of such warrants,
options, rights or similar securities or the surrender of interim
receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
a Fund, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund, which
may be in the form of cash or other securities including obligations
issued by the United States government, its agencies or
instrumentalities;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
<PAGE>
12) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the Fund's currently effective
prospectus, in satisfaction of requests by holders of Shares for
repurchase or redemption; and
13) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, specifying the securities to be
delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the Custodian on behalf
of a Fund (other than bearer securities) shall be registered in the name
of the Fund or in the name of any nominee of the Fund or of any nominee
of the Custodian (which nominee shall be assigned exclusively to
the Fund), unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies
having the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1
hereof. All securities accepted by the Custodian on behalf of a Fund
under the terms of this Contract shall be in "street name" or other
good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for the Fund may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem necessary
or desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Acto 0f 1940 and that the such bank or trust company and the funds to be
deposited with the such bank or trust company shall be approved by vote
of a majority of the Board of Directors of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor for
the Fund's Shares or from the Transfer Agent for the Fund and deposit
into such Fund's account such payments as are received for Shares of the
Fund issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund with respect to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
<PAGE>
2.6 Investment and Availability of Federal Funds. Upon mutual agreement
between the Fund on behalf of the Fund and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions:
1) invest, in such instruments as may be set forth in such instructions
on the same day as received, all federal funds received after a time
agreed upon between the Custodian and the Fund; and
2) make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund
which are deposited into the Fund's account.
2.7 Collection of Income. The Custodian shall collect on a timely basis all
income, dividends and other payments with respect to registered
securities held hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall collect on a
timely basis all income, dividends and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall credit
such income dividends, as collected, to such Fund's custodian account.
Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of a Fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options for the account of the Fund but only (a) against the delivery
of such securities to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Fund Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.12 hereof; (c) in the case of
repurchase agreements entered into between the Fund and the Custodian,
or another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities (notwithstanding that
the written agreement to repurchase will be received
<PAGE>
subsequently) or (ii) if the agreement is with the Custodian,
against delivery of the receipt evidencing purchase by the
Fund of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Fund;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares of the Fund issued by the
Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
distribution, advisory, accounting, transfer agent and legal fees,
and operating expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In any
and every case where payment for purchase of securities for the account of
a Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund
to so pay in advance, the Custodian shall be absolutely liable to the
Fund for such securities to the same extent as if the securities had
been received by the Custodian, except that in the case of repurchase
agreements entered into by the Fund with a bank which is a member of the
Federal Reserve System, the Custodian may transfer funds to the
account of such bank prior to receipt of written evidence that the
securities subject to such repurchase agreement have been transferred
by book-entry into a segregated nonproprietary account of the Custodian
maintained with the Federal Reserve Bank of Boston or of the safe-keeping
receipt, provided that such securities have in fact been so transferred by
book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From such
funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and By-Laws and any
applicable resolution of the Board of Directors pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer Agent,
<PAGE>
make funds available for payment to holders of Shares or their
authorized agents who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares and for payment to the
distributor of the Fund's Shares for its repurchase of Shares as agent for
the Fund. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders or by the distributor of the Fund's
Shares. In connection with the redemption or repurchase of Shares of
the Fund, the Custodian shall honor checks drawn on the Custodian by
a holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, which checks have been furnished by a holder of Shares,
when presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between the Fund
and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by the Fund with the Securities
and Exchange Commission under Section 17A of the Securities Exchange Act
of 1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and certain
federal agencies, (collectively referred to herein as a "Securities
System") in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of a Fund
which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
a Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of a Fund upon (i) receipt
of
<PAGE>
advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect such transfer
and payment for the account of a Fund. Copies of all advices from
the Securities System of transfers of securities for the account
of a Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund confirmation of the transfer
to or from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transactions in the Securities System
for the account of the Fund, on the next business day.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to a Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of a Fund held by it and in connection with transfers
of securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of a Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith and notices of exercise of call and put
options written by the Fund) received by the Custodian
<PAGE>
from issuers of the securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund as to the Fund all written information received by the Custodian
from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, it shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
2.16 Proper Instructions. Proper Instructions as used throughout this Article
2 means a writing signed or initialed by one or more person or persons as
the Board of Directors shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such oral instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary of the Fund as to the
authorization by the Board of Directors of the Fund accompanied by a
detailed description of procedures approved by the Board of
Directors, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Board of Directors and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
2.17 Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of the
Fund except as otherwise directed by the Board of Directors of the
Fund.
2.18 Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine
<PAGE>
and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the
Board of Directors of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such resolution (b) of
any determination or of any action by the Board of Directors
pursuant to the Articles of Incorporation as described in such vote or
resolution, and such vote or resolution may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
3. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
---------------------------------------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of the Fund and/or compute the net asset value per share of
the outstanding shares of the Fund or, if directed in writing to do so by the
Fund, shall itself keep such books of account and/or compute such net asset
value per share of the Funds. If so directed, the Custodian shall also calculate
daily the net income of the Fund including the calculation of distribution and
advisory fees, all as described in the Fund's currently effective Prospectus and
Statement of Additional Information and shall advise the Fund and the Transfer
Agent daily of the total amounts of such fees and net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of the
Fund shall be made at the time or times described from time to time in the
Fund's currently effective prospectus.
4. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply a Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by or on behalf of the Fund and for such compensation as
shall be agreed upon between the Fund and the Custodian, include certificate
numbers in such tabulations.
5. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent certified public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's Form N-1, and Form
N-1R or other annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
<PAGE>
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent certified public accountants on
the accounting system, internal accounting control and procedures for
safeguarding securities including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under this
Contract; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund, and shall provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
8. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the Custodian and the Fund and may
be terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the
<PAGE>
Secretary or an Assistant Secretary of the Fund that the Board of Directors of
the Fund has approved the initial use of a particular Securities System and the
receipt of an annual certificate of such Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use of the Fund of such Securities
System, as required by Rule 17f-4 under the 1940 Act, as amended; provided
further, however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Articles of Incorporation or By-Laws, and further provided, that the Fund
may at any time by action of its Board of Directors (i) substitute another bank
or trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements as
contemplated by this Contract.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Directors
of the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, all securities duly endorsed and in
the form for transfer, all other property then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If this Contract is terminated and no such successor custodian shall be
appointed, the Custodian shall, in like manner, upon receipt of a certified copy
of a resolution of the Board of Directors of the Fund, deliver at the office of
the Custodian and transfer such securities, funds and other properties of the
Fund then held by it hereunder as specified and in accordance with such
resolution.
In the event that no written order designating a successor custodian or
certified copy of a resolution of the Fund's Board of Directors shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties of the Fund
remain in the possession of the Custodian after the date of termination hereof
owing to failure of the Fund to deliver to the
<PAGE>
Custodian the written order or certified copy referred to above, or of the
Fund's Board of Directors to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation or By-Laws of the Fund. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Contract.
12. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
13. Prior Contracts; Assignment
---------------------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the Fund's assets. This Contract may not be assigned by the Custodian, except as
expressly provided in Section 10 hereof, without the prior written consent of
the Fund.
14. Headings
--------
The headings of the sections of this Contract are inserted for
reference and convenience only, and shall not affect the construction of this
Contract.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 16th day of April, 1982.
ATTEST............ LEGG MASON VALUE TRUST, INC.
<PAGE>
/s/ H.M. Lowman, Jr. By /s/ John F. Curley, Jr.
- -------------------- -----------------------
.........
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Eleanor L. Mill By /s/ ED Hawkes, Jr.
- ------------------- ------------------
Assistant Secretary Vice President
[Legg Mason logo] Mutual
Funds
7 East Redwood Street (bullet) Baltimore, MD 21202
301-539-3400 (bullet) 800-822-5544
February 9, 1988
Barry Hoffman, Esq.
Legal Department
State Street Bank and Trust Company
1776 Heritage Drive
3rd Floor, North Wing
North Quincy, MA 02171
Re: Amendment to Custodian Contract: Legg Mason Funds
Dear Barry:
This letter sets forth our agreement concerning changes in certain
provisions of Amendments to Custodian Contracts between State Street Bank and
Trust Company ("Custodian") and, respectively, Legg Mason Value Trust, Inc.,
Legg Mason Total Return Trust, Inc., Legg Mason Special Investment Trust, Inc.,
and Legg Mason Income Trust, Inc. (collectively, "Funds"), with reference to the
establishment of a segregated account to hold collateral for each Fund's
obligations to the Custodian relating to a letter of credit. Each of the listed
changes is made to each such Amendment.
Section 4. The last sentence is deleted.
Section 6. The following phrase is inserted in the first sentence after "to the
Company:" "following receipt by the Fund of written notice from the Custodian of
such payment."
Section 7. The word "any" is substituted for the word "the" before "Fund custody
account" in the first sentence, and the following phrase is inserted after "Fund
custody account:" "opened and maintained pursuant to Section 2.4 of the
Custodian Contract." The following phrase is added to the end of the last
sentence: "or to any other account upon receipt of Proper Instructions from the
Fund."
Section 9. The following sentence is inserted after the first sentence: "The
Custodian shall maintain accounts and records for the collateral in the Letter
of Credit Custody Account separate from the accounts and records for any other
assets of the Fund held by the Custodian."
Section 14. The word "Custodian" is substituted for the word "Custody" in the
first line of the first sentence.
<PAGE>
Barry Hoffman, Esq.
February 9, 1988
Page 2
Please arrange to have both copies of this letter signed in the place
indicated as to each Fund and return one fully signed copy to me.
ATTEST: LEGG MASON VALUE TRUST, INC.
BY: /s/ Mary Curry BY: /s/ Marie K. Karpinski
ATTEST: LEGG MASON TOTAL RETURN TRUST, INC.
BY: /s/ Mary Curry BY: /s/ Marie K. Karpinski
ATTEST: LEGG MASON SPECIAL INVESTMENT
TRUST, INC.
BY: /s/ Mary Curry BY: /s/ Marie K. Karpinski
ATTEST: LEGG MASON INCOME TRUST, INC.
BY: /s/ Mary Curry BY: /s/ Marie K. Karpinski
ATTEST: STATE STREET BANK AND TRUST
COMPANY
BY: /s/ J. Farrell BY: /s/ E. D. Hawkes, Jr.
AMENDMENT TO
CUSTODIAN CONTRACT
Amendment to Custodian Contract between Legg Mason Value Trust, Inc. a
regulated investment company organized and existing under the laws of Maryland,
having a principal place of business at 111 S. Calvert Street, Baltimore, MD
21202 (hereinafter called the "Fund"), and State Street Bank and Trust Company,
a Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (hereinafter called the
"Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian Contract
dateD April 16, 1982 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of credit
(the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual
Insurance Company (the "Company") in accordance with the Continuing Letter of
Credit and Security Agreement and that the Fund's obligations to the Custodian
with respect to the Letter of Credit shall be fully collateralized at all times
while the Letter of Credit is outstanding by, among other things, segregated
assets of the Fund equal to 125% of the face amount to the amount of the Letter
of Credit;
WHEREAS: The Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes upon Proper Instructions (as
defined in the Custodian Contract); and
WHEREAS: The Fund and the Custodian desire to establish a segregated
account to hold the collateral for the Fund's obligations to the Custodian with
respect to the Letter of Credit and to amend the Custodian Contract to provide
for the establishment and maintenance thereof;
1
<PAGE>
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the Custodian
Contract as follows:
1. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and
maintain a segregated account (the "Letter of Credit Custody
Account") for and in behalf of the Fund as contemplated by
Section 2.13(iv) for the purpose of collateralizing the Fund's
obligations under this Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian
shall hold in the letter of Credit Custody Account cash, U.S.
government securities and other high-grade debt securities
owned by the Fund acceptable to the Custodian (collectively
"Collateral Securities") equal to 125% of the face amount to
the amount which the Company may draw under the Letter of
Credit. Upon receipt of such Collateral Securities in the
Letter of Credit Custody Account, the Custodian shall issue
the Letter of Credit to the Company.
4. The fund hereby grants to the Custodian a security interest in
the Collateral Securities from time to time in the Letter of
Credit Custody Account (the "Collateral") to secure the
performance of the Fund's obligations to the Custodian with
respect to the Letter of Credit, including, without
limitation, under Section 5-114(3) of the Uniform Commercial
Code. The Fund shall register the pledge of Collateral and
execute and deliver to the Custodian such powers and
instruments of assignment as may be requested by the Custodian
to evidence and perfect the limited interest in the Collateral
granted hereby.
2
<PAGE>
5. The Collateral Securities in the Letter of Credit Custody
Account may be substituted or exchanged (including
substitutions or exchanges which increase or decrease the
aggregate value of the Collateral) only pursuant to Proper
Instructions from the Fund after the Fund notifies the
Custodian of the contemplated substitution or exchange and the
Custodian agrees that such substitution or exchange is
acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company, the Custodian may withdraw from the
Letter of Credit Custody Account Collateral Securities in an
amount equal in value to the amount actually so paid. The
Custodian shall have with respect to the Collateral so
withdrawn all of the rights of a secured creditor under the
Uniform Commercial Code as adopted in the Commonwealth of
Massachusetts at the time of such withdrawal and all other
rights granted or permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on
the Collateral to the Fund custody account unless the
Custodian receives Proper Instructions from the Fund to the
contrary.
8. Upon the drawing by the Company of all amounts which may
become payable to it under the Letter of Credit and the
withdrawal of all Collateral Securities with respect thereto
by the Custodian pursuant to Section 6 hereof, or upon the
termination of the Letter of Credit by the Fund with the
written consent of the Company, the Custodian shall transfer
any Collateral Securities then remaining in the Letter of
Credit Custody Account to another fund custody account.
3
<PAGE>
9. Collateral held in the Letter of Credit Custody Account shall
be released only in accordance with the provisions of this
Amendment to Custodian Contract. The Collateral shall at all
times until withdrawn pursuant to Section 6 hereof remain the
property of the Fund, subject only to the extent of the
interest granted herein to the Custodian.
10. Notwithstanding any other termination of the Custodian
Contract, the Custodian Contract shall remain in full force
and effect with respect to the Letter of Credit Custody
Account until transfer of all Collateral Securities pursuant
to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation for
its issuance of the Letter of Credit and for its services in
connection with the Letter of Credit Custody Account as agreed
upon from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby, shall be governed
by, and construed and interpreted under, the laws of the
Commonwealth of Massachusetts.
13. The parties agree to execute and deliver all such further
documents and instruments and to take such further action as
may be required to carry out the purposes of the Custodian
Contract, as amended hereby.
14. Except as provided in this Amendment to Custody Contract, the
Custodian Contract shall remain in full force and effect,
without amendment or modification, and all applicable
provisions of the Custodian Contract, as amended hereby,
including, without
4
<PAGE>
limitation, Section 8 thereof, shall govern the Letter of Credit Custody Account
and the rights and obligations of the Fund and the Custodian under this
Amendment to Custodian Contract. No provision of this Amendment to Custodian
Contract shall be deemed to constitute a waiver of any rights of the Custodian
under the Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and behalf by it duly authorized
representatives and its seal to be hereunder affixed as of the 25 day of
February 1988.
ATTEST:
Legg Mason Value Trust, Inc.
By: /s/ Susan T. Lind /s/ Marie K. Karpinski
ATTEST: State Street Bank and Trust Company
By: /s/ J. Farrell /s/ E. D. Hawkes, Jr.
Assistant Secretary Vice President
AGREEMENT made by and between State Street Bank and Trust Company (the
"Custodian") and Legg Mason Value Trust Fund (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated April 16, 1982 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian
Contract to provide for the maintenance of the Fund's foreign securities, and
cash incidental to transactions in such securities, in the custody of certain
foreign banking institutions and foreign securities depositories acting as
sub-custodians in conformity with the requirements of Rule 17f-5 under the
Investment Company Act of 1940;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and conditions;
1. Appointment of Foreign Sub-Custodians
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained outside the
United States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 2.16 of the Custodian
Contract, together with a certified resolution of the Fund's Board of Directors,
the Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. By means of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or more of such
sub-custodians for maintaining custody of the Fund's assets.
2. Assets to be Held
-----------------
The Custodian shall limit the securities and other assets maintained in
the custody of the foreign sub-custodians to: (a) "foreign securities", as
defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the Custodian or the
Fund may determine to be reasonably necessary to effect the Fund's foreign
securities transactions.
1
<PAGE>
3. Foreign Securities Depositories
-------------------------------
Except as may otherwise be agreed upon in writing by the Custodian and
the Fund, assets of the Fund shall be maintained in foreign securities
depositories only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms thereof. Where
possible, such arrangements shall include entry into agreements containing the
provisions set forth in Section 5 hereof.
4. Segregation of Securities
-------------------------
The Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish a custody account for the
Custodian on behalf of the Fund and physically segregate in that account,
securities and other assets of the Fund, and, in the event that such institution
deposits the Fund's securities in a foreign securities depository, that such
institution shall identify on its books as belonging to the Custodian, as agent
for the Fund, the securities so deposited.
5. Agreements with Foreign Banking Institutions
--------------------------------------------
Each agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and shall provide that:
(a) the Fund's assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agents, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the assets
as belonging to the Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be given
access to the books and records of the foreign banking institution relating to
its actions under its agreement with the Custodian; and (e) assets of the Fund
held by the foreign sub-custodian will be subject only to the instructions of
the Custodian or its agents.
6. Access of Independent Accountants of the Fund
---------------------------------------------
Upon request of the Fund, the Custodian will use its best efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the actions of such
foreign banking institution under its agreement with the Custodian.
2
<PAGE>
7. Reports by Custodian
--------------------
The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of the
Fund held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's securities and other
assets and advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking institution for the
Custodian on behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of such securities.
8. Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 8,
the provisions of Sections 2.2 and 2.8 of the Custodian Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of the Custodian Contact to the
contrary, settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures (provided that in the view of the
sub-custodian in that market such practices and procedures shall be reasonable
under the circumstances) in the jurisdiction or market in which the transaction
occurs, including without limitation, delivering securities to the purchaser
thereof or to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of the Custodian Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
9. Liability of Foreign Sub-Custodians
-----------------------------------
Each agreement pursuant to which the Custodian employs a foreign
banking institution as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify, and
hold harmless, the Custodian and each Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
institution's performance of such
3
<PAGE>
obligations. At the election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim.
10. Liability of Custodian
----------------------
The Custodian shall be liable for the act or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in the Custodian Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by paragraph 13
hereof, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or otherwise resulting from a bank or
a securities depository failure to exercise reasonable care. Notwithstanding the
foregoing provisions of this paragraph 10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any responsibility to
the Fund for any loss due to such delegation, except such loss as may result
from (a) political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection, civil
strife or armed hostilities) or (b) other risk of loss (excluding a bankruptcy
or insolvency of State Street London Ltd. not caused by political risk) for
which neither the Custodian nor State Street London Ltd. would be liable
(including, but not limited to, losses due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street London
Ltd. have exercised reasonable care).
11. Reimbursement for Advances
--------------------------
If the Fund requires the Custodian to advance cash or securities for
any purpose including the purchase or sale of foreign exchange or of contracts
for foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such as
may arise form its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
Fund shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
4
<PAGE>
12. Monitoring Responsibilities
---------------------------
The Custodian shall furnish annually to the Fund, during the month of
June, information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval of this amendment to the
Custodian Contract, or mutual approval of the use of any sub-custodians employed
by the Custodian. In addition, the Custodian will promptly inform the Fund in
the vent that the Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the assets of the
Fund or in the case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has decline below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
13. Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this amendment to the Custodian
Contract, the provisions hereof shall not apply where the custody of the Fund
assets is maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by paragraph
1 of the Custodian Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the Custodian's London
Branch, which account shall be subject to the direction of the Custodian, State
Street London Ltd. or both.
14. Applicability of Custodian Contract
-----------------------------------
Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 12th day of August, 1988.
LEGG MASON VALUE TRUST
ATTEST:
/s/ Kathi D. Glenn By: /s/ Marie K. Karpinski
(Title) Fund Accountant (Title) Treasurer
STATE STREET BANK AND TRUST COMPANY
ATTEST:
/s/ J. Farrell By: /s/ E.D. Hawkes, Jr.
Assistant Secretary Vice President
6
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of the Fund for use as
sub-custodians for the Fund's securities and other assets.
(insert banks and securities depositories)
7
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Legg Mason Value Trust, Inc. (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated April 16, 1982 as amended February 9, 1988, February 25, 1988 and August
12, 1988 (the "Custodian Contract") governing the terms and conditions under
which the Custodian maintains custody of the securities and other assets of the
Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
belonging to the Fund and (ii) the Custodian shall require that securities and
other non-cash property so held by the foreign sub-custodian be held separately
from any assets of the foreign sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly authorized
representative this 28 day of May, 1996.
LEGG MASON VALUE TRUST, INC.
By: /s/ Marie K. Karpinski
----------------------
Title: Vice President and Treasurer
----------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ M. L. Summers
-----------------
Title: Vice President
--------------
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEGG MASON VALUE TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
SA1 5/86
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment; Duties of the Bank......................2
Article 2 Fees and Expenses.............................................5
Article 3 Representations and Warranties of the Bank....................6
Article 4 Representations and Warranties of the Fund....................7
Article 5 Indemnification...............................................7
Article 6 Covenants of the Fund and the Bank...........................11
Article 7 Termination of Agreement.....................................13
Article 8 Assignment...................................................14
Article 9 Amendment....................................................14
Article 10 Massachusetts Law to Apply...................................15
Article 11 Merger of Agreement..........................................15
Article 12 Miscellaneous................................................15
2
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 16th day of April 1982, by and between LEGG
MASON VALUE TRUST, INC., a Maryland corporation, having its principal office and
place of business at 7 East Redwood Street, Baltimore, Maryland 21202 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Fund is authorized to issue Shares of common stock $.001
par value ("Shares");
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and issued Shares;
its dividend disbursing agent and agent in connection with any accumulation,
open-account or similar plans provided to the Shareholders of the Fund
("Shareholders") and set out in the currently effective Prospectuses and
Statement of Additional Information of the Fund, including without limitation
any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with the Fund's then current Prospectus and
Statement of Additional Information and procedures established from time to time
by agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase
of Shares, and promptly deliver payment and
appropriate documentation therefor to the
Custodian of the Fund (the "Custodian);
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) Receive for acceptance, redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to
<PAGE>
be paid over in the appropriate manner such monies as
instructed directly or indirectly by the redeeming
Shareholder(s) through its agent Legg Mason Wood
Walker, Incorporated ("Legg Mason");
(v) Effect transfers of Shares by the Shareholders
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Maintain records of account for and advise the
Fund and its Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and
maintain pursuant to Rule 17Ad-10(e) under the
Securities Exchange Act of 1934 a record of the
total number of Shares which are authorized, based
upon data provided to it by the Fund, and issued
and outstanding. Bank shall also provide the Fund
on a regular basis with the total number of
Shares which are authorized and issued and
outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such
Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth
in the above paragraph (a), the Bank shall: (i) perform all of the customary
services of a transfer agent, dividend disbursing agent and, as relevant, agent
in connection with the activities described in Section 1.01, including but not
limited to: maintaining on its records all Shareholder accounts, preparing
Shareholder record date lists for special meetings and for mailings to
Shareholders; arranging for printing of proxy materials; addressing and mailing
proxy material; receiving and tabulating voted proxies, and doing all other
things necessary in connection with proxy solicitation, addressing and mailing
Shareholder reports, prospectuses and other materials to existing Shareholders;
withholding taxes on dividends as required by the federal and state tax laws
including those for non-resident aliens; preparing, filing and mailing to
Shareholders U.S. Treasury Department Forms 1099 and other appropriate forms
required by federal authorities with respect to dividends and distributions;
preparing and mailing purchase and sale confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders; maintaining computerized compliance programs for
non-resident alien requirements; providing Shareholder lists and account
information to the Fund; perparing and filing on a timely basis with the
Internal Revenue Service and state tax and revenue agencies all forms; and
paying to the appropriate federal and state authorities any taxes required by
applicable federal and state tax laws to withheld on dividends and distributions
paid by the Fund; (ii) provide a system which will enable the Fund to monitor
the total number of Shares sold in each
2
<PAGE>
State. The Fund shall (i) identify to the Bank in writing those transactions
and assets to be treated as exempt from blue sky reporting for each State
and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
Procedures applicable to certain of these services described
in paragraphs (a) and (b) may be established from time to time by agreement
between the Fund and the Bank and shall be subject to the review and approval of
the Fund. The failure of the Fund to establish such procedures with respect to
any service shall not in any way diminish the duty and obligations of the Bank
to perform such service hereunder.
Article 2 Fees and Expenses
-----------------
2.01 For the duties and obligations to be performed by the
Bank pursuant to this Agreement, the Fund agrees to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the
Fund agrees to promptly reimburse the Bank for reasonable out-of-pocket expenses
or advances incurred by the Bank for the items set out in the fee schedule
attached hereto. In addition, any other expenses incurred by the Bank at the
request or with the consent of the Fund which are not properly borne by the Bank
as part of its duties and obligations under this Agreement will be promptly
reimbursed by the Fund. Postage for mailing of dividends, proxies, Fund reports
and other mailings to all Shareholder accounts shall be advanced to the Bank by
the Fund at least seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in
good standing under the laws of The Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in The
Commonwealth Massachusetts.
<PAGE>
3.03 It is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement in accordance with procedures established from time to time by
mutual agreement between the Fund and the Bank.
Article 4 Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that;
4.01 It is a corporation duly organized and existing and
in good standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end management investment company
registered under the Investment Company Act of 1940.
4.05 A Registration Statement containing a Prospectus and
Statement of Additional Information under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect to all
Shares being offered for sale.
Article 5 Indemnification
---------------
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
4
<PAGE>
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of
the Agreement, or the Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance by the Bank or its agents or subcontractors
on information, records and documents which (i) are received by the Bank or its
agents or subcontractors and furnished to it by or on behalf of the Fund, and
(ii) have been prepared and/or maintained by the Fund or any other person or
firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Fund. "Written
Instructions" means written instructions delivered by mail, tested
telegram-cable, telex or facsimile sending device and received by the Bank, or
its agent or subcontractors, signed by authorized persons.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Fund shall not be responsible for, and the Bank shall
indemnify and hold the Fund harmless from and against any and all losses,
damages, and any and all reasonable cost, charges, counsel fees, payments,
expenses and liability arising out of or attributable the Bank's failure to
comply with the terms of this Agreement or any action or failure or omission to
act by the Bank as a result of the Bank's lack of good faith, negligence or
willful misconduct of the Bank or any of its agents or subcontractors referred
to in Article 8.03 (i) and (ii) or which arise out of the breach of any
representation or warranty of the Bank hereunder.
5.03 At any time the Bank may apply to any authorized officer
of the Fund for instructions, and may consult with experienced securities
counsel with respect to any matter arising in connection with the services to be
performed by the Bank under this Agreement, and the Bank and its agents and
subcontractors shall not be liable and shall be indemnified by the Fund for any
action taken or omitted by it in good faith in reliance upon such instructions
or upon the opinion of such counsel that such actions or omissions comply with
the terms of this Agreement or with all applicable laws. The Bank, its agents
and subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed by the
Bank to be genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents provided the Bank
or its agents or subcontractors by machine readable input, telex, CRT data entry
or other similar means authorized by the Fund, and shall not be held to have
notice of any change. of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear
<PAGE>
the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or registrar, or of
a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other party resulting from such failure to perform or otherwise
from such causes. In addition, the Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available, and the Bank shall further use
reasonable care to minimize the likelihood of such damage, loss of data, delays
and/or errors and should such damage, loss of data, delays and/or errors occur,
the Bank shall use its best efforts to mitigate the effects of such occurrence.
5.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim or the institution of
any agency action or investigation for which either party may be required to
indemnify the other, the party seeking indemnification shall promptly notify the
other party of such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who may be required
to indemnify shall have the option to participate with the party seeking
indemnification in the defense of the same. The party seeking indemnification
shall in no case confess any claim or make any compromise in any case in which
the other party may be required to indemnify it except with the other party's
prior written consent.
Article 6 Covenants of the Fund and the Bank
----------------------------------
6.01 The Fund shall promptly furnish to the Bank the
following:
(a) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of the Bank and the execution
and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws
of the Fund and all amendments thereto.
6
<PAGE>
6.02 The Bank represents and warrants that to the best of its
knowledge, the various procedures and system which the Bank has implemented with
regard to safeguarding form loss or damage the stock certificates, check forms
and facsimile signature imprinting devices, and other property used in the
performance of its obligations hereunder are adequate and will enable the Bank
to perform satisfactorily its obligations hereunder and that the Bank will make
such changes therein from time to time as in its judgment are required for the
secure performance of its obligations hereunder.
6.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered to promptly to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of
the Shareholder records of the Fund, the Bank will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
------------------------
7.01 This Agreement may be terminated by either party upon
sixty (60) days written notice to the other. Any such termination shall not
effect the rights and obligations of the parties under Article 5 hereof.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund. Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination. In the event
that the Fund designates a successor to any of the Bank's obligations hereunder,
the Bank shall, at the expense and direction of the Fund, transfer to such
successor a certified list of the Shareholders of the Fund, a complete record of
the account of each Shareholder, and all other relevant books, records and other
data established or maintained by the Bank hereunder.
<PAGE>
Article 8 Assignment
----------
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by the Bank
without the written consent of the Fund.
8.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
8.03 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(l) of the Securities Exchange Act of
1934 ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a transfer
agent pursuant to Section 17A(c)(l), or (iii) Legg Mason, for the performance of
of certain duties in connection with the Bank's performance; provided, however
that the Bank shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor referred to in (i) and (ii) above as it is for
its own acts and omissions.
Article 9 Amendment
---------
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
9.02 In the event the Fund issues additional series of capital
stock in addition to the Shares with respect to which it desires to have the
Bank render services as transfer agent, dividend disbursing agent and agent
under the terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees, in writing to provide such services, such additional series of Shares
shall become a Fund hereunder.
Article 10 Massachusetts Law to Apply
--------------------------
10.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
-------------------
8
<PAGE>
11.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 12 Miscellaneous
-------------
12.01 The Fund authorizes the Bank to provide Legg Mason any
information it provides or makes available to the Fund in connection with this
Agreement.
12.02 The Bank agrees to treat all records and other
information relative to the Fund and its prior, present or potential
Shareholders confidentially and the Bank on behalf of itself and its employees
agrees to keep confidential all such information, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Bank may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under their seals by
and through their duly authorized officers, as of the day and year first above
written.
LEGG MASON VALUE TRUST, INC.
BY: /s/ J. F. Curley
________________
ATTEST:
BY: /s/ Suzanne E. Peluso
_____________________
STATE STREET BANK AND TRUST COMPANY
BY: /s/ E. D. Hawkes, Jr.
_____________________
<PAGE>
Vice President
ATTEST:
BY: __________________________
10
[WEINBERG AND GREEN LETTERHEAD]
(301) 332-8744
April 20, 1982
Legg Mason Value Trust, Inc.
7 East Redwood Street
Baltimore, Maryland 21203
Dear Sirs:
Legg Mason Value Trust, Inc. is a corporation organized under the laws
of the State of Maryland on January 20, 1982, and having its principal place
of business in Baltimore, Maryland.
We have examined the incorporation papers and the minutes of meetings
of the Board of Directors relating to the authorization and issue of capital
stock.
We are of the opinion that all legal requirements have been complied
with pursuant to the corporation law of the State of Maryland in the
organization of Legg Mason Value Trust, Inc., and that it is now a validly
existing corporation. We are of the opinion that the shares, of a par value of
$.001 each, and that all corporate action necessary for the issue of the shares
currently being registered under the Securities Act of 1933 has been taken.
We are of the opinion that an unlimited number of unissued shares which
are currently being registered under the Securities Act of 1933 may be legally
and validly issued from time to time in accordance with the corporation's
Articles of Incorporation and Bylaws, as amended, and subject to compliance with
the Securities Act of 1933, the Investment Company Act of 1940, and applicable
state laws regulating the sale of securities. We are further of the opinion that
when so issued, such shares will be fully paid and non-assessable.
Very truly yours,
WEINBERG AND GREEN
By: /s/ Richard J. Himelfarb
Richard J. Himelfarb, Partner
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Legg Mason Value Trust, Inc.:
We consent to the incorporation by reference in this Post-Effective
Amendement No. 24 to the Registration Statement of Legg Mason Value Trust, Inc.
(the "Trust") on Form N-1A (File No. 2-75766) of our report dated May 2, 1997 on
our audit of the financial statements and financial highlights of the Trust
which report is included in the Annual Report to Shareholders for the year ended
March 31, 1997, which is incorporated by reference in the Registration
Statement. We also consent to the reference to our firm under the caption
"Financial Highlights" in the Prospectuses and "The Funds' Independent
Accountants/Auditors" in the Statement of Additional Information.
/s/ Coopers & Lybrand, L.L.P.
-----------------------------
COOPERS & LYBRAND, L.L.P.
Baltimore, Maryland
July 29, 1997
LEGG MASON WOOD WALKER
INCORPORATED
Legg Mason Wood Walker, Inc., 7 East Redwood Street,
Baltimore, Maryland 21203/Tel: 301-539-3400
April 16, 1982
Legg Mason Value Trust, Inc.
7 East Redwood Street
Baltimore, Maryland 21203
RE: Legg Mason Wood Walker, Inc. Letter of
Investment Intent Pursuant to Section
14(a) of the Investment Company Act of
1940
Gentlemen:
Pleased be advised that the 10,000 shares of capital stock of Legg
Mason Value Trust, Inc., which we have today purchased from you were purchased
as an investment with no present intention of redeeming or reselling such
shares, and that we do not have any intention of redeeming or reselling such
shares.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ H. M. Lowman Jr.
Horace M. Lowman, Jr.
Treasurer
LEGG MASON VALUE TRUST, INC. Primary Shares
-------------------------------------------
March 31, 1996 - March 31, 1997 (one year)
- -------------------------------
Cumulative Total Return
-----------------------
ERV = (34.11 x 3.807724) - (26.99 x 3.602303) x 1000 + 1000 = 1335.87
---------------------------------------
(26.99 x 3.602303)
P = 1000
C = 1335.87 - 1 = .335869 = 33.59%
------- -----
1000
Average Annual Return: Same
- ---------------------
March 31, 1992 - March 31, 1997 (five years)
- -------------------------------
Cumulative Total Return
-----------------------
ERV = (34.11 X 3.807724) - (15.69 x 3.276853) x 1000 + 1000 = 2526.20
----------------------------------------
(15.69 x 3.276853)
P = 1000
C = 2526.20 - 1 = 1.526197 = 152.62%
------- ------
1000
Average Annual Return:
---------------------
1/5
(1.526197 + 1) - 1 = 20.36%
-----
March 31, 1987 - March 31, 1997 (ten years)
- -------------------------------
Cumulative Total Return:
-----------------------
ERV = (34.11 x 3.807724) - (15.07 x 2.516542) x 1000 + 1000 = 3424.76
---------------------------------------
(15.07 x 2.516542)
P = 1000
C = 3424.76 - 1 = 2.424757 = 242.48%
------- ------
1000
Average Annual Return:
---------------------
1/10
(2.424757 + 1) - 1 = 13.10%
-----
<PAGE>
LEGG MASON VALUE TRUST, INC.
----------------------------
NAVIGATOR VALUE TRUST
---------------------
March 31, 1996 - March 31, 1997 (one year)
- -------------------------------
Cumulative Total Return
-----------------------
ERV = (34.30 x .610563) - (27.08 x .572989) x 1000 + 1000 = 1349.68
-------------------------------------
(27.08 x .572989)
P = 1000
C = 1349.68 - 1 = .349679 = 34.97%
------- -----
1000
Average Annual Return: Same
- ---------------------
December 1, 1994 - March 31, 1997 (life of class)
- ---------------------------------
Cumulative Total Return
-----------------------
ERV = (34.30 x .610563) - (18.76 x .533049) x 1000 + 1000 = 2094.23
-------------------------------------
(18.76 x .533049)
P = 1000
C = 2094.23 - 1 = 1.094231 = 109.42%
------- ------
1000
Average Annual Return:
- ---------------------
1/2.334246
(1.094231 + 1) - 1 = 37.25%
-----
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PRIMARY SHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,214,992
<INVESTMENTS-AT-VALUE> 2,318,549
<RECEIVABLES> 17,082
<ASSETS-OTHER> 128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,335,759
<PAYABLE-FOR-SECURITIES> 1,417
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,190
<TOTAL-LIABILITIES> 15,607
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,182,813
<SHARES-COMMON-STOCK> 65,562
<SHARES-COMMON-PRIOR> 53,754
<ACCUMULATED-NII-CURRENT> 2,703
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,070
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,103,566
<NET-ASSETS> 2,320,152
<DIVIDEND-INCOME> 30,644
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