NAVIGATOR EQUITY FUNDS
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NAVIGATOR CLASS OF LEGG MASON VALUE TRUST, INC.
NAVIGATOR CLASS OF LEGG MASON SPECIAL INVESTMENT TRUST, INC.
NAVIGATOR CLASS OF LEGG MASON TOTAL RETURN TRUST, INC.
NAVIGATOR CLASS OF LEGG MASON AMERICAN LEADING COMPANIES TRUST
NAVIGATOR CLASS OF LEGG MASON BALANCED TRUST
NAVIGATOR CLASS OF LEGG MASON U.S. SMALL-CAPITALIZATION
VALUE TRUST
NAVIGATOR SHARES PROSPECTUS JULY 31, 1999
[GRAPHIC]
HOW TO INVEST(SM)
As with all mutual funds, the Securities and Exchange Commission has not
passed upon the adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
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TABLE OF CONTENTS
ABOUT THE FUNDS:
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1 Investment objectives
7 Principal risks
10 Performance
15 Fees and expenses of the funds
16 Management
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ABOUT YOUR INVESTMENT:
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18 How to invest
19 How to sell your shares
20 Account policies
21 Services for investors
22 Distributions and taxes
23 Financial highlights
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LEGG MASON EQUITY FUNDS
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INVESTMENT OBJECTIVES
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LEGG MASON VALUE TRUST, INC.
INVESTMENT OBJECTIVE: long-term growth of capital
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in equity securities that, in the adviser's
opinion, offer the potential for capital growth. The adviser follows a
value discipline in selecting securities, and therefore seeks to purchase
securities at large discounts to the adviser's assessment of their
intrinsic value. Intrinsic value, according to the adviser, is the value
of the company measured, to different extents depending on the type of
company, on factors such as, but not limited to, the discounted value of
its projected future free cash flows, the company's ability to earn
returns on capital in excess of its cost of capital, private market
values of similar companies, the value of its assets, and the costs to
replicate the business. Qualitative factors, such as an assessment of the
company's products, competitive positioning, strategy, industry economics
and dynamics, regulatory frameworks and more, are also important.
Securities may be undervalued due to uncertainty arising from the
availability of accurate information, economic growth and change, changes
in competitive conditions, technological change, changes in government
policy or geo-political dynamics, and more. The adviser takes a long-term
approach to investing, generally characterized by long holding periods
and low portfolio turnover. The fund generally invests in companies with
market capitalizations greater than $5 billion, but may invest in
companies of any size.
The adviser typically sells a security when, in the adviser's assessment,
the security no longer appears to offer a long-term above average
risk-adjusted rate of return, when a more compelling investment
opportunity is found, or when the investment basis no longer applies.
The fund may also invest in debt securities of companies having one or
more of the above characteristics. The fund may invest up to 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities rated below investment grade (commonly
referred to as "junk bonds").
For temporary defensive purposes, or when cash is temporarily available,
the fund may invest without limit in investment grade, short-term debt
instruments, including government, corporate and money market securities.
The fund may not achieve its investment objective when so invested.
Legg Mason Equity Funds 1
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LEGG MASON TOTAL RETURN TRUST, INC.
INVESTMENT OBJECTIVE: capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in securities that, in the adviser's opinion,
offer the potential for long-term capital growth and attractive current
income. The fund invests primarily in common stocks, debt securities, and
securities convertible into common stocks, but is not limited to these
types of securities. The fund may invest in securities that do not pay
current income but do, in the adviser's opinion, offer prospects for
capital appreciation and/or future income. The adviser follows a value
discipline in selecting securities, and therefore seeks to purchase
securities at large discounts to the adviser's assessment of their
intrinsic value. Intrinsic value, according to the adviser, is the value
of the company measured, to different extents depending on the type of
company, on factors such as, but not limited to, the discounted value of
its projected future free cash flows, the company's ability to earn
returns on capital in excess of its cost of capital, private market
values of similar companies, the value of its assets, and the costs to
replicate the business. Qualitative factors, such as an assessment of the
company's products, competitive positioning, strategy, industry economics
and dynamics, regulatory frameworks and more, are also important.
Securities may be undervalued due to uncertainty arising from the
availability of accurate information, economic growth and change, changes
in competitive conditions, technological change, changes in government
policy or geo-political dynamics, and more. The fund may invest in
companies of any size.
The adviser typically sells a security when, in the adviser's assessment,
the security no longer appears to offer long-term attractive total
returns at reasonable risk, when a more compelling investment opportunity
is found, or when the investment basis no longer applies.
The fund may invest in money market securities for temporary defensive
purposes, or when cash is temporarily available. The fund may not achieve
its investment objective when so invested. Consistent with the investment
objective, the fund may also invest in debt securities when 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 debt 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
(commonly referred to as "junk bonds").
2 Legg Mason Equity Funds
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LEGG MASON SPECIAL INVESTMENT TRUST, INC.
INVESTMENT OBJECTIVE: capital appreciation
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in equity securities, and securities
convertible into equity securities, of companies whose market
capitalization are typically classified as small to mid-sized. The
adviser defines small to mid-sized companies as those below the top 500
U.S. companies in terms of market capitalization. It also invests in
"special situations" without regard to market capitalization. Special
situations are companies undergoing unusual or possibly one-time
developments that, in the opinion of the adviser, make them attractive
for investment. Such developments may include actual or anticipated: sale
or termination of an unprofitable part of the company's business; change
in the company's management or in management's philosophy; a basic change
in the industry in which the company operates; introduction of new
products or technologies; or the prospect or effect of acquisition or
merger activities.
The adviser follows a value discipline in selecting securities, and
therefore seeks to purchase securities at large discounts to the
adviser's assessment of their intrinsic value. Intrinsic value, according
to the adviser, is the value of the company measured, to different
extents depending on the type of company, on factors such as, but not
limited to, the discounted value of its projected future free cash flows,
the company's ability to earn returns on capital in excess of its cost of
capital, private market values of similar companies, the value of its
assets, and the costs to replicate the business. Qualitative factors,
such as an assessment of the company's products, competitive positioning,
strategy, industry economics and dynamics, regulatory frameworks and
more, are also important. Securities may be undervalued due to
uncertainty arising from the availability of accurate information,
economic growth and change, changes in competitive conditions,
technological change, changes in government policy or geo-political
dynamics, and more.
The fund also invests in debt securities of companies having one or more
of the above characteristics. The fund may invest up to 35% of its net
assets in debt securities rated below investment grade (commonly referred
to as "junk bonds"). The fund may invest up to 20% of its total assets in
securities of companies involved in actual or anticipated reorganizations
or restructurings.
The adviser typically sells a security when, in the adviser's assessment,
the security no longer appears to offer a long-term above average
risk-adjusted rate of return, when a more compelling investment
opportunity is found, or when the investment basis no longer applies.
For temporary defensive purposes, or when cash is temporarily available,
the fund may invest without limit in investment grade, short-term debt
instruments, including government, corporate and money market securities.
The fund may not achieve its investment objective when so invested.
Legg Mason Equity Funds 3
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LEGG MASON AMERICAN LEADING COMPANIES TRUST
INVESTMENT OBJECTIVE: long-term capital appreciation and current income
consistent with prudent investment risk
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in securities that, in the adviser's opinion,
offer the potential for capital appreciation and potential for current
income. Under normal circumstances, the fund will seek to achieve its
objective by investing at least 75% of its total assets in common stocks
of Leading Companies that have market capitalizations of at least $5
billion, and at least 75% of stocks held by the fund will be
dividend-paying stocks. The adviser defines a "Leading Company" as one
that, in the opinion of the adviser, 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.
The adviser follows a value discipline in selecting securities, and
therefore seeks to purchase securities at large discounts to the
adviser's assessment of their intrinsic value. Intrinsic value, according
to the adviser, is the value of the company measured, to different
extents depending on the type of company, on factors such as, but not
limited to, the discounted value of its projected future free cash flows,
the company's ability to earn returns on capital in excess of its cost of
capital, private market values of similar companies, the value of its
assets, and the costs to replicate the business. Qualitative factors,
such as an assessment of the company's products, competitive positioning,
strategy, industry economics and dynamics, regulatory frameworks and
more, are also important. Securities may be undervalued due to
uncertainty arising from the availability of accurate information,
economic growth and change, changes in competitive conditions,
technological change, changes in government policy or geo-political
dynamics, and more.
The adviser typically sells a security when, in the adviser's assessment,
the security no longer appears to offer a long-term above average
risk-adjusted rate of return, when a more compelling investment
opportunity is found, or when the investment basis no longer applies.
Under normal circumstances, the fund expects to own a minimum of 35
different securities. The adviser currently anticipates that the fund
will not invest more than 25% of its total assets in foreign securities.
During periods when the adviser 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 Standard & Poor's
or Moody's, or deemed by the adviser to be of comparable quality.
When cash is temporarily available, or for temporary defensive purposes,
the fund may invest without limit in repurchase agreements and money
market instruments, including high-quality short-term debt securities.
The fund may not achieve its investment objective when so invested.
4 Legg Mason Equity Funds
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LEGG MASON BALANCED TRUST
INVESTMENT OBJECTIVE: long-term capital appreciation and current income
in order to achieve an attractive total investment return consistent
with reasonable risk
PRINCIPAL INVESTMENT STRATEGIES:
Under normal conditions, the fund invests up to 75% of its assets in
equity securities. The adviser emphasizes dividend-paying equity
securities that, in the opinion of the adviser, offer the potential for
long-term growth and common stocks or securities convertible into common
stocks that do not pay current dividends but offer prospects for capital
appreciation and future income. Stocks are selected based on
value-oriented selection criteria, taking into consideration adequate
portfolio diversification -- by sector and by industry, as well as by
equity characteristics.
The fund invests at least 25% of its assets 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; high-quality commercial
paper and other money market instruments; and repurchase agreements. 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. No more than 5% of the fund's total assets will be
invested in fixed income or convertible securities not rated at least BBB
or Baa at the time of purchase, or comparable unrated securities.
Fixed income security selection is based upon identifying those fixed
income securities that the adviser deems to be undervalued, taking into
consideration sector analysis, yield curve analysis and credit analysis.
Absent the ability to find undervalued securities outside the Treasury
sector, the adviser will hold Treasury securities. The adviser avoids
making interest rate forecasts and, accordingly, the fund's fixed income
portfolio maintains a duration that is similar to that of the fund's
benchmark.
The fund is managed as a balanced fund. 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 the adviser's assessment of investment opportunities. It
is currently anticipated that the fund will invest an average of 60% of
its total assets in common stocks 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 adviser typically sells a stock when, in the adviser's assessment,
the gap between market price and intrinsic value is narrowed by reason of
higher market prices or downward reassessment of intrinsic value by the
adviser.
The adviser typically sells a fixed income security when one of the
following criteria is met: (1) a security reaches fair value and is no
longer deemed to be undervalued based upon the adviser's analysis; (2)
the adviser continues to find value in a particular sector but has
identified a security in that sector that appears to offer more
attractive valuation characteristics; or (3) a change in fundamentals has
occurred that alters the adviser's view of the prospects for that
particular security or sector.
Legg Mason Equity Funds 5
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LEGG MASON U.S. SMALL-CAPITALIZATION VALUE TRUST
INVESTMENT OBJECTIVE: long-term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests at least 65% of its assets in domestic equity securities
of small-capitalization value companies. The adviser regards
small-capitalization companies as those whose market capitalizations at
the time of investment range between $10 million and the median of the
NYSE market capitalizations, currently about $1 billion. Value companies
are those in the lower quartile of price/earnings valuation.
The adviser's security selection process starts with a universe of
small-capitalization value companies. From this universe, the adviser
follows a disciplined security exclusion process focusing on eliminating
companies with characteristics that the adviser has found to detract from
long-term portfolio returns.
First, the adviser adjusts stated earnings for any unusual and
non-recurring gains or losses to reach true operating earnings and
eliminates companies which no longer meet the adviser's low
price/earnings criteria. Second, the adviser eliminates companies that
have pre-announced earnings declines. Third, the adviser excludes
companies which have experienced excessive price appreciation over and
above the market. Fourth, the adviser reviews company-specific
fundamentals to eliminate stocks that the adviser regards as having
minimal potential to increase in value or that the adviser believes have
substantial risk of decline.
Portfolios are constructed from the companies that have passed through
the adviser's stock exclusion process. Positions are purchased with
attention to low cost transactions.
The adviser sells companies when the adviser believes they are no longer
valuable, no longer small-cap or if the fundamentals deteriorate.
When cash is temporarily available, or for temporary defensive purposes,
the fund may invest without limit in repurchase agreements and money
market instruments. The fund may not achieve its investment objective
when so invested. The adviser does not currently intend to invest in
foreign securities.
6 Legg Mason Equity Funds
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PRINCIPAL RISKS
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IN GENERAL -
Investors could lose money by investing in the funds. There is no
assurance that a fund will meet its investment objective. As with all
mutual funds, an investment in any of these funds is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Unless otherwise stated, the following risks apply to
each of the funds.
MARKET RISK -
Prices of equity securities generally fluctuate more than those of other
securities. A fund may experience a substantial or complete loss on an
individual stock. Market risk, the risk that stock prices will go down,
may affect a single issuer, industry or sector of the economy or may
affect the market as a whole.
VALUE STYLE RISK -
The value approach to investing involves the risk that those stocks may
remain undervalued. Value stocks as a group may be out of favor and
underperform the overall equity market for a long period of time, while
the market concentrates on "growth" stocks.
Value funds often concentrate much of their investments in certain
industries, and thus will be more susceptible to factors adversely
affecting issuers within that industry than would a more diversified
portfolio of securities.
SMALL AND MID-SIZED COMPANY STOCKS - SPECIAL INVESTMENT TRUST AND
SMALL-CAP VALUE TRUST
Investing in the securities of smaller companies 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 small 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 either Special
Investment Trust or Small-Cap Value Trust may not be widely traded, and
that a fund's position in such securities may be substantial in relation
to the market for such securities. Accordingly, it may be difficult for a
fund to dispose of such securities quickly at prevailing market prices.
Investments in securities of companies with small market capitalizations
are generally considered to offer greater opportunity for appreciation
but also may involve greater risks than customarily are associated with
more established companies. The securities of smaller companies may be
subject to more abrupt fluctuations in market price than larger, more
established companies. Small companies may have limited product lines,
markets or financial resources, or they may be dependent upon a limited
management group. In addition to exhibiting greater volatility, small cap
stocks may, to a degree, fluctuate independently of larger cap stocks,
I.E., small cap stocks may decline in price as the prices of large cap
stocks rise or vice versa.
COMPANY RISK - SPECIAL INVESTMENT TRUST
Special Investment Trust invests in special situations, which are
companies undergoing unusual or possibly one-time developments. These
investments may involve greater risks of loss than investments in
securities of larger, well-established companies with a history of
consistent operating patterns. There is always a risk that the adviser
will not properly assess the potential for an issuer's future growth, or
that an issuer will not realize that potential.
Investments in securities of companies being reorganized 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 above-average price volatility.
Legg Mason Equity Funds 7
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FOREIGN SECURITIES RISK - ALL FUNDS EXCEPT SMALL CAP VALUE TRUST
Investment in foreign securities presents certain risks, including those
resulting from fluctuations in currency exchange rates, 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.
INVESTMENT MODELS -
The proprietary models used by each adviser to evaluate securities or
securities markets are based on the adviser's understanding of the
interplay of market factors and do not assure successful investment. The
markets, or the prices of individual securities, may be affected by
factors not foreseen in developing the models.
INTEREST RATE AND CREDIT RISK OF DEBT SECURITIES -
The market prices of debt securities generally decline when market
interest rates increase, and increase when market interest rates decline.
Generally, the longer the maturity of a fixed income security, the
greater is the effect on its value when rates change.
Debt securities are also subject to credit risk, I.E., the risk that an
issuer of securities will be unable to pay principal and interest when
due, or that the value of the security will suffer because investors
believe the issuer is less able to pay. This is broadly gauged by the
credit ratings of the securities in which each fund invests. However,
ratings are only the opinions of the agencies issuing them and are not
absolute guarantees as to quality.
Debt securities rated Baa/BBB or better, and unrated securities
considered by a fund's adviser to be of equivalent quality, are
considered investment grade. Moody's considers debt securities rated Baa
to have speculative characteristics. Debt securities rated below Baa/BBB
are deemed by the ratings agencies to be speculative and may involve
major risk or exposure to adverse conditions. Those in the lowest rating
categories may involve a substantial risk of default or may be in
default. Changes in economic conditions or developments regarding the
individual issuer are more likely to cause price volatility and weaken
the capacity of such securities to make principal and interest payments
than is the case for higher grade debt securities.
Securities rated below Baa/BBB are subject to greater fluctuations in
value and risk of loss of income and principal due to default by the
issuer, than are higher-rated securities. These securities may be less
liquid than higher-rated securities, which means a fund may have
difficulty selling them at times, and may have to apply a greater degree
of judgment in establishing a price.
CALL RISK -
Many fixed income securities, especially those issued at high interest
rates, provide that the issuer may repay them early. Issuers often
exercise this right when interest rates are low. Accordingly, holders of
callable securities may not benefit fully from the increase in value that
other fixed income securities experience when rates decline. Furthermore,
the funds may reinvest the proceeds of the payoff at current yields,
which are lower than those paid by the security that was paid off.
SPECIAL RISKS OF MORTGAGE-BACKED SECURITIES - BALANCED TRUST
Mortgage-backed securities represent an interest in a pool of mortgages.
When market interest rates decline, many mortgages are refinanced, and
mortgage-backed securities are paid off earlier than expected. The effect
on the fund's return is similar to that discussed above for call risk.
When market interest rates increase, the market values of mortgage-backed
securities decline. At the same time, however, mortgage refinancing
slows, which lengthens the effective maturities of these securities. As a
result, the negative effect of the rate increase on the market value of
mortgage securities is usually more pronounced than it is for other types
of fixed income securities.
8 Legg Mason Equity Funds
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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.
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.
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; (2) the right of the issuer
to borrow from the U.S. Treasury; (3) the discretionary authority of the
U.S. Treasury to lend to the issuer; and (4) solely the creditworthiness
of the issuer. There is at least some possibility that Government
securities not backed by the U.S. Treasury will default. 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.
YEAR 2000 -
Like other mutual funds (and most organizations around the world), the
funds could be adversely affected by computer problems related to the
year 2000. These could interfere with operations of the funds, their
advisers, distributors and other outside service providers and could
impact companies in which the funds invest.
While no one knows if these problems will have any impact on the funds or
on financial markets in general, the adviser and its affiliates and the
other service providers to the funds have reported that they are taking
steps to help protect fund investors. These include efforts to determine
that the problem will not directly affect the systems used by major
service providers.
Whether these steps will be effective can only be known for certain in
the year 2000.
Legg Mason Equity Funds 9
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PERFORMANCE
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Each fund has two authorized classes of shares: Primary class shares and
Navigator class shares. Each class is subject to different expenses. The
information below provides an indication of the risks of investing in a
fund by showing changes in the fund's performance from year to year.
Annual returns assume reinvestment of dividends and other distributions.
Historical performance of a fund does not necessarily indicate what will
happen in the future.
Small-Cap Value Trust has been in operation for less than a full calendar
year; thus, no performance information is presented for that fund. As of
the date of this prospectus, the Navigator class of shares of Balanced
Trust have not yet commenced operations. Shares of the Navigator class of
American Leading Companies Trust were held by investors only during the
period from October 4, 1996 to December 3, 1998; there were no Navigator
shares of that fund outstanding on the date of this prospectus. The
returns presented for Value Trust, Total Return Trust and Special
Investment Trust are those of the Navigator Share class. Returns
presented for American Leading Companies Trust and Balanced Trust are
those of the Primary Share class, which is not offered in this
prospectus. Primary Shares and Navigator Shares of each fund are invested
in the same portfolio of securities. The annual returns for Primary
Shares and Navigator Shares would differ only to the extent that
Navigator Shares would pay lower expenses, and therefore would have
higher returns.
VALUE TRUST -- NAVIGATOR SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)*
50% 49.40
42.18
40%
39.82 38.49
30%
20%
10%
1995 1996 1997 1998
* The fund's year-to-date total return as of June 30, 1999 is 18.58%.
DURING THE FOUR CALENDAR YEARS ENDING DECEMBER 31, 1998:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
-------------------- ---------------------- -------------------
BEST QUARTER: DECEMBER 31, 1998 +36.15%
WORST QUARTER: SEPTEMBER 30, 1998 -11.47%
</TABLE>
In the following table, average annual total returns as of December 31,
1998 are compared with the S&P 500 Index, a broad-based unmanaged index
of common stocks commonly used to measure general stock market activity.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS
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VALUE TRUST -- NAVIGATOR SHARES +49.40% +41.88%(A)
S&P 500 INDEX +28.58% +29.65%(B)
</TABLE>
(a) December 1, 1994 (commencement of operations) to December 31, 1998.
(b) December 31, 1994 to December 31, 1998.
10 Legg Mason Equity Funds
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TOTAL RETURN TRUST -- NAVIGATOR SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)*
42%
39.03
36% 32.55
31.65
30%
24%
18%
12%
6% 0.57
1995 1996 1997 1998
* The fund's year-to-date total return as of June 30, 1999 is 8.62%.
DURING THE FOUR CALENDAR YEARS ENDING DECEMBER 31, 1998:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
-------------------- ---------------------- -------------------
BEST QUARTER: MARCH 31, 1995 +19.29%
WORST QUARTER: SEPTEMBER 30, 1998 -15.63%
</TABLE>
In the following table, average annual total returns as of December 31,
1998 are compared with the S&P 500 Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS
--------------------------- ------------ --------------------
TOTAL RETURN TRUST --
NAVIGATOR SHARES +0.67% +23.48(A)
S&P 500 INDEX +28.58% +29.65(B)
</TABLE>
(a) December 1, 1994 (commencement of operations) to December 31, 1998.
(b) December 31, 1994 to December 31, 1998.
Legg Mason Equity Funds 11
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SPECIAL INVESTMENT TRUST -- NAVIGATOR SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)*
35%
30.04
30%
24.50
25% 23.83 23.44
20%
15%
10%
5%
1995 1996 1997 1998
* The fund's year-to-date total return as of June 30, 1999 is 14.74%.
DURING THE FOUR CALENDAR YEARS ENDING DECEMBER 31, 1998:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
-------------------- ---------------------- -------------------
BEST QUARTER: DECEMBER 31, 1998 +40.46%
WORST QUARTER: SEPTEMBER 30, 1998 -20.33%
</TABLE>
In the following table, average annual total returns as of December 31,
1998 are compared with the S&P 500 Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS
SPECIAL INVESTMENT TRUST --
NAVIGATOR SHARES +24.50% +24.72(A)
S&P 500 INDEX +28.58% +29.65(B)
</TABLE>
(a) December 1, 1994 (commencement of operations) to December 31, 1998.
(b) December 31, 1994 to December 31, 1998.
12 Legg Mason Equity Funds
<PAGE>
AMERICAN LEADING COMPANIES TRUST -- PRIMARY SHARES*
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)**
30%
28.36
25% 23.75
22.94
21.33
20%
15%
10%
5%
(4.19)
-5% 1994 1995 1996 1997 1998
* Shares of the Navigator Class of American Leading Companies Trust were
held by investors only during the period from October 4, 1996 to December
3, 1998; there were no Navigator Shares of that fund outstanding on the
date of this prospectus. The fund's annual total return for Navigator
Class shares as of December 31, 1997 was 25.29%; its total return for
Navigator Class shares for the period January 1, 1998 to December 3, 1998
was 14.04% (not annualized). ** The fund's year-to-date total return for
Primary Class shares as of June 30, 1999 is 14.00%.
DURING THE FIVE CALENDAR YEARS OF PRIMARY CLASS ENDING DECEMBER 31, 1998:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
-------------------- --------------------- -------------------
BEST QUARTER: DECEMBER 31, 1996 +12.47%
WORST QUARTER : DECEMBER 31, 1994 -4.11%
</TABLE>
In the following table, average annual total returns as of December 31,
1998 are compared with the S&P 500 Index.
<TABLE>
<S> <C> <C> <C>
1 YEAR 5 YEARS LIFE OF CLASS
----------------------------------- -------------- ------------ --------------------
AMERICAN LEADING COMPANIES --
PRIMARY SHARES (E) +21.33% +17.82% +16.79%(A)
S&P 500 INDEX +28.58% +24.06% +22.78%(B)
AMERICAN LEADING COMPANIES --
NAVIGATOR SHARES (E) +12.02%(C) N/A +24.30%(D)
S&P 500 INDEX +28.58% +24.06% +31.37%(E)
</TABLE>
(a) September 1, 1993 (commencement of operations of Primary Class) to
December 31, 1998.
(b) September 30, 1993 to December 31, 1998.
(c) December 3, 1997 to December 3, 1998 (redemption of all Navigator
Class shares).
(d) October 4, 1996 (commencement of operations of Navigator Class) to
December 3, 1998 (redemption of all Navigator Class shares).
(e) October 31, 1996 to December 31, 1998.
Legg Mason Equity Funds 13
<PAGE>
BALANCED TRUST -- PRIMARY SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)*
20%
18.71
16%
12%
8%
5.60
4%
1997 1998
* The fund's year-to-date total return as of June 30, 1999 is 0.59%.
DURING THE TWO CALENDAR YEARS ENDING DECEMBER 31, 1998:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
-------------------- ---------------------- -------------------
BEST QUARTER: DECEMBER 31, 1998 +9.00%
WORST QUARTER: SEPTEMBER 30, 1998 -7.07%
</TABLE>
In the following table, average annual total returns as of December 31,
1998 are compared with the S&P 500 Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS
-------------------------------------- ------------ --------------------
BALANCED TRUST -- PRIMARY SHARES +5.60% +12.42(A)
S&P 500 +28.58% +31.69%(B)
</TABLE>
(a) October 1, 1996 (commencement of operations of Balanced Trust-Primary
Shares) to December 31, 1998.
(b) September 30, 1996 to December 31, 1998.
14 Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
FEES AND EXPENSES OF THE FUNDS
----------------------------------------------------------------------------
The table below describes the fees and expenses you will incur directly
or indirectly as an investor in a fund. Each fund pays operating expenses
directly out of its assets. Other expenses include transfer agency,
custody, professional and registration fees.
The fees and expenses shown are for the fiscal year ended March 31, 1999,
and are calculated as a percentage of average net assets. As of the date
of this prospectus Navigator Shares of Balanced Trust have not yet
commenced operations. Shares of the Navigator class of American Leading
Companies Trust were held by investors only during the period from
October 4, 1996 to December 3, 1998; there were no Navigator Shares of
that fund outstanding on the date of this prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------------------------------
VALUE TOTAL SPECIAL AMERICAN BALANCED SMALL-CAP
NAVIGATOR SHARES OF: TRUST RETURN INVESTMENT LEADING COS. TRUST VALUE
- --------------------------------- ------ ------ ------ ---------------- ------ ------
MANAGEMENT FEES (A) 0.67% 0.75% 0.73% 0.75% 0.75% 0.85%
DISTRIBUTION AND/OR
SERVICE (12B-1) FEES NONE NONE NONE NONE NONE NONE
OTHER EXPENSES 0.05% 0.07% 0.05% 0.18% 0.40% 0.43%
- --------------------------------- ---------- ---------- ---------- ------ ------------ ------------
TOTAL ANNUAL FUND
OPERATING EXPENSES (A) 0.72% 0.82% 0.78% 0.93% 1.15% 1.28%
</TABLE>
(a) Legg Mason Fund Adviser, Inc. has voluntarily agreed to waive the
management fee to the extent necessary to limit total operating expenses
relating to Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) as follows: for Total Return Trust and American
Leading Companies Trust, 0.95% of each fund's average daily net assets
attributable to Navigator Shares indefinitely; for Balanced Trust, 1.10%
of average daily net assets attributable to Navigator Shares until July
31, 2000; and for Small-Cap Value Trust, 1.00% of average daily net
assets attributable to Navigator Shares until July 31, 2000. These
voluntary waivers may be terminated at any time. With the waiver,
management fees and total annual fund operating expenses for the fiscal
year ended March 31, 1999 would have been 0.47% and 0.90% for Small-Cap
Value Trust and 0.70% and 1.10% for Balanced Trust. During the fiscal
year ended March 31, 1999, no fee waivers were necessary for Total Return
Trust or American Leading Companies Trust.
EXAMPLE:
This example helps you compare the cost of investing in a fund with the
cost of investing in other mutual funds. Although your actual costs may
be higher or lower, you would pay the following expenses on a $10,000
investment in a fund, assuming (1) a 5% return each year, (2) the fund's
operating expenses remain the same as shown in the table above, and (3)
you redeem all of your shares at the end of the time periods shown.
Actual returns may be higher or lower than 5% per year.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------- ---------- ----------- ----------- -----------
VALUE TRUST $ 74 $ 230 $ 401 $ 894
TOTAL RETURN TRUST $ 84 $ 262 $ 455 $ 1,014
SPECIAL INVESTMENT TRUST $ 80 $ 249 $ 433 $ 966
AMERICAN LEADING COMPANIES TRUS T $ 97 $ 303 $ 525 $ 1,166
BALANCED TRUST $ 117 $ 365 $ 633 $ 1,398
SMALL-CAP VALUE TRUST $ 130 $ 406 $ 702 $ 1,545
</TABLE>
Legg Mason Equity Funds 15
<PAGE>
[GRAPHIC]
MANAGEMENT
----------------------------------------------------------------------------
MANAGEMENT AND ADVISERS:
Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore,
Maryland 21202, is the investment adviser for Value Trust, Total Return
Trust, Special Investment Trust and American Leading Companies Trust. The
adviser is responsible for making investment decisions and placing orders
to buy or sell a particular security. The adviser has delegated
investment advisory functions for Balanced Trust and Small-Cap Value
Trust to separate advisers as described below.
The adviser is also obligated to provide each fund with investment
management and administrative services and to oversee the funds'
relationships with outside service providers, such as the custodian,
transfer agent, accountants, and lawyers.
For its services during the fiscal year ended March 31, 1999, each fund
paid the adviser a percentage of its average daily net assets (net of any
fee waivers) as follows:
<TABLE>
<S> <C>
VALUE TRUST 0.67%
TOTAL RETURN TRUST 0.75%
SPECIAL INVESTMENT TRUST 0.73%
AMERICAN LEADING COMPANIES TRUST 0.75%
BALANCED TRUST 0.70%
SMALL-CAP VALUE TRUST 0.47%
</TABLE>
The adviser acts as manager or adviser to private accounts and investment
company portfolios with aggregate assets of over $19 billion as of June
30, 1999.
LMFA has entered into investment advisory agreements with Bartlett & Co.
("Bartlett") and Brandywine Asset Management, Inc. ("Brandywine") to
provide investment advisory services to Balanced Trust and Small-Cap
Value Trust, respectively.
Bartlett, 36 East Fourth Street, Cincinnati, Ohio 45202, is responsible
for the actual investment management of Balanced Trust, which includes
making investment decisions and placing orders to buy or sell particular
securities. LMFA pays Bartlett a monthly fee of 66 2/3% of the fee it
receives from Balanced Trust. Fees paid to Bartlett are net of any
waivers. Bartlett provides investment advice to individuals,
corporations, pension and profit sharing plans, trust accounts and mutual
funds. Aggregate assets under management of Bartlett were approximately
$3 billion as of June 30, 1999.
Brandywine, 201 North Walnut Street, Wilmington, Delaware 19801, is
responsible for the actual investment management of Small-Cap Value
Trust, which includes making investment decisions and placing orders to
buy or sell particular securities. LMFA pays Brandywine a monthly fee of
58.8% of the fee it receives from Small-Cap Value Trust, or 0.50% of
Small-Cap Value Trust's average daily net assets. Fees paid to Brandywine
are net of any waivers. Brandywine acts as adviser or sub-adviser to
individuals, public funds, corporations, pension and profit sharing
plans, Taft-Hartley Plans, endowments and foundations, as well as to
three investment company portfolios.
PORTFOLIO MANAGEMENT:
William H. Miller, III, President of LMFA, has had primary responsibility
for the day-to-day management of Value Trust since 1990. From Value
Trust's inception in 1982, to November 1990, Mr. Miller co-managed that
fund. Mr. Miller has also been primarily responsible for the day-to-day
management of Special Investment Trust since its inception in 1985. Lisa
O. Rapuano is assistant portfolio manager of Special Investment Trust.
Mrs. Rapuano has been the analyst responsible for the technology, media
and telecommunication sectors, as well as for some special situations
outside these sectors, since joining LMFA in September 1994. From July
1991 to September 1994 she was an analyst at Franklin Street Partners, a
money management firm.
Nancy T. Dennin, Senior Vice President of LMFA, has primary
responsibility for the day-to-day management of Total Return Trust.
Prior to April 1, 1997, Mrs. Dennin and Mr. Miller co-managed the fund
for slightly over six years. Mrs. Dennin has been employed at LMFA since
1985.
16 Legg Mason Equity Funds
<PAGE>
David E. Nelson, Senior Vice President of LMFA, has had primary
responsibility for the day-to-day management of American Leading
Companies Trust since March 9, 1998. Mr. Nelson was employed at
Investment Counselors of Maryland from 1989-1998, where he was the
portfolio manager for the UAM ICM Equity Portfolio from its inception on
October 1, 1993 until 1998.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage Balanced
Trust. 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. Mr. Uible has been employed by
Bartlett since 1980, and has been a senior portfolio manager for over
five years. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. Mr. Rabiner and
Mr. Uible are members of Bartlett's Management Committee and Investment
Policy Committee.
Henry F. Otto and Steven M. Tonkovich jointly manage Small-Cap Value
Trust. Both are Managing Directors of Brandywine. Mr. Otto has been
employed at Brandywine since 1987, and has served as a senior portfolio
manager for over five years. Mr. Tonkovich has been employed at
Brandywine since 1989. He has been a senior portfolio manager and
analyst for the past three years; prior thereto, he served as a
portfolio manager.
DISTRIBUTOR OF THE FUNDS' SHARES:
Legg Mason Wood Walker, Incorporated, 100 Light Street, Baltimore,
Maryland 21202, is the distributor of each fund's shares under separate
Underwriting Agreements. Each Underwriting Agreement obligates Legg Mason
to pay certain expenses in connection with offering fund shares,
including compensation to its financial advisors, the printing and
distribution of prospectuses, statements of additional information and
shareholder reports (after these have been printed and mailed to existing
shareholders at the funds' expense), supplementary sales literature and
advertising materials.
Legg Mason and the manager may pay non-affiliated entities out of their
own assets to support the distribution of Navigator Shares and
shareholder servicing.
Legg Mason and the advisers are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
Legg Mason Equity Funds 17
<PAGE>
[GRAPHIC]
HOW TO INVEST
----------------------------------------------------------------------------
Navigator Shares are currently offered for sale only to:
- Institutional Clients of Legg Mason Trust Company for which they
exercise discretionary investment management responsibility and
accounts of the customers with such Institutional Clients
("Customers")
- qualified retirement plans managed on a discretionary basis and
having net assets of at least $200 million
- clients of Bartlett who, as of December 19, 1996, were
shareholders of Bartlett Short Term Bond Fund or Bartlett Fixed
Income Fund and for whom Bartlett acts as an ERISA fiduciary
- any qualified retirement plan of Legg Mason, Inc. or of any of
its affiliates
- Certain institutions who were clients of Fairfield Group, Inc. as
of February 28, 1999 for investment of their own monies and
monies for which they act in a fiduciary capacity
Eligible investors may purchase Navigator Shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 and the
minimum for each purchase of additional shares is $100. Institutional
Clients may set different minimums for their Customers' investments in
accounts invested in Navigator Shares.
Customers of certain Institutional Clients that have omnibus accounts
with the funds' transfer agent can purchase shares through those
Institutions. The distributor may pay such Institutional Clients for
account servicing. Institutional Clients may charge their Customers for
services provided in connection with the purchase and redemption of
shares. Information concerning these services and any applicable charges
will be provided by the Institutional Clients. This Prospectus should by
read by Customers in connection with any such information received by
Institutional Clients. Any such fees, charges or requirements imposed by
Institutional Clients will be in addition to the fees and requirements of
this Prospectus.
Certain institutions that have agreements with Legg Mason or the funds
may be authorized to accept purchase and redemption orders on their
behalf. Once the authorized institution accepts the order, you will
receive the next determined net asset value. You should consult with your
institution to determine the time by which it must receive your order to
get that day's share price. It is the institution's responsibility to
transmit your order to the fund in a timely fashion.
Purchase orders received by Legg Mason before the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time)
will be processed at the fund's net asset value as of the close of the
exchange on that day. Orders received after the close of the exchange
will be processed at the fund's net asset value as of the close of the
exchange on the next day the exchange is open. Payment must be made
within three business days to the selling organization.
Primary Shares are offered through a separate prospectus.
18 Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
HOW TO SELL YOUR SHARES
----------------------------------------------------------------------------
To redeem your shares by telephone:
- Call 1-800-822-5544
Please have available the number of shares (or dollar amount) to be
redeemed and the account number.
The funds will follow reasonable procedures to ensure the validity of any
telephone redemption request, such as requesting identifying information
from callers or employing identification numbers. Unless you specify that
you do not wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the
Institution.
Redemption orders received by Legg Mason before the close of the exchange
will be transmitted to the funds' transfer agent. Your order will be
processed at that day's net asset value. Redemption orders received by
Legg Mason after the close of the exchange will be processed at the
closing net asset value on the next day the exchange is open.
Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration
within a week. You may also have your telephone redemption requests paid
by a direct wire to a previously designated domestic commercial bank
account.
Payment of the proceeds of redemptions of shares that were recently
purchased by check or acquired through reinvestment of dividends on such
shares may be delayed for up to 10 days from the purchase date in order
to allow for the check to clear.
Each fund has reserved the right under certain conditions to redeem its
shares in kind by distributing portfolio securities.
Legg Mason Equity Funds 19
<PAGE>
[GRAPHIC]
ACCOUNT POLICIES
----------------------------------------------------------------------------
CALCULATION OF NET ASSET VALUE:
Net asset value per Navigator Share is determined daily as of the close
of regular trading on the New York Stock Exchange, on every day the
exchange is open. To calculate each fund's Navigator Share price, the
fund's assets attributable to Navigator Shares are valued and totaled,
liabilities attributable to Navigator Shares are subtracted, and the
resulting net assets are divided by the number of Navigator Shares
outstanding. Each fund's securities are valued on the basis of market
quotations or, lacking such quotations, at fair value as determined under
the guidance of the Board of Directors.
Securities for which market quotations are readily available are valued
at the last sale price of the day for a comparable position, or, in the
absence of any such sales, the last available bid price for a comparable
position. 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.
OTHER:
Fund shares may not be held in, or transferred to, an account with any
firm that does not have an agreement with Legg Mason or its affiliates.
If your account falls below $500, the fund may ask you to increase your
balance. If, after 60 days, your account is still below $500, the fund
may close your account and send you the proceeds. A fund will not redeem
accounts that fall below $500 solely as a result of a reduction in net
asset value per share.
Each fund reserves the right to:
- reject any order for shares or suspend the offering of shares for
a period of time
- change its minimum investment amounts
- delay sending out redemption proceeds for up to seven days. This
generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions. The funds
may delay redemptions beyond seven days, or suspend redemptions,
only as permitted by the SEC.
20 Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
SERVICES FOR INVESTORS
----------------------------------------------------------------------------
CONFIRMATIONS AND ACCOUNT STATEMENTS:
Confirmations will be sent to Institutional Clients after each
transaction involving Navigator Shares which will include the total
number of shares being held in safekeeping by the transfer agent. The
transfer agent will send confirmations of each purchase and redemption
transaction (except a reinvestment of dividends or capital gain
distributions). Beneficial ownership of shares by Customer accounts will
be recorded by the Institutional Client and reflected in their regular
account statements.
EXCHANGE PRIVILEGE:
Navigator Shares of a fund may be exchanged for Navigator Shares of any
of the other Legg Mason funds or the Legg Mason Cash Reserve Trust,
provided these funds are eligible for sale in your state of residence.
You can request an exchange in writing or by phone. Be sure to read the
current prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges; however, you may be subject to a
sales charge when exchanging into a fund that has one. An exchange of a
fund's shares will be treated as a sale of the shares and any gain on the
transaction may be subject to tax.
Each fund reserves the right to:
- terminate or limit the exchange privilege of any shareholder who
makes more than four exchanges from a fund in one calendar year
- terminate or modify the exchange privilege after 60 days' written
notice to shareholders
Some Institutional Clients may not offer all of the Navigator Funds for
exchange.
Legg Mason Equity Funds 21
<PAGE>
[GRAPHIC]
DISTRIBUTIONS AND TAXES
----------------------------------------------------------------------------
Each fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which generally consists of net
investment income, any 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 capital gains and foreign currency gains annually.
Special Investment Trust, American Leading Companies Trust and Small-Cap
Value Trust declare and pay dividends from investment company taxable
income following the end of each taxable year.
Distributions of substantially all of each fund's net capital gain (the
excess of net long-term capital gain over net short-term capital loss)
are generally declared and paid after the end of the taxable year in
which the gain is realized. A second distribution may be necessary in
some years to avoid imposition of a federal excise tax.
Your dividends and other distributions will be automatically reinvested
in additional Navigator Shares of the distributing fund. If you wish to
begin receiving dividends and/or other distributions in cash, you must
notify the distributing fund at least 10 days before the next dividend
and/or other distribution is to be paid.
If the postal or other delivery service is unable to deliver your check,
your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
Fund dividends and other distributions are taxable to investors (other
than retirement plans and other tax-exempt investors) whether received in
cash or reinvested in additional Navigator Shares of the fund. Dividends
from net investment company taxable income are taxable as ordinary
income. Distributions of a fund's net capital gain are taxable as
long-term capital gain, regardless of how long you have held your fund
shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your
shares.
Each fund's dividend and interest income, and gains realized from
disposition of foreign securities, may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions.
A tax statement is sent to you at the end of each year detailing the tax
status of your distributions.
Each fund will withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the fund with a valid
taxpayer identification number. Each fund will also withhold 31% of all
dividends and capital gain distributions payable to such shareholders who
are otherwise subject to backup withholding.
Because each investor's tax situation is different, please consult your
tax adviser about federal, state and local tax considerations.
22 Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------
The financial highlights table is intended to help you understand each
fund's financial performance for the past five years or since its
inception. Total return represents the rate that an investor would have
earned (or lost) on an investment in a fund, assuming reinvestment of all
dividends and other distributions. Certain information reflects financial
results for a single fund share. For Value Trust, Total Return Trust and
Special Investment Trust, this information has been audited by their
independent accountants, PricewaterhouseCoopers LLP, whose report, along
with the funds' financial statements, is incorporated by reference into
the Statement of Additional Information (see back cover) and is included
in the annual report for these funds. For American Leading Companies
Trust and Small-Cap Value Trust, this information has been audited by
their independent auditors, Ernst & Young LLP, whose report, along with
the funds' financial statements, is incorporated by reference into the
Statement of Additional Information and is included in the annual report
for these funds. The annual reports are available upon request by calling
toll-free 1-800-822-5544.
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS
---------------------------------------------------------
NET NET REALIZED &
FOR THE NET ASSET INVESTMENT UNREALIZED TOTAL FROM
YEARS ENDED VALUE, INCOME GAIN (LOSS)ON INVESTMENT
MARCH 31, BEGINNING OF YEAR (LOSS) INVESTMENTS OPERATIONS
- ------------------------------------------------------------------------------------------
VALUE TRUST -- NAVIGATOR SHARES
1999 $ 50.57 $ .20 $ 25.13 $ 25.33
1998 34.30 .35 18.55 18.90
1997 27.08 .41 8.75 9.16
1996 20.27 .43 8.02 8.45
1995 (A) 18.76 .12 1.40 1.52
- ------------------------------------------------------------------------------------------
SPECIAL INVESTMENT TRUST -- NAVIGATOR SHARES
1999 $ 37.12 $ .03 $ 6.02 $ 6.05
1998 27.04 -- 11.58 11.58
1997 25.26 .02 3.17 3.19
1996 20.03 .09 5.78 5.87
1995 (A) 19.11 .07 .85 .92
- ------------------------------------------------------------------------------------------
TOTAL RETURN TRUST -- NAVIGATOR SHARES
1999 $ 24.87 $ .61 $ (2.36) $ (1.75)
1998 19.53 .66 7.29 7.95
1997 16.52 .65 3.48 4.13
1996 12.83 .62 3.72 4.34
1995 (A) 12.66 .15 .25 .40
- ------------------------------------------------------------------------------------------
AMERICAN LEADING COMPANIES TRUST -- NAVIGATOR SHARES
1999 (D) $ 17.95 $ .08 (B) $ .23 $ .31
1998 14.71 .10 (B) 4.99 5.09
1997 (E) 13.30 .07 (B) 1.94 2.01
- ------------------------------------------------------------------------------------------
SMALL-CAP VALUE TRUST -- NAVIGATOR SHARES
1999 (F) $ 9.92 $ .05 (C) $ (2.09) $ (2.04)
</TABLE>
Legg Mason Equity Funds 23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
DISTRIBUTIONS
------------------------------------------
FROM NET
FOR THE FROM NET REALIZED NET ASSET
YEARS ENDED INVESTMENT GAIN ON TOTAL VALUE,
MARCH 31, INCOME INVESTMENTS DISTRIBUTIONS END OF YEAR
- ---------------------------------------------------------------------------
VALUE TRUST -- NAVIGATOR SHARES
1999 $ -- $ (1.41) $ (1.41) $ 74.49
1998 (.31) (2.32) (2.63) 50.57
1997 (.41) (1.53) (1.94) 34.30
1996 (.40) (1.24) (1.64) 27.08
1995 (A) (.01) -- (.01) 20.27
- ---------------------------------------------------------------------------
SPECIAL INVESTMENT TRUST -- NAVIGATOR SHARES
1999 $ -- $ (2.66) $ (2.66) $ 40.51
1998 -- (1.50) (1.50) 37.12
1997 -- (1.41) (1.41) 27.04
1996 (.17) (.47) (.64) 25.26
1995 (A) -- -- -- 20.03
- ---------------------------------------------------------------------------
TOTAL RETURN TRUST -- NAVIGATOR SHARES
1999 $ (.65) $ (1.20) $ (1.85) $ 21.27
1998 (.58) (2.03) (2.61) 24.87
1997 (.56) (.56) (1.12) 19.53
1996 (.65) -- (.65) 16.52
1995 (A) (.06) (.17) (.23) 12.83
- ---------------------------------------------------------------------------
AMERICAN LEADING COMPANIES TRUST -- NAVIGATOR SHARES
1999 (D) $ -- $ (.46) $ (.46) $ 17.80
1998 -- (1.85) (1.85) 17.95
1997 (E) (.12) (.48) (.60) 14.71
- ---------------------------------------------------------------------------
SMALL-CAP VALUE TRUST -- NAVIGATOR SHARES
1999 (F) $ -- $ -- $ -- $ 7.88
</TABLE>
24 Legg Mason Equity Funds
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------
NET INVESTMENT
EXPENSES INCOME TO
FOR THE TO AVERAGE AVERAGE PORTFOLIO NET ASSETS,
YEARS ENDED TOTAL RETURN NET ASSETS NET ASSETS TURNOVER RATE END OF YEAR
MARCH 31, (%) (%) (%) (%) (THOUSANDS -- $)
- --------------------------------------------------------------------------------------------------------------------
VALUE TRUST -- NAVIGATOR SHARES
1999 51.33 .72 .6 19.3 814,403
1998 56.90 .73 .9 12.9 179,664
1997 34.97 .77 1.4 10.5 83,752
1996 43.53 .82 1.8 19.6 52,332
1995 (A) 8.11(G) .82(H) 1.8 (H) 20.1(H) 36,519
- --------------------------------------------------------------------------------------------------------------------
SPECIAL INVESTMENT TRUST --
NAVIGATOR SHARES
1999 18.01 .78 .1 47.8 71,492
1998 44.42 .80 -- 29.8 63,299
1997 12.81 .85 .1 29.2 41,415
1996 29.85 .88 1.0 35.6 35,731
1995 (A) 4.81(G) .90(H) 1.0 (H) 27.5(H) 26,123
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN TRUST -- NAVIGATOR
SHARES
1999 (7.18) .82 2.7 44.2 15,275
1998 43.94 .83 3.1 20.6 17,792
1997 25.67 .86 3.7 38.4 10,048
1996 34.67 .94 4.2 34.7 7,058
1995 (A) 2.28(G) .86(H) 3.6 (H) 61.9(H) 4,823
- --------------------------------------------------------------------------------------------------------------------
AMERICAN LEADING COMPANIES TRUST -- NAVIGATOR SHARES
1999 (D) 1.84(G) .94(B,H) .65(B,H) 47.6(H) --
1998 36.68 .93(B) .74(B) 51.4 82
1997 (E) 15.16(G) .86(B,H) .98(B,H) 55.7(H) 55
- --------------------------------------------------------------------------------------------------------------------
SMALL-CAP VALUE TRUST -- NAVIGATOR
SHARES
1999 (F) (20.56)(G) .90(C,H) .71(C,H) 29.5(H) 40
</TABLE>
(a) For the period December 1, 1994 (commencement of sale of Navigator Shares)
to March 31, 1995.
(b) Net of fees waived by LMFA in excess of a voluntary expense limitation of
.95% of average daily net assets. If no fees had been waived by LMFA, the
annualized ratio of expenses to average daily net assets for the period
October 4, 1996 to March 31, 1997, for the year ended March 31, 1998, and
for the period ended December 3, 1998, would have been 0.97%, 0.98% and
0.95%, respectively.
(c) Net of fees waived by LMFA in excess of a voluntary expense limitation of
1.00% of average daily net assets. If no fees had been waived by LMFA, the
annualized ratio of expenses to average daily net assets for the period June
19, 1998 to March 31, 1999, would have been 1.28%.
(d) American Leading Companies Navigator Shares were redeemed on December 3,
1998, and information is for the period then ended.
(e) For the period October 4, 1996 (commencement of sale of Navigator Shares) to
March 31, 1997.
(f) For the period June 19, 1998 (commencement of sale of Navigator Shares) to
March 31, 1997.
(g) Not annualized
(h) Annualized
Legg Mason Equity Funds 25
<PAGE>
LEGG MASON EQUITY FUNDS
---------------------------------------------------------------------
The following additional information about each fund is available upon
request and without charge:
STATEMENT OF ADDITIONAL INFORMATION(SAI) - the SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by reference
into (is considered part of) this prospectus. The SAI provides additional
details about each fund and its policies.
ANNUAL AND SEMIANNUAL REPORTS - additional information about each fund's
investments is available in the funds' annual and semiannual reports to
shareholders. These reports provide detailed information about each
fund's portfolio holdings and operating results.
TO REQUEST THE SAI OR ANY REPORTS TO SHAREHOLDERS, OR TO OBTAIN MORE
INFORMATION:
- call toll-free 1-800-822-5544
- visit us on the Internet via http://www.leggmason.com
- write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the funds, including the SAI, can be reviewed and
copied at the SEC's public reference room in Washington, DC (phone
1-800-SEC-0330). Reports and other information about the funds are
available on the SEC's Internet site at http://www.sec.gov. Investors may
also write to: SEC, Public Reference Section, Washington, DC 20549-6009.
A fee will be charged for making copies.
