LEGG MASON
EQUITY FUNDS
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LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES TRUST
LEGG MASON BALANCED TRUST
LEGG MASON U.S. SMALL-CAPITALIZATION VALUE TRUST
PRIMARY SHARES PROSPECTUS July 31, 1999
[GRAPHIC]
LEGG
MASON
FUNDS
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
9 Principal risks
14 Performance
19 Fees and expenses of the funds
21 Management
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About your investment:
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25 How to invest
27 How to sell your shares
28 Account policies
29 Services for investors
30 Distributions and taxes
32 Financial highlights
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LEGG MASON EQUITY FUNDS
[GRAPHIC]
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").
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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.
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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.
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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").
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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
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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.
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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
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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
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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.
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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.
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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.
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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
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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.
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[GRAPHIC]
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.
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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.
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
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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.
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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.
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
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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.
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[GRAPHIC]
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 Primary
shares of Value Trust, Total Return Trust, Special Investment Trust, American
Leading Companies Trust, and Balanced Trust by showing changes in their
performance from year to year. Performance information is not provided for
Small-Cap Value Trust because as of December 31, 1998 the fund had not been in
operation for a full 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.
VALUE TRUST -- PRIMARY SHARES
Year by year total return as of December 31 of each year (%)*
[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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20.19 (16.95) 34.73 11.44 11.26 1.39 40.76 38.43 37.05 48.04
*The fund's year-to-date total return as of June 30, 1999 is 18.00%.
</TABLE>
During the ten calendar years ending December 31, 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: December 31, 1998 +35.86%
Worst quarter: September 30, 1998 -21.28%
</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> <C> <C>
1 Year 5 Years 10 Years Life of Class
- --------------------- ------------ ------------ ------------ --------------------
Value Trust --
Primary Shares +48.04% +32.01% +20.92% +21.38%(a)
S&P 500 Index +28.58% +24.06% +19.21% +18.94%(b)
</TABLE>
(a) April 16, 1982 (commencement of operations) to December 31, 1998.
(b) April 30, 1982 to December 31, 1998.
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TOTAL RETURN TRUST -- PRIMARY SHARES
[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------
16.37 (16.82) 40.48 14.32 14.08 (7.12) 30.36 31.14 37.50 (0.39)
</TABLE>
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)*
*The fund's year-to-date total return as of June 30, 1999 is 8.06%.
During the ten calendar years ending December 31, 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: March 31, 1991 +14.35%
Worst quarter: September 30, 1990 -18.90%
</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> <C>
1 Year 5 Years 10 Years Life of Class
- ---------------------------- ----------- ------------ ------------ --------------------
Total Return Trust --
Primary Shares -0.39% +16.81% +14.45% +12.02%(a)
S&P 500 Index +28.58% +24.06% +19.21% +18.12%(b)
</TABLE>
(a) November 21, 1985 (commencement of operations) to December 31,
1998.
(b) November 30, 1985 to December 31, 1998.
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SPECIAL INVESTMENT TRUST -- PRIMARY SHARES
Year by year total return as of December 31 of each year (%)*
[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------
32.08 0.52 38.44 15.36 24.13 (13.07) 22.50 28.85 22.12 23.31
</TABLE>
*The fund's year-to-date total return as of June 30, 1999 is 14.14%.
During the ten calendar years ending December 31, 1998:
<TABLE>
<S> <C> <C>
Quarter Ended Total Return
- --------------------- ----------------------- --------------------
Best quarter: December 31, 1998 +40.13%
Worst quarter: September 30, 1998 -20.49%
</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> <C>
1 Year 5 Years 10 Years Life of Class
- ------------------------ ------------ ------------ ------------ --------------------
Special Investment
Trust -- Primary
Shares +23.31% +15.58% +18.52% +15.18%(a)
S&P 500 Index +28.58% +24.06% +19.21% +17.76%(b)
</TABLE>
(a) December 30, 1985 (commencement of operations) to December 31,
1998.
(b) December 31, 1985 to December 31, 1998.
Legg Mason Equity Funds
16
<PAGE>
AMERICAN LEADING COMPANIES TRUST -- PRIMARY SHARES
Year by year total return as of December 31 of each year (%)*
[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1994 1995 1996 1997 1998
- -----------------------------------------------
(4.19) 22.94 28.36 23.75 21.33
</TABLE>
*The fund's year-to-date total return as of June 30, 1999 is 14.00%.
During the five calendar years 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 Trust --
Primary Shares +21.33% +17.82% +16.79%(a)
S&P 500 Index +28.58% +24.06% +22.78%(b)
</TABLE>
(a) September 1, 1993 (commencement of operations) to December 31,
1998.
(b) September 30, 1993 to December 31, 1998.
Legg Mason Equity Funds
17
<PAGE>
BALANCED TRUST -- PRIMARY SHARES
Year by year total return as of December 31 of each year (%)*
[BAR GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1997 1998
----------------
18.71 5.60
*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 Index +28.58% +31.69%(b)
</TABLE>
(a) October 1, 1996 (commencement of operations) to December 31, 1998.
(b) September 30, 1996 to December 31, 1998.
Legg Mason Equity Funds
18
<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
funds have no initial sales charge but are subject to 12b-1 fees.
The fees shown are current fees, and the expenses shown are based on
expenses for the fiscal year ended March 31, 1999. The fees and
expenses are calculated as a percentage of average net assets.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------------------------------------------
American
Total Special Leading Small-Cap
Value Return Investment Companies Balanced Value
Trust Trust Trust Trust Trust Trust
- --------------------------------- ----- ----- ----- ----- ----- -----
Management fees (a) 0.67% 0.75% 0.73% 0.75% 0.75% 0.85%
Distribution and
Service (12b-1) fees 0.95% 1.00% 1.00% 1.00% 0.75% 1.00%
Other expenses 0.07% 0.12% 0.11% 0.18% 0.40% 0.53%
- --------------------------------- ----- ----- ----- ----- ----- -----
Total Annual Fund
Operating Expenses (a) 1.69% 1.87% 1.84% 1.93% 1.90% 2.38%
</TABLE>
(a) The manager has a voluntary agreement to waive fees so that
Primary Share expenses (exclusive of taxes, interest, brokerage and
extraordinary expenses) do not exceed the following annual rates of
average daily net assets: for Total Return Trust and American Leading
Companies Trust, 1.95% indefinitely; for Balanced Trust, 1.85% until
July 31, 2000; and for Small-Cap Value Trust, 2.00% until July 31,
2000. These agreements are voluntary and may be terminated by Legg
Mason Fund Adviser at any time. With these waivers, management fees
and total annual fund operating expenses were 0.70% and 1.85% for
Balanced Trust and 0.47% and 2.00% for Small-Cap Value Trust. During
the fiscal year ended March 31, 1999, no fee waivers were necessary
for Total Return Trust or American Leading Companies Trust.
Legg Mason Equity Funds
19
<PAGE>
---------------------------------------------------------------------
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 the fund, assuming (1) a 5% return each year,
(2) the fund's operating expenses remain the same as shown in the
table above, and (3) you redeem all of your shares at the end of the
time periods shown. 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 $ 172 $ 533 $ 918 $ 1,998
Total Return Trust $ 190 $ 588 $ 1,011 $ 2,190
Special Investment Trus t $ 187 $ 579 $ 995 $ 2,159
American Leading
Companies Trust $ 196 $ 606 $ 1,042 $ 2,254
Balanced Trust $ 193 $ 597 $ 1,026 $ 2,222
Small-Cap Value Trust $ 241 $ 742 $ 1,270 $ 2,716
</TABLE>
20
Legg Mason Equity Funds
<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.
Legg Mason Equity Funds
21
<PAGE>
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 $3.0 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.
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
22
Legg Mason Equity Funds
<PAGE>
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 Managing 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. Uible is a member of Bartlett's Management Committee, and Mr.
Rabiner and Mr. Uible are members of Bartlett's 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 each fund's shares:
Legg Mason Wood Walker, Incorporated, 100 Light Street, Baltimore,
Maryland 21202, is the distributor of each fund's shares. Each fund
has adopted a plan that allows it to pay distribution fees and
shareholder service fees for the sale of its shares and for services
provided to shareholders. Under each plan, a fund may pay the
distributor an annual distribution fee equal to 0.75% of the fund's
average daily net assets (0.70% for Value Trust and 0.50% for Balanced
Trust) and an annual service fee equal to 0.25% of its average daily
net assets attributable to Primary Shares.
Because these fees are paid out of each fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Legg Mason Equity Funds
23
<PAGE>
The distributor may enter into agreements with other brokers to sell
Primary Shares of each fund. The distributor pays these brokers up to
90% of the distribution and service fee that it receives from a fund
for those sales.
The advisers and distributor are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.
24
Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
HOW TO INVEST
--------------------------------------------------------------------------
To open a regular account or a retirement account with one or more of the
funds, contact a Legg Mason financial advisor or other entity that has entered
into an agreement with the funds' distributor to sell shares of the Legg Mason
family of funds. A Legg Mason financial advisor will explain the shareholder
services available from the funds and answer any questions you may have. The
minimum initial investment is $1,000 and the minimum for each purchase of
additional shares is $100, except as noted below.
Retirement accounts include traditional IRAs, spousal IRAs, education IRAs,
Roth IRAs, simplified employee pension plans, savings incentive match plans
for employees and other qualified retirement plans. Contact your Legg Mason
financial advisor or other entity offering the funds to discuss which one
might be appropriate for you.
<TABLE>
<S> <C>
Once your account is open, you may use the following methods to add to your
account:
- ------------------------------------------------------------------------------------------------------------------
In Person Give your financial advisor a check for $100 or more payable to the fund
- --------------------- -------------------------------------------------------------------------------------------
Mail Mail your check, payable to the fund, for $100 or more to your financial advisor
- --------------------- -------------------------------------------------------------------------------------------
Telephone or Call your financial advisor to transfer available cash balances in your brokerage account
Wire or to transfer money from your bank directly to Legg Mason. Wire transfers may be
subject to a service charge by your bank.
- --------------------- -------------------------------------------------------------------------------------------
Future First Contact your Legg Mason financial advisor to enroll in Legg Mason's Future First Systematic
Systematic Investment Plan. Under this plan, you may arrange for automatic monthly
Investment Plan investments in a fund of $50 or more. The fund's transfer agent will transfer funds
monthly from your Legg Mason account or from your checking account to purchase shares of
that fund.
- --------------------- ------------------------------------------------------------------------------------------
Automatic Arrangements may be made with some employers and financial institutions for regular
Investments automatic monthly investments of $50 or more in shares of a fund. You may also
reinvest dividends from certain unit investment trusts in shares of a fund.
- --------------------- ------------------------------------------------------------------------------------------
</TABLE>
Call your financial advisor or another entity offering the funds for sale with
any questions regarding the investment options above.
Certain investment methods may be subject to lower minimum initial and
additional investments.
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities.
You should consult their program literature for further information.
Legg Mason Equity Funds
25
<PAGE>
Purchase orders received by your financial advisor or the entity offering the
funds 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 Legg Mason.
Navigator Shares are offered through a separate prospectus only to certain
investors.
26
Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
HOW TO SELL YOUR SHARES
--------------------------------------------------------------------------
Redemptions made through entities other than Legg Mason may be subject
to transaction fees or other conditions imposed by those entities. You
should consult their program literature for further information.
<TABLE>
<S> <C>
Any of the following methods may be used to sell your shares:
Telephone Call your Legg Mason financial advisor or entity offering the fund
and request a redemption. Please have the following information
ready when you call: the name of the fund, the number of shares
(or dollar amount) to be redeemed and your shareholder account
number.
Proceeds will be credited to your brokerage account or a check
will be sent to you, at your direction, at no charge to you. Wire
requests will be subject to a fee of $18. Be sure that your
financial advisor has your bank account information on file.
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.
Mail Send a letter to the fund requesting redemption of your shares.
The letter should be signed by all of the owners of the account
and their signatures guaranteed without qualification. You may
obtain a signature guarantee from most banks or securities
dealers.
</TABLE>
Your order will be processed promptly and you will generally receive
the proceeds within a week. Fund shares will be sold at the next net
asset value calculated after your redemption request is received by
your Legg Mason financial advisor or another entity.
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.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
Legg Mason Equity Funds
27
<PAGE>
[GRAPHIC]
ACCOUNT POLICIES
--------------------------------------------------------------------------
Calculation of Net Asset Value:
Net asset value per Primary 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 Primary Share price, the
fund's assets attributable to Primary Shares are valued and totaled,
liabilities attributable to Primary Shares are subtracted, and the
resulting net assets are divided by the number of Primary 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.
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 the adviser to be the primary market. Securities with
remaining maturities of 60 days or less are valued at amortized cost.
The 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.
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.
28
Legg Mason Equity Funds
<PAGE>
[GRAPHIC]
SERVICES FOR INVESTORS
--------------------------------------------------------------------------
For further information regarding any of the services below, please
contact your financial advisor or other entity offering the funds for
sale.
Confirmations and Account Statements:
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends or
capital gain distributions and purchases made through the Future First
Systematic Investment Plan or through automatic investments). Legg
Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account.
Legg Mason will send you statements quarterly if there has been no
activity in your account, if you participate in the Future First
Systematic Investment Plan or if you purchase shares through automatic
investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares with a net asset value of
$5,000 or more, you may elect to make systematic withdrawals from the
fund. The minimum amount for each withdrawal is $50. If you are making
withdrawals from a fund pursuant to the systematic withdrawal plan,
then you should not purchase shares of that fund.
Exchange Privilege:
Primary fund shares may be exchanged for Primary Shares of any of the
other Legg Mason funds, provided these funds are eligible for sale in
your state of residence. You can request an exchange in writing or by
phone. Be sure to read the current prospectus for any fund into which
you are exchanging.
There is currently no fee for exchanges; however, you may be subject
to a sales charge when exchanging into a fund that has one. In
addition, an exchange of 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 the fund in one
calendar year
- terminate or modify the exchange privilege after 60 days'
written notice to shareholders
Legg Mason Equity Funds
29
<PAGE>
[GRAPHIC]
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------
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 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 Primary 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 most investors
(other than retirement plans and other tax-exempt investors) whether
received in cash or reinvested in additional shares of the fund.
Dividends from 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.
30
Legg Mason Equity Funds
<PAGE>
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.
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 or who are otherwise
subject to backup withholding. 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.
Legg Mason Equity Funds
31
<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 of 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,
Balanced 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.
32
Legg Mason Equity Funds
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Investment Operations
----------------------------------------------------------
Net Net Realized &
For the Net Asset Investment Unrealized Gain Total From
Years Ended Value, Income (Loss) On Investment
Mar. 31, Beginning of Year (Loss) Investments Operations
- -------------- --------------------- -------------- --------- ---------
Value Trust -- Primary Shares
1999 $ 50.10 $ (.18) $ 24.58 $ 24.40
1998 34.11 (.02) 18.37 18.35
1997 26.99 .13 8.68 8.81
1996 20.21 .19 8.00 8.19
1995 18.50 .10 1.70 1.80
- ----- ---------- -------------- ---------- ----------
Special Investment Trust -- Primary Shares
1999 $ 36.02 $ (.32) $ 5.78 $ 5.46
1998 26.55 (.31) 11.28 10.97
1997 25.09 (.23) 3.10 2.87
1996 19.96 -- 5.60 5.60
1995 21.56 (.06) (1.31) (1.37)
- ----- ---------- -------------- ---------- ----------
Total Return Trust -- Primary
Shares
1999 $ 24.63 $ .38 $ (2.35) $ (1.97)
1998 19.39 .44 7.23 7.67
1997 16.45 .46 3.47 3.93
1996 12.79 .48 3.69 4.17
1995 13.54 .33 (.19) .14
- ----- ---------- -------------- ---------- ----------
American Leading Companies Trust -- Primary Shares
1999 $ 17.78 $ (.06) $ 3.38 $ 3.32
1998 14.74 (.04)(a) 4.93 4.89
1997 12.23 .01 (a) 3.00 3.01
1996 10.18 .07 (a) 2.08 2.15
1995 9.69 .12 (a) .48 .60
- ----- ---------- -------------- ---------- ----------
Balanced Trust -- Primary Shares
1999 $ 12.62 $ .22 (b) $ (.56) $ (.34)
1998 10.16 .21 (b) 2.58 2.79
1997 (d) 10.00 .09 (b) .11 .20
- ----- ---------- -------------- ---------- ----------
U.S. Small-Cap Value Trust -- Primary Shares
1999 (e) $ 10.00 $ (.02)(c) $ (2.17) $ (2.19)
</TABLE>
Legg Mason Equity Funds
33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Distributions
--------------
From Net
For the From Net Realized Net Asset
Years Ended Investment Gain on Total Value,
Mar. 31, Income Investments Distributions End of Year
- -------------- --------- --------- -------- ----------------
Value Trust -- Primary
Shares
1999 $ -- $ (1.41) $ (1.41) $ 73.09
1998 (.04) (2.32) (2.36) 50.10
1997 (.16) (1.53) (1.69) 34.11
1996 (.17) (1.24) (1.41) 26.99
1995 (.05) (.04) (.09) 20.21
- ----- --------- --------- --------- ---------
Special Investment Trust -- Primary
Shares
1999 $ -- $ (2.66) $ (2.66) $ 38.82
1998 -- (1.50) (1.50) 36.02
1997 -- (1.41) (1.41) 26.55
1996 -- (.47) (.47) 25.09
1995 -- (.23) (.23) 19.96
- ----- --------- --------- --------- --------
Total Return Trust --
Primary Shares
1999 $ (.38) $ (1.20) $ (1.58) $ 21.08
1998 (.40) (2.03) (2.43) 24.63
1997 (.43) (.56) (.99) 19.39
1996 (.51) -- (.51) 16.45
1995 (.29) (.60) (.89) 12.79
- ----- --------- --------- --------- --------
American Leading Companies Trust --
Primary Shares
1999 $ -- $ (.72) $ (.72) $ 20.38
1998 -- (1.85) (1.85) 17.78
1997 (.02) (.48) (.50) 14.74
1996 (.10) -- (.10) 12.23
1995 (.11) -- (.11) 10.18
- ----- --------- --------- --------- ---------
Balanced Trust -- Primary
Shares
1999 $ (0.19) $ (.11) $ (.30) $ 11.98
1998 (.21) (.12) (.33) 12.62
1997 (d) (.04) -- (.04) 10.16
- ----- --------- --------- -------- ----------
U.S. Small-Cap Value Trust -- Primary Shares
1999 (e) $ -- $ -- $ -- $ 7.81
</TABLE>
34
Legg Mason Equity Funds
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------------
Net Investment
Expenses Income
For the to Average to Average Portfolio Net Assets,
Years Ended Total Return Net Assets Net Assets Turnover Rate End of Year
Mar. 31, (%) (%) (%) (%) (thousands -- $)
- -------------- ------------- -------------- ------------- --------- ----------------
Value Trust -- Primary Shares
1999 49.93 1.69 (.4) 19.3 10,097,527
1998 55.34 1.73 (.1) 12.9 4,810,409
1997 33.59 1.77 .4 10.5 2,236,400
1996 42.09 1.82 .8 19.6 1,450,774
1995 9.77 1.81 .5 20.1 986,325
- ----- ------------ ------------- ----------- -------- ------------
Special Investment Trust -- Primary Shares
1999 16.85 1.84 (1.0) 47.8 1,850,289
1998 42.88 1.86 (1.1) 29.8 1,555,336
1997 11.58 1.92 (.9) 29.2 947,684
1996 28.47 1.96 -- 35.6 792,240
1995 (6.37) 1.93 (.2) 27.5 612,093
- ----- ------------ ------------- ----------- -------- ------------
Total Return Trust -- Primary Shares
1999 (8.13) 1.87 1.7 44.2 565,317
1998 42.44 1.88 2.1 20.6 700,535
1997 24.33 1.93 2.6 38.4 380,458
1996 33.23 1.95 3.2 34.7 267,010
1995 1.09 1.93 2.5 61.9 194,767
- ----- ------------ ------------- ----------- -------- ------------
American Leading Companies Trust -- Primary Shares
1999 19.52 1.93 (.37) 47.6 288,957
1998 35.18 1.95(a) (.28)(a) 51.4 200,326
1997 24.73 1.95(a) .05(a) 55.7 104,812
1996 21.24 1.95(a) .69(a) 43.4 76,100
1995 6.24 1.95(a) 1.21(a) 30.5 59,985
- ----- ------------ ------------- ----------- -------- ------------
Balanced Trust -- Primary Shares
1999 (2.69) 1.85(b) 1.96(b) 50.0 55,900
1998 27.80 1.85(b) 2.08(b) 34.5 47,761
1997 (d) 2.02(f) 1.85(b,g) 2.52(b,g) 5.1(g) 17,948
- ----- ------------ ------------- ----------- -------- ------------
U.S. Small-Cap Value Trust -- Primary Shares
1999 (e) (21.90)(f) 2.00(c,g) (.44)(c,g) 29.5(g) 58,365
</TABLE>
Legg Mason Equity Funds
35
<PAGE>
(a) 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 LMFA, the annualized
ratio of expenses to average daily net assets for the years ended March 31,
1995, 1996, 1997 and 1998 would have been 2.12%, 2.20%, 2.06%, and 1.99%,
respectively.
(b) 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 LMFA, the annualized
ratio of expenses to average daily net assets for the period October 1, 1996
to March 31, 1997, and for the years ended March 31, 1998 and 1999 would
have been 3.03%, 2.14% and 1.90%, respectively.
(c) Net of fees waived in excess of a voluntary expense limitation of 2.00% 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 15, 1998
to March 31, 1999 would have been 2.38%.
(d) For the period October 1, 1996 (commencement of operations) to March 31,
1997.
(e) For the period June 15, 1998 (commencement of operations) to March 31, 1999.
(f) Not annualized
(g) Annualized
Legg Mason Equity Funds
36
<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 each fund, including the SAI, can be reviewed and
copied at the SEC's public reference room in Washington, DC (phone
1-800-SEC-0330). Reports and other information about each fund are
available on the SEC's Internet site at http://www.sec.gov. Investors
may also write to: SEC, Public Reference Section, Washington, DC
20549-6009. The SEC charges a fee for making copies.
LMF-001SEC file numbers: 811-3380; 811-4308; 811-4451; 811-7692
