LEGG MASON VALUE TRUST INC
485BPOS, 2001-01-19
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    As filed with the Securities and Exchange Commission on January 19, 2001.

                            1933 Act File No. 2-75766
                           1940 Act File No. 811-3380

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM N-lA

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933           [X]
                       Pre-Effective Amendment No:                [ ]
                       Post-Effective Amendment No: 30            [X]

                                       and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940   [X]
                                Amendment No: 31

                          LEGG MASON VALUE TRUST, INC.
               (Exact Name of Registrant as Specified in Charter)

                                100 Light Street
                            Baltimore, Maryland 21202
                    (Address of Principal Executive Offices)

       Registrant's Telephone Number, including Area Code: (410) 539-0000

                                   Copies to:

MARC R. DUFFY, ESQ.                               ARTHUR C. DELIBERT, ESQ.
Legg Mason Wood Walker, Incorporated              Kirkpatrick & Lockhart LLP
100 Light Street                                  1800 Massachusetts Ave., N.W.
Baltimore, Maryland  21202                        Second Floor
(Name and Address of Agent for Service)           Washington, D.C. 20036-1800

It is proposed that this filing will become effective:

[ ]  immediately upon filing pursuant to Rule 485(b)
[X]  on January 21, 2001 pursuant to Rule 485(b)
[ ]  60 days after filing pursuant to Rule 485(a)(i)
[ ]  on , 2001 pursuant to Rule 485(a)(i)
[ ]  75 days after filing pursuant to Rule 485(a)(ii)
[ ]  on , 2001 pursuant to Rule 485(a)(ii)

If appropriate, check the following box:
[ ]  This  post-effective  amendment  designates  a  new  effective  date  for a
previously filed post-effective amendment.

<PAGE>

                          Legg Mason Value Trust, Inc.

                       Contents of Registration Statement


This registration statement consists of the following papers and documents:

Cover Sheet

Contents of Registration Statement

Legg Mason Value Trust, Inc.
Part A - Institutional Class and Financial Intermediary Class Prospectus

Part B -Statement of Additional Information
Primary Class, Institutional Class and Financial Intermediary Class Shares

Part C -Other Information

Signature Page

<PAGE>

Legg Mason Equity Funds Institutional and Financial Intermediary Class Shares
-----------------------------------------------------------------------------

Institutional Class and Financial  Intermediary Class of Legg Mason Value Trust,
 Inc.

Institutional  Class and  Financial  Intermediary  Class of Legg  Mason  Special
 Investment Trust, Inc.

Institutional Class and Financial  Intermediary Class of Legg Mason Total Return
 Trust, Inc.

Institutional Class of Legg Mason American Leading Companies Trust

Institutional  Class and  Financial  Intermediary  Class of Legg Mason  Balanced
 Trust

Institutional Class of Legg Mason U.S. Small-Capitalization Value Trust

Institutional Class of Legg Mason Financial Services Fund




         INSTITUTIONAL CLASS AND FINANCIAL INTERMEDIARY CLASS PROSPECTUS
         January 21, 2001
         logo




As with all mutual funds, the Securities and Exchange  Commission has not passed
upon the  accuracy  or  adequacy  of this  prospectus,  nor has it  approved  or
disapproved these securities. It is a criminal offense to state otherwise.

<PAGE>

T A B L E         O F      C 0 N T E N T S

A b o u t  t h e  f u n d s:
--------------------------------------------------------------------------------

           2     Investment objectives

           8     Principal risks

          11     Performance

          16     Fees and expenses of the funds

          18     Management

A b o u t  y o u r  i n v e s t m e n t:
--------------------------------------------------------------------------------

          21     How to invest

          24     How to sell your shares

          26     Account policies

          27     Services for investors

          28     Distributions and taxes

          29     Financial highlights

                                       1

<PAGE>

LEGG MASON EQUITY FUNDS

[icon]  I N V E S T M E N T  O B J E C T I V E S

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  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 limited  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  fund's  adviser  may  decide  to  sell   securities   given  a  variety  of
circumstances, such as when a security no longer appears to the adviser to offer
the potential for long-term  growth of capital,  when an investment  opportunity
arises that the  adviser  believes is more  compelling,  or to realize  gains or
limit losses.

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  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.  If  the  fund  invests
substantially  in such  instruments,  the fund may not be pursuing its principal
investment strategies and the fund may not achieve its investment objective.

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  capitalizations  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

                                       2

<PAGE>

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 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 limited  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. If the fund invests
substantially  in such  instruments,  the fund may not be pursuing its principal
investment strategies and the fund may not achieve its investment objective.

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 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
limited  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 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  rated  below
investment grade, commonly referred to as junk bonds.

                                       3

<PAGE>

The fund may invest in money market securities for temporary defensive purposes,
or when cash is temporarily available. If the fund invests substantially in such
instruments,  the fund may not be pursuing its principal  investment  strategies
and the fund may not  achieve  its  investment  objective.  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.

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
Standard & Poor's 500 Index ("S&P 500 Index").

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 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 limited  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, Inc. ("S&P") or Moody's Investor's Service, Inc. ("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.  If the fund
invests  substantially  in such  instruments,  the fund may not be pursuing  its
principal  investment  strategies  and the fund may not achieve  its  investment
objective.

                                       4

<PAGE>

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  rated  below BBB or Baa,
commonly known as "junk bonds," 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   benchmark,    Lehman   Brothers    Intermediate
Government/Corporate  Index.  Duration  is a measure  of a bond or fixed  income
portfolio's  sensitivity to changes in interest rates. During periods of falling
interest rates a portfolio  with a shorter  duration will generally not generate
as  high a  level  of  total  return  as a  portfolio  with a  longer  duration.
Conversely,  when interest rates rise a portfolio  with a shorter  duration will
generally outperform longer duration portfolios.

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 are 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.

                                       5

<PAGE>

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 equity  securities  of  domestic
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 their 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. If the fund invests substantially in such instruments, the fund may
not be pursuing its principal investment strategies and the fund may not achieve
its  investment  objective.  The adviser does not currently  intend to invest in
foreign securities.

LEGG MASON FINANCIAL SERVICES FUND

Investment objective: long-term growth of capital.

Principal investment strategies:

The  fund's  adviser,  under  normal  circumstances,   concentrates  the  fund's
investments by investing at least 65% of the fund's assets in equity  securities
of issuers in the financial  services  industry that it believes are undervalued
and thus may offer above  average  potential  for capital  appreciation.  Equity
securities  include common stocks,  preferred  stocks,  convertible  securities,
rights and warrants.

Financial services companies include, but are not limited to:

o        regional and money center banks

o        securities brokerage firms

o        asset management companies

o        savings banks and thrift institutions

o        specialty finance companies (e.g., credit card, mortgage providers)

                                       6

<PAGE>

o        insurance and insurance brokerage firms

o        government sponsored agencies, such as Sallie Mae

o        financial conglomerates

o        foreign financial  services  companies (limited to 25% of total assets,
         not including ADRs).

Investments  may also  include  companies  that  derive  more  than 50% of their
revenues  from  providing  products  and  services  to  the  financial  services
industry,  including  software,  hardware,  publishing,  news  services,  credit
research and ratings services, internet services and business services.

The adviser believes the financial  services industry is undergoing many changes
due to legislative  reform and the shifting  demographics of the population.  In
deciding  what  securities  to buy, the adviser  analyzes an issuer's  financial
statements  to  determine  earnings per share  potential.  It also  reviews,  as
appropriate,  the economy where the issuer does business,  the products offered,
its  potential  to benefit from  industry  changes and the strength and goals of
management.

The  adviser  will sell a security  in the  fund's  portfolio  if that  security
experiences earnings problems.

For  temporary  defensive  purposes,  the fund may hold all or a portion  of its
assets in money market instruments, cash equivalents,  short-term government and
corporate   obligations   or   repurchase   agreements.   If  the  fund  invests
substantially  in such  instruments,  the fund may not be pursuing its principal
investment strategies and the fund may not achieve its investment objective.

                                       7

<PAGE>

[icon]   P R I N C I P A L  R I S K S

In general:

There is no assurance that a fund will meet its investment objective;  investors
could  lose  money by  investing  in the funds.  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:

Stock prices generally  fluctuate more than those of other  securities,  such as
debt  securities.  Market risk, the risk that prices of securities  will go down
because of the interplay of market forces, may affect a single issuer,  industry
or  section of the  economy  or may  affect  the  market as a whole.  A fund may
experience a substantial or complete loss on an individual stock.

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.

Concentration risk - Financial Services Fund:

The  Financial  Services  Fund invests  primarily in securities in the financial
services  industry.  A fund  concentrating  most of its  investments in a single
industry will be more susceptible to factors adversely  affecting issuers within
that industry than would a more diversified portfolio of securities.

Financial services companies are subject to extensive government regulation, and
their prospects may be affected by new regulations or regulatory interpretations
that  impede  particular  lines of  business.  The  profitability  of  financial
services  companies is dependent on the  availability and cost of funds, and can
fluctuate significantly when interest rates change.  Economic downturns,  credit
losses and severe price competition can negatively affect this industry.  Recent

                                       8

<PAGE>

federal  legislation  permits  increased  competition  among financial  services
companies.  The  impact  of this  change  on any  individual  company  or on the
industry as a whole cannot be predicted.

Company risk - Special Investment Trust:

Special Investment Trust may invest  significantly 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:

Investments in foreign securities  (including those denominated in U.S. dollars)
involve  certain risks not typically  associated  with  investments  in domestic
issuers.  These risks can include  political and economic  instability,  foreign
taxation  issues,  different  or lower  standards  in  accounting,  auditing and
financial reporting,  less-developed  securities regulation and trading systems,
fluctuations in foreign currency exchange rates, and the risk that a country may
impose controls on the exchange or repatriation of foreign currency. 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.

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:

Debt securities are subject to interest rate risk, which is the possibility that
the market  prices of the funds'  investments  may decline due to an increase in
market  interest  rates.  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 BBB/Baa or better,  and unrated  securities  considered by
the fund's adviser to be of equivalent quality, are considered investment grade.
Debt  securities  rated below BBB/Baa,  which the fund may purchase from time to
time, 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.  Special  Investment  Trust may be especially  affected by the risks
involved with investing in debt securities  rated below  investment  grade as it
may invest up to 35% of its net assets in such securities.

                                       9

<PAGE>

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
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.

                                       10

<PAGE>

[icon]   P E R FOR M A N C E

Each fund offers  Primary Class shares and  Institutional  Class  shares.  Value
Trust,  Special  Investment  Trust,  Total Return Trust, and Balanced Trust also
offer  Financial  Intermediary  Class shares and Financial  Services Fund offers
Class A shares.  Primary Class and Class A shares are offered through a separate
prospectus.  Prior to November 17, 2000, Institutional Class shares of the Funds
were known as Navigator  Class shares.  As of the date of this  prospectus,  the
Financial  Intermediary  Class of Special  Investment Trust, Total Return Trust,
and  Balanced  Trust had not  commenced  operations.  All  classes of a fund are
invested in the same  portfolio of  securities,  and the annual returns for each
class of shares  would  differ only to the extent that the  Institutional  Class
would pay lower  expenses,  and  therefore  would  generally be expected to have
higher  returns  than  Primary  Class  or  Financial   Intermediary  Class.  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 distributions.  Historical performance of a
fund does not necessarily indicate what will happen in the future.


VALUE TRUST - INSTITUTIONAL CLASS SHARES

Year by year total return as of December 31 of each year (%)

1995     42.18
1996     39.82
1997     38.49
1998     49.40
1999     27.99
2000     -6.24

                       During the past six calendar years:

                                    Quarter Ended              Total Return
                                    -------------              ------------
Best quarter:                   December 31, 1998                   +36.15%
Worst quarter:                  September 30,1998                   -11.47%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index,  a  broad-based  unmanaged
index of common stocks, commonly used to measure general stock market activity.

--------------------------------------------------------------------------------
                                  1 Year          5 Years      Life Of Class
--------------------------------------------------------------------------------
Value Trust--Institutional
Class                             -6.24%          +28.26%         +30.36%(a)
--------------------------------------------------------------------------------
S&P 500 Index                     -9.10%          +18.33%         +21.31%(b)
--------------------------------------------------------------------------------

(a)      December 1, 1994 (commencement of operations of this class) to December
         31, 2000.

(b)      November 30, 1994 to December 31, 2000.

                                       11

<PAGE>

SPECIAL INVESTMENT TRUST - INSTITUTIONAL CLASS SHARES

Year by year total return as of December 31 of each year (%)

1995     23.83
1996     30.04
1997     23.44
1998     24.50
1999     36.97
2000     -11.09

                       During the past six calendar years:

                                     Quarter Ended             Total Return
                                     -------------             ------------
Best quarter:                    December 31, 1998                  +40.46%
Worst quarter:                  September 30, 1998                  -20.33%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                   1 Year         5 Years      Life Of Class
--------------------------------------------------------------------------------
Special Investment Trust-
Institutional                     -11.09%         +19.47%         +19.83%(a)
Class
--------------------------------------------------------------------------------
S&P 500 Index                      -9.10%         +18.33%         +21.31%(b)
--------------------------------------------------------------------------------

(a)      December 1, 1994 (commencement of operations of this class) to December
         31, 2000.

(b)      November 30, 1994 to December 31, 2000.


TOTAL RETURN TRUST - INSTITUTIONAL CLASS SHARES

Year by year total return as of December 31 of each year (%)

1995     31.65
1996     32.55
1997     39.03
1998      0.67
1999     -5.57
2000     -3.62

                       During the past six calendar years:

                                     Quarter Ended            Total Return
                                     -------------            ------------
Best quarter:                   September 30, 1997                 +14.17%
Worst quarter:                  September 30, 1998                 -15.63%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                  1 Year          5 Years      Life Of Class
--------------------------------------------------------------------------------
Total Return Trust--
Institutional Class               -3.62%          +11.05%         +13.46%(a)
--------------------------------------------------------------------------------
S&P 500 Index                     -9.10%          +18.33%         +21.31%(b)
--------------------------------------------------------------------------------

                                       12

<PAGE>

(a)      December 1, 1994 (commencement of operations of this class) to December
         31, 2000.

(b)      November 30, 1994 to December 31, 2000.


AMERICAN LEADING COMPANIES TRUST - PRIMARY CLASS SHARES*

Year by year total return as of December 31 of each year (%)

1994     -4.19
1995     22.94
1996     28.36
1997     23.75
1998     21.33
1999      5.25
2000      0.51

*    Shares of the Institutional  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 Institutional  Class shares of that fund outstanding
     on the date of this prospectus.


                      During the past seven calendar years:

                                     Quarter Ended             Total Return
                                     -------------             ------------
Best quarter:                    December 31, 1998                  +23.95%
Worst quarter:                  September 30, 1999                  -14.67%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                  1 Year          5 Years       Life Of Class
--------------------------------------------------------------------------------
American Leading Companies
Trust-Primary Class               +0.51%          +15.31%          +12.82%(a)
--------------------------------------------------------------------------------
S&P 500 Index                     -9.10%          +18.33%          +17.60%(b)
--------------------------------------------------------------------------------

(a)      September  1,  1993  (commencement  of  operations  of this  class)  to
         December 31, 2000.

(b)      August 31, 1993 to December 31, 2000.


BALANCED TRUST - PRIMARY CLASS SHARES*

Year by year total return as of December 31 of each year (%)

1997     18.71
1998      5.60
1999     -1.37
2000      3.43


* As of the date of this prospectus,  the Institutional  Class of Balanced Trust
had not yet commenced operations.

                                       13

<PAGE>


                      During the past four calendar years:

                                     Quarter Ended             Total Return
                                     -------------             ------------
Best quarter:                    December 31, 1998                   +9.00%
Worst quarter:                  September 30, 1998                   -7.07%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                         1 Year             Life Of Class
--------------------------------------------------------------------------------
Balanced Trust - Primary Class           +3.43%                 +6.90%(a)
--------------------------------------------------------------------------------
S&P 500 Index                            -9.10%                +18.32%(b)
--------------------------------------------------------------------------------

(a)      October 1, 1996  (commencement of operations of this class) to December
         31, 2000.

(b)      September 30, 1996 to December 31, 2000.


SMALL-CAP VALUE TRUST - INSTITUTIONAL CLASS SHARES

Year by year total return as of December 31 of each year (%)

1999      -4.05
2000       8.91


                       During the past two calendar years:

                                     Quarter Ended             Total Return
                                     -------------             ------------
Best quarter:                        June 30, 1999                  +21.43%
Worst quarter:                  September 30, 1999                  -11.11%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                         1 Year              Life Of Class
--------------------------------------------------------------------------------
Small-Cap Value Trust -
Institutional Class                      +8.91%                  -3.25%(a)
--------------------------------------------------------------------------------
S&P 500 Index                            -9.10%                  +7.63%(b)
--------------------------------------------------------------------------------

(a)      June 19, 1998  (commencement  of  operations of this class) to December
         31, 2000.

(b)      For the period June 30, 1998 to December 31, 2000.

                                       14

<PAGE>

FINANCIAL SERVICES FUND - PRIMARY CLASS SHARES*

Year by year total return as of December 31 of each year (%)

1999     -10.97
2000      29.33

*   Shares of the  Institutional  Class of Financial  Services Fund were held by
    investors only during the period from October 7, 1999 to May 12, 2000; there
    were no  Institutional  Class shares of that fund outstanding on the date of
    this prospectus.

                       During the past two calendar years:

                                     Quarter Ended             Total Return
                                     -------------             ------------
Best quarter                    September 30, 2000                  +17.88%
Worst quarter                   September 30, 1999                  -13.23%

In the  following  table,  the average  annual  total return for the years ended
December 31, 2000 is compared with the S&P 500 Index.

--------------------------------------------------------------------------------
                                         1 Year             Life Of Class
--------------------------------------------------------------------------------
Financial Services Fund-                +29.33%                 +9.69%(a)
Primary Class
--------------------------------------------------------------------------------
S&P 500 Index                            -9.10%                 +7.54%(b)
--------------------------------------------------------------------------------

(a)      November  16,  1998  (commencement  of  operations  of this  class)  to
         December 31, 2000. On October 5, 1999, this fund was reorganized from a
         series of Bartlett  Capital  Trust to a series of Legg Mason  Investors
         Trust, Inc.

(b)      For the period November 30, 1998 to December 31, 2000.

                                       15

<PAGE>

[icon]   F E E S  A N D  E X P E N S E S  O F  T H E  F U N D S

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 so they lower that  fund's  share price and  dividends.  Other
expenses include transfer agency, custody, professional and registration fees.


              Annual Fund Operating Expenses - Institutional Class
                  (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>
                                                                American
                                       Special        Total      Leading                  Small-Cap      Financial
Institutional Class       Value     Investment     Return      Companies     Balanced         Value       Services
Shares of:                Trust          Trust      Trust          Trust        Trust         Trust           Fund
                          -----          -----      -----          -----        -----         -----           ----
<S>                       <C>          <C>          <C>            <C>          <C>           <C>            <C>
Management fees (a)       0.66%        0.70%        0.75%          0.75%        0.75%         0.85%          1.00%

Distribution and/or
service (12b-1) fees       none         None         none           none         none          none           none

Other expenses            0.03%        0.05%        0.08%          0.15%        0.39%         0.51%          0.67%(b)
                          ----------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses (a)    0.69%        0.75%        0.83%          0.90%        1.14%         1.36%          1.67%


(a)      The investment  adviser has voluntarily  agreed to waive fees so that  Institutional  Class share expenses
         (exclusive of taxes,  interest,  brokerage and extraordinary  expenses) do not exceed the following annual
         rates of average daily net assets  attributable to Institutional  Class shares: for Total Return Trust and
         American Leading Companies Trust, 0.95%  indefinitely;  for Balanced Trust 1.10% until August 1, 2001; for
         Small-Cap  Value  Trust,  1.00%  until  August 1, 2001;  and for  Financial  Services  Fund,  1.25%  until
         August 1,  2001.  These voluntary  waivers may be terminated at any time.  With these waivers,  management
         fees and total  annual fund  operating  expenses for the fiscal year ended  March 31,  2000 were 0.71% and
         1.10% for Balanced  Trust,  and 0.49% and 1.00% for Small-Cap Value Trust,  and estimated  management fees
         and total  annual  fund  operating  expenses  for  Financial  Services  Fund were 0.57% and 1.25%.  No fee
         waivers were necessary for Total Return Trust or American Leading Companies Trust.

(b)      "Other  expenses"  are  based  on  estimated   expenses  for  the  fiscal  year  ending  March 31,   2000.
         Institutional Class commenced operations on October 7, 1999.

</TABLE>

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.

                                       16

<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------
<CAPTION>
                                                    1 Year          3 Years          5 Years       10 Years
-----------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>          <C>
Value Trust - Institutional Class                      $70             $221             $384           $859
-----------------------------------------------------------------------------------------------------------
Special Investment Trust -                             $77             $240             $417           $930
Institutional Class
-----------------------------------------------------------------------------------------------------------
Total Return Trust - Institutional Class               $85             $265             $460         $1,025
-----------------------------------------------------------------------------------------------------------
American Leading Companies Trust -                     $92             $287             $498         $1,108
Institutional Class
-----------------------------------------------------------------------------------------------------------
Balanced Trust - Institutional Class                  $116             $362             $628         $1,386
-----------------------------------------------------------------------------------------------------------
Small-Cap Value Trust - Institutional                 $138             $431             $745         $1,635
Class
-----------------------------------------------------------------------------------------------------------
Financial Services Fund - Institutional               $170             $526             $907         $1,976
Class
-----------------------------------------------------------------------------------------------------------
</TABLE>




          Annual Fund Operating Expenses - Financial Intermediary Class
                 (expenses that are deducted from fund assets)

<TABLE>
<CAPTION>

Financial Intermediary                                           Special           Total
Class Shares of:                                   Value      Investment          Return      Balanced
                                                   Trust           Trust           Trust         Trust
                                                   -----           -----           -----         -----
<S>                                                <C>             <C>             <C>           <C>
Management fees                                    0.66%           0.70%           0.75%         0.75%

Distribution and/or service (12b-1)                0.25%           0.25%           0.25%         0.25%
fees (a)
Other expenses (b)                                 0.03%           0.05%           0.08%         0.39%
                                                   ---------------------------------------------------
Total Annual Fund Operating Expenses               0.94%           1.00%           1.08%(c)      1.39%(c)

</TABLE>

(a)      The 12b-1  fees  shown in the  table  reflect  the  amount to which the
         Directors have currently limited payments under the funds' Distribution
         Plans.  Pursuant to each fund's  Distribution  Plan,  the Directors may
         increase  the 12b-1 fees to 0.40% of average  daily net assets  without
         shareholder approval.

(b)      "Other  expenses"  are based on estimated  expenses for the fiscal year
         ending  March  31,  2000.  Financial  Intermediary  Class  has  not yet
         commenced operations.

(c)      The  investment  adviser has  voluntarily  agreed to waive fees so that
         Financial  Intermediary  Class  share  expenses  (exclusive  of  taxes,
         interest,  brokerage and extraordinary expenses) do not exceed 1.20% of
         average daily net assets  attributable to Financial  Intermediary Class
         shares of Total Return Trust  indefinitely,  and 1.35% of average daily
         net assets attribute to Financial Intermediary Class shares of Balanced
         Trust until August 1, 2001.

                                       17

<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 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.

<TABLE>
------------------------------------------------------------------------------------------
<CAPTION>
                                         1 Year        3 Years       5 Years      10 Years
------------------------------------------------------------------------------------------
<S>                                        <C>            <C>           <C>         <C>
Value Trust - Financial                     $96           $300          $520        $1,155
Intermediary Class
------------------------------------------------------------------------------------------
Special Investment Trust -                 $102           $318          $552        $1,225
Financial Intermediary Class
------------------------------------------------------------------------------------------
Total Return Trust - Financial             $110           $343          $595        $1,317
Intermediary Class
------------------------------------------------------------------------------------------
Balanced Trust - Financial                 $142           $440          $761        $1,669
Intermediary Class
------------------------------------------------------------------------------------------
</TABLE>

                                       18

<PAGE>

[icon]   M A N A G E M E N T

Management and advisers:

Legg Mason Fund Adviser, Inc. ("LMFA"),  100 Light Street,  Baltimore,  Maryland
21202,  is the manager of Balanced  Trust,  Small-Cap  Value Trust and Financial
Services Fund.  LMFA is responsible  for overseeing  these funds'  relationships
with  outside  service  providers,  such  as  the  custodian,   transfer  agent,
independent accountants, and lawyers.

Legg  Mason  Funds  Management,  Inc.  ("LMFM"),  100 Light  Street,  Baltimore,
Maryland 21202, is the investment  adviser and manager for Value Trust,  Special
Investment Trust, Total Return Trust, and American Leading Companies Trust. LMFM
is responsible for making investment  decisions for the funds and placing orders
to buy or sell a particular security.  LMFM has delegated certain administrative
responsibilities for these funds to LMFA.

On August 1, 2000, LMFM replaced LMFA as the investment  adviser to Value Trust,
Total Return Trust,  Special  Investment  Trust, and American Leading  Companies
Trust. The advisory personnel who previously managed these funds as employees of
LMFA continue to do so as employees of LMFM. LMFM is newly  organized;  however,
its principal employee advised the funds during their association with LMFA.

For its  services  during the fiscal year ended March 31,  2000,  the  following
funds paid LMFA the  percentages  of their  average daily net assets (net of any
fee waivers) listed below:

              Value Trust                                     0.66%
              Special Investment Trust                        0.70%
              Total Return Trust                              0.75%
              American Leading Companies Trust                0.75%
              Balanced Trust                                  0.71%
              Small-Cap Value Trust                           0.49%

For the twelve-month  period ended March 31, 2000,  Financial Services Fund paid
LMFA at the  rate of 0.57%  of its  average  daily  net  assets  (net of any fee
waivers).  Prior to October 6, 1999, Bartlett & Co. served as Financial Services
Fund's manager under compensation  arrangements  substantially  similar to those
with LMFA.

LMFA has  entered  into  investment  advisory  agreements  with  Bartlett  & Co.
("Bartlett"),  Brandywine  Asset  Management,  Inc.  ("Brandywine"),  and  Gray,
Seifert & Co.  ("Gray,  Seifert")  to provide  investment  advisory  services to
Balanced   Trust,   Small-Cap   Value  Trust,   and  Financial   Services  Fund,
respectively.

Bartlett, 36 East Fourth Street,  Cincinnati,  Ohio 45202, as investment adviser
to Balanced  Trust,  is responsible  for the investment  management of this fund
including  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 March 31, 2000.

Brandywine, 201 North Walnut Street,  Wilmington,  Delaware 19801, as investment
adviser to Small-Cap Value Trust,  is responsible for the investment  management
of this fund including 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.  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  investment  company  portfolios.
Aggregate assets under management of Brandywine were  approximately $6.4 billion
as of March 31, 2000.

Gray,  Seifert,  380 Madison  Avenue,  New York,  New York 10017,  as investment
adviser to Financial Services Fund, is responsible for the investment management
of this fund including making investment  decisions and placing orders to buy or
sell particular securities.  LMFA pays Gray, Seifert a monthly fee of 60% of the

                                       19

<PAGE>

fee it receives from  Financial  Services  Fund, or 0.60% of Financial  Services
Fund's  average  daily net  assets.  Fees paid to Gray,  Seifert  are net of any
waivers.  Gray,  Seifert is known for its research and securities  analysis with
respect to the  financial  services  industry.  Prior to  November  1998,  Gray,
Seifert had not previously advised a mutual fund;  although it was the evaluator
of the Legg Mason  Regional Bank and Thrift Unit  Investment  Trusts.  Aggregate
assets under  management of Gray,  Seifert were  approximately  $1 billion as of
March 31, 2000.

Portfolio management:

Bill Miller, CFA, CEO of LMFM, 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.  Prior to January 2001,  Mr.
Miller  was  primarily  responsible  for the  day-to-day  management  of Special
Investment Trust since its inception in 1985.

Lisa O. Rapuano,  CFA, Vice President and Director of Research of LMFM, has been
primarily  responsible for the day-to-day management of Special Investment Trust
since  January  2,  2001.  Prior  to this  date,  Mrs.  Rapuano  and Mr.  Miller
co-managed  the fund for slightly  over three years.  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 Legg
Mason in September 1994. From July 1991 to September 1994, she was an analyst at
Franklin Street Partners, a money management firm.

Nancy  T.  Dennin,  CFA,  Senior  Vice  President  of  LMFM,  has  been  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  by Legg Mason  since  1985.  Jay R.
Leopold,  CFA, Vice President of LMFM,  has been the assistant  manager of Total
Return Trust since  January  2000.  Mr.  Leopold has been employed as an analyst
since joining Legg Mason in 1986.

David  E.  Nelson,   CFA,  Senior  Vice  President  of  LMFM,  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.  Jay R.
Leopold has been the assistant manager of American Leading Companies Trust since
January 2000.

James B. Hagerty, CFA, Dale H. Rabiner, CFA and Peter A. Sorrentino, CFA jointly
manage Balanced Trust. Mr. Hagerty and Mr. Rabiner are senior portfolio managers
of Bartlett.  Mr. Sorrentino is the Director of Equity Research. Mr. Hagerty has
been  employed  by  Bartlett  since 1994 and has  responsibility  for the equity
selection process for the Private Client Group at Bartlett. Mr. Rabiner has been
employed by Bartlett  since 1983 and has served since then as Managing  Director
of its  Fixed  Income  Group.  Mr.  Sorrentino  joined  Bartlett  in 1999 and is
responsible for Bartlett's equity investment processes.

Henry F. Otto and Steven M. Tonkovich jointly manage Small-Cap Value Trust. Both
are Managing Directors of Brandywine. Mr. Otto is a senior portfolio manager and
has been employed at Brandywine  since 1987. Mr. Tonkovich is a senior portfolio
manager and analyst and has been employed at Brandywine since 1989.

Miles  Seifert and Amy  LaGuardia  are  responsible  for  co-managing  Financial
Services Fund.  Mr. Seifert has been  Chairperson of the Board and a Director of
Gray,  Seifert  since its  inception  in 1980.  Ms.  LaGuardia  is  Senior  Vice
President and Director of Research at Gray,  Seifert where she has been employed
since 1982.

Distributor of the funds' shares:

Legg  Mason  Wood  Walker,   Incorporated  ("Legg  Mason"),  100  Light  Street,
Baltimore,  Maryland 21202, is the distributor of each fund's shares.  Each fund
has  adopted a separate  plan under  Rule  12b-1 with  respect to the  Financial
Intermediary  Class that allows it to pay distribution  fees and/or  shareholder
service  fees  for  the  sale  of  its  shares  and  for  services  provided  to
shareholders.  The fees are  calculated  daily and paid  monthly.  For Financial
Intermediary Class shares,  under each plan, a fund may pay Legg Mason an annual

                                       20

<PAGE>

12b-1 fee in an  amount  up to 0.40% of the  fund's  average  daily  net  assets
attributable to Financial  Intermediary  Class shares. The boards of these funds
have currently approved payment of 0.25% of each fund's average daily net assets
under the plans.

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,  LMFM and LMFA may pay  non-affiliated  entities  out of their  own
assets to support the distribution of Institutional Class shares and shareholder
servicing.

LMFM, LMFA, Brandywine,  Bartlett, Gray, Seifert and Legg Mason are wholly owned
subsidiaries of Legg Mason, Inc., a financial services holding company.

                                       21

<PAGE>

[icon]   H O W  T O  I N V E S T

Institutional  Class shares are currently offered for sale only to institutional
investors who have at least $100 million in investable  assets and who invest at
least $1 million in a fund.  Shareholders of the Navigator Class of a fund as of
January 22, 2001 may  continue to buy  Institutional  Class shares of that fund.
Institutional  Class  shares are also offered to  Institutional  Clients of Legg
Mason Trust, fsb for which the trust company exercises discretionary  investment
management  responsibility and accounts of the customers with such Institutional
Clients ("Customers").

Financial  Intermediary  Class  Shares are  currently  offered  for sale only to
institutional  investors who have at least $50 million in investable  assets and
who invest at least $1 million in a fund.

Customers of  Institutional  Clients may purchase shares only in accordance with
instructions and limitations pertaining to their account at the Institution.

Prior to or  concurrent  with the  initial  purchase of  Institutional  Class or
Financial  Intermediary Class shares, each investor must open an account for the
fund by  completing  and  signing an  application  and  mailing it to Legg Mason
Institutional  Funds  at the  following  address:  P.O.  Box  17635,  Baltimore,
Maryland 21297-1635.

Eligible investors may purchase  Institutional  Class or Financial  Intermediary
Class  shares  by   contacting   Legg  Mason   Institutional   Funds   directly.
Institutional   Clients  may  set  different   minimums  for  their   Customers'
investments in accounts invested in Institutional Class shares.

Purchase  orders,  together  with  payment in one of the forms  described in the
following  paragraphs,  received  by Legg  Mason  Institutional  Funds or Boston
Financial  Data Services  ("BFDS" or the "Transfer  Agent")  before the close of
regular trading on the New York Stock Exchange ("Exchange") (normally 4:00 p.m.,
Eastern time) will be processed at the funds' net asset value as of the close of
the Exchange on that day. The funds are open for business every day the Exchange
is open.  Orders  received  after the close of the Exchange will be processed at
the funds' net asset  value as of the close of the  Exchange on the next day the
Exchange is open.

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. Orders received by certain retirement plans and other financial
intermediaries  by the close of the  Exchange  and  communicated  to Legg  Mason
Institutional  Funds by 9:00 a.m.,  Eastern time, on the following  business day
will be processed at the net asset value  determined on the prior  business day.
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 funds in a timely fashion.

Purchases of Institutional Class shares and Financial  Intermediary Class shares
can be made by wiring  federal  funds to State  Street  Bank and Trust  Company.
Before  wiring  federal  funds,  the investor  must first  telephone  Legg Mason
Institutional Funds at 1-888-425-6432 to receive instructions for wire transfer.
On the telephone, the following information will be required:  shareholder name;
name of the person authorizing the transaction; shareholder account number; name
of the fund and class of shares to be purchased; amount being wired; and name of
the wiring bank.

Funds should be wired through the Federal Reserve System to:

State Street Bank and Trust Company
[ABA #011-000-028]
[DDA #99014649]
Legg Mason [insert name of fund]
[Insert account name and number]

The wire  should  state  that the  funds  are for the  purchase  of  shares of a
specific fund and share class and include the account name and number.

                                       22

<PAGE>

Shares  may  also be  purchased  and paid for by the  contribution  of  eligible
portfolio  securities,  subject  in each  case  to  approval  by the  investment
adviser.  Approval will depend on, among other things, the nature and quality of
the securities offered and the current needs of the fund in question. Securities
offered  in payment  for  shares  will be valued in the same way and at the same
time the fund values its portfolio  securities  for purpose of  determining  net
asset values. (See "Net Asset Value" below.) Investors who wish to purchase fund
shares  through  the  contribution  of  securities  should  contact  Legg  Mason
Institutional  Funds at 1-888-425-6432  for instructions.  Investors should also
realize  that at the time of  contribution  they may be required to  recognize a
gain or loss for tax  purposes  on  securities  contributed.  Each fund has full
discretion to reject any securities offered as payment for shares.

As described below, each fund may offer Financial Intermediary Class shares that
are  offered  primarily  through  financial  intermediaries.  Each  fund may pay
financial  intermediaries  for their services out of that class' assets pursuant
to the class'  distribution  plan or  otherwise.  Legg Mason and its  affiliates
(including  the  investment  advisers)  may also from time to time, at their own
expense, make payments to financial intermediaries that sell shares of the funds
or to other parties in connection with the sale of shares.  If investors  effect
transactions  through a broker or agent,  investors may be charged a fee by that
broker or agent.

Any shares purchased or received as a distribution  will be credited directly to
the investor's account.

Additional  investments  may be made at any time at the relevant net asset value
for that class by following the  procedures  outlined  above.  Investors  should
always furnish a shareholder  account number when making  additional  purchases.
Purchases will be made in full and fractional shares. In the interest of economy
and convenience, certificates for shares will not be issued.

Each fund and Legg Mason,  the funds'  distributor,  reserve the right, in their
sole  discretion:  to suspend the  offering of shares or to reject any  purchase
order, in whole or in part, when, in the judgment of management, such suspension
or  rejection  is in the best  interests  of the fund;  and to redeem  shares if
information  provided in the  Application  should  prove to be  incorrect in any
manner judged by a fund to be material  (i.e., in a manner such as to render the
shareholder ineligible to purchase shares of a fund). In addition, each fund and
Legg Mason reserve the right to waive the minimum  investable assets requirement
or  the  minimum  initial   investment  for  certain  investors  in  their  sole
discretion.  A fund may suspend the offering of shares at any time and resume it
any time thereafter.

Shares of the funds may not be qualified or  registered  for sale in all states.
Prospective  investors  should inquire as to whether shares of a particular fund
are available for offer and sale in their state of residence. Shares of the fund
may not be offered or sold in any state unless  registered  or qualified in that
jurisdiction  or unless an  exemption  from  registration  or  qualification  is
available.

Purchases  and  sales of fund  shares  should be made for  long-term  investment
purposes.  Each  fund  reserves  the  right  to  restrict  purchases  of  shares
(including  exchanges) when it determines  that a pattern of frequent  purchases
and sales made in response to  short-term  fluctuations  in share price  appears
evident.

Shares of the funds are available for purchase by  retirement  plans,  including
401(k) plans,  403(b) plans and Individual  Retirement  Accounts  ("IRAs").  The
administrator of a plan or employee benefits office can provide  participants or
employees with detailed information on how to participate in the plan and how to
elect a fund as an investment  option.  Participants  in a retirement or savings
plan may be permitted to elect different  investment options,  alter the amounts
contributed  to the plan,  or  change  how  contributions  are  allocated  among
investment options in accordance with the plan's specific provisions.

For questions  about  participant  accounts,  participants  should contact their
employee  benefits office,  the plan  administrator,  or the  organization  that
provides  recordkeeping  services for the plan.  Investors  who purchase  shares
through  retirement  plans  should  be aware  that the  plan  administrator  may
aggregate purchase and redemption orders of participants in the plan. Therefore,
there may be a delay between the time the investor places an order with the plan
administrator  and the time the order is  forwarded  to the  Transfer  Agent for
execution.

                                       23

<PAGE>

Account Registration Changes

Changes in  registration  or account  privileges must be made in writing to Legg
Mason Institutional  Funds.  Signature  guarantees are required.  See "Signature
Guarantee" below. All correspondence must include the account number and must be
sent to:

Legg Mason Institutional Funds
P.O. Box 17635
Baltimore, Maryland  21297-1635

                                       24

<PAGE>


[icon]   H O W  T O  S E L L  Y O U R  S H A R E S

Shares may be redeemed  through three methods:  (1) by sending a written request
for redemption to Legg Mason  Institutional  Funds,  P.O. Box 17635,  Baltimore,
Maryland 21297-1635, (2) by calling 1-888-425-6432, or (3) by wire communication
with the Transfer  Agent.  In each case,  the investor  should first notify Legg
Mason  Institutional  Funds at  1-888-425-6432  of the  intention to redeem.  No
charge is made for  redemptions.  Shareholders  who wish to be able to redeem by
telephone or wire  communication must complete an authorization form in advance.
Redemptions  over  $10,000,000  may be  initiated  by  telephone,  but  must  be
confirmed in writing prior to processing.

Upon receipt of a request for redemption as described  below (a request "in good
order")  before the close of the Exchange on any day the  Exchange is open,  the
Transfer  Agent will redeem fund shares at that day's net asset value per share.
Requests for  redemption  received by the Transfer  Agent after the close of the
Exchange  will be  executed  at the net asset  value next  determined.  However,
orders received by certain  retirement plans and other financial  intermediaries
by the close of the Exchange  and  communicated  to the  Transfer  Agent by 9:00
a.m.,  Eastern time,  on the following  business day will be effected at the net
asset value determined on the prior business day.

Requests for redemption should indicate:

1)   the number of shares or dollar  amount to be  redeemed  and the  investor's
     shareholder account number;

2)   the  investor's  name and the names of any co-owner of the  account,  using
     exactly the same name or names used in establishing the account;

3)   proof of authorization  to request  redemption on behalf of any co-owner of
     the account  (please  contact  Legg Mason  Institutional  Funds for further
     details); and

4)   the name,  address,  and  account  number to which the  redemption  payment
     should be sent.

Other  supporting  legal  documents,  such as copies of the trust  instrument or
power of attorney,  may be required from  corporations  or other  organizations,
fiduciaries  or persons other than the  shareholder of record making the request
for  redemption.  If you have a question  concerning  the sale or  redemption of
shares, please contact Legg Mason Institutional Funds by calling 1-888-425-6432.

Customers  of   Institutional   Clients  may  redeem  only  in  accordance  with
instructions and limitations pertaining to their account at the Institution.

Payment of the proceeds of redemption normally will be made by wire one business
day after  receipt of a  redemption  request in good order.  However,  each fund
reserves  the right to postpone  the payment  date when the  Exchange is closed,
when trading is restricted, or during periods as permitted by federal securities
laws,  or to take up to seven days to make payment upon  redemption  if the fund
involved  could be  adversely  affected  by  immediate  payment.  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  in  payment  for  redemptions.
Shareholders who receive a redemption in kind may incur costs to dispose of such
securities.

Signature guarantee:

When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed"  stamped  under his or her  signature  and  guaranteed by any of the
following entities:  U.S. banks, foreign banks having a U.S. correspondent bank,
credit unions,  savings  associations,  U.S.  registered  securities dealers and
brokers, municipal securities dealers and brokers, government securities dealers
and brokers, national securities exchanges,  registered securities associations,
and clearing agencies (each an "Eligible Guarantor Institution").  Each fund and
its agents  reserve  the right to reject any  signature  guarantee  pursuant  to

                                       25

<PAGE>

written signature guarantee standards or procedures, which may be revised in the
future to permit them to reject  signature  guarantees  from Eligible  Guarantor
Institutions  that do not,  based on credit  guidelines,  satisfy  such  written
standards  or   procedures.   Any  fund  may  change  the  signature   guarantee
requirements from time to time without prior notice to shareholders.


                                       26


<PAGE>

[icon]   A C C O U N T  P O L I C I E S

Calculation of net asset value:

Net asset value per share of each class of shares is determined  daily as of the
close of the  Exchange,  on every day the  Exchange  is open.  The  Exchange  is
normally  closed on all national  holidays and Good  Friday.  To calculate  each
fund's  Institutional  Class or Financial  Intermediary  Class share price,  the
fund's  assets  attributable  to each class are valued and totaled,  liabilities
attributable  to that  class of shares are  subtracted,  and the  resulting  net
assets are  divided by the number of shares  outstanding  for that  class.  Each
fund's  securities are valued on the basis of market quotations or, lacking such
quotations,  at fair value as determined under policies approved by the Board of
Directors.  The funds may use fair value pricing instead of market quotations to
value a security if the fund  believes  that  because of special  circumstances,
doing so would more  accurately  reflect  the price the fund could  realize on a
current sale of the security.

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.  Fixed income securities  generally are
valued using market  quotations or independent  pricing services that use prices
provided  by  market  makers or  estimates  of market  values.  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.

To the extent that a fund has portfolio  securities that are primarily listed on
foreign  exchanges  that trade on days when the fund does not price its  shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.

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.

                                       27

<PAGE>

[icon]   S E R V I C E S  F O R  I N V E S T O R S

Confirmations and account statements:

The transfer  agent will send  confirmations  of each  purchase  and  redemption
transaction (except a reinvestment of dividends or capital gain  distributions).
Confirmations  sent to  Institutional  Clients  will include the total number of
shares being held in safekeeping by the transfer agent.  Beneficial ownership of
shares by Customer  accounts  will be recorded by the  Institutional  Client and
reflected in their regular account statements.

Exchange privilege:

Institutional  Class and  Financial  Intermediary  Class shares of a fund may be
exchanged  for shares of the Legg Mason Cash Reserve  Trust or for shares of the
same class of any of the other Legg Mason funds,  except Legg Mason  Opportunity
Trust, provided these funds are eligible for sale in your state of residence and
provided that the investor meets the eligibility  criteria of that class of that
fund and the value of exchanged shares is at least  $1,000,000.  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:

o        terminate or limit the exchange  privilege of any shareholder who makes
         more than four exchanges from a fund in one calendar year; and

o        terminate  or modify  the  exchange  privilege  after 60 days'  written
         notice to shareholders.

Some Institutional  Clients and retirement plan administrators may not offer all
of the Institutional Class or Financial Intermediary Class shares for exchange.

                                       28


<PAGE>

[icon]   D I S T R I B U T I O N S  A N D  T A X E S

Value  Trust,  Special  Investment  Trust,  American  Leading  Companies  Trust,
Small-Cap  Value  Trust  and  Financial  Services  Fund each  declares  and pays
dividends  from its net  investment  income  annually.  Balanced Trust and Total
Return Trust each declares and pays any such dividends quarterly.

Distributions of substantially all net short-term capital gain, net capital gain
(the excess of net long-term capital gain over net short-term  capital loss) and
any net realized gains from foreign currency transactions generally are declared
and paid  after the end of the  taxable  year in which the gain is  realized.  A
second  distribution of net capital gain may be necessary in some years to avoid
imposition of a federal excise tax.

Your dividends and other  distributions will be automatically  reinvested in the
same  class of shares  of the  distributing  fund  unless  you elect to  receive
dividends and/or other distributions in cash. To change your election,  you must
notify the  distributing  fund at least ten 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 a fund.  Dividends from  investment  company
taxable income (which  includes net investment  income,  net short-term  capital
gain and net gains from certain foreign  currency  transactions)  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.

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.

                                       29

<PAGE>

[icon]   F I N A N C I A L  H I G H L I G H T S

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,  Special  Investment  Trust, and Total Return Trust, the
fiscal  year-end   information  has  been  audited  by  the  funds'  independent
accountants,  PricewaterhouseCoopers  LLP, whose reports,  along with the funds'
financial  statements,  are  incorporated  by  reference  into the  Statement of
Additional  Information  (see back cover) and are included in the annual  report
for these funds. For American Leading Companies Trust, Balanced Trust, Small-Cap
Value Trust and Financial  Services Fund, the fiscal  year-end  information  has
been audited by their  independent  auditors,  Ernst & Young LLP, whose reports,
along with the funds' financial  statements,  are incorporated by reference into
the  Statement of Additional  Information  and are included in the annual report
for these funds.  The above  information  has been updated to include  unaudited
semi-annual  data for the six months ended September 30, 2000 for all funds. The
annual and semi-annual  reports are available upon request by calling  toll-free
1-888-425-6432.

                                       30

<PAGE>
<TABLE>
                                                        Investment Operations
-------------------------------------------------------------------------------------------
<CAPTION>
                                   Net Asset          Net     Net Realized &
For the                               Value,   Investment         Unrealized     Total From
Years Ended                        Beginning       Income     Gain (Loss) On     Investment
March 31,                          of Period       (Loss)        Investments     Operations
-------------------------------------------------------------------------------------------
<S>                                  <C>            <C>           <C>             <C>
Value Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           $77.52         $.06          $(1.05)         $ (.99)
2000                                  74.49          .12            5.37            5.49
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

Special Investment Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           $42.91         $.01          $(1.62)         $(1.61)
2000                                  40.51         (.19)          10.63           10.44
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

Total Return Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           $18.39         $.16          $  .16          $  .32
2000                                  21.27          .43           (1.43)          (1.00)
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

American Leading Companies
Six Months Ended
Sept. 30, 2000 (unaudited)($)        $    -         $  -          $    -               -
2000(D)                                   -            -               -               -
1999(E)                               17.95          .08 (A)         .23             .31
1998                                  14.71          .10 (A)        4.99            5.09
1997(F)                               13.30          .07 (A)        1.94            2.01

U.S. Small Capitalization Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           $ 7.59         (.03)(B)      $  .55          $ .58
2000                                   7.88          .07 (B)        (.05)           .02
1999(G)                                9.92          .05 (B)       (2.09)         (2.04)

Financial Services Fund
Six Months Ended
Sept. 30, 2000 (unaudited)(H)        $ 9.29         $.01 (C)      $ .11           $ .12
Three Months Ended
        March 31, 2000(I)              9.50          .01 (C)       (.22)           (.21)
     Period Ended Dec. 31,
        1999(J)                        9.27          .01 (C)        .22             .23
------------------------------------------------------------------------------------------
</TABLE>

                                       31

<PAGE>
<TABLE>
                                                     Distributions
------------------------------------------------------------------------------------------------
<CAPTION>
                                               From Net     In Excess of               Net Asset
For the                        From Net        Realized     Net Realized                  Value,
Years Ended                  Investment         Gain on          Gain on          Total   End of
March 31,                        Income     Investments      Investments  Distributions   Period
------------------------------------------------------------------------------------------------
<S>                               <C>          <C>                <C>          <C>        <C>
Value Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           -         (6.65)              -           (6.65)     69.88
2000                                 -         (2.46)              -           (2.46)     77.52
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

Special Investment Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           -         (1.52)              -           (1.52)     39.78
2000                                 -         (8.04)              -           (8.04)     42.91
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

Total Return Trust
Six Months Ended
Sept. 30, 2000 (unaudited)        (.16)         (.43)              -            (.59)     18.12
2000                              (.57)        (1.31)              -           (1.88)     18.39
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

American Leading Companies
Six Months Ended
Sept. 30, 2000 (unaudited)(D)        -             -               -               -          -
2000(D)                              -             -               -               -          -
1999(E)                              -          (.46)              -            (.46)     17.80
1998                                 -         (1.85)              -           (1.85)     17.95
1997(F)                           (.12)         (.48)              -            (.60)     14.71

U.S. Small Capitalization Trust
Six Months Ended
Sept. 30, 2000 (unaudited)           -             -               -               -       8.17
2000                                 -          (.16)           (.15)           (.31)      7.59
1999(G)                              -             -               -               -       7.88

Financial Services Fund
Six Months Ended
Sept. 30, 2000 (unaudited)(H)        -             -               -               -       9.41
Three Months Ended
        March 31, 2000(I)            -             -               -               -       9.29
     Period Ended Dec. 31,
        1999(J)                      -             -               -               -       9.50
------------------------------------------------------------------------------------------------
</TABLE>

                                       32

<PAGE>
<TABLE>
                                                                  Ratios/Supplemental Data
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                Net Investment
                                                  Expenses      Income / (Loss)
For the                                         to Average          to Average          Portfolio        Net assets,
Years Ended                  Total return       Net Assets          Net Assets      Turnover Rate      End of Period
March 31,                         %                  %                   %                %           (thousands - $)
---------------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                  <C>             <C>              <C>
Value Trust
Six Months Ended
Sept. 30, 2000 (unaudited)       (1.11)(K)            .70 (L)              .5 (L)         29.8 (L)         1,262,801
2000                              7.80                .69                  .4             19.7             1,210,632
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

Special Investment Trust
Six Months Ended
Sept. 30, 2000 (unaudited)       (3.74)(K)            .75 (L)              .1 (L)         31.2 (L)           124,075
2000                             29.85                .75                 (.2)            29.3               122,078
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

Total Return Trust
Six Months Ended
Sept. 30, 2000 (unaudited)       1.65% (K)            .90 (L)             1.7 (L)         95.4 (L)            12,171
2000                             (5.61)               .83                 2.1             85.4                11,643
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

American Leading Companies
Six Months Ended
Sept. 30, 2000 (unaudited)(D)        -                  -                   -                -                     -
2000(D)                              -                  -                   -                -                     -
1999(E)                           1.84 (K)            .94 (A.L)            .7 (A.L)       47.6 (L)                 -
1998                             36.68                .93 (A)              .7 (A)         51.4                    82
1997(F)                          15.16 (K)            .86 (A,L)           1.0 (A,L)       55.7 (L)                55

U.S. Small Capitalization Trust
Six Months Ended
Sept. 30, 2000 (unaudited)        7.64 (K)           1.00 (B,L)            .8 (B,L)       40.7 (L)                33
2000                              (.15)              1.00 (B)              .4 (B)         66.2                    31
1999(G)                         (20.56)(K)            .90 (B,L)            .7 (B,L)       29.5 (L)                40

Financial Services Fund
Six Months Ended
Sept. 30, 2000 (unaudited)(H)     1.29 (K)           1.25 (C,L)            .5 (C,L)       61.8 (L)                 -
Three Months Ended
        March 31, 2000(I)        (2.21)(K)           1.25 (C,L)            .6 (C,L)       60.9 (L)                 5
     Period Ended Dec. 31,
        1999(J)                   2.37 (K)           1.25 (C,L)            .3 (C,L)       27.1 (L)                 5
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       33

<PAGE>

A  Net of fees waived  pursuant to a voluntary  expense  limitation  of 0.95% of
   average daily net assets.  If no fees had been waived by 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.

B  Net of fees waived  pursuant to 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 would have been as follows: for
   the six months ended September 30, 2000,  1.56%; for the year ended March 31,
   2000, 1.36%; and for the period June 19, 1998 to March 31, 1999, 1.28%.

C  Net of fees waived  pursuant to a voluntary  expense  limitation  of 1.25% of
   average daily net assets.  If no fees had been waived by LMFA, the annualized
   ratio of  expenses to average  daily net assets  would have been for both the
   period  January 1 to March 31, 2000 and the period  October 7 to December 31,
   1999, 1.67% and for the period April 1, 2000 to May 12, 2000, 1.61%.

D  No shares of the American Leading  Companies Trust  Institutional  class were
   outstanding  during the six months  ended  September  30, 2000 and the fiscal
   year ended March 31, 2000.

E  The American  Leading  Companies  Trust  Institutional  class was redeemed on
   December 3, 1998, and information is for the period then ended.

F  For the period  October 4, 1996  (commencement  of  operations)  to March 31,
   1997.

G  For the period June 19, 1998 (commencement of operations) to March 31, 1999.

H  The Financial Services Fund Institutional class was redeemed on May 12, 2000,
   and information is for the period then ended.

I  The year end for  Financial  Services  Fund changed from December 31 to March
   31.

J  For the period October 7, 1999 (commencement of sale of Institutional shares)
   to December 31, 1999.

K  Not annualized.

L  Annualized.

                                       34

<PAGE>

L e g g  M a s o n  E q u i t y  F u n d s

The following  additional  information about the funds 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) the  prospectus.  The SAI provides  further  information and
additional details about each fund and its policies.

Annual and  Semi-Annual  Reports -  Additional  information  about  each  fund's
investments  is  available  in the  funds'  annual  and  semi-annual  reports to
shareholders.  In the funds'  annual  report,  you will find a discussion of the
market  conditions and investment  strategies that  significantly  affected each
fund's performance during its last fiscal year.

To request the SAI or any reports to shareholders, or to obtain more
information:
o        call toll-free 1-888-425-6432
o        write to us at: Legg Mason Institutional Funds
                         100 Light Street, P.O. Box 17635
                         Baltimore, MD 21297-1635

Information  about the funds,  including  the SAI, can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of  the  Public   Reference   Room  may  be  obtained  by  calling  the  SEC  at
1-202-942-8090.  Reports and other  information about the funds are available on
the EDGAR database on the SEC's Internet site at  http://www.sec.gov.  Investors
may also obtain this information,  after paying a duplicating fee, by electronic
request at the following  e-mail address:  [email protected]  or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.



LMF-041                 SEC file numbers 811-3380; 811-4308; 811-4451; 811-7692

<PAGE>

                             LEGG MASON EQUITY FUNDS


LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.:
  Legg Mason American Leading Companies Trust
  Legg Mason Balanced Trust
  Legg Mason U.S. Small-Capitalization Value Trust
  Legg Mason Financial Services Fund


      CLASS A SHARES, PRIMARY CLASS SHARES, INSTITUTIONAL CLASS SHARES and
                       FINANCIAL INTERMEDIARY CLASS SHARES

                       STATEMENT OF ADDITIONAL INFORMATION

                                January 21, 2001


This Statement of Additional Information is not a prospectus.  It should be read
in  conjunction  with the Prospectus for Primary Class and Class A shares (dated
July  31,  2000)  or  the  Prospectus  for  Institutional  Class  and  Financial
Intermediary  Class shares (dated January 21, 2001) of Value Trust, Total Return
Trust,  Special  Investment Trust,  American Leading  Companies Trust,  Balanced
Trust,  Small-Cap Value Trust and Financial Services Fund, which have been filed
with the Securities and Exchange Commission  ("SEC").  The funds' annual reports
are incorporated by reference into this Statement of Additional  Information.  A
copy of either of the Prospectuses or the annual reports may be obtained without
charge from the funds' distributor,  Legg Mason Wood Walker, Incorporated ("Legg
Mason") at 1-800-822-5544.



                             Legg Mason Wood Walker,
                                  Incorporated
--------------------------------------------------------------------------------
                                100 Light Street
                                  P.O. Box 1476
                         Baltimore, Maryland 21203-1476
                          (410) 539-0000 (800) 822-5544

<PAGE>

                                TABLE OF CONTENTS
                                                                          Page


DESCRIPTION OF THE FUNDS.....................................................3
FUND POLICIES................................................................3
INVESTMENT STRATEGIES AND RISKS..............................................7
ADDITIONAL TAX INFORMATION..................................................31
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................34
VALUATION OF FUND SHARES....................................................36
PERFORMANCE INFORMATION.....................................................37
TAX-DEFERRED QUALIFIED PLANS - PRIMARY CLASS AND CLASS A SHARES.............46
MANAGEMENT OF THE FUNDS.....................................................48
THE FUNDS' INVESTMENT ADVISER/MANAGER.......................................51
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................56
THE FUNDS' DISTRIBUTOR......................................................58
CAPITAL STOCK INFORMATION...................................................63
THE FUNDS' CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT.............63
THE FUNDS' LEGAL COUNSEL....................................................63
THE FUNDS' INDEPENDENT ACCOUNTANTS/AUDITORS.................................63
FINANCIAL STATEMENTS........................................................64
RATINGS OF SECURITIES......................................................A-1


         No person has been  authorized to give any  information  or to make any
representations   not  contained  in  the  Prospectuses  or  this  Statement  of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such  information or  representations  must not be relied
upon as having been authorized by any fund or its distributor.  The Prospectuses
and the Statement of Additional  Information do not constitute  offerings by any
fund or by the  distributor in any  jurisdiction in which such offerings may not
lawfully be made.

                                       2

<PAGE>

                            DESCRIPTION OF THE FUNDS

         Legg Mason Value Trust,  Inc. ("Value Trust"),  Legg Mason Total Return
Trust,  Inc. ("Total Return Trust"),  Legg Mason Special  Investment Trust, Inc.
("Special  Investment  Trust") and Legg Mason Investors Trust, Inc.  ("Investors
Trust") are each diversified open-end management  investment companies that were
established as Maryland  corporations on January 20, 1982, May 22, 1985, October
31, 1985, and May 5, 1993,  respectively.  Legg Mason American Leading Companies
Trust  ("American  Leading  Companies"),  Legg Mason Balanced  Trust  ("Balanced
Trust"),  Legg Mason U.S.  Small-Capitalization  Value Trust  ("Small-Cap  Value
Trust"),  and Legg Mason Financial Services Fund ("Financial Services Fund") are
separate series of Investors Trust.

                                  FUND POLICIES

         Value  Trust's  investment  objective  is to seek  long-term  growth of
capital.   Total  Return  Trust's  investment   objective  is  to  seek  capital
appreciation  and  current  income  in  order to  achieve  an  attractive  total
investment return consistent with reasonable risk.  Special  Investment  Trust's
investment  objective  is  to  seek  capital   appreciation.   American  Leading
Companies'  investment  objective is to seek long-term capital  appreciation and
current  income  consistent  with  prudent  investment  risk.  Balanced  Trust's
investment  objective  is to seek  long-term  capital  appreciation  and current
income in order to achieve an attractive total investment return consistent with
reasonable  risk.  Small-Cap  Value  Trust's  investment  objective  is to  seek
long-term capital  appreciation.  Financial Services Fund's investment objective
is to seek long-term growth of capital.

         The investment objective of each fund is fundamental, meaning it cannot
be changed  except by a vote of fund  shareholders.  Each fund has  adopted  the
following  fundamental  investment  limitations that cannot be changed except by
vote of its shareholders:

         Value Trust, Total Return Trust and Special Investment Trust each may
not:

         1.   Borrow  money,  except  from banks or through  reverse  repurchase
              agreements for temporary  purposes,  in an aggregate amount not to
              exceed 10% of the value of the total assets of the respective fund
              at the time of  borrowing;  provided  that  borrowings,  including
              reverse repurchase agreements,  in excess of 5% of such value will
              be only from banks  (although not a fundamental  policy subject to
              shareholder  approval,  each fund will not purchase  securities if
              borrowings,  including reverse purchase  agreements,  exceed 5% of
              its total assets);

         2.   With  respect to 75% of total  assets,  invest more than 5% of its
              total  assets  (taken at market  value) in  securities  of any one
              issuer,  other  than  the U.S.  Government,  or its  agencies  and
              instrumentalities,  or  purchase  more  than  10%  of  the  voting
              securities of any one issuer;

         3.   Purchase  securities on "margin",  except for  short-term  credits
              necessary for clearance of portfolio  transactions and except that
              each fund may make margin  deposits in connection  with the use of
              futures contracts and options on futures contracts;

         4.   Invest 25% or more of its total assets  (taken at market value) in
              any one industry;

         5.   Purchase or sell  commodities  and commodity  contracts,  but this
              limitation  shall not prevent each fund from purchasing or selling
              options and futures contracts;

         6.   Underwrite the securities of other issuers, except insofar as each
              fund may be deemed an  underwriter  under  the  Securities  Act of
              1933,  as  amended  ("1933  Act"),  in  disposing  of a  portfolio
              security;

                                       3

<PAGE>

         7.   Make loans, except loans of portfolio securities and except to the
              extent  that the  purchase  of a portion  of an issue of  publicly
              distributed  notes,  bonds or other  evidences of  indebtedness or
              deposits  with  banks  and  other  financial  institutions  may be
              considered loans;

         8.   Purchase or sell real estate,  except that each fund may invest in
              securities  collateralized  by real estate or interests therein or
              in  securities  issued by companies  that invest in real estate or
              interests therein (as a non-fundamental  policy changeable without
              a shareholder  vote, each fund will not purchase or sell interests
              in real estate limited partnerships);

         9.   Make short  sales of  securities  or  maintain  a short  position,
              except that each fund may (a) make short sales and maintain  short
              positions in connection with its use of options, futures contracts
              and options on futures  contracts and (b) sell short  "against the
              box"; or

         10.  Issue senior securities,  except as permitted under the Investment
              Company Act of 1940, as amended ("1940 Act").

         American  Leading  Companies,  Balanced Trust and Small-Cap Value Trust
each may not:

         1.   Borrow  money,  except  from banks or through  reverse  repurchase
              agreements  for temporary  purposes in an aggregate  amount not to
              exceed  5% of the  value  of its  total  assets  at  the  time  of
              borrowings.   (Although  not  a  fundamental   policy  subject  to
              shareholder  approval,  the fund will  repay  any  money  borrowed
              before any portfolio securities are purchased);

         2.   Issue senior securities, except as permitted under the 1940 Act;

         3.   Engage in the business of  underwriting  the  securities  of other
              issuers  except  insofar as the fund may be deemed an  underwriter
              under the 1933 Act in disposing of a portfolio security;

         4.   Buy or hold any real estate;  provided,  however, that instruments
              secured by real  estate or  interests  therein  are not subject to
              this limitation;

         5.   With  respect to 75% of its total  assets,  invest more than 5% of
              its total assets  (taken at market value) in securities of any one
              issuer,  other  than  the  U.S.   Government,   its  agencies  and
              instrumentalities,  or  purchase  more  than  10%  of  the  voting
              securities of any one issuer;

         6.   Purchase or sell any commodities or commodities contracts,  except
              that the fund may purchase or sell  currencies,  interest rate and
              currency futures contracts, options on currencies, securities, and
              securities  indexes  and  options on  interest  rate and  currency
              futures contracts;

         7.   Make loans, except loans of portfolio securities and except to the
              extent  the  purchase  of  notes,  bonds  or  other  evidences  of
              indebtedness,  the entry into repurchase  agreements,  or deposits
              with  banks and other  financial  institutions  may be  considered
              loans; or

         8.   Purchase any security if, as a result thereof,  25% or more of its
              total assets would be invested in the securities of issuers having
              their  principal  business  activities in the same industry.  This
              limitation  does not apply to  securities  issued or guaranteed by
              the  U.S.  Government,   its  agencies  or  instrumentalities  and
              repurchase agreements with respect thereto.

                                       4

<PAGE>

         Financial Services Fund may not:

         1.   Borrow money,  except (a) from a bank,  provided that  immediately
              after such  borrowing  there is an asset  coverage of 300% for all
              borrowings  of the fund;  or (b) from a bank or other  persons for
              temporary purposes only,  provided that such temporary  borrowings
              are in an amount not  exceeding  5% of the fund's  total assets at
              the time when the borrowing is made;

         2.   Act as  underwriter of securities  issued by other  persons.  This
              limitation  is not  applicable  to the extent that,  in connection
              with the disposition of portfolio securities (including restricted
              securities),  the fund may be deemed an underwriter  under certain
              federal securities laws;

         3.   Purchase,  hold or deal in real  estate.  This  limitation  is not
              applicable to  investments  in securities  which are secured by or
              represent  interests  in real  estate or to  securities  issued by
              companies, including real estate investment trusts, that invest in
              real estate or interests in real estate.  This limitation does not
              preclude the fund from investing in mortgage-related securities or
              investing directly in mortgages;

         4.   Purchase,  hold or  deal in  commodities  or  commodities  futures
              contracts,  except  that  the fund may  purchase  or sell  forward
              currency contracts;

         5.   Make  loans to other  persons,  except  (a) by  loaning  portfolio
              securities,  (b) by  engaging  in  repurchase  agreements,  (c) by
              purchasing  nonpublicly  offered debt  securities,  or (d) through
              direct investments in mortgages.  For purposes of this limitation,
              the term "loans" shall not include the purchase of a portion of an
              issue  of  publicly   distributed   bonds,   debentures  or  other
              securities;

         6.   Purchase  securities or evidences of interest thereon on "margin."
              This limitation is not applicable to short term credit obtained by
              the fund for the clearance of purchases and sales or redemption of
              securities,  or  to  arrangements  with  respect  to  transactions
              involving  options,  futures  contracts,  short  sales  and  other
              permitted  investments and techniques  (including foreign exchange
              contracts);

         7.   Invest more than 25% of its total assets in a particular  industry
              other than the financial services industry;

         8.   Purchase the securities of any issuer if such purchase at the time
              thereof would cause less than 75% of the value of its total assets
              to be  invested  in cash and cash items  (including  receivables),
              securities  issued  by  the  U.S.  government,   its  agencies  or
              instrumentalities  and repurchase agreements with respect thereto,
              securities of other investment companies, other securities for the
              purposes of this calculation  limited in respect of any one issuer
              to an  amount  not  greater  in value  than 5% of the value of the
              total  assets  of  the  fund  and  to  not  more  than  10% of the
              outstanding voting securities of such issuer; or

         9.   Issue senior securities, except as permitted under the 1940 Act.

         The foregoing limitations may be changed with respect to a fund by "the
vote of a majority of the  outstanding  voting  securities" of that fund, a term
defined  in the  1940  Act to mean  the  vote  (a) of 67% or more of the  voting
securities  present  at a  meeting,  if the  holders  of  more  than  50% of the
outstanding  voting securities of the fund are present,  or (b) of more than 50%
of the outstanding voting securities of the fund, whichever is less.

                                       5

<PAGE>

         For  purposes  of the  diversification  requirements  described  above,
Financial Services Fund will treat both the corporate borrower and the financial
intermediary  as issuers of a loan  participation  interest.  Investments by the
fund in  collateralized  mortgage  obligations  that are deemed to be investment
companies  under the 1940 Act will be included in the  limitation on investments
in other investment  companies described below under "Investment  Strategies and
Risks--Investment Companies".

American Leading Companies, Balanced Trust and Small-Cap Value Trust:

         The  following  are  some  of  the  non-fundamental  limitations  which
American Leading  Companies,  Balanced Trust and Small-Cap Value Trust currently
observe. Each fund may not:

         1.   Buy  securities  on  "margin,"   except  for  short-term   credits
              necessary for clearance of portfolio  transactions and except that
              the fund may make margin  deposits in  connection  with the use of
              permitted  currency  futures  contracts  and  options on  currency
              futures contracts; or

         2.   Make short  sales of  securities  or  maintain  a short  position,
              except that the fund may sell short  "against the box." This limit
              does not apply to short sales and short  positions  in  connection
              with its use of options,  futures contracts and options on futures
              contracts  (no fund intends to make short sales in excess of 5% of
              its net assets during the coming year).

         In  addition,  as  a  non-fundamental   limitation,   American  Leading
Companies may not purchase or sell interest rate and currency futures contracts,
options  on  currencies,  securities,  and  securities  indexes  and  options on
interest rate and currency futures contracts,  provided,  however, that the fund
may sell  covered  call options on  securities  and may purchase  options to the
extent necessary to close out its position in one or more call options.

         Except  as  otherwise  stated,  if  a  fundamental  or  non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later  increase or decrease in percentage  resulting from a change in
value of portfolio securities, in the net asset value of a fund or in the number
of  securities an issuer has  outstanding,  will not be considered to be outside
the  limitation.  Each fund will  monitor the level of  borrowing  and  illiquid
securities in its portfolio and will make necessary  adjustments to maintain the
required asset coverage and adequate liquidity.

         Unless otherwise stated, the funds' investment policies and limitations
are not fundamental and can be changed without shareholder approval.

                                       6

<PAGE>

                         INVESTMENT STRATEGIES AND RISKS

The following  information  applies to Value Trust, Total Return Trust,  Special
Investment Trust,  American Leading Companies,  Balanced Trust,  Small-Cap Value
Trust, and Financial Services Fund, unless otherwise indicated:

         This section supplements the information in the Prospectuses concerning
the  investments  the funds may make and the techniques they may use. Each fund,
unless otherwise stated, may employ several investment strategies, including:

Foreign Securities
------------------

         Each fund may  invest in  foreign  securities.  Investment  in  foreign
securities  presents certain risks,  including those resulting from fluctuations
in currency  exchange  rates,  revaluation of currencies,  future  political and
economic developments and the possible imposition of currency exchange blockages
or other foreign  governmental  laws or  restrictions,  reduced  availability of
public information concerning issuers, and the fact that foreign issuers are not
generally  subject to  uniform  accounting,  auditing  and  financial  reporting
standards or 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
and  transactions  in  foreign  securities  may be  subject  to  less  efficient
settlement  practices,  including  extended  clearance and  settlement  periods.
Issuers  may be less  liquid  and  their  prices  more  volatile  than  those of
comparable  domestic  issuers.  In  addition,  with  respect to certain  foreign
countries,  there is the possibility of  expropriation,  confiscatory  taxation,
withholding  taxes  and  limitations  on the use or  removal  of  funds or other
assets.

         The costs  associated  with  investment in foreign  issuers,  including
withholding  taxes,  brokerage  commissions  and custodial fees, are higher than
those  associated  with  investment in domestic  issuers.  In addition,  foreign
securities  transactions  may be subject  to  difficulties  associated  with the
settlement of such transactions.  Delays in settlement could result in temporary
periods when assets of a fund are  uninvested  and no return is earned  thereon.
The  inability of a fund to make intended  security  purchases due to settlement
problems  could  cause  a fund  to  miss  attractive  investment  opportunities.
Inability to dispose of a portfolio  security due to settlement  problems  could
result in losses to a fund due to subsequent  declines in value of the portfolio
security or, if a fund has entered into a contract to sell the  security,  could
result in liability to the purchaser.

         Since  each fund may invest in  securities  denominated  in  currencies
other than the U.S.  dollar and since each fund may hold foreign  currencies,  a
fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange  rates  between  such  currencies  and the U.S.  dollar.
Changes in the currency  exchange  rates may  influence the value of each fund's
shares,  and also may affect the value of dividends and interest  earned by that
fund and gains and losses  realized by that fund.  Exchange rates are determined
by the forces of supply and demand in the foreign exchange markets. These forces
are  affected by the  international  balance of  payments,  other  economic  and
financial conditions, government intervention, speculation and other factors.

         In addition to purchasing foreign  securities,  each fund may invest in
American Depository Receipts ("ADRs").  Generally, ADRs, in registered form, are
denominated  in U.S.  dollars and are designed  for use in the domestic  market.
Usually  issued  by a U.S.  bank  or  trust  company,  ADRs  are  receipts  that
demonstrate ownership of the underlying securities.  For purposes of each fund's
investment  policies  and  limitations,  ADRs  are  considered  to have the same
classification  as the  securities  underlying  them.  ADRs may be  sponsored or
unsponsored;   issuers  of  securities  underlying   unsponsored  ADRs  are  not
contractually   obligated  to  disclose   material   information   in  the  U.S.
Accordingly,  there may be less  information  available  about such issuers than
there is with respect to domestic companies and issuers of securities underlying
sponsored  ADRs.  Each  fund may  also  invest  in  Global  Depository  Receipts

                                       7

<PAGE>

("GDRs"),  which are receipts,  often  denominated  in U.S.  dollars,  issued by
either a U.S.  or non-U.S.  bank  evidencing  its  ownership  of the  underlying
foreign securities.

         Although not a fundamental  policy  subject to shareholder  vote,  Legg
Mason Funds Management,  Inc. ("LMFM"),  currently anticipates that Value Trust,
Total Return Trust, Special Investment Trust and American Leading Companies will
each  invest no more than 25% of its total  assets in foreign  securities.  Grey
Seifert & Co.,  Inc.  ("Grey  Seifert")  currently  anticipates  that  Financial
Services  Fund will not  invest  more than 25% of its  total  assets in  foreign
securities,  not including investments through ADRs. Bartlett & Co. ("Bartlett")
currently  anticipates  that Balanced Trust will not invest more than 10% of its
total  assets in foreign  securities,  either  directly or through ADRs or GDRs.
Small-Cap Value Trust does not currently intend to invest in foreign securities.

         Each fund (except  Small-Cap  Value Trust) may invest in  securities of
issuers based in emerging markets  (including,  but not limited to, countries in
Asia, Latin America, the Indian Sub-continent,  Southern and Eastern Europe, the
Middle  East,  and  Africa).  The risks of foreign  investment  are  greater for
investments in emerging markets.

         Many emerging market  countries have  experienced  substantial,  and in
some periods  extremely high,  rates of inflation for many years.  Inflation and
rapid  fluctuations  in inflation rates have had, and may continue to have, very
negative  effects on the economies and  securities  markets of certain  emerging
markets.  Economies in emerging  markets  generally are  dependent  heavily upon
international trade and, accordingly,  have been and may continue to be affected
adversely by economic  conditions,  trade barriers,  exchange controls,  managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade.

         Over the last quarter of a century,  inflation in many emerging  market
countries  has been  significantly  higher  than the world  average.  While some
emerging  market  countries  have  sought  to  develop  a number  of  corrective
mechanisms to reduce  inflation or mitigate its effects,  inflation may continue
to have  significant  effects  both  on  emerging  market  economies  and  their
securities  markets.  In addition,  many of the  currencies  of emerging  market
countries have experienced steady devaluations  relative to the U.S. dollar, and
major devaluations have occurred in certain countries.

         Because  of the high  levels of  foreign-denominated  debt owed by many
emerging market countries,  fluctuating  exchange rates can significantly affect
the debt service  obligations of those  countries.  This could, in turn,  affect
local  interest  rates,  profit  margins and exports which are a major source of
foreign exchange earnings.  Although it might be theoretically possible to hedge
for anticipated  income and gains, the ongoing and  indeterminate  nature of the
foregoing risks (and the costs  associated with hedging  transactions)  makes it
virtually impossible to hedge effectively against such risks.

         To the extent an emerging market country faces a liquidity  crisis with
respect to its foreign exchange  reserves,  it may increase  restrictions on the
outflow of any foreign  exchange.  Repatriation  is ultimately  dependent on the
ability of a fund to liquidate its  investments  and convert the local  currency
proceeds obtained from such liquidation into U.S. dollars. Where this conversion
must be done  through  official  channels  (usually  the central bank or certain
authorized commercial banks), the ability to obtain U.S. dollars is dependent on
the availability of such U.S. dollars through those channels,  and if available,
upon the willingness of those channels to allocate those U.S. dollars to a fund.
In such a case,  a fund's  ability  to  obtain  U.S.  dollars  may be  adversely
affected  by any  increased  restrictions  imposed  on the  outflow  of  foreign
exchange.  If a fund  is  unable  to  repatriate  any  amounts  due to  exchange
controls, it may be required to accept an obligation payable at some future date
by the central bank or other governmental  entity of the jurisdiction  involved.
If such  conversion  can  legally  be done  outside  official  channels,  either
directly  or  indirectly,  a fund's  ability to obtain  U.S.  dollars may not be
affected as much by any increased restrictions except to the extent of the price
which may be required to be paid for the U.S. dollars.

                                       8

<PAGE>

         Many  emerging  market  countries  have  little   experience  with  the
corporate  form  of  business  organization  and  may  not  have  well-developed
corporation  and  business  laws or concepts of  fiduciary  duty in the business
context.

         The securities  markets of emerging markets are substantially  smaller,
less developed, less liquid and more volatile than the securities markets of the
U.S. and other more developed countries.  Disclosure and regulatory standards in
many respects are less stringent than in the U.S. and other major markets. There
also may be a lower level of monitoring and  regulation of emerging  markets and
the activities of investors in such markets; enforcement of existing regulations
has been extremely limited. Investing in the securities of companies in emerging
markets  may entail  special  risks  relating  to the  potential  political  and
economic   instability   and  the  risks  of   expropriation,   nationalization,
confiscation  or  the  imposition  of   restrictions   on  foreign   investment,
convertibility  of currencies  into U.S.  dollars and on repatriation of capital
invested.  In  the  event  of  such  expropriation,   nationalization  or  other
confiscation by any country, a fund could lose its entire investment in any such
country.

         Most Latin American countries have experienced substantial, and in some
periods  extremely high, rates of inflation for many years.  Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may  continue  to have  negative  effects on the  economies  and  securities
markets of certain Latin American countries.

         Some  emerging   markets  have   different   settlement  and  clearance
procedures.  In certain markets there have been times when settlements have been
unable to keep  pace  with the  volume  of  securities  transactions,  making it
difficult  to  conduct  such  transactions.  The  inability  of the fund to make
intended securities purchases due to settlement problems could cause the fund to
miss attractive  investment  opportunities.  Inability to dispose of a portfolio
security  caused by settlement  problems could result either in losses to a fund
due to subsequent  declines in the value of the portfolio security or, if a fund
has entered into a contract to sell the security,  in possible  liability to the
purchaser.

         The risk also exists that an  emergency  situation  may arise in one or
more emerging  markets as a result of which  trading of securities  may cease or
may be substantially  curtailed and prices for a fund's portfolio  securities in
such markets may not be readily available.

Illiquid and Restricted Investments
-----------------------------------

         Value Trust and Total Return Trust each may invest up to 10% of its net
assets in illiquid  investments.  American  Leading  Companies,  Balanced Trust,
Special Investment Trust, Small-Cap Value Trust and Financial Services Fund each
may  invest  up to 15% of its net  assets  in  illiquid  investments.  For  this
purpose,  "illiquid  investments"  are those that  cannot be  disposed of within
seven days for  approximately  the price at which the fund values the  security.
Illiquid  investments  include repurchase  agreements with terms of greater than
seven days,  and restricted  investments  other than those the adviser to a fund
has  determined  are liquid  pursuant to guidelines  established  by each fund's
Board of  Directors  and  securities  involved  in swap,  cap,  floor and collar
transactions,   and  over-the-counter   ("OTC")  options  and  their  underlying
collateral.  Due to the  absence of an active  trading  market,  a fund may have
difficulty valuing or disposing of illiquid investments promptly. Judgment plays
a greater role in valuing  illiquid  securities  than for those for which a more
active market exists.

         Restricted   securities  may  be  sold  only  in  privately  negotiated
transactions,  pursuant to a registration  statement filed under the 1933 Act or
pursuant to an  exemption  from  registration,  such as Rule 144 or Rule 144A. A
fund may be required to pay part or all of the costs of such registration, and a
considerable  period may elapse  between  the time a decision  is made to sell a
restricted security and the time the registration statement becomes effective.

         SEC  regulations  permit the sale of certain  restricted  securities to
qualified  institutional  buyers.  The  investment  adviser  to a  fund,  acting
pursuant to  guidelines  established  by such  fund's  Board of  Directors,  may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated,  or

                                       9

<PAGE>

qualified  institutional  investors become  uninterested for a time,  restricted
securities in a fund's portfolio may adversely affect that fund's liquidity.

         The  assets  used as cover for OTC  options  written  by a fund will be
considered  illiquid  unless the OTC options are sold to  qualified  dealers who
agree that the fund may  repurchase  any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option  agreement.  The cover for
an OTC option  written  subject to this procedure  would be considered  illiquid
only to the extent that the maximum  repurchase  price under the formula exceeds
the intrinsic value of the option.

Debt Securities
---------------

         The prices of debt  securities  fluctuate in response to perceptions of
the  issuer's  creditworthiness  and also  tend to vary  inversely  with  market
interest  rates.  The value of such  securities is likely to decline in times of
rising  interest  rates.  Conversely,  when  rates  fall,  the  value  of  these
investments  is likely to rise.  The longer the time to maturity the greater are
such variations.

         Generally,  debt  securities  rated  below  BBB by  Standard  &  Poor's
("S&P"),  or below Baa by  Moody's  Investors  Service,  Inc.  ("Moody's"),  and
unrated securities of comparable quality, offer a higher current yield than that
provided by higher grade issues,  but also involve higher risks. Debt securities
rated C by  Moody's  and S&P are bonds on which no  interest  is being  paid and
which can be regarded as having  extremely  poor prospects of ever attaining any
real  investment  standing.  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.  However,  debt  securities,
regardless of their ratings,  generally  have a higher  priority in the issuer's
capital  structure than do equity  securities.  If an investment  grade security
purchased  by Value Trust,  Total  Return  Trust,  Special  Investment  Trust or
Financial  Services Fund is subsequently  given a rating below investment grade,
each fund's  adviser will  consider that fact in  determining  whether to retain
that  security in that fund's  portfolio,  but is not required to dispose of it.
The ratings of S&P and Moody's  represent the opinions of those  agencies.  Such
ratings are relative and subjective,  and are not absolute standards of quality.
Unrated  debt  securities  are not  necessarily  of  lower  quality  than  rated
securities,  but they may not be attractive to as many buyers.  A description of
the  ratings  assigned  to  corporate  debt  obligations  by Moody's  and S&P is
included in Appendix A.

         Lower-rated debt securities are especially  affected by adverse changes
in the  industries  in which the  issuers  are  engaged  and by  changes  in the
financial condition of the issuers. Highly leveraged issuers may also experience
financial  stress  during  period of rising  interest  rates.  Lower-rated  debt
securities are also sometimes referred to as "junk bonds."

         The market for  lower-rated  debt  securities  has expanded  rapidly in
recent years. This growth has paralleled a long economic  expansion.  At certain
times in the past,  the prices of many  lower-rated  debt  securities  declined,
indicating  concerns that issuers of such securities might experience  financial
difficulties.  At those times,  the yields on lower-rated  debt  securities rose
dramatically  reflecting the risk that holders of such  securities  could lose a
substantial  portion  of  their  value  as a result  of the  issuer's  financial
restructuring or default.  There can be no assurance that such declines will not
recur.

         The market for  lower-rated  debt  securities is generally  thinner and
less  active than that for higher  quality  debt  securities,  which may limit a
fund's ability to sell such  securities at fair value.  Judgment plays a greater
role in pricing  such  securities  than is the case for  securities  having more
active markets. Adverse publicity and investor perceptions, whether or not based
on  fundamental  analysis,  may  also  decrease  the  values  and  liquidity  of
lower-rated debt securities, especially in a thinly traded market.

         In addition to ratings assigned to individual bond issues, each adviser
will analyze  interest rate trends and developments  that may affect  individual
issuers,  including factors such as liquidity,  profitability and asset quality.
The  yields on bonds and  other  debt  securities  in which a fund  invests  are
dependent on a variety of factors,  including  general money market  conditions,
general conditions in the bond market,  the financial  conditions of the issuer,
the size of the offering,  the maturity of the obligation and its rating.  There

                                       10

<PAGE>

may be a wide  variation  in the  quality  of bonds,  both  within a  particular
classification  and between  classifications.  A bond issuer's  obligations  are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer;  litigation
or other  conditions  may also  adversely  affect  the power or  ability of bond
issuers to meet their  obligations  for the payment of principal  and  interest.
Regardless  of  rating  levels,  all debt  securities  considered  for  purchase
(whether rated or unrated) are analyzed by each fund's adviser to determine,  to
the extent possible, that the planned investment is sound.

         If a  security  rated A or above at the time of  purchase  by  American
Leading  Companies is  subsequently  downgraded  to a rating below A, the fund's
adviser  will  consider  that fact in  determining  whether  to  dispose  of the
security,  but will dispose of it if necessary to insure that no more than 5% of
net assets are invested in debt  securities  rated below A. If one rating agency
has rated a security A or better  and  another  agency has rated it below A, the
fund's  adviser  may rely on the higher  rating in  determining  to  purchase or
retain the security on behalf of American Leading  Companies.  Bonds rated A may
be given a "+" or "-" by the rating agency. The fund considers bonds denominated
A, A+ or A- to be included in the rating A.

         Financial   Services  Fund  may  invest  in  the  debt   securities  of
governmental  or  corporate  issuers in any rating  category  of the  recognized
rating services, including issues that are in default, and may invest in unrated
debt  obligations.  Most foreign debt obligations are not rated.  Corporate debt
securities may pay fixed or variable rates of interest.  These securities may be
convertible into preferred or common equity,  or may be bought as part of a unit
containing common stock. Debt securities and securities  convertible into common
stock  need not  necessarily  be of a  certain  grade as  determined  by  rating
agencies such as S&P or Moody's;  however, the fund's adviser does consider such
ratings in determining whether the security is an appropriate investment for the
fund.

         Financial  Services  Fund may invest in  securities  which are in lower
rating  categories or are unrated if the adviser  determines that the securities
provide the  opportunity  of meeting  the fund's  objective  without  presenting
excessive   risk.   The  adviser  will  consider  all  factors  which  it  deems
appropriate,  including ratings, in making investment decisions for the fund and
will attempt to minimize  investment risks through  diversification,  investment
analysis and monitoring of general  economic  conditions  and trends.  While the
adviser may refer to ratings, it does not rely exclusively on ratings, but makes
its own independent and ongoing review of credit quality.

Preferred Stock
---------------

         Each  fund  may  purchase  preferred  stock  as a  substitute  for debt
securities of the same issuer when, in the opinion of its adviser, the preferred
stock is more  attractively  priced  in light of the risks  involved.  Preferred
stock pays  dividends at a specified  rate and  generally  has  preference  over
common stock in the payment of  dividends  and the  liquidation  of the issuer's
assets  but is  junior  to the debt  securities  of the  issuer  in  those  same
respects.  Unlike interest  payments on debt securities,  dividends on preferred
stock  are  generally  payable  at the  discretion  of  the  issuer's  board  of
directors.  Shareholders  may suffer a loss of value if dividends  are not paid.
The market prices of preferred  stocks are subject to changes in interest  rates
and are more sensitive to changes in the issuer's  creditworthiness than are the
prices of debt securities. Under normal circumstances,  preferred stock does not
carry voting rights.

Convertible Securities
----------------------

         A convertible security is a bond,  debenture,  note, preferred stock or
other security that may be converted  into or exchanged for a prescribed  amount
of common stock of the same or a different issuer within a particular  period of
time at a specified price or formula. A convertible security entitles the holder
to receive  interest  paid or accrued on debt or the dividend  paid on preferred
stock  until the  convertible  security  matures or is  redeemed,  converted  or
exchanged. Before conversion, convertible securities ordinarily provide a stream
of income with  generally  higher yields than those of common stocks of the same
or  similar  issuers,  but  lower  than  the  yield  of  non-convertible   debt.

                                       11

<PAGE>

Convertible    securities   are   usually    subordinated   to   comparable-tier
nonconvertible  securities  but rank senior to common  stock in a  corporation's
capital structure.

         The value of a  convertible  security is a function of (1) its yield in
comparison  with the  yields of other  securities  of  comparable  maturity  and
quality that do not have a  conversion  privilege  and (2) its worth,  at market
value, if converted into the underlying common stock. The price of a convertible
security often reflects  variations in the price of the underlying  common stock
in a way that  non-convertible  debt does not.  A  convertible  security  may be
subject to redemption at the option of the issuer at a price  established in the
convertible security's governing instrument, which may be less than the ultimate
conversion value.

         Many  convertible  securities are rated below  investment  grade or, if
unrated,  are considered of comparable quality.  American Leading Companies does
not intend to purchase any convertible securities rated below BB by S&P or below
Ba by Moody's or, if unrated,  deemed by the fund's  adviser to be of comparable
quality.  Moody's describes securities rated Ba as having "speculative elements;
their future cannot be considered well-assured. Often the protection of interest
and principal  payments may be very moderate,  and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class."

Corporate Debt Securities
-------------------------

         Corporate debt securities are bonds or notes issued by corporations and
other business  organizations,  including  business trusts,  in order to finance
their credit needs.  Corporate debt securities  include  commercial  paper which
consists of short-term  (usually from 1 to 270 days) unsecured  promissory notes
issued by corporations in order to finance their current operations.

         Corporate debt  securities may pay fixed or variable rates of interest,
or interest at a rate  contingent  upon some other factor,  such as the price of
some  commodity.  These  securities may be convertible  into preferred or common
equity, or may be bought as part of a unit containing common stock. In selecting
corporate debt  securities  for a fund, the fund's adviser  reviews and monitors
the  creditworthiness  of each  issuer  and issue.  The  adviser  also  analyzes
interest  rate trends and  specific  developments  which it believes  may affect
individual issuers.

         Financial Services Fund may invest in foreign corporate debt securities
denominated  in U.S.  dollars or foreign  currencies.  Foreign  debt  securities
include Yankee dollar obligations (U.S. dollar denominated  securities issued by
foreign  corporations  and traded on U.S.  markets) and  Eurodollar  obligations
(U.S. dollar denominated securities issued by foreign corporations and traded on
foreign markets).

When-Issued Securities
----------------------

         Each  fund may enter  into  commitments  to  purchase  securities  on a
when-issued  basis.  Such securities are often the most  efficiently  priced and
have the best liquidity in the bond market. When a fund purchases  securities on
a  when-issued  basis,  it  assumes  the risks of  ownership  at the time of the
purchase, not at the time of receipt. However, the fund does not have to pay for
the obligations  until they are delivered to it, and no interest  accrues to the
fund until they are  delivered.  This is normally  seven to 15 days  later,  but
could be longer. Use of this practice would have a leveraging effect on a fund.

         American   Leading   Companies  does  not  currently  expect  that  its
commitment to purchase  when-issued  securities will at any time exceed,  in the
aggregate, 5% of its net assets.

         When a fund  commits  to  purchase  a  when-issued  security,  it  will
establish  a  segregated  account  with  its  custodian  and  maintain  cash  or
appropriate  liquid  securities  in an  amount  at least  equal in value to that
fund's commitments to purchase when-issued securities.

                                       12

<PAGE>

         A fund may sell the securities underlying a when-issued purchase, which
may result in capital gains or losses.

Indexed Securities (all funds except Financial Services Fund)
------------------

         Indexed  securities  are  securities  whose  prices are  indexed to the
prices of securities indices, currencies or other financial statistics.  Indexed
securities  typically are debt  securities  or deposits  whose value at maturity
and/or  coupon rate is  determined  by  reference  to a specific  instrument  or
statistic.  The performance of indexed securities fluctuates (either directly or
inversely,  depending upon the  instrument)  with the  performance of the index,
security, currency or other instrument to which they are indexed and may also be
influenced  by interest  rate changes in the U.S. and abroad.  At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the  security,  and  their  value  may  substantially  decline  if the  issuer's
creditworthiness  deteriorates.   Recent  issuers  of  indexed  securities  have
included banks,  corporations  and certain U.S.  government  agencies.  The U.S.
Treasury  recently began issuing  securities whose principal value is indexed to
the   Consumer   Price  Index  (also   known  as   "Treasury   Inflation-Indexed
Securities").  A fund will only purchase indexed securities of issuers which its
adviser  determines  present  minimal credit risks and will monitor the issuer's
creditworthiness  during the time the indexed security is held. The adviser will
use its judgment in determining  whether indexed securities should be treated as
short-term  instruments,  bonds, stock or as a separate asset class for purposes
of  each   fund's   investment   allocations,   depending   on  the   individual
characteristics of the securities. Each fund currently does not intend to invest
more than 5% of its net assets in indexed  securities.  Indexed  securities  may
fluctuate  according to a multiple of changes in the underlying  instrument and,
in that respect, have a leverage-like effect on a fund.

Senior Securities
-----------------

         The  1940  Act  prohibits  the  issuance  of  senior  securities  by  a
registered  open-end  fund with one  exception.  Each fund may borrow from banks
provided that immediately after any such borrowing there is an asset coverage of
at least 300% for all borrowings of the fund.  Borrowing for temporary  purposes
only and in an amount  not  exceeding  5% of the value of the total  assets of a
fund at the time the  borrowing  is made is not  deemed to be an  issuance  of a
senior security.

         There  are  various  investment  techniques  which  may give rise to an
obligation  of a fund to pay in the  future  about  which the SEC has  stated it
would not raise senior security concerns, provided the fund maintains segregated
assets in an amount that covers the future payment  obligation.  Such investment
techniques  include,  among  other  things,   when-issued  securities,   forward
contracts and repurchase agreements.

The  following  information  applies to Special  Investment  Trust and Small-Cap
Value Trust:

Small and Mid-Sized Company Stocks
----------------------------------

         The advisers for Special  Investment  Trust and  Small-Cap  Value Trust
believe  that the  comparative  lack of  attention  by  investment  analysts and
institutional   investors  to  small  and  mid-sized  companies  may  result  in
opportunities to purchase the securities of such companies at attractive  prices
compared to historical or market  price-earnings  ratios,  book value, return on
equity or long-term prospects.  Each fund's policy of investing primarily in the
securities of smaller  companies  differs from the  investment  approach of many
other mutual funds,  and investment in such securities  involves  special risks.
Among other things,  the prices of  securities of small and mid-sized  companies
generally are more volatile than those of larger  companies;  the  securities of
smaller companies generally are less liquid; and smaller companies generally are
more likely to be adversely affected by poor economic or market conditions.

         It is  anticipated  that  some of the  portfolio  securities  of 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

                                       13

<PAGE>

dispose  of such  securities  at  prevailing  market  prices  in  order  to meet
redemptions.  However, as a non-fundamental policy, Special Investment Trust and
Small-Cap  Value  Trust will not invest  more than 15% of their  respective  net
assets in illiquid securities.

         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 small  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 company stocks may,
to a degree,  fluctuate  independently  of larger company  stocks,  i.e.,  small
company  stocks may decline in price as the prices of large company  stocks rise
or vice versa.

The following  information applies to Balanced Trust and Financial Services Fund
(unless otherwise indicated):

Mortgage-Related Securities
---------------------------

         Mortgage-related  securities provide capital for mortgage loans made to
residential homeowners,  including securities which represent interests in pools
of  mortgage  loans  made by  lenders  such as  savings  and loan  institutions,
mortgage  bankers,  commercial  banks and others.  Pools of  mortgage  loans are
assembled  for sale to  investors  (such as the funds) by various  governmental,
government-related and private organizations,  such as dealers. The market value
of mortgage-related securities will fluctuate as a result of changes in interest
rates and mortgage rates.

         Interests  in pools of  mortgage  loans  generally  provide  a  monthly
payment which consists of both interest and principal payments. In effect, these
payments are a  "pass-through"  of the monthly  payments made by the  individual
borrowers  on their  residential  mortgage  loans,  net of any fees  paid to the
issuer or  guarantor  of such  securities.  Additional  payments  are  caused by
repayments of principal  resulting from the sale of the  underlying  residential
property,  refinancing  or  foreclosure,  net of  fees  or  costs  which  may be
incurred.  Some  mortgage-related  securities  (such  as  securities  issued  by
Government  National Mortgage  Association  ("GNMA")) are described as "modified
pass-through"  because  they  entitle  the holder to receive  all  interest  and
principal payments owed on the mortgage pool, net of certain fees, regardless of
whether the mortgagor actually makes the payment.

         Commercial  banks,  savings  and loan  institutions,  private  mortgage
insurance companies,  mortgage bankers and other secondary market issuers,  such
as dealers,  create  pass-through  pools of  conventional  residential  mortgage
loans. Such issuers also may be the originators of the underlying mortgage loans
as well as the guarantors of the mortgage-related  securities.  Pools created by
such  non-governmental  issuers  generally  offer a higher rate of interest than
government and government-related  pools because there are no direct or indirect
government  guarantees of payments with respect to such pools.  However,  timely
payment of interest and  principal of these pools is supported by various  forms
of insurance or guarantees,  including  individual loan,  title, pool and hazard
insurance.  There can be no assurance  that the private  insurers can meet their
obligations  under  the  policies.  A fund may buy  mortgage-related  securities
without  insurance  or  guarantees  if,  through  an  examination  of  the  loan
experience and practices of the persons  creating the pools,  the fund's adviser
determines that the securities are an appropriate investment for the fund.

         Another type of security representing an interest in a pool of mortgage
loans is known as a collateralized  mortgage obligation ("CMO").  CMOs represent
interests in a short-term,  intermediate-term or long-term portion of a mortgage
pool.  Each portion of the pool  receives  monthly  interest  payments,  but the
principal  repayments pass through to the short-term CMO first and the long-term
CMO last.  A CMO  permits an  investor  to more  accurately  predict the rate of
principal   repayments.   CMOs  are   issued  by   private   issuers,   such  as
broker/dealers,  and by government agencies, such as Fannie Mae and Freddie Mac.
Investments  in CMOs are subject to the same risks as direct  investments in the
underlying mortgage-backed securities. In addition, in the event of a bankruptcy

                                       14

<PAGE>

or other  default of a broker who issued the CMO held by a fund,  the fund could
experience  both delays in  liquidating  its position and losses.  Each fund may
invest in CMOs in any rating category of the recognized  rating services and may
invest in unrated  CMOs.  Each fund may also invest in  "stripped"  CMOs,  which
represent  only the income  portion  or the  principal  portion of the CMO.  The
values  of  stripped   CMOs  are  very   sensitive  to  interest  rate  changes;
accordingly,  these instruments present a greater risk of loss than conventional
mortgage-backed securities.

         Each fund's adviser expects that  governmental,  government-related  or
private   entities  may  create   mortgage  loan  pools  offering   pass-through
investments in addition to those described above. The mortgages underlying these
securities may be second  mortgages or  alternative  mortgage  instruments  (for
example,  mortgage  instruments whose principal or interest payments may vary or
whose  terms  to  maturity  may  differ  from  customary  long-term  fixed  rate
mortgages).  As new  types of  mortgage-related  securities  are  developed  and
offered to  investors,  each fund's  adviser  will,  consistent  with the fund's
investment objective and policies, consider making investments in such new types
of securities.  The Prospectuses  will be amended with any necessary  additional
disclosure prior to a fund investing in such securities.

         The  average  life of  securities  representing  interests  in pools of
mortgage loans is likely to be substantially  less than the original maturity of
the mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of  principal  and  interest,  and have the effect of  reducing  future
payments.  To the extent the  mortgages  underlying a security  representing  an
interest in a pool of mortgages  are prepaid,  a fund may  experience a loss (if
the price at which the  respective  security  was  acquired by the fund was at a
premium  over par,  which  represents  the price at which the  security  will be
redeemed  upon  prepayment)  or a gain (if the  price at  which  the  respective
security  was  acquired by the fund was at a discount  from par).  In  addition,
prepayments of such securities held by a fund will reduce the share price of the
fund to the extent the market value of the  securities at the time of prepayment
exceeds  their par value,  and will  increase the share price of the fund to the
extent the par value of the securities exceeds their market value at the time of
prepayment. Prepayments may occur with greater frequency in periods of declining
mortgage rates because,  among other reasons,  it may be possible for mortgagors
to refinance their  outstanding  mortgages at lower interest rates.  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.

         Although the market for  mortgage-related  securities issued by private
organizations  is  becoming  increasingly  liquid,  such  securities  may not be
readily  marketable.  A fund will not purchase  mortgage-related  securities for
which there is no established  market (including CMOs and direct  investments in
mortgages as described below) or any other  investments which the fund's adviser
deems to be illiquid  pursuant to criteria  established  by the fund's  Board of
Directors  if, as a result,  more than 10% of the value of the fund's net assets
would be invested in such illiquid securities and investments.

         Government-related    organizations   which   issue    mortgage-related
securities  include GNMA, Fannie Mae and Freddie Mac.  Securities issued by GNMA
and Fannie Mae are fully  modified  pass-through  securities,  i.e.,  the timely
payment of  principal  and  interest is  guaranteed  by the issuer.  Freddie Mac
securities  are modified  pass-through  securities,  i.e., the timely payment of
interest is guaranteed by Freddie Mac,  principal is passed through as collected
but  payment  thereof  is  guaranteed  not later  than one year after it becomes
payable.

         In determining the dollar-weighted average maturity of the fixed income
portion of the portfolio,  Bartlett,  investment adviser to Balanced Trust, will
follow  industry  practice in assigning an average life to the  mortgage-related
securities of the fund unless the interest rate on the mortgages underlying such
securities is such that Bartlett believes a different prepayment rate is likely.
For example,  where a GNMA has a high interest rate relative to the market, that
GNMA is likely to have a shorter overall maturity than a GNMA with a market rate
coupon.  Moreover,  Bartlett  may deem it  appropriate  to change the  projected

                                       15

<PAGE>

average  life  for  the  fund's   mortgage-related   security  as  a  result  of
fluctuations in market interest rates and other factors.

         Financial Services Fund may invest no more than 5% of its net assets in
mortgage-related securities.

Municipal Lease Obligations (Balanced Trust only)
---------------------------

         The  municipal  obligations  in  which  the  fund  may  invest  include
municipal leases and participation  interests therein. These obligations,  which
may take the form of a lease,  an  installment  purchase or a conditional  sales
contract,  are issued by state and local  governments and authorities to acquire
land and a wide variety of equipment and facilities, such as fire and sanitation
vehicles,  telecommunications  equipment and other capital  assets.  Rather than
holding  such  obligations  directly,  the fund  may  purchase  a  participation
interest in a municipal  lease  obligation  from a bank or other third party.  A
participation  interest gives the fund a specified,  undivided pro-rata interest
in the total amount of the obligation.

         Municipal lease  obligations  have risks distinct from those associated
with general obligation or revenue bonds.  State  constitutions and statutes set
forth requirements that states or municipalities  must meet to incur debt. These
may include voter referenda,  interest rate limits or public sale  requirements.
Leases,  installment  purchase or  conditional  sale contracts  (which  normally
provide for title to the leased asset to pass to the  governmental  issuer) have
evolved as a means for  governmental  issuers to acquire  property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. The debt-issuance  limitations are deemed  inapplicable  because of the
inclusion in many leases and contracts of "non-appropriation"  clauses providing
that the  governmental  user has no obligation to make future payments under the
lease  or  contract  unless  money  is  appropriated  for  such  purpose  by the
appropriate legislative body on a yearly or other periodic basis.

         In  determining  the  liquidity of a municipal  lease  obligation,  the
fund's adviser will  distinguish  between simple or direct  municipal leases and
municipal  lease-backed  securities,  the latter of which may take the form of a
lease-backed  revenue  bond or  other  investment  structure  using a  municipal
lease-purchase  agreement  as its base.  While the  former may  present  special
liquidity issues,  the latter are based on a well established method of securing
payment of a municipal  obligation.  The fund's  investment  in municipal  lease
obligations  and  participation  interests  therein  will be treated as illiquid
unless the fund's adviser determines,  pursuant to guidelines established by the
Board of Directors,  that the security could be disposed of within seven days in
the normal course of business at approximately  the amount at which the fund has
valued the security.

         An issuer's obligations under its municipal  obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Code, and laws that may be enacted
by Congress or state legislatures extending the time for payment of principal or
interest,  or both,  or imposing  other  constraints  upon  enforcement  of such
obligations.  There is also the  possibility  that as a result of  litigation or
other  conditions the power or ability of issuers to meet their  obligations for
the payment of interest and  principal  on their  municipal  obligations  may be
materially and adversely affected.

The following  information  applies to Value Trust, Total Return Trust,  Special
Investment  Trust,  Balanced Trust and Small-Cap Value Trust:  (Small-Cap  Value
Trust does not  currently  intend to invest in futures  and  options.)  As noted
below, Financial Services Fund may invest in forward currency contracts.

Options, Futures and Other Strategies
-------------------------------------

         General.  Each fund may invest in certain  options,  futures  contracts
(sometimes  referred to as  "futures"),  options on futures  contracts,  forward
currency contracts,  swaps, caps, floors, collars,  indexed securities and other
derivative  instruments  (collectively,  "Financial  Instruments") to attempt to
enhance  its  income  or  yield or to  attempt  to hedge  its  investments.  The
strategies  described below may be used in an attempt to manage a fund's foreign
currency exposure  (including  exposure to the Euro) as well as other risks of a

                                       16

<PAGE>

fund's  investments  that can affect its net asset value.  Each fund may utilize
futures  contracts  and options to a limited  extent.  Specifically,  a fund may
enter into futures  contracts and related options provided that not more than 5%
of its net assets are required as a futures contract deposit and/or premium;  in
addition,  a fund may not enter into futures contracts or related options if, as
a result, more than 20% of the fund's total assets would be so invested.

         Generally,  each  fund may  purchase  and  sell  any type of  Financial
Instrument. However, as an operating policy, a fund will only purchase or sell a
particular  Financial Instrument if the fund is authorized to invest in the type
of asset by which the  return  on,  or value of,  the  Financial  Instrument  is
primarily  measured.  Since  each  fund  is  authorized  to  invest  in  foreign
securities,   each  fund  may  purchase  and  sell  foreign  currency  and  Euro
derivatives. However, a fund will only invest in foreign currency derivatives in
connection  with  the  fund's  investment  in  securities  denominated  in  that
currency.

         Hedging  strategies  can be broadly  categorized  as "short hedges" and
"long  hedges." A short hedge is a purchase  or sale of a  Financial  Instrument
intended  partially or fully to offset potential declines in the value of one or
more investments held in a fund's portfolio. Thus, in a short hedge a fund takes
a position  in a  Financial  Instrument  whose  price is expected to move in the
opposite direction of the price of the investment being hedged.

         Conversely,  a  long  hedge  is a  purchase  or  sale  of  a  Financial
Instrument  intended  partially  or fully to offset  potential  increases in the
acquisition  cost of one or more  investments  that a fund  intends to  acquire.
Thus, in a long hedge, a fund takes a position in a Financial  Instrument  whose
price is expected to move in the same direction as the price of the  prospective
investment  being  hedged.  A  long  hedge  is  sometimes   referred  to  as  an
anticipatory hedge. In an anticipatory hedge transaction,  a fund does not own a
corresponding  security and,  therefore,  the  transaction  does not relate to a
security the fund owns.  Rather,  it relates to a security that the fund intends
to acquire.  If the fund does not complete the hedge by purchasing  the security
it anticipated purchasing,  the effect on the fund's portfolio is the same as if
the transaction were entered into for speculative purposes.

         Financial  Instruments  on securities  generally are used to attempt to
hedge against price  movements in one or more  particular  securities  positions
that a fund owns or intends to acquire.  Financial  Instruments  on indices,  in
contrast,  generally  are used to attempt to hedge  against  price  movements in
market  sectors in which a fund has  invested  or  expects to invest.  Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.

         The use of Financial  Instruments is subject to applicable  regulations
of the SEC, the several  exchanges  upon which they are traded and the Commodity
Futures Trading  Commission (the "CFTC").  In addition,  a fund's ability to use
Financial Instruments may be limited by tax considerations.  See "Additional Tax
Information."

         In addition to the  instruments,  strategies and risks described below,
the advisers  expect to discover  additional  opportunities  in connection  with
Financial  Instruments  and  other  similar  or  related  techniques.  These new
opportunities  may become available as the advisers  develop new techniques,  as
regulatory  authorities  broaden the range of permitted  transactions and as new
Financial  Instruments  or other  techniques  are  developed.  The  advisers may
utilize these opportunities to the extent that they are consistent with a fund's
investment objective and permitted by its investment  limitations and applicable
regulatory authorities.  A fund might not use any of these strategies, and there
can be no assurance that any strategy used will succeed. The funds' Prospectuses
or this Statement of Additional  Information  will be supplemented to the extent
that new products or techniques  involve  materially  different risks than those
described below or in the Prospectuses.

         Special  Risks.  The  use of  Financial  Instruments  involves  special
considerations  and risks,  certain of which are  described  below.  In general,
these  techniques  may increase the volatility of a fund and may involve a small
investment  of  cash  relative  to the  magnitude  of the  risk  assumed.  Risks
pertaining to  particular  Financial  Instruments  are described in the sections
that follow.

                                       17

<PAGE>

         (1)  Successful  use of  most  Financial  Instruments  depends  upon an
              adviser's ability to predict movements of the overall  securities,
              currency and  interest  rate  markets,  which  requires  different
              skills  than  predicting  changes  in  the  prices  of  individual
              securities. There can be no assurance that any particular strategy
              will succeed,  and use of Financial  Instruments could result in a
              loss,  regardless  of whether  the  intent  was to reduce  risk or
              increase return.

         (2)  There  might be  imperfect  correlation,  or even no  correlation,
              between  price  movements  of a  Financial  Instrument  and  price
              movements of the  investments  being hedged.  For example,  if the
              value of a Financial Instrument used in a short hedge increased by
              less than the decline in value of the hedged investment, the hedge
              would not be fully  successful.  Such a lack of correlation  might
              occur due to  factors  unrelated  to the value of the  investments
              being  hedged,  such as  speculative  or  other  pressures  on the
              markets  in  which   Financial   Instruments   are   traded.   The
              effectiveness  of hedges using  Financial  Instruments  on indices
              will depend on the degree of correlation  between price  movements
              in the index and price movements in the securities being hedged.

         Because there is a limited number of types of  exchange-traded  options
and futures contracts,  it is likely that the standardized  contracts  available
will not match a fund's current or anticipated  investments  exactly. A fund may
invest in options and  futures  contracts  based on  securities  with  different
issuers,  maturities or other  characteristics  from the  securities in which it
typically  invests,  which involves a risk that the options or futures  position
will not track the performance of the fund's other investments.

         Options and futures  prices can also  diverge  from the prices of their
underlying  instruments,  even if the  underlying  instruments  match  a  fund's
investments  well.  Options and futures  prices are  affected by such factors as
current and anticipated  short-term interest rates, changes in volatility of the
underlying instrument,  and the time remaining until expiration of the contract,
which may not affect  security  prices the same way.  Imperfect  correlation may
also result from differing  levels of demand in the options and futures  markets
and the  securities  markets,  from  structural  differences  in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or  trading  halts.  A fund may  purchase  or sell  options  and  futures
contracts  with a greater or lesser value than the securities it wishes to hedge
or intends to  purchase in order to attempt to  compensate  for  differences  in
volatility  between the contract and the  securities,  although  this may not be
successful  in all  cases.  If price  changes  in a fund's  options  or  futures
positions are poorly  correlated with its other  investments,  the positions may
fail to  produce  anticipated  gains or result in losses  that are not offset by
gains in other investments.

         (3)  If successful,  the above-discussed  strategies can reduce risk of
              loss by wholly or  partially  offsetting  the  negative  effect of
              unfavorable  price  movements.  However,  such strategies can also
              reduce  opportunity  for gain by offsetting the positive effect of
              favorable price movements.  For example,  if a fund entered into a
              short hedge  because its adviser  projected a decline in the price
              of a  security  in the  fund's  portfolio,  and the  price of that
              security increased  instead,  the gain from that increase might be
              wholly  or  partially  offset  by a  decline  in the  price of the
              Financial  Instrument.  Moreover,  if the  price of the  Financial
              Instrument  declined by more than the increase in the price of the
              security,  the fund could suffer a loss. In either such case,  the
              fund would have been in a better  position had it not attempted to
              hedge at all.

         (4)  As described below, a fund might be required to maintain assets as
              "cover," maintain segregated accounts or make margin payments when
              it takes positions in Financial  Instruments involving obligations
              to third parties (i.e., Financial Instruments other than purchased
              options). If a fund were unable to close out its positions in such
              Financial  Instruments,  it  might  be  required  to  continue  to
              maintain such assets or accounts or make such  payments  until the
              position  expired or matured.  These  requirements  might impair a
              fund's ability to sell a portfolio  security or make an investment
              at a time  when it  would  otherwise  be  favorable  to do so,  or
              require   that  the  fund   sell  a   portfolio   security   at  a
              disadvantageous time.

                                       18

<PAGE>

         (5)  A fund's ability to close out a position in a Financial Instrument
              prior to  expiration  or maturity  depends on the  existence  of a
              liquid secondary  market or, in the absence of such a market,  the
              ability and willingness of the other party to the transaction (the
              "counterparty")  to  enter  into a  transaction  closing  out  the
              position.  Therefore,  there is no assurance that any position can
              be closed out at a time and price that is favorable to a fund.

         Cover.  Transactions using Financial Instruments,  other than purchased
options,  expose a fund to an obligation to another party. A fund will not enter
into any such transactions  unless it owns either (1) an offsetting  ("covered")
position in  securities,  currencies  or other  options,  futures  contracts  or
forward contracts, or (2) cash and liquid assets with a value,  marked-to-market
daily,  sufficient to cover its potential  obligations to the extent not covered
as provided in (1) above.  Each fund will comply with SEC  guidelines  regarding
cover for these  instruments  and will, if the guidelines so require,  set aside
cash or liquid assets in an account with its custodian in the prescribed  amount
as determined daily.

         Assets  used as cover or held in an  account  cannot be sold  while the
position in the  corresponding  Financial  Instrument  is open,  unless they are
replaced with other appropriate  assets. As a result,  the commitment of a large
portion  of a  fund's  assets  to  cover  in  accounts  could  impede  portfolio
management or the fund's  ability to meet  redemption  requests or other current
obligations.

         Options.  A call  option  gives the  purchaser  the  right to buy,  and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option  period.  A put option gives the  purchaser the right to sell,
and obligates the writer to buy, the  underlying  investment at the  agreed-upon
price during the option period.  Purchasers of options pay an amount, known as a
premium,  to the  option  writer  in  exchange  for the right  under the  option
contract.

         The  purchase  of call  options  can  serve  as a long  hedge,  and the
purchase of put options can serve as a short hedge.  Writing put or call options
can enable a fund to enhance  income or yield by reason of the premiums  paid by
the  purchasers  of such options.  However,  if the market price of the security
underlying a put option  declines to less than the exercise price of the option,
minus the premium received, a fund would expect to suffer a loss.

         Writing  call  options  can serve as a  limited  short  hedge,  because
declines in the value of the hedged  investment would be offset to the extent of
the  premium  received  for  writing the  option.  However,  if the  security or
currency  appreciates  to a price  higher  than the  exercise  price of the call
option,  it can be expected  that the option will be exercised and the fund will
be obligated to sell the security or currency at less than its market value.  If
the call option is an OTC option,  the  securities or other assets used as cover
would be  considered  illiquid  to the  extent  described  under  "Illiquid  and
Restricted Investments."

         Writing put options can serve as a limited long hedge because increases
in the value of the  hedged  investment  would be  offset  to the  extent of the
premium  received for writing the option.  However,  if the security or currency
depreciates to a price lower than the exercise  price of the put option,  it can
be expected that the put option will be exercised and the fund will be obligated
to purchase the security or currency at more than its market  value.  If the put
option is an OTC option,  the  securities or other assets used as cover would be
considered  illiquid to the extent  described  under  "Illiquid  and  Restricted
Investments."

         The value of an option position will reflect,  among other things,  the
current market value of the  underlying  investment,  the time  remaining  until
expiration,  the  relationship  of the exercise price to the market price of the
underlying  investment,  the  historical  price  volatility  of  the  underlying
investment and general market  conditions.  Options that expire unexercised have
no value.

         Each fund may  effectively  terminate its right or obligation  under an
option by entering into a closing transaction. For example, a fund may terminate
its  obligation  under a call or put option that it had written by purchasing an
identical call or put option;  this is known as a closing purchase  transaction.
Conversely,  a fund may  terminate  a  position  in a put or call  option it had

                                       19

<PAGE>

purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a fund to realize profits or limit
losses on an option position prior to its exercise or expiration.

         A type of put that a fund may purchase is an "optional delivery standby
commitment,"  which is entered into by parties  selling debt  securities  to the
fund. An optional delivery standby commitment gives a fund the right to sell the
security  back to the seller on  specified  terms.  This right is provided as an
inducement to purchase the security.

         Risks  of  Options  on  Securities.  Options  offer  large  amounts  of
leverage,  which will result in a fund's net asset value being more sensitive to
changes in the value of the related instrument.  Each fund may purchase or write
both  exchange-traded  and OTC  options.  Exchange-traded  options in the United
States are issued by a clearing  organization  affiliated  with the  exchange on
which the option is listed  that,  in  effect,  guarantees  completion  of every
exchange-traded  option  transaction.  In  contrast,  OTC options are  contracts
between a fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization  guarantee.  Thus, when a fund purchases an OTC option,
it relies on the counterparty  from whom it purchased the option to make or take
delivery of the underlying  investment  upon exercise of the option.  Failure by
the counterparty to do so would result in the loss of any premium paid by a fund
as well as the loss of any expected benefit of the transaction.

         Each  fund's   ability  to  establish   and  close  out   positions  in
exchange-listed  options  depends on the existence of a liquid market.  However,
there can be no assurance that such a market will exist at any particular  time.
Closing  transactions  can be made for OTC options only by negotiating  directly
with the  counterparty,  or by a transaction in the secondary market if any such
market  exists.  There can be no  assurance  that a fund will in fact be able to
close out an OTC option  position at a favorable  price prior to expiration.  In
the event of insolvency of the counterparty, a fund might be unable to close out
an OTC option position at any time prior to its expiration.

         If a fund were unable to effect a closing  transaction for an option it
had purchased,  it would have to exercise the option to realize any profit.  The
inability to enter into a closing purchase transaction for a covered call option
written by a fund could cause  material  losses because the fund would be unable
to sell the  investment  used as cover for the written  option  until the option
expires or is exercised.

         Options on  Indices.  Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss  depends  on changes in the index in  question  rather  than on
price  movements in  individual  securities  or futures  contracts.  When a fund
writes a call on an index,  it receives a premium and agrees that,  prior to the
expiration  date,  the purchaser of the call,  upon  exercise of the call,  will
receive  from the fund an amount of cash if the closing  level of the index upon
which the call is based is  greater  than the  exercise  price of the call.  The
amount of cash is equal to the difference between the closing price of the index
and the exercise  price of the call times a specified  multiple  ("multiplier"),
which determines the total dollar value for each point of such difference.  When
a fund buys a call on an index,  it pays a premium and has the same rights as to
such call as are indicated above.  When a fund buys a put on an index, it pays a
premium and has the right,  prior to the expiration  date, to require the seller
of the put,  upon the  fund's  exercise  of the put,  to  deliver to the fund an
amount of cash if the closing  level of the index upon which the put is based is
less than the exercise  price of the put,  which amount of cash is determined by
the  multiplier,  as described  above for calls.  When a fund writes a put on an
index,  it receives a premium and the purchaser of the put has the right,  prior
to the  expiration  date, to require the fund to deliver to it an amount of cash
equal to the  difference  between  the closing  level of the index and  exercise
price times the multiplier if the closing level is less than the exercise price.

         Risks of  Options on  Indices.  The risks of  investment  in options on
indices may be greater than options on  securities.  Because  index  options are
settled  in cash,  when a fund  writes a call on an index it cannot  provide  in
advance for its potential  settlement  obligations  by acquiring and holding the
underlying  securities.  A fund can  offset  some of the risk of  writing a call
index option by holding a diversified  portfolio of securities  similar to those
on which the underlying index is based.  However,  a fund cannot, as a practical

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matter,  acquire and hold a portfolio  containing exactly the same securities as
underlie  the  index  and,  as a  result,  bears a risk  that  the  value of the
securities held will vary from the value of the index.

         Even if a fund could assemble a portfolio  that exactly  reproduced the
composition of the underlying  index, it still would not be fully covered from a
risk standpoint  because of the "timing risk" inherent in writing index options.
When an index  option  is  exercised,  the  amount  of cash  that the  holder is
entitled to receive is determined by the  difference  between the exercise price
and the closing  index level on the date when the option is  exercised.  As with
other kinds of  options,  a fund as the call writer will not learn that the fund
has been  assigned  until the next  business day at the  earliest.  The time lag
between  exercise  and  notice of  assignment  poses no risk for the writer of a
covered call on a specific underlying  security,  such as common stock,  because
there the writer's obligation is to deliver the underlying security,  not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying  security,  it can  satisfy  its  settlement  obligations  by  simply
delivering  it, and the risk that its value may have declined since the exercise
date is borne by the exercising  holder.  In contrast,  even if the writer of an
index call holds securities that exactly match the composition of the underlying
index,  it will not be able to satisfy its assignment  obligations by delivering
those  securities  against  payment of the exercise price.  Instead,  it will be
required  to pay cash in an  amount  based  on the  closing  index  value on the
exercise  date. By the time it learns that it has been  assigned,  the index may
have declined, with a corresponding decline in the value of its portfolio.  This
"timing risk" is an inherent  limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.

         If a fund has  purchased  an index  option and  exercises it before the
closing index value for that day is  available,  it runs the risk that the level
of the underlying  index may  subsequently  change.  If such a change causes the
exercised  option to fall  out-of-the-money,  a fund will be required to pay the
difference  between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.

         OTC Options.  Unlike  exchange-traded  options,  which are standardized
with respect to the underlying  instrument,  expiration date, contract size, and
strike  price,  the terms of OTC  options  (options  not  traded  on  exchanges)
generally are established through negotiation with the other party to the option
contract.  While this type of  arrangement  allows a fund great  flexibility  to
tailor the option to its needs, OTC options  generally involve greater risk than
exchange-traded  options,  which are guaranteed by the clearing  organization of
the exchanges where they are traded.

         Generally,   OTC  foreign  currency  options  used  by  each  fund  are
European-style   options.  This  means  that  the  option  is  only  exercisable
immediately  prior to its  expiration.  This is in  contrast  to  American-style
options,  which are  exercisable at any time prior to the expiration date of the
option.

         Futures  Contracts  and Options on Futures  Contracts.  The purchase of
futures or call  options on futures can serve as a long  hedge,  and the sale of
futures or the  purchase of put  options on futures can serve as a short  hedge.
Writing call options on futures  contracts  can serve as a limited  short hedge,
using a strategy  similar to that used for writing call options on securities or
indices.  Similarly,  writing  put options on futures  contracts  can serve as a
limited long hedge.  Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.

         In  addition,  futures  strategies  can be used to manage  the  average
duration of a fund's fixed-income portfolio. If an adviser wishes to shorten the
average duration of a fund's  fixed-income  portfolio,  the fund may sell a debt
futures  contract  or a call  option  thereon,  or purchase a put option on that
futures  contract.  If an adviser  wishes to lengthen the average  duration of a
fund's  fixed-income  portfolio,  the fund may buy a debt futures  contract or a
call option thereon, or sell a put option thereon.

         No price is paid upon entering into a futures contract. Instead, at the
inception of a futures  contract a fund is required to deposit  "initial margin"
in an amount  generally equal to 10% or less of the contract value.  Margin must
also be deposited  when writing a call or put option on a futures  contract,  in
accordance  with  applicable   exchange  rules.   Unlike  margin  in  securities
transactions,   initial  margin  on  futures  contracts  does  not  represent  a
borrowing,  but  rather is in the  nature of a  performance  bond or  good-faith

                                       21

<PAGE>

deposit that is returned to the fund at the  termination  of the  transaction if
all contractual  obligations have been satisfied.  Under certain  circumstances,
such as periods of high  volatility,  a fund may be  required  by an exchange to
increase  the  level  of  its  initial  margin   payment,   and  initial  margin
requirements might be increased generally in the future by regulatory action.

         Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures  position  varies,  a process  known as
"marking-to-market."  Variation  margin does not involve  borrowing,  but rather
represents  a daily  settlement  of a fund's  obligations  to or from a  futures
broker. When a fund purchases an option on a futures contract,  the premium paid
plus  transaction  costs  is all  that  is at  risk.  In  contrast,  when a fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily  variation  margin  calls that could be  substantial  in the
event of adverse price movements.  If a fund has insufficient cash to meet daily
variation margin  requirements,  it might need to sell securities at a time when
such sales are disadvantageous.

         Purchasers and sellers of futures  contracts and options on futures can
enter into offsetting closing  transactions,  similar to closing transactions on
options, by selling or purchasing,  respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that  provides a secondary  market.
However, there can be no assurance that a liquid secondary market will exist for
a  particular  contract  at a  particular  time.  In such  event,  it may not be
possible to close a futures contract or options position.

         Under certain  circumstances,  futures  exchanges  may establish  daily
limits on the  amount  that the price of a  futures  contract  or an option on a
futures  contract can vary from the previous day's settlement  price;  once that
limit is  reached,  no trades may be made that day at a price  beyond the limit.
Daily price limits do not limit  potential  losses  because prices could move to
the daily limit for several consecutive days with little or no trading,  thereby
preventing liquidation of unfavorable positions.

         If a fund were unable to liquidate a futures contract or an option on a
futures  position  due  to the  absence  of a  liquid  secondary  market  or the
imposition of price limits,  it could incur substantial  losses.  The fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options,  the fund would continue to be required
to make daily  variation  margin  payments and might be required to maintain the
position  being hedged by the future or option or to maintain cash or securities
in a segregated account.

         Risks of Futures  Contracts and Options  Thereon.  The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market),  due to differences in the natures of those markets, are subject to the
following factors, which may create distortions.  First, all participants in the
futures  market are  subject to margin  deposit  and  maintenance  requirements.
Rather than meeting additional margin deposit requirements,  investors may close
futures  contracts  through  offsetting  transactions,  which could  distort the
normal relationship between the cash and futures markets.  Second, the liquidity
of  the  futures  market  depends  on  participants   entering  into  offsetting
transactions  rather than making or taking delivery.  To the extent participants
decide  to make or take  delivery,  liquidity  in the  futures  market  could be
reduced,  thus  producing   distortion.   Third,  from  the  point  of  view  of
speculators,  the deposit  requirements  in the futures  market are less onerous
than  margin  requirements  in  the  securities  market.  Therefore,   increased
participation  by speculators in the futures  market may cause  temporary  price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate,  currency  exchange rate or stock market trends by an adviser may
still not result in a successful transaction. An adviser may be incorrect in its
expectations as to the extent of various interest rate,  currency  exchange rate
or stock  market  movements  or the time span within  which the  movements  take
place.

         Index Futures.  The risk of imperfect  correlation between movements in
the price of index futures and movements in the price of the securities that are
the subject of the hedge  increases  as the  composition  of a fund's  portfolio
diverges from the securities  included in the applicable index. The price of the
index futures may move more than or less than the price of the securities  being
hedged.  If the  price of the  index  futures  moves  less than the price of the
securities  that are the  subject  of the  hedge,  the  hedge  will not be fully

                                       22

<PAGE>

effective,  but if the  price of the  securities  being  hedged  has moved in an
unfavorable  direction,  a fund would be in a better position than if it had not
hedged  at all.  If the  price of the  securities  being  hedged  has moved in a
favorable  direction,  this  advantage  will be partially  offset by the futures
contract.  If the price of the futures contract moves more than the price of the
securities,  a fund  will  experience  either  a loss or a gain  on the  futures
contract  that will not be  completely  offset by  movements in the price of the
securities  that are the subject of the hedge.  To compensate  for the imperfect
correlation  of  movements  in the  price of the  securities  being  hedged  and
movements  in the  price of the  index  futures,  a fund  may buy or sell  index
futures in a greater  dollar  amount  than the dollar  amount of the  securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the  historical  volatility of the prices of the  securities
included in the index.  It is also  possible  that,  where a fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the  securities  held in the  portfolio  may  decline.  If this
occurred,  the fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities.  However, while this could occur
for a very  brief  period or to a very  small  degree,  over time the value of a
diversified  portfolio of securities  will tend to move in the same direction as
the market indices on which the futures contracts are based.

         Where index futures are purchased to hedge against a possible  increase
in the price of securities before a fund is able to invest in them in an orderly
fashion,  it is possible that the market may decline  instead.  If the fund then
concludes  not to invest in them at that time  because of concern as to possible
further  market  decline  or for other  reasons,  it will  realize a loss on the
futures  contract  that  is  not  offset  by a  reduction  in the  price  of the
securities it had anticipated purchasing.

         To the extent  that a fund enters into  futures  contracts,  options on
futures  contracts and options on foreign  currencies traded on a CFTC-regulated
exchange  that are not for bona fide hedging  purposes (as defined by the CFTC),
the aggregate  initial margin and premiums required to establish these positions
(excluding  the  amount  by  which  options  are  "in-the-money"  at the time of
purchase) may not exceed 5% of the  liquidation  value of the fund's  portfolio,
after  taking  into  account  unrealized  profits and  unrealized  losses on any
contracts  the fund has entered  into.  (In general,  a call option on a futures
contract  is  "in-the-money"  if the value of the  underlying  futures  contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is  "in-the-money"  if the value of the underlying  futures contract is
exceeded  by the strike  price of the put.) This policy does not limit to 5% the
percentage of a fund's assets that are at risk in futures contracts,  options on
futures contracts and currency options.

         Foreign Currency  Hedging  Strategies -- Special  Considerations.  Each
fund may use options and futures contracts on foreign currencies  (including the
Euro), as described above and forward currency contracts, as described below, to
attempt to hedge  against  movements in the values of the foreign  currencies in
which that fund's  securities are denominated or to attempt to enhance income or
yield.  Currency hedges can protect against price movements in a security that a
fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated.  Such hedges do not,  however,  protect
against price movements in the securities that are attributable to other causes.

         Each  fund  might  seek to  hedge  against  changes  in the  value of a
particular currency when no Financial Instruments on that currency are available
or such Financial  Instruments  are more expensive than certain other  Financial
Instruments.  In such cases,  the fund may seek to hedge against price movements
in that currency by entering into  transactions  using Financial  Instruments on
another  currency  or a basket of  currencies,  the  value of which  the  fund's
adviser believes will have a high degree of positive correlation to the value of
the currency being hedged. The risk that movements in the price of the Financial
Instrument  will not  correlate  perfectly  with  movements  in the price of the
currency  subject to the hedging  transaction is magnified when this strategy is
used.

         The value of Financial Instruments on foreign currencies depends on the
value of the underlying  currency  relative to the U.S. dollar.  Because foreign
currency   transactions   occurring  in  the  interbank   market  might  involve
substantially  larger  amounts than those  involved in the use of such Financial
Instruments,  a fund  could be  disadvantaged  by  having to deal in the odd lot

                                       23

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market  (generally  consisting of  transactions of less than $1 million) for the
underlying  foreign  currencies at prices that are less favorable than for round
lots.

         There is no systematic  reporting of last sale  information for foreign
currencies or any  regulatory  requirement  that  quotations  available  through
dealers or other market sources be firm or revised on a timely basis.  Quotation
information  generally  is  representative  of very  large  transactions  in the
interbank  market and thus might not reflect  odd-lot  transactions  where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock  market.  To the extent the U.S.  options or futures markets are
closed while the markets for the underlying currencies remain open,  significant
price and rate movements might take place in the underlying  markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.

         Settlement of hedging  transactions  involving foreign currencies might
be required to take place within the country  issuing the  underlying  currency.
Thus,  a fund might be  required to accept or make  delivery  of the  underlying
foreign  currency in accordance with any U.S. or foreign  regulations  regarding
the maintenance of foreign banking  arrangements by U.S.  residents and might be
required  to pay any  fees,  taxes and  charges  associated  with such  delivery
assessed in the issuing country.

         Forward Currency  Contracts.  Each fund,  including  Financial Services
Fund,  may enter into  forward  currency  contracts  to purchase or sell foreign
currencies for a fixed amount of U.S.  dollars or another  foreign  currency.  A
forward currency  contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days (term) from the
date of the forward currency contract agreed upon by the parties, at a price set
at the time of the forward currency  contract.  These forward currency contracts
are traded directly between  currency  traders (usually large commercial  banks)
and their customers.

         Such  transactions  may serve as long hedges;  for example,  a fund may
purchase  a forward  currency  contract  to lock in the U.S.  dollar  price of a
security  denominated  in a foreign  currency  that the fund intends to acquire.
Forward  currency  contract  transactions  may also serve as short  hedges;  for
example,  a fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security,  dividend or
interest payment denominated in a foreign currency.

         Each fund may also use forward  currency  contracts to hedge  against a
decline in the value of existing  investments  denominated in foreign  currency.
For example,  if a fund owned  securities  denominated in Euros,  it could enter
into a forward  currency  contract  to sell Euros in return for U.S.  dollars to
hedge against  possible  declines in the Euro's value.  Such a hedge,  sometimes
referred  to as a  "position  hedge,"  would tend to offset  both  positive  and
negative currency fluctuations,  but would not offset changes in security values
caused by other factors. A fund could also hedge the position by selling another
currency  expected  to  perform  similarly  to the  Euro.  This  type of  hedge,
sometimes  referred to as a "proxy  hedge,"  could offer  advantages in terms of
cost,  yield or efficiency,  but generally would not hedge currency  exposure as
effectively  as a simple  hedge into U.S.  dollars.  Proxy  hedges may result in
losses if the currency used to hedge does not perform  similarly to the currency
in which the hedged securities are denominated.

         The cost to a fund of engaging  in forward  currency  contracts  varies
with factors such as the currency  involved,  the length of the contract  period
and the market  conditions then prevailing.  Because forward currency  contracts
are  usually  entered  into on a principal  basis,  no fees or  commissions  are
involved.  When a fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract.  Failure by the  counterparty to do so would result in the loss
of any expected benefit of the transaction.

         As is the case with  futures  contracts,  parties to  forward  currency
contracts can enter into  offsetting  closing  transactions,  similar to closing
transactions on futures contracts,  by selling or purchasing,  respectively,  an
instrument  identical to the  instrument  purchased or sold.  Secondary  markets
generally  do not exist for  forward  currency  contracts,  with the result that
closing  transactions  generally can be made for forward currency contracts only
by negotiating  directly with the counterparty.  Thus, there can be no assurance

                                       24

<PAGE>

that a fund will in fact be able to close out a forward  currency  contract at a
favorable  price prior to maturity.  In addition,  in the event of insolvency of
the  counterparty,  a fund  might be  unable  to close  out a  forward  currency
contract at any time prior to maturity.  In either event,  a fund would continue
to be subject to market risk with respect to the position, and would continue to
be  required to maintain a position  in  securities  denominated  in the foreign
currency or to maintain cash or liquid assets in an account.

         The precise matching of forward currency contract amounts and the value
of the securities  involved  generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been  established.  Thus, a fund might need to purchase or
sell  foreign  currencies  in the spot (cash)  market to the extent such foreign
currencies  are not covered by forward  currency  contracts.  The  projection of
short-term currency market movements is extremely difficult,  and the successful
execution of a short-term hedging strategy is highly uncertain.

         Successful use of forward  currency  contracts  depends on an adviser's
skill in analyzing and predicting  currency values.  Forward currency  contracts
may substantially change a fund's exposure to changes in currency exchange rates
and  could  result in losses to the fund if  currencies  do not  perform  as the
fund's  adviser  anticipates.  There is no assurance  that an  adviser's  use of
forward currency  contracts will be advantageous to the fund or that the adviser
will hedge at an appropriate time.

         Combined  Positions.  Each  fund may  purchase  and  write  options  in
combination  with  each  other,  or  in  combination  with  futures  or  forward
contracts,  to  adjust  the  risk  and  return  characteristics  of its  overall
position.  For example, a fund may purchase a put option and write a call option
on the same  underlying  instrument,  in order to construct a combined  position
whose risk and return characteristics are similar to selling a futures contract.
Another  possible  combined  position would involve writing a call option at one
strike price and buying a call option at a lower  price,  in order to reduce the
risk of the written call option in the event of a  substantial  price  increase.
Because combined  options  positions  involve  multiple  trades,  they result in
higher transaction costs and may be more difficult to open and close out.

         Turnover.  Each fund's  options and futures  activities  may affect its
turnover rate and brokerage commission  payments.  The exercise of calls or puts
written by a fund, and the sale or purchase of futures  contracts,  may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
a fund has received an exercise  notice on an option it has  written,  it cannot
effect a closing  transaction  in order to terminate  its  obligation  under the
option and must  deliver or receive the  underlying  securities  at the exercise
price.  The  exercise  of puts  purchased  by a fund may also  cause the sale of
related investments,  also increasing turnover; although such exercise is within
the fund's control,  holding a protective put might cause it to sell the related
investments  for reasons  that would not exist in the absence of the put. A fund
will  pay a  brokerage  commission  each  time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.

         Swaps, Caps, Floors and Collars.  Each fund may enter into swaps, caps,
floors and collars to preserve a return or a spread on a  particular  investment
or portion of its  portfolio,  to protect  against any  increase in the price of
securities  the fund  anticipates  purchasing  at a later  date or to attempt to
enhance  yield.  A swap  involves the  exchange by a fund with another  party of
their respective  commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate  payments.  The purchase of a cap entitles
the  purchaser,  to the extent that a specified  index  exceeds a  predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor  entitles the  purchaser,  to the extent that a
specified  index falls below a  predetermined  value,  to receive  payments on a
notional  principal  amount from the party selling the floor. A collar  combines
elements of buying a cap and selling a floor.

         Swap   agreements,   including  caps,   floors  and  collars,   can  be
individually  negotiated  and  structured  to include  exposure  to a variety of
different types of investments or market factors.  Depending on their structure,
swap  agreements  may  increase or decrease the overall  volatility  of a fund's
investments  and its share price and yield  because,  and to the  extent,  these
agreements affect the fund's exposure to long- or short-term  interest rates (in

                                       25

<PAGE>

the United States or abroad), foreign currency values,  mortgage-backed security
values,  corporate  borrowing  rates or other factors such as security prices or
inflation rates.

         Swap  agreements will tend to shift a fund's  investment  exposure from
one type of  investment  to another.  For example,  if a fund agrees to exchange
payments in U.S.  dollars for payments in foreign  currency,  the swap agreement
would tend to decrease the fund's  exposure to U.S.  interest rates and increase
its exposure to foreign  currency and  interest  rates.  Caps and floors have an
effect similar to buying or writing options.

         The  creditworthiness  of firms with which a fund  enters  into  swaps,
caps,  floors  or  collars  will  be  monitored  by  its  adviser.  If a  firm's
creditworthiness  declines,  the  value  of the  agreement  would be  likely  to
decline, potentially resulting in losses. If a default occurs by the other party
to such  transaction,  the fund will have contractual  remedies  pursuant to the
agreements related to the transaction.

         The net amount of the excess, if any, of a fund's  obligations over its
entitlements  with  respect to each swap will be accrued on a daily basis and an
amount of cash or liquid  assets  having an  aggregate  net asset value at least
equal to the accrued  excess will be  maintained  in an account  with the fund's
custodian  that  satisfies  the  requirements  of the 1940 Act. A fund will also
establish and maintain such accounts with respect to its total obligations under
any swaps that are not entered  into on a net basis and with respect to any caps
or floors that are written by the fund.  The advisers and the funds believe that
such  obligations do not constitute  senior  securities  under the 1940 Act and,
accordingly,  will  not  treat  them as  being  subject  to a  fund's  borrowing
restrictions.  Each fund understands that the position of the SEC is that assets
involved in swap  transactions are illiquid and are,  therefore,  subject to the
limitations on investing in illiquid  investments.  See "Illiquid and Restricted
Investments."

         The cost to a fund of engaging  in forward  currency  contracts  varies
with factors such as the currencies involved,  the length of the contract period
and the market  conditions then prevailing.  Because forward currency  contracts
are  usually  entered  into on a principal  basis,  no fees or  commissions  are
involved. Each fund will deal only with banks, broker/dealers or other financial
institutions  which  the  adviser  deems to be of high  quality  and to  present
minimum  credit risk. The use of forward  currency  contracts does not eliminate
fluctuations  in the  prices  of the  underlying  securities  each  fund owns or
intends to acquire,  but it does fix a rate of exchange in advance. In addition,
although forward  currency  contracts limit the risk of loss due to a decline in
the value of the hedged  currencies,  at the same time they limit any  potential
gain that might result should the value of the currencies increase.

         Although each fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign  currencies into U.S. dollars
on a daily basis.  Each fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion.  Although foreign
exchange  dealers do not charge a fee for  conversion,  they do realize a profit
based on the difference  between the prices at which they are buying and selling
various  currencies.  Thus,  a dealer may offer to sell a foreign  currency to a
fund at one rate,  while  offering  a lesser  rate of  exchange  should the fund
desire to resell that currency to the dealer.

The following  information  applies to Value Trust, Total Return Trust,  Special
Investment Trust,  American Leading Companies,  Balanced Trust,  Small-Cap Value
Trust and Financial Services Fund, unless otherwise indicated:

Repurchase Agreements
---------------------

         When  cash  is  temporarily  available,   or  for  temporary  defensive
purposes,  each fund may invest without limit in repurchase agreements and money
market  instruments,   including  high-quality  short-term  debt  securities.  A
repurchase  agreement  is  an  agreement  under  which  either  U.S.  government
obligations  or other  high-quality  liquid debt  securities are acquired from a
securities  dealer or bank subject to resale at an  agreed-upon  price and date.
The securities  are held for each fund by a custodian  bank as collateral  until
resold  and will be  supplemented  by  additional  collateral  if  necessary  to

                                       26

<PAGE>

maintain  a total  value  equal to or in excess  of the value of the  repurchase
agreement. Each fund bears a risk of loss in the event that the other party to a
repurchase  agreement  defaults  on its  obligations  and the fund is delayed or
prevented from  exercising  its rights to dispose of the collateral  securities,
which may decline in value in the interim.  The funds will enter into repurchase
agreements only with financial institutions determined by each fund's adviser to
present minimal risk of default during the term of the agreement.

         Repurchase  agreements  are usually for a term of one week or less, but
may be for longer  periods.  Repurchase  agreements  maturing in more than seven
days  may be  considered  illiquid.  A  fund  will  not  enter  into  repurchase
agreements of more than seven days'  duration if more than 15% of its net assets
(with respect to American Leading  Companies Trust,  Special  Investment  Trust,
Balanced Trust,  Financial Services Fund and Small-Cap Value Trust) or more than
10% of its net assets (with respect to Value Trust and Total Return Trust) would
be invested in such  agreements  and other illiquid  investments.  To the extent
that proceeds from any sale upon a default of the obligation to repurchase  were
less than the  repurchase  price,  a fund  might  suffer a loss.  If  bankruptcy
proceedings   are  commenced  with  respect  to  the  seller  of  the  security,
realization upon the collateral by a fund could be delayed or limited.  However,
each fund's adviser monitors the creditworthiness of parties with which the fund
may enter into  repurchase  agreements  to minimize the prospect of such parties
becoming involved in bankruptcy  proceedings  within the time frame contemplated
by the repurchase agreement.

         When a fund  enters  into a  repurchase  agreement,  it will  obtain as
collateral from the other party  securities equal in value to 102% of the amount
of the  repurchase  agreement  (or 100%,  if the  securities  obtained  are U.S.
Treasury bills, notes or bonds). Such securities will be held for that fund by a
custodian bank or an approved securities depository or book-entry system.

Loans of Portfolio Securities
-----------------------------

         Each fund may lend  portfolio  securities  to  brokers  or  dealers  in
corporate or  government  securities,  banks or other  recognized  institutional
borrowers of securities,  provided that cash or equivalent collateral,  equal to
at least 100% of the market  value of the  securities  loaned,  is  continuously
maintained  by the  borrower  with the  fund's  custodian.  During  the time the
securities are on loan,  the borrower will pay the fund an amount  equivalent to
any dividends or interest paid on such  securities,  and the fund may invest the
cash  collateral  and earn  income,  or it may  receive an agreed upon amount of
interest income from the borrower who has delivered equivalent collateral. These
loans are subject to termination at the option of the fund or the borrower. Each
fund may pay reasonable  administrative  and custodial fees in connection with a
loan and may pay a  negotiated  portion  of the  interest  earned on the cash or
equivalent collateral to the borrower or placing broker. Each fund does not have
the right to vote  securities on loan,  but would  terminate the loan and regain
the  right  to  vote if that  were  considered  important  with  respect  to the
investment.  The risks of securities  lending are similar to those of repurchase
agreements.  Each fund except Financial  Services Fund presently does not intend
to  lend  more  than 5% of its  portfolio  securities  at any  given  time.  For
Financial  Services  Fund, no loans will be made if, as a result,  the aggregate
amount of such loans would exceed 25% of the fund's total assets.

U.S. Government Obligations and Related Securities
--------------------------------------------------

         U.S.  government  obligations  include a variety of securities that are
issued or  guaranteed  by the U.S.  Treasury,  by various  agencies  of the U.S.
Government  or by  various  instrumentalities  that  have  been  established  or
sponsored by the U.S. Government. U.S. Treasury securities and securities issued
by the GNMA and Small Business  Administration are backed by the "full faith and
credit" of the U.S. Government. Other U.S. government obligations may or may not
be backed by the "full faith and  credit" of the U.S. In the case of  securities
not backed by the "full faith and credit" of the U.S.,  the  investor  must look
principally to the agency issuing or  guaranteeing  the obligation  (such as the
Federal Farm Credit System, the Federal Home Loan Banks,  Fannie Mae and Freddie
Mac) for ultimate  repayment  and may not be able to assert a claim  against the
U.S.  itself  in the  event  the  agency  or  instrumentality  does not meet its
commitments.

                                       27

<PAGE>

         Participation  interests in U.S.  government  obligations  are pro rata
interests in such  obligations  which are generally  underwritten  by government
securities dealers.  Certificates of safekeeping for U.S. government obligations
are documentary receipts for such obligations.  Both participation interests and
certificates of safekeeping are traded on exchanges and in the  over-the-counter
market.

         A  fund  may  invest  in  U.S.   government   obligations  and  related
participation  interests.  In addition,  a fund may invest in custodial receipts
that evidence ownership of future interest payments,  principal payments or both
on certain U.S. government obligations.  Such obligations are held in custody by
a bank on behalf of the owners.  These  custodial  receipts are known by various
names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs")
and Certificates of Accrual on Treasury Securities ("CATS").  Custodial receipts
generally are not considered  obligations of the U.S. government for purposes of
securities laws. A fund will consider all interest-only or principal-only  fixed
income securities as illiquid.

         U.S. government obligations also include stripped securities, which are
created by separating bonds issued or guaranteed by the U.S. Treasury into their
principal and interest  components and selling each piece  separately  (commonly
referred to as IOs and POs).  Stripped  securities  are more volatile than other
fixed income  securities in their response to changes in market  interest rates.
The value of some stripped  securities  moves in the same  direction as interest
rates, further increasing their volatility.

Municipal Obligations
---------------------

         Municipal  obligations are debt  obligations  issued by or on behalf of
states,  territories  and  possessions  of the United States and the District of
Columbia,   and  their  political   subdivisions,   agencies,   authorities  and
instrumentalities  and other  qualifying  issuers which pay interest that is, in
the opinion of bond  counsel to the issuer,  exempt from  federal  income tax. A
fund may  invest no more  than 5% of its net  assets  in  municipal  obligations
(including participation interests).  Municipal obligations are issued to obtain
funds  to  construct,  repair  or  improve  various  public  facilities  such as
airports, bridges, highways,  hospitals, housing, schools, streets and water and
sewer  works,  to pay general  operating  expenses or to  refinance  outstanding
debts. They also may be issued to finance various private activities,  including
the  lending  of funds to public or private  institutions  for  construction  of
housing,  educational or medical  facilities or the financing of privately owned
or operated  facilities.  Municipal  obligations  consist of  tax-exempt  bonds,
tax-exempt notes and tax-exempt commercial paper. Tax-exempt notes generally are
used to provide short term capital needs and  generally  have  maturities of one
year or less.  Tax-exempt  commercial  paper  typically  represents  short-term,
unsecured, negotiable promissory notes.

         The two principal classifications of municipal obligations are "general
obligation"  and "revenue"  bonds.  General  obligation  bonds are backed by the
issuer's full credit and taxing power.  Revenue bonds are backed by the revenues
of a specific  project,  facility or tax.  Private activity bonds are a specific
type of revenue bond backed by the credit of the private issuer of the facility,
and  therefore  investments  in these  bonds have more  potential  risk that the
issuer will not be able to meet scheduled payments of principal and interest.

Zero Coupon and Pay-in-Kind Bonds (all funds except Financial Services Fund)
---------------------------------

         Corporate debt securities and municipal  obligations  include so-called
"zero coupon" bonds and  "pay-in-kind"  bonds. A fund may invest no more than 5%
of its net assets in either zero coupon bonds or pay-in-kind  bonds. Zero coupon
bonds are issued at a significant  discount from their principal  amount in lieu
of paying  interest  periodically.  Pay-in-kind  bonds allow the issuer,  at its
option,  to make  current  interest  payments on the bonds  either in cash or in
additional  bonds. The value of zero coupon and pay-in-kind  bonds is subject to
greater  fluctuation in response to changes in market  interest rates than bonds
which make regular  payments of interest.  Both of these types of bonds allow an
issuer to avoid the need to generate  cash to meet  current  interest  payments.
Accordingly,  such bonds may involve  greater credit risks than bonds which make
regular payments of interest.  Even though zero coupon and pay-in-kind  bonds do
not pay current  interest  in cash,  a fund  holding  those bonds is required to
accrue  interest  income on such  investments  and may be required to distribute

                                       28

<PAGE>

that income at least annually to shareholders. Thus, a fund could be required at
times  to  liquidate  other   investments  in  order  to  satisfy  its  dividend
requirements.

Direct Investment in Mortgages
------------------------------

         Mortgage-related   securities  include  investments  made  directly  in
mortgages  secured  by real  estate.  When a fund makes a direct  investment  in
mortgages, the fund, rather than a financial intermediary, becomes the mortgagee
with  respect  to such  loans  purchased  by the  fund.  Direct  investments  in
mortgages are normally available from lending  institutions which group together
a number of mortgages for resale (usually from 10 to 50 mortgages) and which act
as servicing  agent for the purchaser  with respect to, among other things,  the
receipt of principal and interest payments.  (Such investments are also referred
to as "whole  loans.")  The  vendor of such  mortgages  receives  a fee from the
purchaser  for acting as  servicing  agent.  The  vendor  does not  provide  any
insurance or  guarantees  covering the repayment of principal or interest on the
mortgages.  A fund  will  invest  in  such  mortgages  only if its  adviser  has
determined  through an examination  of the mortgage loans and their  originators
that the purchase of the mortgages should not present a significant risk of loss
to the fund.  Investments  in whole loans may be illiquid.  Whole loans also may
present a greater risk of prepayment,  because the mortgages so acquired are not
diversified as interests in larger pools.

Floating and Variable Rate Obligations
--------------------------------------

         Fixed  income  securities  may be offered in the form of  floating  and
variable rate  obligations.  A fund may invest no more than 5% of its net assets
in  floating  and  variable  rate  obligations,   respectively.   Floating  rate
obligations  have an interest rate which is fixed to a specified  interest rate,
such as bank  prime  rate,  and is  automatically  adjusted  when the  specified
interest rate changes.  Variable rate obligations have an interest rate which is
adjusted at specified  intervals to a specified interest rate. Periodic interest
rate adjustments help stabilize the obligations' market values.

         A fund may purchase these  obligations from the issuers or may purchase
participation  interests  in  pools  of these  obligations  from  banks or other
financial  institutions.  Variable and floating rate  obligations  usually carry
demand features that permit a fund to sell the  obligations  back to the issuers
or to financial  intermediaries  at par value plus accrued  interest  upon short
notice at any time or prior to specific  dates.  The  inability of the issuer or
financial  intermediary  to  repurchase an obligation on demand could affect the
liquidity of a fund's  portfolio.  Frequently,  obligations with demand features
are secured by letters of credit or comparable guarantees. Floating and variable
rate obligations  which do not carry  unconditional  demand features that can be
exercised  within  seven  days or less are  deemed  illiquid  unless  the  Board
determines  otherwise.  The fund's  investment in illiquid floating and variable
rate  obligations  would be limited to the extent  that it is not  permitted  to
invest more than 10% of the value of its net assets in illiquid investments.

Investment Companies
--------------------

         The funds are permitted to invest in other investment  companies.  Each
fund will not:  (a) invest more than 10% of its total  assets in  securities  of
other  investment  companies;  (b)  invest  more than 5% of its total  assets in
securities  of any  investment  company;  and (c)  purchase  more than 3% of the
outstanding voting stock of any investment company.

         Investment in closed-end  investment  companies may involve the payment
of  substantial  premiums  above the net asset value of such issuers'  portfolio
securities.  In addition,  the total return on such  investments  in  investment
companies  will be  reduced  by their  operating  expenses  and fees,  including
advisory  fees,  which  may be  duplicative.  A fund will  invest in  investment
companies,  when, in its  adviser's  judgment,  the  potential  benefits of such
investment justify the payment of any applicable premium or sales charge.

                                       29

<PAGE>

The following information applies to Financial Services Fund only:

Concentration
-------------

         The fund  will  not  invest  more  than 25% of its  total  assets  in a
particular industry other than the financial services industry.

Securities in the Financial Services Industry
---------------------------------------------

         Companies in the financial services industry include regional and money
center banks,  securities brokerage firms, asset management  companies,  savings
banks and thrift institutions,  specialty finance companies (e.g.,, credit card,
mortgage  providers),   insurance  and  insurance  brokerage  firms,  government
sponsored  agencies  (e.g.,  Sallie Mae),  financial  conglomerates  and foreign
banking and financial services companies.

         The  financial  services  industry is currently  undergoing  relatively
rapid change as existing  distinctions between financial service segments become
less clear. For instance, recent business combinations in the U.S. have included
insurance,  finance, banking and/or securities brokerage under single ownership.
Moreover,  Congress  recently  repealed  the federal laws  generally  separating
commercial and investment banking,  and the services offered by banks are likely
to expand. While providing  diversification,  expanded powers could expose banks
to  well-established  competitors,  particularly as the historical  distinctions
between banks and other financial  institutions erode. Increased competition may
also result from the  broadening  of regional  and national  interstate  banking
powers, which has already reduced the number of publicly traded regional banks.

         Banks,  savings and loan associations and finance companies are subject
to extensive governmental  regulation which may limit both the amounts and types
of loans and other  financial  commitments  they can make and the interest rates
and fees they can charge. The profitability of these groups is largely dependent
on the availability  and cost of capital funds, and can fluctuate  significantly
when  interest  rates  change.  In addition,  general  economic  conditions  are
important to the  operations of these  concerns,  with exposure to credit losses
resulting from possible financial  difficulties of borrowers  potentially having
an adverse effect.

         Finance  companies  can be highly  dependent  upon  access  to  capital
markets and any  impediments to such access,  such as adverse  overall  economic
conditions  or a  negative  perception  in  the  capital  markets  of a  finance
company's financial condition or prospects, could adversely affect its business.

         Insurance  companies are likewise  subject to substantial  governmental
regulation, predominately at the state level, and may be subject to severe price
competition.  The performance of the fund's  investments in insurance  companies
will be  subject  to risk from  several  additional  factors.  The  earnings  of
insurance  companies  will be  affected  by, in  addition  to  general  economic
conditions,  pricing  (including severe pricing  competition from time to time),
claims activity, and marketing competition. Particular insurance lines will also
be influenced by specific matters.  Property and casualty insurer profits may be
affected by certain weather  catastrophes and other  disasters.  Life and health
insurer  profits may be affected by mortality  and morbidity  rates.  Individual
companies  may be  exposed  to  material  risk,  including  reserve  inadequacy,
problems in investment  portfolios  (due to real estate or "junk" bond holdings,
for example), and the inability to collect from reinsurance carriers.  Insurance
companies  are  subject to  extensive  governmental  regulation,  including  the
imposition  of maximum rate levels,  which may not be adequate for some lines of
business.  Proposed or potential  anti-trust  or tax law changes also may affect
adversely insurance companies' policy sales, tax obligations and profitability.

         Companies engaged in stock brokerage,  commodity brokerage,  investment
banking,  investment  management,  or related  investment  advisory services are
closely tied  economically  to the  securities and  commodities  markets and can
suffer  during a decline  in either.  These  companies  also are  subject to the

                                       30

<PAGE>

regulatory  environment  and  changes  in  regulations,  pricing  pressure,  the
availability of funds to borrow and interest rates.

                           ADDITIONAL TAX INFORMATION

         The   following   is  a  general   summary  of  certain   federal   tax
considerations affecting each fund and its shareholders.  Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any federal, state or local taxes that might apply to them.

General
-------

         For  federal  tax  purposes,   each  fund  is  treated  as  a  separate
corporation.  To  continue to qualify for  treatment  as a regulated  investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),  a
fund must distribute annually to its shareholders at least 90% of its investment
company taxable income (generally, net investment income plus any net short-term
capital  gain and any net gains  from  certain  foreign  currency  transactions)
("Distribution Requirement") and must meet several additional requirements.  For
each fund, these requirements include the following: (1) the fund must derive at
least 90% of its gross  income  each  taxable  year  from  dividends,  interest,
payments  with  respect  to  securities  loans and gains  from the sale or other
disposition  of securities  or foreign  currencies,  or other income  (including
gains from options,  futures or forward  contracts)  derived with respect to its
business of investing in securities or those currencies ("Income  Requirement");
(2) at the close of each quarter of the fund's taxable year, at least 50% of the
value of its total  assets  must be  represented  by cash and cash  items,  U.S.
government securities, securities of other RICs and other securities, with those
other securities  limited,  in respect of any one issuer, to an amount that does
not  exceed  5% of the  value of the  fund's  total  assets  and  that  does not
represent more than 10% of the issuer's  outstanding voting securities;  and (3)
at the close of each quarter of the fund's  taxable  year,  not more than 25% of
the value of its total assets may be invested in the securities (other than U.S.
government securities or the securities of other RICs) of any one issuer.

         By qualifying for treatment as a RIC, a fund (but not its shareholders)
will be relieved  of federal  income tax on the part of its  investment  company
taxable income and net capital gain (i.e.,  the excess of net long-term  capital
gain over net short-term  capital loss) that it distributes to its shareholders.
If any fund failed to qualify for that  treatment for any taxable  year,  (1) it
would be taxed at corporate  rates on the full amount of its taxable  income for
that  year  without  being  able to  deduct  the  distributions  it makes to its
shareholders  and (2) the  shareholders  would  treat all  those  distributions,
including  distributions  of net capital gain, as dividends  (that is,  ordinary
income) to the extent of the fund's earnings and profits. In addition,  the fund
could be required to  recognize  unrealized  gains,  pay  substantial  taxes and
interest  and  make  substantial   distributions  before  requalifying  for  RIC
treatment.

         If fund  shares are sold at a loss  after  being held for six months or
less, the loss will be treated as a long-term, instead of a short-term,  capital
loss to the extent of any capital gain  distributions  received on those shares.
Investors  also should be aware that if shares are purchased  shortly before the
record date for any dividend or other  distribution,  the investor will pay full
price for the shares  and  receive  some  portion of the price back as a taxable
distribution.

         Each fund will be subject  to a  nondeductible  4% excise tax  ("Excise
Tax") to the  extent  it fails to  distribute  by the end of any  calendar  year
substantially  all of its  ordinary  income for that year and  capital  gain net
income for the one-year  period ending on October 31 of that year,  plus certain
other amounts.  For this and other purposes,  dividends and other  distributions
declared by a fund in December  of any year and payable to its  shareholders  of
record on a date in that  month will be deemed to have been paid by the fund and
received by the  shareholders on December 31 if the fund pays the  distributions
during the following January. Accordingly,  those distributions will be taxed to
shareholders for the year in which that December 31 falls.

         A portion of the dividends from each fund's investment  company taxable
income  (whether  paid in cash or reinvested in fund shares) may be eligible for

                                       31

<PAGE>

the dividends-received  deduction allowed to corporations.  The eligible portion
for any fund may not exceed the aggregate  dividends  received by that fund from
domestic  corporations.  However,  dividends received by a corporate shareholder
and  deducted  by it pursuant to the  dividends-received  deduction  are subject
indirectly to the federal alternative minimum tax.  Distributions of net capital
gain made by any fund do not qualify for the dividends-received deduction.

Foreign Securities
------------------

         Foreign  Taxes.  Interest and dividends  received by a fund,  and gains
realized thereby,  may be subject to income,  withholding or other taxes imposed
by foreign  countries and U.S.  possessions  ("foreign taxes") that would reduce
the total return on its securities.  Tax conventions  between certain  countries
and the United States may reduce or eliminate foreign taxes,  however,  and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors.  If more than 50% of the value of a fund's total assets at
the close of any taxable year consists of  securities  of foreign  corporations,
the fund will be  eligible  to,  and may,  file an  election  with the  Internal
Revenue  Service that will enable its  shareholders,  in effect,  to receive the
benefit of the  foreign tax credit  with  respect to any foreign  taxes it paid.
Pursuant to any such election,  a fund would treat those taxes as dividends paid
to its  shareholders  and each  shareholder  would be required to (1) include in
gross  income,  and  treat  as  paid  by  the  shareholder,   the  shareholder's
proportionate  share of those taxes, (2) treat the shareholder's  share of those
taxes and of any dividend paid by the fund that  represents  income from foreign
or U.S.  possessions  sources as the shareholder's own income from those sources
and (3) either  deduct the  foreign  taxes  deemed  paid by the  shareholder  in
computing the shareholder's taxable income or, alternatively,  use the foregoing
information  in  calculating  the foreign tax credit  against the  shareholder's
federal  income  tax.  If a fund  makes  this  election,  it will  report to its
shareholders  shortly  after each  taxable year their  respective  shares of the
foreign taxes it paid and its income from sources within  foreign  countries and
U.S.  possessions.  Individuals  who have no more  than $300  ($600 for  married
persons filing  jointly) of creditable  foreign taxes included on Forms 1099 and
all of whose foreign  source income is  "qualified  passive  income" may make an
election that would enable them to claim a foreign tax credit  without having to
file the detailed Form 1116 that otherwise is required.

         Passive Foreign Investment Companies. Each fund may invest in the stock
of  "passive  foreign  investment  companies"  ("PFICs").  A PFIC is any foreign
corporation  (with certain  exceptions)  that,  in general,  meets either of the
following  tests:  (1) at least 75% of its gross  income  is  passive  or (2) an
average of at least 50% of its assets  produce,  or are held for the  production
of,  passive  income.  Under  certain  circumstances,  a fund will be subject to
federal  income tax on a portion of any  "excess  distribution"  received on the
stock of a PFIC or of any gain on disposition of that stock  (collectively "PFIC
income"), plus interest thereon, even if the fund distributes the PFIC income as
a taxable dividend to its  shareholders.  The balance of the PFIC income will be
included in the fund's investment company taxable income and, accordingly,  will
not  be  taxable  to  it to  the  extent  it  distributes  that  income  to  its
shareholders.

         If a fund  invests  in a  PFIC  and  elects  to  treat  the  PFIC  as a
"qualified  electing  fund"  ("QEF"),  then  in lieu  of the  foregoing  tax and
interest  obligation,  the fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain --
which the fund probably  would have to  distribute  to satisfy the  Distribution
Requirement  and avoid  imposition  of the Excise Tax -- even if the QEF did not
distribute  those  earnings and gain to the fund.  In most  instances it will be
very  difficult,  if not  impossible,  to make this election  because of certain
requirements thereof.

         Each  fund  may  elect  to  "mark-to-market"  its  stock  in any  PFIC.
"Marking-to-market,"  in this context,  means  including in ordinary income each
taxable  year the excess,  if any, of the fair market  value of the stock over a
fund's  adjusted  basis  therein  as of the end of that  year.  Pursuant  to the
election, a fund also may deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted  basis in PFIC stock over the fair market value  thereof
as of the  taxable  year-end,  but only to the extent of any net  mark-to-market
gains  with  respect  to that  stock  included  in  income by the fund for prior
taxable  years under the election (and under  regulations  proposed in 1992 that
provided a similar  election  with  respect to the stock of  certain  PFICs).  A
fund's  adjusted  basis in each PFIC's stock  subject to the  election  would be
adjusted  to  reflect  the  amounts  of income  included  and  deductions  taken
thereunder.

                                       32

<PAGE>

         Foreign Currencies. Gains or losses (1) from the disposition of foreign
currencies,  including  forward  contracts,  (2)  on the  disposition  of a debt
security  denominated in foreign  currency that are attributable to fluctuations
in the  value of the  foreign  currency  between  the dates of  acquisition  and
disposition of the security and (3) that are  attributable  to  fluctuations  in
exchange  rates  between the time a fund  accrues  dividends,  interest or other
receivables, or expenses or other liabilities, denominated in a foreign currency
and the time the fund actually collects the receivables or pays the liabilities,
generally  will be treated as  ordinary  income or loss.  These gains or losses,
referred to under the Code as "section  988" gains or losses,  will  increase or
decrease  the  amount  of a  fund's  investment  company  taxable  income  to be
distributed to its shareholders,  as ordinary income,  rather than affecting the
amount of its net capital gain.

Financial Instruments and Foreign Currencies
--------------------------------------------

         The use of hedging strategies, such as writing (selling) and purchasing
options and futures  contracts  and entering  into forward  contracts,  involves
complex rules that will determine for income tax purposes the amount,  character
and timing of  recognition of the gains and losses a fund realizes in connection
therewith.  Gains from the  disposition of foreign  currencies  (except  certain
gains that may be excluded  by future  regulations)  -- and gains from  options,
futures and forward  contracts derived by a fund with respect to its business of
investing in securities  or foreign  currencies -- will be treated as qualifying
income under the Income Requirement.

         Certain futures,  listed  non-equity  options (such as those on a stock
index) and foreign  currency  contracts (with respect to which a fund has made a
certain  election) in which a fund may invest will be subject to section 1256 of
the Code  ("section 1256  contracts").  Section 1256 contracts held by a fund at
the end of its taxable year,  other than section 1256 contracts that are part of
a "mixed  straddle"  with  respect to which the fund has made an election not to
have the following rules apply, must be "marked-to-market"  (that is, treated as
having been sold for their fair market  value) for federal  income tax purposes,
with the result that  unrealized  gains or losses will be treated as though they
were realized.  Sixty percent of any net gain or loss recognized on these deemed
sales,  and sixty percent of any net realized gain or loss from any actual sales
of section 1256  contracts,  will be treated as long-term  capital gain or loss,
and the balance will be treated as short-term  capital gain or loss. These rules
may operate to increase  the amount that a fund must  distribute  to satisfy the
Distribution   Requirement  (i.e.,  with  respect  to  the  portion  treated  as
short-term  capital gain), which will be taxable to its shareholders as ordinary
income,  and to increase  the net  capital  gain a fund  recognizes,  without in
either case  increasing the cash  available to the fund.  Section 1256 contracts
also may be marked-to-market for purposes of the Excise Tax.

         When a covered call option written  (sold) by a fund expires,  the fund
will  realize a  short-term  capital  gain equal to the amount of the premium it
received for writing the option.  When a fund terminates its  obligations  under
such an  option  by  entering  into a  closing  transaction,  it will  realize a
short-term capital gain (or loss),  depending on whether the cost of the closing
transaction  is less than (or  exceeds) the premium  received  when it wrote the
option.  When a covered call option  written by a fund is exercised,  it will be
treated  as  having  sold  the  underlying  security,   producing  long-term  or
short-term  capital  gain  or  loss,  depending  on the  holding  period  of the
underlying  security  and  whether the sum of the option  price  received on the
exercise plus the premium received when it wrote the option is more or less than
the basis of the underlying security.

         Code section 1092 (dealing with straddles) also may affect the taxation
of  options,  futures  and forward  contracts  in which a fund may invest.  That
section  defines a "straddle" as offsetting  positions  with respect to actively
traded  personal  property;  for these  purposes,  options,  futures and forward
contracts  are  personal  property.  Under  that  section,  any  loss  from  the
disposition  of a position in a straddle  generally  may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle.  In addition,  these rules may postpone the  recognition  of loss that
otherwise would be recognized  under the  mark-to-market  rules discussed above.
The regulations under section 1092 also provide certain "wash sale" rules, which
apply to  transactions  where a position is sold at a loss and a new  offsetting
position  is  acquired  within a  prescribed  period,  and  "short  sale"  rules
applicable  to  straddles.  If a  fund  makes  certain  elections,  the  amount,

                                       33

<PAGE>

character  and  timing of  recognition  of gains and  losses  from the  affected
straddle  positions  would be determined  under rules that vary according to the
elections made. Because only a few of the regulations  implementing the straddle
rules  have  been  promulgated,  the  tax  consequences  to a fund  of  straddle
transactions are not entirely clear.

         If a fund has an  "appreciated  financial  position" --  generally,  an
interest  (including an interest through an option,  futures or forward contract
or short sale) with respect to any stock,  debt instrument (other than "straight
debt") or  partnership  interest  the fair  market  value of which  exceeds  its
adjusted  basis -- and enters into a  "constructive  sale" of the position,  the
fund will be treated as having made an actual sale thereof, with the result that
gain will be recognized at that time. A constructive sale generally  consists of
a short sale, an offsetting  notional  principal  contract or futures or forward
contract  entered into by a fund or a related person with respect to the same or
substantially  identical  property.  In addition,  if the appreciated  financial
position  is  itself  a  short  sale  or  such a  contract,  acquisition  of the
underlying  property  or  substantially  identical  property  will be  deemed  a
constructive sale. The foregoing will not apply,  however, to any transaction of
a fund during any taxable year that otherwise would be treated as a constructive
sale if the  transaction is closed within 30 days after the end of that year and
the fund holds the  appreciated  financial  position  unhedged for 60 days after
that closing  (i.e.,  at no time during that 60-day period is the fund's risk of
loss regarding that position reduced by reason of certain specified transactions
with respect to substantially  identical or related property,  such as having an
option to sell, being  contractually  obligated to sell, making a short sale, or
granting an option to buy substantially identical stock or securities).

Original Issue Discount and Pay-In-Kind Securities
--------------------------------------------------

         Each fund may purchase zero coupon or other debt securities issued with
original issue discount ("OID").  As a holder of those  securities,  a fund must
include in its income the OID that accrues thereon during the taxable year, even
if it  receives  no  corresponding  payment on the  securities  during the year.
Similarly,  a fund must  include in its gross income  securities  it receives as
"interest" on pay-in-kind securities. Because each fund annually must distribute
substantially  all of its investment  company taxable income,  including any OID
and other non-cash  income,  to satisfy the  Distribution  Requirement and avoid
imposition  of the  Excise  Tax,  it may be  required  in a  particular  year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from a fund's cash assets
or from the proceeds of sales of portfolio securities,  if necessary. A fund may
realize capital gains or losses from those dispositions, which would increase or
decrease its investment company taxable income and/or net capital gain.

                 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

         Each fund  offers two  classes of shares --  Primary  Class  shares and
Institutional Class shares.  Value Trust, Total Return Trust, Special Investment
Trust and  Balanced  Trust also offer  Financial  Intermediary  Class shares and
Financial  Services  Fund offers Class A shares.  Other classes of shares may be
offered in the future.  Primary Class and Class A shares are available from Legg
Mason,  certain of its affiliates and unaffiliated  entities having an agreement
with Legg Mason.  Institutional Class shares are available only to institutional
investors who have at least $100 million in investable  assets and who invest at
least $1 million in a fund.  Shareholders of the Navigator Class of a fund as of
January 22, 2001 may  continue to buy  Institutional  Class shares of that fund.
Institutional  Class  shares are also offered to  Institutional  Clients of Legg
Mason Trust, fsb for which the trust company exercises discretionary  investment
management  responsibility and accounts of the customers with such Institutional
Clients ("Customers"). Financial Intermediary Class shares are available only to
institutional  investors who have at least $50 million in investable  assets and
who invest at least $1 million in a fund.  Institutional  Clients  may  purchase
shares for Customer Accounts maintained for individuals. Primary Class and Class
A shares are available to all other investors.

                                       34

<PAGE>

Future First Systematic Investment Plan and Transfer of Funds from Financial
Institutions
----------------------------------------------------------------------------

         If you invest in Primary Class or Class A shares,  the  Prospectus  for
those shares  explains  that you may buy those  shares  through the Future First
Systematic  Investment  Plan.  Under this plan,  you may arrange  for  automatic
monthly  investments  in  Primary  Class  or  Class A  shares  of $50 or more by
authorizing Boston Financial Data Services ("BFDS"), each fund's transfer agent,
to transfer  funds each month from your Legg Mason account or from your checking
account  to be  used to buy  those  shares  at the per  share  net  asset  value
determined  on the day the funds are sent from  your  bank.  You will  receive a
quarterly  account  statement.  You may  terminate  the Future First  Systematic
Investment  Plan at any time without  charge or penalty.  Forms to enroll in the
Future First  Systematic  Investment  Plan are available  from any Legg Mason or
affiliated office.

         Investors  in  Primary  Class  and Class A shares  may also buy  shares
through a plan  permitting  transfers  of funds  from a  financial  institution.
Certain  financial  institutions  may allow the  investor,  on a  pre-authorized
basis, to have $50 or more automatically  transferred  monthly for investment in
shares of a fund to:

                      Legg Mason Wood Walker, Incorporated
                                Funds Processing
                                  P.O. Box 1476
                         Baltimore, Maryland 21203-1476

         If the investor's  check is not honored by the  institution it is drawn
on, the  investor may be subject to extra  charges in order to cover  collection
costs. These charges may be deducted from the investor's shareholder account.

Systematic Withdrawal Plan
--------------------------

         All Legg Mason  funds in any Legg Mason  account are  eligible  for the
Systematic  Withdrawal Plan ("Plan").  Except for Individual Retirement Accounts
("IRA accounts"),  any account with a net asset value of $5000 or more may elect
to make withdrawals of a minimum of $50 on a monthly basis. IRA accounts are not
subject to the $5000 minimum balance  requirement.  The amounts paid to you each
month are obtained by redeeming  sufficient  shares from your account to provide
the withdrawal  amount that you have specified.  Except IRA accounts,  there are
three ways to receive payment of proceeds of redemptions  made through the Plan:
(1) Credit to  brokerage  account - fund  shares  will be  redeemed on the first
business  day of each month and credited to the  brokerage  account on the third
business  day; or (2) Check  mailed by the funds'  transfer  agent - fund shares
will be redeemed on the 25th of each month or next business day and a check will
be mailed within 3 business  days;  or (3) ACH to checking or savings  account -
redemptions of fund shares may occur on any day of the month and the checking or
savings account will be credited in approximately  two business days.  Credit to
brokerage account is the only option available to IRA accounts. Redemptions will
be made at the net asset value per share  determined  as of the close of regular
trading of the New York Stock Exchange ("Exchange") (normally 4:00 p.m., Eastern
time)  on the day  corresponding  to the  redemption  option  designated  by the
investor.  If the Exchange is not open for business on that day, the shares will
be redeemed at the per share net asset value  determined  as of the close of the
Exchange on the next business day. You may change the monthly  amount to be paid
to you without  charge by notifying  Legg Mason or the affiliate  with which you
have an account.  You may terminate the Systematic  Withdrawal  Plan at any time
without charge or penalty.  Each fund, its transfer  agent,  and Legg Mason also
reserve the right to modify or terminate the Systematic  Withdrawal  Plan at any
time.

         Withdrawal  payments  are treated as a sale of shares  rather than as a
dividend or other  distribution.  These  payments are taxable to the extent that
the total  amount of the payments  exceeds the tax basis of the shares sold.  If
the periodic  withdrawals  exceed reinvested  dividends and  distributions,  the
amount of your original investment may be correspondingly reduced.

                                       35

<PAGE>

         Ordinarily,  you should not purchase  additional  shares of the fund in
which you have an account if you maintain a Systematic  Withdrawal Plan, because
you may incur tax liabilities in connection with such purchases and withdrawals.
No fund will knowingly accept purchase orders from you for additional  shares if
you maintain a Systematic  Withdrawal  Plan unless your  purchase is equal to at
least  one  year's  scheduled  withdrawals.  In  addition,  if  you  maintain  a
Systematic  Withdrawal  Plan you may not make  periodic  investments  under  the
Future First Systematic Investment Plan.

Other Information Regarding Redemption
--------------------------------------

         Each fund reserves the right to modify or terminate the wire, telephone
or Internet redemption services described in the Prospectuses at any time.

         The date of payment for  redemption  may not be postponed for more than
seven days, and the right of redemption  may not be suspended,  by a fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) when trading in markets a
fund normally utilizes is restricted,  or an emergency,  as defined by rules and
regulations of the SEC,  exists,  making  disposal of the fund's  investments or
determination  of its net asset value not reasonably  practicable,  or (iii) for
such other periods as the SEC by  regulation or order may permit for  protection
of a fund's  shareholders.  In the case of any such  suspension,  you may either
withdraw your request for redemption or receive payment based upon the net asset
value next determined after the suspension is lifted.

         Each fund reserves the right,  under certain  conditions,  to honor any
request  for  redemption  by making  payment  in whole or in part in  securities
valued in the same way as they would be valued for  purposes of  computing  that
fund's  net  asset  value  per  share.  If  payment  is  made in  securities,  a
shareholder  should  expect to incur  brokerage  expenses  in  converting  those
securities  into cash and will be subject to  fluctuation in the market price of
those  securities until they are sold. Each fund does not redeem "in kind" under
normal circumstances, but would do so where its adviser determines that it would
be in the best interests of that fund's shareholders as a whole.

         Foreign  securities  markets  may be open for  trading on days when the
funds are not open for  business.  The net  asset  value of fund  shares  may be
significantly  affected  on days  when  investors  do not have  access  to their
respective fund to purchase and redeem shares.

         Class A shares  that were  purchased  pursuant to the  front-end  sales
charge  waiver on purchases  of $1 million or more and are  redeemed  within one
year of their  purchase  are subject to a CDSC of 1.00% of the shares' net asset
value at the time of purchase or redemption, whichever is less.

         Clients of certain institutions that maintain omnibus accounts with the
funds'  transfer  agent may  obtain  shares  through  those  institutions.  Such
institutions  may  receive  payments  from the funds'  distributor  for  account
servicing,  and may  receive  payments  from their  clients  for other  services
performed.  Investors can purchase  shares from Legg Mason without  receiving or
paying for such other services.

                            VALUATION OF FUND SHARES

         Net asset value of a fund share is  determined  daily for each class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value  of  the  total  assets  attributable  to  that  class,  less  liabilities
attributable to that class,  by the number of shares of that class  outstanding.
Pricing  will not be done on days when the  Exchange  is  closed.  The  Exchange
currently  observes the following  holidays:  New Year's Day,  Presidents'  Day,
Martin Luther King, Jr. Day, Good Friday,  Memorial Day, Independence Day, Labor
Day,  Thanksgiving  Day, and  Christmas  Day. As described in the  Prospectuses,
securities  for which  market  quotations  are readily  available  are valued at
current  market  value.  Securities  traded on an exchange  or the Nasdaq  Stock
Market  are  normally  valued at last sale  prices.  Other OTC  securities,  and
securities  traded on exchanges  for which there is no sale on a particular  day
(including  debt  securities),  are valued at the mean of latest closing bid and

                                       36

<PAGE>

asked prices. Securities with remaining maturities of 60 days or less are valued
at amortized cost. Securities and other assets quoted in foreign currencies will
be valued in U.S. dollars based on the currency exchange rates prevailing at the
time of the  valuation.  All  other  securities  are  valued  at fair  value  as
determined  by or  under  the  direction  of the  appropriate  fund's  Board  of
Directors.  Each  fund may  also  use  fair  value  pricing  instead  of  market
quotations to value  securities if, because of special  circumstances,  the fund
believes  it would  more  accurately  reflect  the price it could  realize  on a
current sale of the  securities.  Premiums  received on the sale of call options
are included in the net asset value of each class,  and the current market value
of options sold by a fund will be subtracted from net assets of each class.

                             PERFORMANCE INFORMATION

         The following tables show the value, as of the end of each fiscal year,
of a  hypothetical  investment of $10,000 made in each fund at  commencement  of
operations  of each class of fund shares.  The tables  assume that all dividends
and other distributions are reinvested in each respective fund. They include the
effect of all charges and fees applicable to the respective  class of shares the
fund has paid.  (There are no fees for  investing  or  reinvesting  in the funds
imposed by the funds except for any applicable  sales charges on the purchase of
Class A shares,  and there are no  redemption  fees other  than those  described
above for Class A shares.) They do not include the effect of any income tax that
an  investor  would  have  to pay on  distributions.  Performance  data  is only
historical, and is not intended to indicate any fund's future performance. As of
the date of this  Statement of Additional  Information,  Financial  Intermediary
Class shares of Value Trust,  Special  Investment Trust, Total Return Trust, and
Balanced Trust have no performance history of their own.

Value Trust:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>
                                   Value of Original Shares                        Value of Shares
                                       Plus Shares Obtained                       Acquired Through
                                       Through Reinvestment                        Reinvestment of
       Fiscal Year            of Capital Gain Distributions                       Income Dividends        Total Value
---------------------------------------------------------------------------------------------------------------------
             <S>                                    <C>                                      <C>              <C>

             1983*                                  $16,160                                  $ 241            $16,401
              1984                                   18,870                                    555             19,425
              1985                                   23,583                                  1,100             24,683
              1986                                   32,556                                  1,954             34,510
              1987                                   35,503                                  2,421             37,924
              1988                                   32,268                                  2,461             34,729
              1989                                   37,650                                  3,459             41,109
              1990                                   39,891                                  4,399             44,290
              1991                                   37,701                                  5,313             43,014
              1992                                   44,210                                  7,204             51,414
              1993                                   50,184                                  8,819             59,003
              1994                                   52,789                                  9,548             62,337
              1995                                   57,817                                 10,610             68,427
              1996                                   82,356                                 14,870             97,226
              1997                                  110,379                                 19,502            129,881
              1998                                  172,493                                 29,268            201,761
              1999                                  259,794                                 42,708            302,502
              2000                                  278,915                                 43,976            322,891
</TABLE>

* April 16, 1982 (commencement of operations) to March 31, 1983.

                                       37

<PAGE>

Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>
                                   Value of Original Shares                        Value of Shares
                                       Plus Shares Obtained                       Acquired Through
                                       Through Reinvestment                        Reinvestment of
       Fiscal Year            of Capital Gain Distributions                       Income Dividends        Total Value
---------------------------------------------------------------------------------------------------------------------
             <S>                                    <C>                                      <C>              <C>
             1995*                                  $10,805                                   $  6            $10,811
              1996                                   15,249                                    268             15,517
              1997                                   20,323                                    619             20,942
              1998                                   31,713                                  1,146             32,859
              1999                                   48,038                                  1,688             49,726
              2000                                   51,846                                  1,757             53,603
</TABLE>

* December 1, 1994 (commencement of operations) to March 31, 1995.

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment as of March 31, 2000 would have been $150,520,  and the
investor would have received a total of $32,449 in  distributions.  With respect
to Institutional Class shares, if the investor had not reinvested  dividends and
other distributions,  the total value of the hypothetical investment as of March
31, 2000 would have been $41,322,  and the investor  would have received a total
of $5,375 in  distributions.  If the adviser had not waived  certain fees in the
1983-2000 fiscal years, returns would have been lower.

                                       38

<PAGE>

Total Return Trust:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>
                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                      <C>             <C>
             1986*                                 $10,780                                      -            $10,780
              1987                                  11,673                                   $211             11,884
              1988                                  10,295                                    380             10,675
              1989                                  11,690                                    603             12,293
              1990                                  11,875                                    846             12,721
              1991                                  11,499                                  1,216             12,715
              1992                                  13,885                                  1,830             15,715
              1993                                  16,234                                  2,605             18,839
              1994                                  16,637                                  3,064             19,701
              1995                                  16,593                                  3,482             20,075
              1996                                  21,342                                  5,194             26,536
              1997                                  26,102                                  6,890             32,992
              1998                                  37,430                                  9,565             46,995
              1999                                  34,742                                  8,903             43,175
              2000                                  32,051                                  8,264             40,315
</TABLE>

* November 21, 1985 (commencement of operations) to March 31, 1986.


Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>
                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                      <C>              <C>
             1995*                                 $10,203                                   $160            $10,363
              1996                                  13,106                                    668             13,774
              1997                                  15,989                                  1,321             17,310
              1998                                  22,606                                  2,311             24,917
              1999                                  20,509                                  2,619             23,128
              2000                                  18,999                                  2,830             21,829
</TABLE>

* December 1, 1994 (commencement of operations) to March 31, 1995.

                                       39

<PAGE>

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment as of March 31, 2000 would have been  $18,260,  and the
investor would have received a total of $11,949 in  distributions.  With respect
to Institutional Class shares, if the investor had not reinvested  dividends and
other distributions,  the total value of the hypothetical investment as of March
31, 2000 would have been $14,390,  and the investor  would have received a total
of $6,533 in  distributions.  If the adviser had not waived  certain fees in the
1986-1995 fiscal years, returns would have been lower.


Special Investment Trust:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                      <C>             <C>
             1986*                                 $11,530                                      -            $11,530
              1987                                  13,051                                   $ 23             13,074
              1988                                  11,107                                    113             11,220
              1989                                  12,982                                    144             13,126
              1990                                  14,890                                    253             15,143
              1991                                  17,777                                    615             18,392
              1992                                  21,249                                    905             22,154
              1993                                  23,528                                    953             24,481
              1994                                  28,511                                  1,197             29,708
              1995                                  26,707                                  1,108             27,815
              1996                                  34,291                                  1,442             35,733
              1997                                  38,345                                  1,526             39,871
              1998                                  54,898                                  2,070             56,968
              1999                                  64,288                                  2,230             66,518
              2000                                  83,259                                  2,315             85,574
</TABLE>

* December 30, 1985 (commencement of operations) to March 31, 1986.

                                       40

<PAGE>

Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                       <C>             <C>
             1995*                                 $10,481                                      -            $10,481

              1996                                  13,489                                   $121             13,610

              1997                                  15,224                                    129             15,353

              1998                                  21,996                                    177             22,173

              1999                                  25,948                                    193             26,141

              2000                                  33,774                                    205             33,979
</TABLE>

* December 1, 1994 (commencement of operations) to March 31, 1995.

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment as of March 31, 2000 would have been  $40,280,  and the
investor would have received a total of $18,687 in  distributions.  With respect
to Institutional Class shares, if the investor had not reinvested  dividends and
other distributions,  the total value of the hypothetical investment as of March
31, 2000 would have been $22,454,  and the investor  would have received a total
of $7,458 in  distributions.  If the adviser had not waived  certain fees in the
1986-1998 fiscal years, returns would have been lower.

American Leading Companies:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                    <C>                                       <C>             <C>
             1994*                                  $9,690                                    $24             $9,714
              1995                                  10,180                                    140             10,320
              1996                                  12,230                                    283             12,513
              1997                                  15,242                                    366             15,608
              1998                                  20,658                                    442             21,100
              1999                                  24,713                                    506             25,219
              2000                                  23,077                                    465             23,542
</TABLE>

* September 1, 1993 (commencement of operations) to March 31, 1994.

                                       41

<PAGE>

Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                        <C>            <C>

             1997*                                 $11,428                                    $88            $11,516
              1998                                  15,602                                    110             15,742
             1999**                                 15,923                                    109             16,032
</TABLE>

* October 4, 1996 (commencement of operations) to March 31, 1997.
**   All outstanding  Institutional Class shares were redeemed December 3, 1998;
     this amount  reflects values up to that date.  There were no  Institutional
     Class shares outstanding at March 31, 2000.

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment as of March 31, 2000 would have been  $18,690,  and the
investor would have received a total of $3,655 in distributions.  If the adviser
had not waived  certain fees in the 1997-1999  fiscal years,  returns would have
been lower.

Balanced Trust:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                        <C>            <C>
             1997*                                 $10,160                                    $42            $10,202
              1998                                  12,749                                    289             13,038
              1999                                  12,214                                    473             12,687
              2000                                  12,439                                    823             13,262
</TABLE>

* October 1, 1996 (commencement of operations) to March 31, 1997.

         If the investor had not reinvested  dividends and other  distributions,
the total value of the  hypothetical  investment as of March 31, 2000 would have
been  $12,200,  and  the  investor  would  have  received  a  total  of  $980 in
distributions.  If the adviser had not waived  certain  fees in the fiscal years
ended March 31, 1997, 1998, 1999 and 2000, returns would have been lower.

         The table  above is based  only on  Primary  Class  shares of  Balanced
Trust. As of the date of this Statement of Additional Information, Institutional
Class  and  Financial  Intermediary  Class  shares  of  Balanced  Trust  have no
performance history of their own.

                                       42

<PAGE>

Small-Cap Value Trust:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                   <C>                                      <C>              <C>

             1999*                                 $ 7,810                                  -----            $ 7,810
              2000                                   7,727                                  -----              7,727
</TABLE>

* June 15, 1998 (commencement of operations) to March 31, 1999.

Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>

                                  Value of Original Shares                        Value of Shares
                                      Plus Shares Obtained                       Acquired Through
                                      Through Reinvestment                        Reinvestment of
       Fiscal Year           of Capital Gain Distributions                       Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
             <S>                                     <C>                                    <C>                <C>

             1999*
              2000                                   7,932                                  -----              7,932
</TABLE>

* June 19, 1998(commencement of operations) to March 31, 1999.

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment  as of March 31, 2000 would have been  $7,450,  and the
investor would have received a total of $309 in  distributions.  With respect to
Institutional  Class shares,  if the investor had not  reinvested  dividends and
other distributions,  the total value of the hypothetical investment as of March
31, 2000 would have been $7,651, and the investor would have received a total of
$311 in  distributions.  If the  adviser  had  not  waived  certain  fees in the
1999-2000 fiscal years, returns would have been lower.

Financial Services Fund:

Primary Class Shares
--------------------
<TABLE>
<CAPTION>

                                          Value of Original Shares                Value of Shares
                                              Plus Shares Obtained               Acquired Through
                                              Through Reinvestment                Reinvestment of
               Fiscal Year           of Capital Gain Distributions               Income Dividends        Total Value
--------------------------------------------------------------------------------------------------------------------
        <S>                                                <C>                              <C>              <C>

        December 31, 1998*                                 $10,570                          -----            $10,570

         December 31, 1999                                  $9,410                          -----             $9,410

                 March 31,                                  $9,180                          -----             $9,180
                    2000**
</TABLE>

*    November 16, 1998 (commencement of operations) to December 31, 1998.
**   For the period January 1, 2000 to March 31, 2000. Effective January 1, 2000
     the fiscal year end for Financial Services Fund changed from December 31 to
     March 31.

                                       43

<PAGE>

Class A Shares
--------------
<TABLE>
<CAPTION>

                                          Value of Original Shares              Value of Shares
                                              Plus Shares Obtained             Acquired Through
                                              Through Reinvestment       Reinvestment of Income
               Fiscal Year           of Capital Gain Distributions                    Dividends          Total Value
--------------------------------------------------------------------------------------------------------------------
        <S>                                                      <C>                      <C>                   <C>

        December 31, 1998*                                       $                        -----                 $
         December 31, 1999                                       $                        -----                 $
          March 31, 2000**                                       $                        -----                 $
</TABLE>

* November 16, 1998 (commencement of operations) to December 31, 1999.
**   For the period January 1, 2000 to March 31, 2000. Effective January 1, 2000
     the fiscal year end for Financial Services Fund changed from December 31 to
     March 31.

Institutional Class Shares
--------------------------
<TABLE>
<CAPTION>

                                        Value of Original Shares                Value of Shares
                                            Plus Shares Obtained               Acquired Through
                                            Through Reinvestment                Reinvestment of
               Fiscal Year         of Capital Gain Distributions               Income Dividends          Total Value
--------------------------------------------------------------------------------------------------------------------
        <S>                                              <C>                              <C>                <C>
        December 31, 1999*                               $10,248                          -----              $10,248

          March 31, 2000**                               $10,022                          -----              $10,022
</TABLE>

*    October 7, 1999  (inception  date of  Institutional  Class) to December 31,
     1999.
**   For the period January 1, 2000 to March 31, 2000. Effective January 1, 2000
     the fiscal year end for Financial Services Fund changed from December 31 to
     March 31.

         With  respect  to  Primary  Class  shares,  if  the  investor  had  not
reinvested   dividends  and  other   distributions,   the  total  value  of  the
hypothetical  investment  as of March 31, 2000 would have been  $9,180,  and the
investor  would have  received a total of $0 in  distributions.  With respect to
Class  A  shares,  if the  investor  had  not  reinvested  dividends  and  other
distributions,  the total value of the  hypothetical  investment as of March 31,
2000 would have been $9,280,  and the investor would have received a total of $0
in  distributions.  With respect to Institutional  Class shares, if the investor
had not  reinvested  dividends and other  distributions,  the total value of the
hypothetical  investment as of March 31, 2000 would have been  $10,022,  and the
investor would have received a total of $0 in distributions.  If the adviser had
not waived certain fees in the 1998-2000  fiscal years,  returns would have been
lower.

Total Return Calculations
-------------------------

         Average  annual total return  quotes used in a fund's  advertising  and
other  promotional  materials  ("Performance   Advertisements")  are  calculated
separately for each class according to the following formula:

           P(1+T)n           =        ERV
where:     P                 =        a hypothetical initial payment of $1,000
           T                 =        average annual total return
           n                 =        number of years
           ERV               =        ending redeemable value of a
                                      hypothetical $1,000 payment made at
                                      the beginning of that period

                                       44

<PAGE>

         Under the  foregoing  formula,  the time  periods  used in  Performance
Advertisements  will be based on rolling calendar quarters,  updated at least to
the last day of the most recent  quarter prior to submission of the  Performance
Advertisements  for publication.  Total return,  or "T" in the formula above, is
computed by finding the average  annual change in the value of an initial $1,000
investment over the period.  In calculating  the ending  redeemable  value,  all
dividends and other  distributions by a fund are assumed to have been reinvested
at net asset value on the reinvestment dates during the period.

         From time to time each fund may compare the  performance  of a class of
shares  in  advertising  and  sales  literature  to  the  performance  of  other
investment companies,  groups of investment companies or various market indices.
One such market index is the Standard & Poor's 500  Composite  Stock Index ("S&P
500"),    a   widely    recognized,    unmanaged    index    composed   of   the
capitalization-weighted  average  of the prices of 500 of the  largest  publicly
traded stocks in the U.S. The S&P 500 includes reinvestment of all dividends. It
takes  no  account  of the  costs  of  investing  or  the  tax  consequences  of
distributions.  The funds invest in many securities that are not included in the
S&P 500.

         Each fund may also cite rankings and ratings, and compare the return of
a Class with data published by Lipper Analytical Services, Inc. ("Lipper"),  CDA
Investment  Technologies,  Inc., Wiesenberger Investment Company Services, Value
Line,  Morningstar,  and other services or  publications  that monitor,  compare
and/or rank the performance of investment companies. Each fund may also refer in
such materials to mutual fund performance  rankings,  ratings,  comparisons with
funds having similar investment  objectives,  and other mutual funds reported in
independent  periodicals,  including, but not limited to, FINANCIAL WORLD, MONEY
Magazine,  FORBES, BUSINESS WEEK, BARRON'S,  FORTUNE, THE KIPLINGER LETTERS, THE
WALL STREET JOURNAL, and THE NEW YORK TIMES.

         Each fund may compare the investment return of a class to the return on
certificates  of deposit  and other forms of bank  deposits,  and may quote from
organizations  that track the rates offered on such deposits.  Bank deposits are
insured  by an agency of the  federal  government  up to  specified  limits.  In
contrast,  fund shares are not insured,  the value of fund shares may fluctuate,
and an  investor's  shares,  when  redeemed,  may be worth more or less than the
investor originally paid for them. Unlike the interest paid on many certificates
of deposit,  which remains at a specified  rate for a specified  period of time,
the return of each class of shares will vary.

         Fund  advertisements  may reference the history of the  distributor and
its affiliates,  the education and experience of the portfolio manager,  and the
fact  that  the  portfolio  manager  engages  in  value  investing.  With  value
investing, the adviser invests in those securities it believes to be undervalued
in  relation to the  long-term  earning  power or asset value of their  issuers.
Securities may be undervalued because of many factors, including market decline,
poor economic conditions, tax-loss selling, or actual or anticipated unfavorable
developments affecting the issuer of the security. The adviser believes that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings  declines or other adverse  developments are likely to provide a
greater  total  return  than  securities  with  prices  that  appear to  reflect
anticipated favorable  developments and that are therefore subject to correction
should any unfavorable developments occur.

         In advertising,  each fund may illustrate hypothetical investment plans
designed to help investors meet long-term  financial goals, such as saving for a
child's  college  education  or for  retirement.  Sources  such as the  Internal
Revenue Service,  the Social Security  Administration,  the Consumer Price Index
and Chase Global Data and Research may supply data  concerning  interest  rates,
college tuitions,  the rate of inflation,  Social Security  benefits,  mortality
statistics and other relevant  information.  Each fund may use other  recognized
sources as they become available.

         A fund  may use data  prepared  by  Ibbotson  Associates  and  Frontier
Analytics,  Inc. to compare the returns of various  capital  markets and to show
the value of a hypothetical investment in a capital market. Typically, different
indices are used to calculate the  performance of common  stocks,  corporate and
government bonds and Treasury bills.

                                       45

<PAGE>

         Each fund may  illustrate  and compare  the  historical  volatility  of
different portfolio  compositions where the performance of stocks is represented
by the performance of an appropriate  market index,  such as the S&P 500 and the
performance of bonds is represented by a nationally  recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.

         Each fund may also include in advertising  biographical  information on
key investment and managerial personnel.

         Each fund may advertise  examples of the potential benefits of periodic
investment  plans,  such  as  dollar  cost  averaging,  a  long-term  investment
technique  designed  to lower  average  cost per share.  Under  such a plan,  an
investor  invests in a mutual fund at regular  intervals a fixed  dollar  amount
thereby  purchasing more shares when prices are low and fewer shares when prices
are high.  Although such a plan does not guarantee  profit or guard against loss
in declining markets,  the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should consider
their ability to purchase shares through periods of low price levels.

         Each fund may discuss  Legg Mason's  tradition of service.  Since 1899,
Legg  Mason and its  affiliated  companies  have  helped  investors  meet  their
specific  investment  goals  and have  provided  a full  spectrum  of  financial
services.  Legg  Mason  affiliates  serve as  investment  advisers  for  private
accounts and mutual funds with assets of approximately  $112 billion as of March
31, 2000.

         In advertising,  each fund may discuss the advantages of saving through
tax-deferred  retirement  plans  or  accounts,   including  the  advantages  and
disadvantages  of "rolling over" a distribution  from a retirement  plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options  available.  These discussions may include graphs or other
illustrations that compare the growth of a hypothetical  tax-deferred investment
to the after-tax growth of a taxable investment.

         Lipper  Inc.,  an   independent   rating  service  which  measures  the
performance of most U.S. mutual funds,  reported that Value Trust's total return
of Primary Class shares ranked 3359 among 4148 general  equity funds it measured
during the one year ended  April 30,  2000.  For the five years  ended April 30,
2000,  Value Trust's total return ranked 44 among 1612 general  equity funds and
for the ten years ended April 30, 2000,  Value  Trust's  total return  ranked 36
among 583  general  equity  funds.  Of course,  there can be no  assurance  that
results similar to those achieved by Value Trust in the past will be realized in
future  periods.  Rankings may have been different if the adviser had not waived
certain fees during the periods in question.

         TAX-DEFERRED QUALIFIED PLANS - PRIMARY CLASS AND CLASS A SHARES

         Investors  may  invest  in  Primary  Class or Class A shares  of a fund
through IRAs and through  SEPs,  SIMPLES and other  qualified  retirement  plans
(collectively,  "qualified  plans").  In  general,  income  earned  through  the
investment  of assets  of  qualified  plans is not taxed to their  beneficiaries
until  the  income  is  distributed  to  them.  Primary  Class  or Class A share
investors who are considering establishing a qualified plan should consult their
attorneys or other tax advisers with respect to individual tax questions. Please
consult your  Financial  Advisor or other entity  offering the funds for further
information with respect to these plans.

Individual Retirement Account - IRAs
------------------------------------

         Traditional  IRA.  Certain  Primary Class or Class A  shareholders  may
obtain tax  advantages by  establishing  an IRA.  Specifically,  except as noted
below,  if neither you nor your spouse is an active  participant  in a qualified
employer or  government  retirement  plan, or if either you or your spouse is an
active participant in such a plan and your adjusted gross income does not exceed
a certain level, then each of you may deduct cash  contributions  made to an IRA
in an amount  for each  taxable  year not  exceeding  the lesser of 100% of your
earned income or $2,000.  However,  a married  shareholder  who is not an active
participant  in such a plan and files a joint  income tax return with his or her
spouse (and their combined  adjusted  gross income does not exceed  $150,000) is

                                       46

<PAGE>

not affected by the spouse's active  participant  status.  In addition,  if your
spouse is not employed and you file a joint return, you may establish a separate
IRA for your  spouse  and  contribute  up to a total of  $4,000 to the two IRAs,
provided  that the  contribution  to  either  does not  exceed  $2,000.  If your
employer's plan qualifies as a SIMPLE, permits voluntary contributions and meets
certain requirements, you may make voluntary contributions to that plan that are
treated as deductible IRA contributions.

         Even if you are not in one of the categories described in the preceding
paragraph,  you may find it  advantageous  to invest in Primary Class or Class A
shares or shares  of a fund  through  non-deductible  IRA  contributions,  up to
certain  limits,  because all  dividends  and other  distributions  on your fund
shares are then not  immediately  taxable to you or the IRA; they become taxable
only when distributed to you. To avoid  penalties,  your interest in an IRA must
be  distributed,  or start to be  distributed,  to you not  later  than  April 1
following the calendar year in which you attain age 70 1/2.  Distributions  made
before age 59 1/2,  in  addition to being  taxable,  generally  are subject to a
penalty  equal  to 10% of the  distribution,  except  in the  case of  death  or
disability, where the distribution is rolled over into another qualified plan or
certain other situations.

         Roth IRA. A  shareholder  whose  adjusted  gross  income  (or  combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish  and  contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder  whose adjusted  gross income does not exceed  $100,000 (or is
not married filing a separate return),  certain  distributions  from traditional
IRAs may be rolled over to a Roth IRA and any of the  shareholder's  traditional
IRAs  may  be  converted  to  a  Roth  IRA;  these  rollover  distributions  and
conversions are, however, subject to federal income tax.

         Contributions  to a Roth  IRA are  not  deductible;  however,  earnings
accumulate  tax-free in a Roth IRA, and  withdrawals of earnings are not subject
to federal  income tax if the  account has been held for at least five years (or
in  the  case  of  earnings  attributable  to  rollover  contributions  from  or
conversions of a traditional IRA, the rollover or conversion  occurred more than
five years before the  withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).

         Education IRA.  Although not  technically  for retirement  savings,  an
Education IRA provides a vehicle for saving for a child's higher  education.  An
Education IRA may be  established  for the benefit of any minor,  and any person
whose  adjusted gross income does not exceed certain levels may contribute to an
Education IRA,  provided that no more than $500 may be contributed  for any year
to Education IRAs for the same beneficiary. Contributions are not deductible and
may not be  made  after  the  beneficiary  reaches  age  18;  however,  earnings
accumulate  tax-free,  and withdrawals are not subject to tax if used to pay the
qualified  higher  education  expenses of the beneficiary (or a qualified family
member).

Simplified Employee Pension Plan -- SEP
---------------------------------------

         Legg Mason makes  available to corporate and other  employers a SEP for
investment in Primary Class or Class A shares of a fund.

Savings Incentive Match Plan for Employees - SIMPLE
---------------------------------------------------

         An  employer  with no more than 100  employees  that does not  maintain
another  retirement  plan may  establish a SIMPLE  either as separate IRAs or as
part of a Code  section  401(k)  plan.  A SIMPLE,  which is not  subject  to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans,  will allow  certain  employees to make elective  contributions  of up to
$6,000 per year and will require the employer to make matching  contributions up
to 3% of each such employee's salary or a 2% nonelective contribution.

         Withholding  at the rate of 20% is  required  for  federal  income  tax
purposes on certain  distributions  (excluding,  for example,  certain  periodic
payments)  from  qualified  plans  (except IRAs and SEPs),  unless the recipient
transfers the distribution  directly to an "eligible retirement plan" (including
IRAs  and  other  qualified  plans)  that  accepts  those  distributions.  Other
distributions  generally are subject to regular wage  withholding at the rate of
10% (depending on the type and amount of the distribution), unless the recipient

                                       47

<PAGE>

elects not to have any withholding apply.  Investors in Primary Class or Class A
shares  should  consult  their plan  administrator  or tax  advisor  for further
information.

                             MANAGEMENT OF THE FUNDS

         Each fund's  officers  are  responsible  for the  operation of the fund
under the direction of the Board of Directors. The officers and directors of the
funds and their principal  occupations  during the past five years are set forth
below. An asterisk (*) indicates  officers and/or  directors who are "interested
persons" of the funds as defined by the 1940 Act. The  business  address of each
officer and director is 100 Light  Street,  Baltimore,  Maryland  21202,  unless
otherwise indicated.

         RAYMOND A.  MASON*  [9/28/36],  Chairman  of the Board and  Director of
Value Trust,  Total Return Trust and Special  Investment Trust;  Chairman of the
Board and President of Legg Mason,  Inc.  (financial  services holding company);
Chairman  and  Director  of Legg Mason  Funds  Management,  Inc.  (a  registered
investment   adviser),    Director   of   Environmental   Elements   Corporation
(manufacturer  of  pollution  control  equipment);  Officer  and/or  Director of
various other affiliates of Legg Mason.

         JOHN F. CURLEY, JR.* [7/24/39],  President and Director of Value Trust,
Total  Return  Trust and  Special  Investment  Trust;  Chairman of the Board and
Director of American Leading Companies,  Balanced Trust,  Small-Cap Value Trust,
and  Financial  Services  Fund;  President  and/or  Chairman  of the  Board  and
Director/Trustee  of all Legg Mason retail  funds.  Formerly:  Vice Chairman and
Director of Legg Mason, Inc. and Legg Mason Wood Walker,  Inc.; Director of Legg
Mason Fund Adviser, Inc. and Western Asset Management Company (each a registered
investment adviser); Officer and/or Director of various other affiliates of Legg
Mason, Inc.

         EDWARD A. TABER,  III*  [8/25/43],  President  and/or  Director of each
fund;  President and/or  Director/Trustee  of all Legg Mason retail funds except
Legg Mason Tax Exempt;  Senior Executive Vice President of Legg Mason,  Inc. and
Legg Mason Wood Walker,  Inc.; Chairman and Director of Legg Mason Fund Adviser,
Inc.; Director of Legg Mason Funds Management, Inc. and Western Asset Management
Company  (each  a  registered  investment  adviser).  Formerly:  Executive  Vice
President of T. Rowe Price-Fleming International,  Inc. (1986-1992) and Director
of the Taxable Income Division at T. Rowe Price Associates, Inc. (1973-1992).

         RICHARD G. GILMORE [6/9/27],  Director of each fund; 10310 Tamo Shanter
Place, Bradenton,  Florida. Independent Consultant.  Director of CSS Industries,
Inc.  (diversified  holding  company  whose  subsidiaries  are  engaged  in  the
manufacture and sale of decorative paper products, business forms, and specialty
metal  packaging);  Director/Trustee  of all Legg Mason retail funds.  Formerly:
Senior Vice  President,  Chief  Financial  Officer and Director of  Philadelphia
Electric  Company  (now  Exelon  Corporation);   Executive  Vice  President  and
Treasurer,  Girard Bank, and Vice President of its parent holding  company,  the
Girard Company; and Director of Finance, City of Philadelphia.

         ARNOLD L. LEHMAN [7/18/44], Director of each fund; 200 Eastern Parkway,
Brooklyn,  New York. Director,  Brooklyn Museum of Art;  Director/Trustee of all
Legg Mason retail funds. Formerly: Director, Baltimore Museum of Art.

         JILL E. McGOVERN  [8/29/44],  Director of each fund; 400 Seventh Street
NW, Washington, DC. Chief Executive Officer of The Marrow Foundation since 1993.
Director/Trustee of all Legg Mason retail funds. Formerly: Executive Director of
the Baltimore  International  Festival  (January 1991 - March 1993);  and Senior
Assistant to the President of The Johns Hopkins University (1986-1991).

         T. A. RODGERS  [10/22/34],  Director of each fund;  2901 Boston Street,
Baltimore,   Maryland.   Principal,  T.  A.  Rodgers  &  Associates  (management
consulting); Director/Trustee of all Legg Mason retail funds. Formerly: Director
and Vice President of Corporate  Development,  Polk Audio, Inc. (manufacturer of
audio components).

                                       48

<PAGE>

         G. PETER O'BRIEN [10/13/45], Director of each fund; 118 Riverside Road,
Riverside,  CT. Trustee of Colgate  University;  Director of Pinnacle  Holdings,
Inc.,  Director of Renaissance  Capital  Greenwich Funds; Vice President of Hill
House, Inc.;  Director/Trustee  of all Legg Mason retail funds except Legg Mason
Income Trust,  Inc.,  and Legg Mason Tax Exempt Trust,  Inc.  Retired:  Managing
Director/Equity Capital Markets Group of Merrill Lynch & Co. (1971-1999).

         NELSON A. DIAZ  [5/23/47],  Director  of each fund;  One Logan  Square,
Philadelphia,  PA. Partner,  Blank Rome Comisky, & McCauley LLP (law firm) since
1997.  Director/Trustee  of all Legg Mason retail funds except Legg Mason Income
Trust, Inc. and Legg Mason Tax Exempt Trust,  Inc.; Trustee of Temple University
and of  Philadelphia  Museum of Art.  Board member of U.S.  Hispanic  Leadership
Institute,  Democratic National Committee, and National Association for Hispanic
Elderly.  Formerly:  General  Counsel,  United States  Department of Housing and
Urban Development (1993 - 1997).

         The executive officers of the funds, other than those who also serve as
directors, are:

         MARIE K.  KARPINSKI*  [1/1/49],  Vice  President  and Treasurer of each
fund;  Vice  President  and  Treasurer  of Legg Mason Fund  Adviser  Inc.;  Vice
President and Treasurer of all Legg Mason retail funds.

         MARC R. DUFFY*  [1/29/58],  Vice  President and Secretary of each fund;
Employee of Legg Mason since  September 1999 and Vice President and Secretary of
all Legg Mason retail funds. Formerly: Senior Associate,  Kirkpatrick & Lockhart
LLP (1996-1999), Senior Counsel, Securities and Exchange Commission, Division of
Investment Management (1989-1995).

         The Nominating  Committee of the Board of Directors is responsible  for
the  selection  and  nomination  of  disinterested  directors.  The Committee is
composed of Messrs. Diaz, Gilmore, Lehman, Rodgers, O'Brien and Dr. McGovern.

         Officers and directors of a fund who are "interested  persons" thereof,
as  defined  in the 1940 Act,  receive  no  salary  or fees from the fund.  Each
Director  of a fund who is not an  interested  person of the fund  ("Independent
Directors")  receives  an annual  retainer  and a per  meeting  fee based on the
average net assets of each fund at December 31 of the previous year.

         On  January  2,  2001,   the   directors  and  officers  of  each  fund
beneficially  owned, in the aggregate,  less than 1% of each fund's  outstanding
shares.

         On January  2, 2001,  the  following  shareholders  owned of record and
beneficially  the  following  percentages  of  the  outstanding  shares  of  the
Institutional Classes of each fund:

Name and Address                    Fund Name                   % of Class Held
----------------                    ---------                   ---------------

Legg Mason Wood Walker INC          Special Investment Trust         76.67%
Deferred Comp Institutional
C/O Brian Becker LM Profit SH PL
PO Box 1476
Baltimore MD 21203-1476

Boston Safe Deposit and Trust       Special Investment Trust         17.71%
Company AS Trustee For
The TWA Pilots DAP/401K Plan
135 Santilli HWY #26-0320
Everett MA  02149-1906

                                       49

<PAGE>

Legg Mason Wood Walker INC          Total Return Trust               98.50%
Deferred Comp Institutional
C/O Brian Becker LM Profit SH PL
PO Box 1476
Baltimore MD 21203-1476

Fidelity Investments Inst Oper      Value Trust                      24.08%
FIIOC As Agent for Certain Ben PL
100 Magellan Way
Mail Zone KWIC
Covington KY  41015-1999

Chase Manhattan Bank                Value Trust                      17.66%
FBO ADP Retirement Plan
4 New York Plaza #2
New York NY  10004-2413

Legg Mason Wood Walker Inc          Value Trust                      15.95%
Deferred Comp Institutional
C/O Brian Becker LM Profit SH PL
PO Box 1476
Baltimore MD 21203-1476

PEBSCO                              Value Trust                       7.97%
Maryland 457 Plan
C/O IPO Portfolio Accounting
PO Box 182029
Columbus OH  43218-2029

Legg Mason Wood Walker IC           U.S. Small-Cap Value             88.58%
Deferred Comp Institutional
C/O Brian Becker LM Profit SH PL
PO Box 1476
Baltimore MD 21203-1476

Old Second National Bank            U.S. Small-Cap Value             11.42%
ATTN:  Trust Operations Division
37 S River Street
Aurora IL  60506-4172

         As of January 2, 2001, the following  shareholders  owned of record and
beneficially  the  following  percentages  of  the  outstanding  shares  of  the
Financial Services Fund Class A:

Name and Address                                                % of Class Held
----------------                                                ---------------

Neuberger Berman LLC                                                 59.88%
55 Water St FL 27
New York NY  10041-0001

KINCO & Co                                                            5.67%
C/O Republic National Bank
One Hanson PL Lower Level
Brooklyn NY 11243-2907

                                       50

<PAGE>

         The  following  table  provides  certain  information  relating  to the
compensation  of the funds'  directors for the fiscal year ended March 31, 2000.
None of the Legg Mason funds has any retirement plan for its directors.

COMPENSATION TABLE
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                                     Total
                                                                           Aggregate          Aggregate       Compensation
                                     Aggregate           Aggregate      Compensation       Compensation     From Each Fund
                                  Compensation   Compensation From      From Special     From Investors   and Fund Complex
             Name of Person  From Value Trust*        Total Return        Investment             Trust*            Paid to
               and Position                                 Trust*            Trust*                           Directors**
--------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                 <C>               <C>                <C>                <C>
Raymond A. Mason
Chairman of the Board and
Director                                None                None              None               None               None
--------------------------------------------------------------------------------------------------------------------------
John F. Curley, Jr.
President and Director                  None                None              None               None               None
--------------------------------------------------------------------------------------------------------------------------
Edward A. Taber, III
Director                                None                None              None               None               None
--------------------------------------------------------------------------------------------------------------------------
Richard G. Gilmore
Director                                $3,600              $2,400            $3,600             $4,950            $41,100
--------------------------------------------------------------------------------------------------------------------------
Arnold L. Lehman
Director                                $3,600              $2,400            $3,600             $4,950            $41,100
--------------------------------------------------------------------------------------------------------------------------
Jill E. McGovern
Director                                $3,600              $2,400            $3,600             $4,950            $41,100
--------------------------------------------------------------------------------------------------------------------------
T. A. Rodgers
Director                                $3,600              $2,400            $3,600             $4,950            $41,100
--------------------------------------------------------------------------------------------------------------------------
G. Peter O'Brien
Director***                             $2,700              $1,800            $2,700             $3,600            $15,000
--------------------------------------------------------------------------------------------------------------------------
Nelson A. Diaz
Director****                            None                None              None               None              None
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

*     Represents  fees paid to each director  during the fiscal year ended March
      31, 2000.
**    Represents  aggregate  compensation  paid  to  each  director  during  the
      calendar  year  ended  December  31,  1999.   There  are  twelve  open-end
      investment   companies  in  the  Legg  Mason  Complex  (with  a  total  of
      twenty-three funds).
***   Mr. O'Brien was appointed to the Board on November 11, 1999.
****  Mr. Diaz was appointed to the Board on February 10, 2000.

                      THE FUNDS' INVESTMENT ADVISER/MANAGER

         Legg Mason Funds Management,  Inc. ("LMFM"), a Maryland corporation, is
located at 100 Light Street,  Baltimore,  Maryland 21202. LMFM is a wholly owned
subsidiary  of Legg Mason,  Inc.,  which is also the parent of Legg Mason,  Legg
Mason  Capital  Management,  Inc.  ("LMCM")  and Legg Mason Fund  Adviser,  Inc.
("LMFA").  LMFM serves as manager and investment  adviser to Value Trust,  Total
Return Trust,  Special  Investment Trust and American Leading Companies pursuant
to separate Investment Advisory and Management  Agreements with each fund (each,
a "Management Agreement").

         LMFA,  a  Maryland  corporation,   is  located  at  100  Light  Street,
Baltimore,  Maryland 21202. LMFA serves as manager to Balanced Trust,  Small-Cap
Value Trust,  and Financial  Services Fund under  separate  Investment  Advisory
Agreements  with each fund  (each,  a  "Management  Agreement").  LMFA serves as
administrator to Value Trust,  Total Return Trust,  Special Investment Trust and
American  Leading  Companies  Trust  pursuant  to  separate   Sub-Administration
Agreements with LMFM (each, a "Sub-Administration Agreement").

                                       51

<PAGE>

         Each Management  Agreement  provides that, subject to overall direction
by the fund's Board of Directors,  LMFM/LMFA  manages or oversees the investment
and other affairs of each fund.  LMFM/LMFA is responsible for managing each fund
consistent with the fund's  investment  objective and policies  described in its
Prospectuses  and this  Statement of Additional  Information.  LMFM/LMFA also is
obligated  to (a) provide each fund with office  facilities  and  personnel  and
maintain the funds' books and records;  (b) supervise all aspects of each fund's
operations;  (c) bear the  expense of certain  informational  and  purchase  and
redemption services to each fund's  shareholders;  (d) arrange, but not pay for,
the periodic updating of prospectuses,  proxy material,  tax returns and reports
to  shareholders  and state and  federal  regulatory  agencies;  and (e)  report
regularly to each fund's officers and directors. In addition, LMFM has agreed to
reduce advisory fees for Value Trust and Special  Investment  Trust in an amount
equal to  those  funds'  auditing  fees and  compensation  of their  independent
directors.  LMFM/LMFA and its affiliates pay all  compensation  of directors and
officers of each fund who are  officers,  directors or  employees of  LMFM/LMFA.
Each fund pays all of its expenses which are not expressly assumed by LMFM/LMFA.
These expenses include,  among others,  interest expense,  taxes, brokerage fees
and  commissions,   expenses  of  preparing  and  printing  prospectuses,  proxy
statements  and reports to  shareholders  and of  distributing  them to existing
shareholders, custodian charges, transfer agency fees, distribution fees to Legg
Mason, each fund's distributor, compensation of the independent directors, legal
and   audit   expenses,   insurance   expense,   shareholder   meetings,   proxy
solicitations, expenses of registering and qualifying fund shares for sale under
federal and state law,  governmental  fees and expenses  incurred in  connection
with membership in investment  company  organizations.  Each fund also is liable
for such nonrecurring  expenses as may arise,  including litigation to which the
fund may be a party.  Each fund may also have an  obligation  to  indemnify  its
directors and officers with respect to litigation.

         LMFM  receives  for its services to Value  Trust,  Total Return  Trust,
Special  Investment  Trust and  American  Leading  Companies a  management  fee,
calculated daily and payable monthly.

                                                     Fee Rate
                                                     --------

Value Trust                             1.00%  up to  $100  million  of  average
                                        daily net  assets;  0.75%  between  $100
                                        million and $1 billion of average  daily
                                        net assets;  and 0.65% of average  daily
                                        net assets exceeding $1 billion

Special Investment Trust                1.00%  up to  $100  million  of  average
                                        daily net  assets;  0.75%  between  $100
                                        million and $1 billion of average  daily
                                        net assets;  and 0.65% of average  daily
                                        net assets exceeding $1 billion

Total Return Trust                      0.75% up to $1 billion of average  daily
                                        net assets;  and 0.65% of average  daily
                                        net assets exceeding $1 billion


American Leading Companies              0.75% up to $1 billion of average  daily
                                        net assets;  and 0.65% of average  daily
                                        net assets exceeding $1 billion

         LMFM has agreed to waive its fees for Total  Return  Trust and American
Leading  Companies,  for expenses related to Primary Class shares  (exclusive of
taxes,  interest,  brokerage  and  extraordinary  expenses)  in  excess  of  the
following amounts for the noted periods:

                                       Expense Cap             Expiration Date
                                       -----------             ---------------

Total Return Trust                           1.95%                  Indefinite
American Leading Companies                   1.95%                  Indefinite

                                       52

<PAGE>

         LMFM has agreed to waive its fees for Total  Return  Trust and American
Leading  Companies Trust,  for expenses  related to  Institutional  Class shares
(exclusive of taxes, interest,  brokerage and extraordinary  expenses) in excess
of the following amounts:

                                       Expense Cap             Expiration Date
                                       -----------             ---------------

Total Return Trust                           0.95%                  Indefinite
American Leading Companies                   0.95%                  Indefinite

         LMFM has agreed to waive its fees for Total  Return  Trust for expenses
related to Financial  Intermediary  Class shares (exclusive of taxes,  interest,
brokerage and extraordinary expenses) in excess of the following amounts:

                                       Expense Cap             Expiration Date
                                       -----------             ---------------

Total Return Trust                           1.20%                  Indefinite

         LMFA receives for its services to Balanced Trust, Small-Cap Value Trust
and  Financial  Services  Fund a management  fee,  calculated  daily and payable
monthly.

                                                    Fee Rate
                                                    --------

Balanced Trust                          0.75% of average  daily net assets 0.85%
Small-Cap Value Trust                   up to $100 million of average  daily net
                                        assets;  0.75%  between $100 million and
                                        $1 billion of average  daily net assets;
                                        and 0.65% of  average  daily net  assets
                                        exceeding $1 billion

Financial Services Fund                 1.00%  up to  $100  million  of  average
                                        daily net  assets;  0.75%  between  $100
                                        million and $1 billion of average  daily
                                        net assets;  and 0.65% of average  daily
                                        net assets exceeding $1 billion

         LMFA has agreed to waive its fees for Balanced  Trust,  Small-Cap Value
Trust and Financial  Services Fund for expenses  related to Primary Class shares
and Class A shares of Financial  Services Fund  (exclusive  of taxes,  interest,
brokerage and extraordinary expenses) in excess of the following amounts for the
noted periods:

                                       Expense Cap             Expiration Date
                                       -----------             ---------------

Balanced Trust                               1.85%              August 1, 2001
Small-Cap Value Trust                        2.00%              August 1, 2001
Financial Services Fund
     Primary Class                           2.25%              August 1, 2001
     Class A                                 1.50%              August 1, 2001

         LMFA has agreed to waive its fees for Balanced  Trust,  Small-Cap Value
Trust and Financial  Services Fund for expenses related to  Institutional  Class
shares and Financial  Intermediary  Class shares of Balanced Trust (exclusive of
taxes,  interest,  brokerage  and  extraordinary  expenses)  in  excess  of  the
following amounts:

                                       Expense Cap             Expiration Date
                                       -----------             ---------------

Balanced Trust
     Institutional Class                     1.10%              August 1, 2001
     Financial Intermediary Class            1.35%              August 1, 2001
Small-Cap Value Trust                        1.00%              August 1, 2001
Financial Services Fund                      1.25%              August 1, 2001

                                       53

<PAGE>

         Prior to August 1, 2000, LMFA served as manager and investment  adviser
to Value  Trust,  Total  Return  Trust,  Special  Investment  Trust and American
Leading Companies under compensation arrangements identical to those with LMFM.

         For the fiscal  years ended March 31, the funds paid  advisory  fees to
LMFA of (prior to fees waived):

                                2000             1999              1998

Value Trust                     $80,416,828      $45,014,441       $24,282,523
Total Return Trust              $3,969,946       $4,952,596        $4,031,818
Special Investment Trust        $16,299,473      $11,608,871       $9,875,632
American Leading Companies      $2,385,889       $1,655,396        $1,190,729
Balanced Trust                  $355,804         $419,683          $215,415
Small-Cap Value Trust           $606,718         $329,973*         N/A

* For the period June 15, 1998  (commencement  of operations)  through March 31,
1999.

         For the fiscal years ended March 31, the  following  advisory fees were
waived by LMFA:

                                2000             1999              1998

American Leading Companies      --               --                $69,496
Balanced Trust                  $14,212          $25,964           $83,278
Small-Cap Value Trust           $242,349         $147,480*         --

* For the period June 15, 1998  (commencement  of operations)  through March 31,
1999.

         Pursuant to  Sub-Administration  Agreements between LMFM and LMFA, LMFA
agrees,  among other things, to provide Value Trust, Total Return Trust, Special
Investment  Trust,  and American  Leading  Companies with office  facilities and
personnel,  maintain the funds' books and records and supply the  directors  and
officers of the funds with  statistical  reports and  information  regarding the
funds. For LMFA's services to the funds, LMFM, not the funds, pays LMFA 0.05% of
each fund's average daily net assets.

         From November 16, 1998 (commencement of operations)  through October 5,
1999,  Bartlett served as manager to Financial  Services Fund under compensation
arrangements  substantially  similar to those with LMFA. For the periods January
1, 1999 to October 5, 1999 and November 16, 1998 to December 31, 1998,  the fund
paid  Bartlett  advisory  fees in the amount of $139,411  and  $17,081.  For the
periods  October 6, 1999 to  December  31, 1999 and January 1, 2000 to March 31,
2000, the fund paid LMFA  management  fees in the amount of $75,300 and $50,387,
respectively.

         Gray,  Seifert,  380  Madison  Avenue,  New York,  New York,  serves as
investment sub-adviser to Financial Services Fund under a Sub-Advisory Agreement
between Gray,  Seifert and LMFA  ("Sub-Advisory  Agreement").  From November 16,
1998 (commencement of operations)  through October 5, 1999, Gray, Seifert served
as  sub-adviser  to the fund  under  arrangements  with  Bartlett  substantially
similar to those with LMFA.

         Gray,  Seifert  is  responsible  for  providing  investment  advice  to
Financial  Services  Fund  in  accordance  with  its  investment  objective  and
policies,  and for placing  orders to  purchase  and sell  portfolio  securities
pursuant to directions from the fund's officers. For Gray, Seifert's services to
Financial  Services Fund, LMFA (not the fund) pays Gray,  Seifert a fee equal to
60% of the fee it receives from the fund under the Management Agreement. For the
periods  January 1, 1999 to October 5, 1999 and November 16, 1998  (commencement
of operations) to December 31, 1998,  Bartlett paid $83,647 and $10,249 to Gray,

                                       54

<PAGE>

Seifert.  For the periods  October 6, 1999 to  December  31, 1999 and January 1,
2000 to March 31, 2000,  LMFA paid $45,180 and $30,232 to Gray,  Seifert for its
services to the fund.

         Bartlett, 36 East Fourth Street,  Cincinnati,  Ohio 45202, an affiliate
of Legg Mason,  serves as investment  adviser to Balanced  Trust  pursuant to an
Investment   Advisory   Agreement  between  Bartlett  and  LMFA   ("Sub-Advisory
Agreement").  Under the Advisory Agreement, Bartlett is responsible,  subject to
the general  supervision  of the Manager and the fund's Board of Directors,  for
the actual management of the fund's assets,  including responsibility for making
decisions  and placing  orders to buy, sell or hold a particular  security.  For
Bartlett's  services  to the  fund,  LMFA (not the fund)  pays  Bartlett  a fee,
computed  daily and payable  monthly,  at an annual rate equal to 66 2/3% of the
fee received by LMFM from the fund,  net of any waivers by LMFA.  For the fiscal
years ended March 31, 2000, 1999, and 1998, Bartlett received $227,716, $262,479
and $88,092, respectively, in advisory fees on behalf of Balanced Trust.

         Brandywine  Asset  Management,  Inc.  ("Brandywine"),  201 North Walnut
Street,  Wilmington,  Delaware, an affiliate of Legg Mason, serves as investment
adviser to Small-Cap  Value Trust pursuant to an Investment  Advisory  Agreement
between  Brandywine  and LMFA  ("Sub-Advisory  Agreement").  Under the  Advisory
Agreement, Brandywine is responsible, subject to the general supervision of LMFA
and  Investors  Trust's  Board of  Directors,  for the actual  management of the
fund's assets,  including responsibility for making decisions and placing orders
to buy, sell or hold a particular  security.  For  Brandywine's  services to the
fund,  LMFA (not the fund) pays  Brandywine  a fee,  computed  daily and payable
monthly, at an annual rate equal to 0.50% of the fund's average daily net assets
or 58.8% of the fee received by LMFA from the fund,  net of any waivers by LMFA.
For the fiscal  year ended March 31,  2000,  and for the period June 15, 1998 to
March 31, 1999,  Brandywine  received  $214,249 and $107,306 in advisory fees on
behalf of Small-Cap Value Trust.

         LMCM  previously  served as  investment  adviser  to  American  Leading
Companies  pursuant to an Investment  Advisory  Agreement between LMCM and LMFA.
During the fiscal  years ended March 31, 1999 and 1998 and LMCM  received  $0.00
and $610,704, respectively, for such services.

         Under each Management  Agreement or Sub-Advisory  Agreement,  each fund
has the non-exclusive right to use the name "Legg Mason" until that Agreement is
terminated,  or until the right is  withdrawn  in  writing  by LMFM or LMFA,  as
appropriate.

         Under  each  Management  Agreement,  Sub-Administration  Agreement  and
Sub-Advisory Agreement, LMFM/LMFA/Bartlett/Brandywine/Gray,  Seifert will not be
liable for any error of  judgment or mistake of law or for any loss by a fund in
connection with the performance of the Agreement, except a loss resulting from a
breach of  fiduciary  duty with  respect  to the  receipt  of  compensation  for
services  or a loss  resulting  from  willful  misfeasance,  bad  faith or gross
negligence  on its  part in the  performance  of its  duties  or  from  reckless
disregard of its obligations or duties under the respective Agreement.

         Each  Management   Agreement  and  Sub-Advisory   Agreement  terminates
automatically  upon  assignment and is terminable at any time without penalty by
vote of the respective  fund's Board of Directors,  by vote of a majority of the
fund's outstanding voting securities, or by  LMFA/LMFM/Bartlett/Brandywine/Gray,
Seifert,  on not less than 60 days' notice to the other party to the  Agreement,
and may be terminated immediately upon the mutual written consent of all parties
to the  Agreement.  Each  Sub-Advisory  Agreement  terminates  immediately  upon
termination of the associated Management Agreement.

         The funds,  LMFM,  LMFA, Legg Mason,  Brandywine,  Bartlett,  and Gray,
Seifert  each has  adopted a code of ethics  under  Rule  17j-1 of the 1940 Act,
which permits  personnel covered by the code to invest in securities that may be
purchased or held by a fund, but prohibits fraudulent, deceptive or manipulative
conduct in connection with that personal investing.

                                       55

<PAGE>

                      PORTFOLIO TRANSACTIONS AND BROKERAGE

         The  portfolio  turnover  rate is computed  by  dividing  the lesser of
purchases  or  sales  of  securities  for the  period  by the  average  value of
portfolio  securities for that period.  Short-term  securities are excluded from
the  calculation.  For the  fiscal  years  ended  March 31,  2000 and 1999,  the
portfolio turnover rates for Value Trust were 19.7% and 19.3%, respectively; the
portfolio   turnover  rates  for  Total  Return  Trust  were  85.4%  and  44.2%,
respectively;  the portfolio  turnover rates for Special  Investment  Trust were
29.3% and 47.8%, respectively; the portfolio turnover rates for American Leading
Companies were 43.5% and 47.6%,  respectively;  and the portfolio turnover rates
for Balanced Trust were 58.0% and 50.0%, respectively. For the fiscal year ended
March 31, 2000 and for the period June 15, 1998  (commencement of operations) to
March 31, 1999, the portfolio  turnover rate for Small Cap Value Trust was 66.2%
and 29.5%  (annualized).  For the fiscal  year ended  December  31, 1999 and the
period November 16, 1998  (commencement of operations) to December 31, 1998, the
portfolio   turnover  rate  for  Financial   Services  Fund  was  27.1%  and  0%
(annualized).  For the period  January 1, 2000 to March 31, 2000,  the portfolio
turnover rate for Financial Services Fund was 60.9% (annualized).

         Under the Advisory  Agreement  with each fund,  each fund's  adviser is
responsible for the execution of the fund's  portfolio  transactions.  Corporate
and government debt securities are generally traded on the OTC market on a "net"
basis without a stated commission,  through dealers acting for their own account
and not as brokers.  Prices paid to a dealer in debt  securities  will generally
include  a  "spread,"  which is the  difference  between  the price at which the
dealer is willing to purchase  and sell the specific  security at the time,  and
includes the dealer's normal profit. Some portfolio transactions may be executed
through brokers acting as agent. In selecting  brokers or dealers,  each adviser
must seek the most favorable  price  (including the applicable  dealer spread or
brokerage  commission)  and  execution  for such  transactions,  subject  to the
possible payment as described below of higher  brokerage  commissions or spreads
to broker-dealers  who provide research and analysis.  A fund may not always pay
the lowest commission or spread  available.  Rather, in placing orders on behalf
of a fund,  each  adviser  also takes into  account  such factors as size of the
order, difficulty of execution,  efficiency of the executing broker's facilities
(including the services  described below), and any risk assumed by the executing
broker.

         Consistent with the policy of most favorable price and execution,  each
adviser may give  consideration  to  research,  statistical  and other  services
furnished  by brokers or dealers to that  adviser for its use,  may place orders
with  brokers  who  provide  supplemental  investment  and market  research  and
securities  and  economic  analysis,  and  may pay to  these  brokers  a  higher
brokerage  commission  than may be  charged  by  other  brokers.  Such  services
include,  without  limitation,  advice  as  to  the  value  of  securities;  the
advisability of investing in, purchasing,  or selling  securities;  advice as to
the  availability  of securities or of purchasers or sellers of securities;  and
furnishing  analyses and reports  concerning  issuers,  industries,  securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Such  research and analysis may be useful to each fund's  adviser in  connection
with  services  to clients  other than the fund whose  brokerage  generated  the
service.  On the other hand,  research and analysis received by the adviser from
broker-dealers executing orders for clients other than the funds may be used for
the funds' benefit.  The adviser's fee is not reduced by reason of its receiving
such brokerage and research services.

         From  time to time each fund may use Legg  Mason as broker  for  agency
transactions in listed and  over-the-counter  securities at commission rates and
under  circumstances  consistent with the policy of best execution.  Commissions
paid to Legg Mason will not exceed "usual and customary brokerage  commissions."
Rule 17e-1  under the 1940 Act  defines  "usual and  customary"  commissions  to
include amounts which are  "reasonable and fair compared to the commission,  fee
or other  remuneration  received by other brokers in connection  with comparable
transactions   involving  similar  securities  being  purchased  or  sold  on  a
securities exchange during a comparable period of time." In the over-the-counter
market, each fund generally deals with responsible primary  market-makers unless
a more favorable execution can otherwise be obtained.

                                       56

<PAGE>

         For the fiscal years ended March 31, 2000,  1999, and 1998,  Legg Mason
received brokerage commissions of $5,000,  $59,620, and $3,120 from Value Trust,
$0, $0, and $1,134  from Total  Return  Trust,  and  $22,362,  $0, and $0,  from
Special  Investment  Trust.  Value  Trust paid total  brokerage  commissions  of
$8,688,617,  $5,503,410, and $1,360,133, Total Return Trust paid total brokerage
commissions  of $1,734,491,  $1,024,770,  and $477,779,  and Special  Investment
Trust  paid  total  brokerage   commissions  of  $3,569,516,   $2,824,033,   and
$1,333,903,  during the fiscal years ended March 31, 2000,  1999,  and 1998. The
amounts paid by the funds to Legg Mason in brokerage  commissions for their most
recent fiscal year represent (1) for Value Trust,  0.06% of the total  brokerage
commissions  paid  and  0.0009%  of the  total  dollar  amount  of  transactions
involving the payment of brokerage  commissions;  (2) for Total Return Trust, 0%
of the total  brokerage  commissions  paid and 0% of the total dollar  amount of
transactions involving the payment of brokerage commissions; and (3) for Special
Investment Trust, 0.63% of the total brokerage commissions paid and 0.58% of the
total  dollar  amount  of  transactions   involving  the  payment  of  brokerage
commissions.

         For the fiscal years ended March 31,  2000,  1999,  and 1998,  American
Leading Companies paid total brokerage  commissions of $470,721,  $329,996,  and
$203,625,  respectively.  Legg Mason  received  no  brokerage  commissions  from
American Leading Companies for the same periods.

         For the fiscal years ended March 31,  2000,  1999,  and 1998,  Balanced
Trust  paid  total  brokerage  commissions  of  $35,450,  $64,034  and  $34,738,
respectively.  Legg Mason received no brokerage  commissions from Balanced Trust
for the same periods.

         For the fiscal  year ended  March 31,  2000 and for the period June 15,
1998 (commencement of operations) to March 31, 1999,  Small-Cap Value Trust paid
total  brokerage  commissions  of $313,051 and $295,140.  Legg Mason received no
brokerage commissions from Small-Cap Value Trust for that same period.

         For the period January 1, 2000 to March 31, 2000, the fiscal year ended
December 31, 1999,  and the fiscal  period  November 16, 1998  (commencement  of
operations) to December 31, 1998,  Financial  Services Fund paid total brokerage
commissions of $27,993,  $44,923, and $20,148.  Legg Mason received no brokerage
commission from Financial Services Fund for that period.

         Except  as  permitted  by SEC  rules or  orders,  each fund may not buy
securities from, or sell securities to, Legg Mason or its affiliated  persons as
principal.  Each fund's Board of Directors has adopted  procedures in conformity
with Rule 10f-3 under the 1940 Act whereby the fund may purchase securities that
are  offered  in  certain  underwritings  in  which  Legg  Mason  or  any of its
affiliated persons is a participant. These procedures, among other things, limit
each fund's  investment  in the amount of  securities of any class of securities
offered in an underwriting in which Legg Mason or any of its affiliated  persons
is a participant  so that a fund together with all other  registered  investment
companies  having  the  same  adviser  may not  purchase  more  than  25% of the
principal  amount of the  offering of such class.  In  addition,  a fund may not
purchase securities during the existence of an underwriting if Legg Mason is the
sole underwriter for those securities.

         Section 11(a) of the  Securities  Exchange Act of 1934  prohibits  Legg
Mason from receiving  compensation for executing transactions on an exchange for
its affiliates,  such as the funds,  unless the affiliate  expressly consents by
written  contract.  Each  fund's  Advisory  Agreement  expressly  provides  such
consent.

         Of the broker-dealers regularly used by each respective fund during the
fiscal year ended March 31, 2000,  Financial  Services  Fund,  American  Leading
Companies,  Value Trust and Total  Return Trust at that date owned shares of the
following broker-dealers or parent companies of broker-dealers:

                                       57

<PAGE>

Financial Services Fund

Name                                                              Market Value
-------------------------------------------------------------------------------
A.G. Edwards                                                          $400,000
Lehman Brothers                                                        291,000
Merrill Lynch & Co                                                     630,000
Morgan Stanley                                                         407,813
Neuberger Berman                                                       366,437
Wachovia Securities, Inc                                               405,375


American Leading Companies Trust

Name                                                              Market Value
-------------------------------------------------------------------------------
Bank of America                                                     $5,191,313


Value Trust

Name                                                              Market Value
-------------------------------------------------------------------------------
Bank of America                                                   $209,750,000
Bear Stearns                                                       150,904,688



Total Return Trust

Name                                                              Market Value
-------------------------------------------------------------------------------
Bank of America                                                     $3,932,813
Bear Stearns                                                         1,838,231


         Special  Investment  Trust,  Balanced Trust,  and Small-Cap Value Trust
held no shares of their regular broker-dealers as of March 31, 2000.

         Investment decisions for each fund are made independently from those of
other funds and accounts  advised by LMFA, LMFM,  Bartlett,  Brandywine or Gray,
Seifert.  However,  the same security may be held in the portfolios of more than
one fund or  account.  When two or more  accounts  simultaneously  engage in the
purchase or sale of the same security,  the prices and amounts will be equitably
allocated to each account.  In some cases,  this procedure may adversely  affect
the price or quantity of the  security  available to a  particular  account.  In
other  cases,  however,  an account's  ability to  participate  in  large-volume
transactions may produce better executions and prices.

                             THE FUNDS' DISTRIBUTOR

         Legg  Mason acts as  distributor  of the funds'  shares  pursuant  to a
separate  Underwriting  Agreement with each fund.  Each  Underwriting  Agreement
obligates  Legg Mason to  promote  the sale of fund  shares  and to pay  certain
expenses in connection with its distribution efforts, including expenses for the
printing  and   distribution  of  prospectuses  and  periodic  reports  used  in
connection with the offering to prospective  investors  (after the  prospectuses
and reports have been prepared,  set in type and mailed to existing shareholders
at each fund's expense),  and for supplementary sales literature and advertising
costs.

                                       58

<PAGE>

         Under  each  Underwriting  Agreement,  each fund has the  non-exclusive
right to use the name "Legg Mason" until that agreement is terminated,  or until
the right is withdrawn in writing by Legg Mason.

         Each fund has  adopted a  Distribution  Plan for Primary  Class  shares
("Primary Class Plans"), Financial Services Fund has also adopted a Distribution
Plan for Class A shares  ("Class A Plan") and Value Trust,  Total Return  Trust,
Special  Investment  Trust and Balanced  Trust have each adopted a  Distribution
Plan for Financial  Intermediary  Class shares  ("Financial  Intermediary  Class
Plans"),  each of which,  among other  things,  permits a fund to pay Legg Mason
fees for its services related to sales and distribution of Primary Class shares,
Class A shares or  Financial  Intermediary  Class  shares and the  provision  of
ongoing  services to holders of those  shares.  Payments with respect to a class
are made only from assets  attributable  to that class.  Under the Primary Class
Plans,  the aggregate  fees may not exceed an annual rate of each fund's average
daily net assets  attributable  to Primary  Class  shares as follows:  1.00% for
Total Return  Trust,  Special  Investment  Trust,  American  Leading  Companies,
Small-Cap Value Trust and Financial  Services Fund, 0.75% for Balanced Trust and
0.95% for Value Trust. Under the Class A Plan, the aggregate fees may not exceed
an annual rate of 0.25% of Financial  Services  Fund's  average daily net assets
attributable to Class A shares.  Under the Financial  Intermediary  Class Plans,
the aggregate  fees may not exceed an annual rate of 0.40% of each funds average
daily net assets attributable to Financial Intermediary Class shares. Currently,
under each Financial Intermediary Class Plan, Legg Mason receives 0.25% annually
from each fund.  Distribution  activities  for which such  payments  may be made
include,  but are not  limited  to,  compensation  to  persons  who engage in or
support  distribution  and redemption of shares,  printing of  prospectuses  and
reports for persons other than existing shareholders,  advertising,  preparation
and distribution of sales literature,  overhead,  travel and telephone expenses,
all with respect to the respective class of shares only.

         With  respect to Primary  Class  and/or  Financial  Intermediary  Class
shares,  LMFA and LMFM have agreed to waive their fees for Total  Return  Trust,
American  Leading  Companies,  Balanced  Trust  and  Small-Cap  Value  Trust  as
described under "The Funds' Investment Adviser/Manager."

         The Plans were each  adopted,  as required by Rule 12b-1 under the 1940
Act, by a vote of the Board of Directors  of each  respective  fund  including a
majority of the directors who are not "interested  persons" of each fund as that
term is  defined  in the 1940 Act and who have no direct or  indirect  financial
interest in the  operation  of any Plan or any  Underwriting  Agreement  ("12b-1
Directors").  In approving the  establishment  or  continuation of each Plan, in
accordance with the  requirements of Rule 12b-1,  the directors  determined that
there was a reasonable  likelihood  that each Plan would benefit the  respective
fund, class and its shareholders.  The directors considered, among other things,
the extent to which the  potential  benefits  of the Plan to the fund's  Primary
Class,  Financial  Intermediary  Class or Class A  shareholders,  as applicable,
could offset the costs of the Plan; the  likelihood  that the Plan would succeed
in  producing  such  potential   benefits;   the  merits  of  certain   possible
alternatives  to the Plan;  and the extent to which the  retention of assets and
additional  sales of the fund's  Primary  Class shares,  Financial  Intermediary
Class shares and Class A shares,  as applicable,  would be likely to maintain or
increase the amount of compensation paid by that fund to the adviser.

         In considering  the costs of each Plan,  the directors gave  particular
attention  to the fact that any  payments  made by a fund to Legg Mason  under a
Plan would increase the fund's level of expenses in the amount of such payments.
Further, the directors recognized that the adviser would earn greater management
fees if a fund's assets were  increased,  because such fees are  calculated as a
percentage  of a fund's assets and thus would  increase if net assets  increase.
The directors further  recognized that there can be no assurance that any of the
potential   benefits  described  below  would  be  achieved  if  each  Plan  was
implemented.

         Among the potential benefits of the Plans, the directors noted that the
payment  of  commissions  and  service  fees to Legg  Mason  and its  investment
executives  could  motivate  them to improve their sales efforts with respect to
each fund's Primary Class shares,  Financial Intermediary Class shares and Class
A shares, as applicable,  and to maintain and enhance the level of services they
provide to a fund's  respective class of shareholders.  These efforts,  in turn,

                                       59

<PAGE>

could lead to increased  sales and reduced  redemptions,  eventually  enabling a
fund to achieve economies of scale and lower per share operating  expenses.  Any
reduction  in such  expenses  would  serve to  offset,  at  least  in part,  the
additional expenses incurred by a fund in connection with its Plan. Furthermore,
the  investment  management of a fund could be enhanced,  as net inflows of cash
from  new  sales  might  enable  its  portfolio  manager  to take  advantage  of
attractive investment opportunities, and reduced redemptions could eliminate the
potential need to liquidate  attractive  securities  positions in order to raise
the funds necessary to meet the redemption requests.

         Each Plan will  continue  in effect  only so long as it is  approved at
least annually by the vote of a majority of the Board of Directors,  including a
majority  of the 12b-1  Directors,  cast in person at a meeting  called  for the
purpose of voting on that Plan. A Plan may be terminated by a vote of a majority
of the 12b-1  Directors  or by a vote of a majority  of the  outstanding  voting
securities of the applicable class of that fund. Any change in a Plan that would
materially  increase the distribution  costs to a fund requires  approval by the
shareholders  of the  applicable  class  of the  fund;  otherwise  a Plan may be
amended by the  directors,  including  a  majority  of the 12b-1  Directors,  as
previously described.

         Rule  12b-1   requires  that  any  person   authorized  to  direct  the
disposition  of monies  paid or  payable  by a fund,  pursuant  to a Plan or any
related  agreement  shall provide to that fund's Board,  and the directors shall
review, at least quarterly,  a written report of the amounts so expended and the
purposes for which the  expenditures  were made. Rule 12b-1 also provides that a
fund may rely on that Rule only if,  while a Plan is in effect,  the  nomination
and  selection  of  that  fund's  independent  directors  is  committed  to  the
discretion of such independent directors.


         As compensation for its services and expenses,  in accordance with each
Primary Class Plan,  Legg Mason  receives from each fund an annual  distribution
fee  equivalent  to a  percentage  of the  fund's  average  daily net  assets as
follows:  0.70% for Value Trust;  0.75% for Special  Investment Trust; 0.75% for
Total Return Trust;  0.75% for American  Leading  Companies;  0.50% for Balanced
Trust;  0.75% for Small Cap  Value;  and 0.75% for  Financial  Services,  and an
annual  service  fee  equivalent  to  0.25%  of its  average  daily  net  assets
attributable  to  Primary  Class  shares.  In  accordance  with  each  Financial
Intermediary  Class Plan, as  compensation  for its services and expenses,  Legg
Mason receives from Value Trust,  Special  Investment Trust, Total Return Trust,
and Balanced Trust an annual distribution fee equivalent to 0.15% of each fund's
average daily net assets,  and an annual service fee equivalent to 0.25% of each
fund's average daily net assets  attributable  to Financial  Intermediary  Class
shares. The boards of these funds have currently approved payment of 0.25% under
the plans.  For Legg Mason's  services in connection  with Class A shares,  Legg
Mason receives from Financial  Services Fund an annual service fee equivalent to
0.25% of its  average  daily  net  assets  attributable  to  Class A  shares  in
accordance  with  the  Class A Plan.  All  distribution  and  service  fees  are
calculated daily and paid monthly.

         For the years  ended  March 31, the funds paid Legg Mason  distribution
and service fees with respect to Primary Class shares of:

                                2000               1999             1998

Value Trust                     $106,509,822       $60,265,880      $32,477,903
Total Return Trust                $5,143,151        $6,436,510       $5,232,873
Special Investment Trust         $22,163,544       $15,329,259      $12,733,789
American Leading Companies        $3,181,185        $2,206,663       $1,587,015
Balanced Trust                      $355,812          $419,683         $215,415
Small-Cap Value Trust               $713,274         $387,871*              N/A

* For the period between June 15, 1998  (commencement  of operations)  and March
31, 1999.

         From November 16, 1998 (commencement of operations) to October 5, 1999,
LM Financial Partners, Inc. ("LMFP") served as distributor of Financial Services
Fund's  Class  A  and  Primary  Class  shares  under   arrangements   with  LMFP
substantially  similar to those with Legg Mason. For the periods January 1, 1999
to October  5, 1999 and  November  16,  1998 to  December  31,  1998,  Financial

                                       60

<PAGE>

Services Fund paid LMFP $9,779 and $1,785 in  distribution  and/or  service fees
under the Class A Plan, from assets attributable to Class A shares; and $181,012
and  $12,955  in  service  fees  under  the  Primary  Class  Plan,  from  assets
attributable to Primary Class shares,  respectively.  For the periods October 6,
1999 to  December  31,  1999 and  January 1, 2000 to March 31,  2000,  Financial
Services  Fund paid Legg Mason $6,193 and $5,350 in service fees under the Class
A Plan, from assets  attributable to Class A shares;  and $74,074 and $66,809 in
distribution  and/or  service  fees under the Primary  Class  Plan,  from assets
attributable to Primary Class shares.

         For the fiscal  year ended  March 31,  2000,  Legg Mason  incurred  the
following expenses in connection with distribution and shareholder  services for
each of the following funds:

<TABLE>
<CAPTION>

                                                                     Special      American
                                                       Total      Investment       Leading    Balanced      Small-Cap
                                   Value Trust  Return Trust           Trust     Companies       Trust    Value Trust
                               --------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>            <C>           <C>            <C>
Compensation to sales
personnel                          $60,471,631    $2,566,884     $12,370,592    $1,633,913    $179,532       $370,532

Advertising                          3,340,513       509,689         915,344       368,033     347,293        509,689

Printing and mailing of
prospectuses to prospective
shareholders
                                     1,253,925       188,665         358,793       116,131     109,988        175,469

Other                               35,305,000     1,915,000       5,854,000     1,233,000     256,000        649,000
                               --------------------------------------------------------------------------------------
Total expenses                    $100,371,069    $5,180,238     $19,498,729    $3,351,077    $892,813     $1,704,690
                               ======================================================================================
</TABLE>


         For the period  January 1, 1999 to October 5, 1999,  LMFP  incurred the
following  expenses  with respect to Primary  Class shares and Class A shares of
Financial Services Fund:
<TABLE>
<CAPTION>

                                                          Primary Class Shares                         Class A Shares
                                         ----------------------------------------------------------------------------
<S>                                                                   <C>                                     <C>
Compensation to sales personnel                                       $157,681                                $31,631

Advertising                                                             54,235                                 20,535

Printing and mailing of prospectuses
to prospective shareholders                                              8,413                                  3,185

Other                                                                   20,271                                  7,675
                                         ----------------------------------------------------------------------------
Total expenses                                                        $240,600                                $63,026
                                         ============================================================================
</TABLE>

                                       61

<PAGE>

         For the  period  October  6, 1999 to  December  31,  1999,  Legg  Mason
incurred the following expenses with respect to Primary Class shares and Class A
shares of Financial Services Fund:
<TABLE>
<CAPTION>

                                                          Primary Class Shares                         Class A Shares
                                         ----------------------------------------------------------------------------
<S>                                                                    <C>                                     <C>
Compensation to sales personnel                                        $49,347                                 $9,900

Advertising                                                             16,973                                  6,426

Printing and mailing of prospectuses
to prospective shareholders                                              2,633                                    997

Other                                                                    6,343                                  2,402
                                         ----------------------------------------------------------------------------
Total expenses                                                         $75,296                                $19,725
                                         ============================================================================
</TABLE>

         For the period  January 1, 2000 to March 31, 2000,  Legg Mason incurred
the  following  expenses with respect to Primary Class shares and Class A shares
of Financial Services Fund:
<TABLE>
<CAPTION>

                                                          Primary Class Shares                         Class A Shares
                                         ----------------------------------------------------------------------------
<S>                                                                    <C>                                     <C>
Compensation to sales personnel                                        $42,031                                 $3,366

Advertising                                                              9,467                                    758

Printing and mailing of prospectuses
to prospective shareholders                                              2,987                                    239

Other                                                                   42,000                                  3,000
                                         ----------------------------------------------------------------------------
Total expenses                                                         $96,485                                 $7,363
                                         ============================================================================
</TABLE>

         The  foregoing  are  estimated  and do not include all expenses  fairly
allocable to LMFP's,  Legg Mason's or their  affiliates'  efforts to  distribute
Primary Class shares, Financial Intermediary Class shares or Class A shares.

                                       62

<PAGE>

                            CAPITAL STOCK INFORMATION

         Value  Trust has  authorized  capital of 600  million  shares of common
stock, par value $0.001 per share.  Total Return Trust has authorized capital of
200  million  shares of  common  stock,  par value  $0.001  per  share.  Special
Investment  Trust has authorized  capital of 250 million shares of common stock,
par value $0.001 per share.  The Articles of  Incorporation  of Investors  Trust
authorize  issuance  of 500  million  shares  of par  value  $.001  per share of
American Leading  Companies,  625 million shares of par value $.001 per share of
Balanced  Trust,  100 million  shares of par value $.001 per share of  Small-Cap
Value  Trust,  and 375 million  shares of par value $.001 per share of Financial
Services Fund. Each corporation may issue additional series of shares. Each fund
currently offers two classes of shares -- Primary Class shares and Institutional
Class shares.  Value Trust,  Total Return Trust,  Special  Investment Trust, and
Balanced  Trust also offer  Financial  Intermediary  Class shares and  Financial
Services Fund offers Class A shares. Each class represents interests in the same
pool of  assets.  A  separate  vote is taken by a class of shares of a fund if a
matter affects just that class of shares.  Each class of shares may bear certain
differing   class-specific   expenses  and  sales  charges,   which  may  affect
performance.

         The Board of each  fund  does not  anticipate  that  there  will be any
conflicts  among the  interests  of the  holders of the  different  classes of a
fund's  shares.  On an ongoing basis,  the Board will consider  whether any such
conflict exists and, if so, take appropriate actions.  Shareholders of each fund
are entitled to one vote per share and fractional  votes for  fractional  shares
held.  Voting rights are not cumulative.  All shares of the funds are fully paid
and nonassessible and have no preemptive or conversion rights.

         For each fund,  shareholder meetings will not be held except: where the
Investment  Company Act of 1940 requires a shareholder  vote on certain  matters
(including  the election of  directors,  approval of an advisory  contract,  and
certain  amendments to a plan of  distribution  pursuant to Rule 12b-1),  at the
request  of 10% or more of the  shares  entitled  to  vote as set  forth  in the
by-laws  of the fund;  or as the  Board of  Directors  from  time to time  deems
appropriate.

         THE FUNDS' CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT

         State Street Bank and Trust Company  ("State  Street"),  P.O. Box 1713,
Boston,  Massachusetts 02105, serves as custodian of each fund's assets.  Boston
Financial Data Services ("BFDS"), P.O. Box 953, Boston,  Massachusetts 02103, as
agent for State Street,  serves as transfer and  dividend-disbursing  agent, and
administrator  of various  shareholder  services.  Legg Mason  assists BFDS with
certain of its duties as transfer agent and receives  compensation from BFDS for
its services.  Each fund reserves the right,  upon 60 days' written  notice,  to
make other charges to investors to cover administrative costs.

                            THE FUNDS' LEGAL COUNSEL

         Kirkpatrick & Lockhart LLP, 1800 Massachusetts Ave., N.W.,  Washington,
D.C. 20036-1800, serves as counsel to each fund.

                   THE FUNDS' INDEPENDENT ACCOUNTANTS/AUDITORS

         PricewaterhouseCoopers  LLP, 250 W. Pratt Street,  Baltimore, MD 21201,
serves as  independent  accountants  for Value Trust,  Total Return  Trust,  and
Special Investment Trust.  Ernst & Young LLP, 2001 Market Street,  Philadelphia,
PA 19103,  serves as independent  auditors for American Leading Companies Trust,
Balanced Trust, Small-Cap Value Trust and Financial Services Fund.

                                       63

<PAGE>

                              FINANCIAL STATEMENTS

         The  Statement of Net Assets as of March 31, 2000;  the  Statements  of
Operations  for the year ended March 31, 2000;  the Statements of Changes in Net
Assets for the years ended March 31, 2000 and 1999; the Financial Highlights for
the periods  presented;  the Notes to  Financial  Statements  and the Reports of
PricewaterhouseCoopers  LLP,  the funds'  independent  accountants  for the year
ended March 31, 2000,  each with respect to Value Trust,  Total Return Trust and
Special  Investment  Trust,  are included in the funds' annual reports  (Primary
Class and Institutional Class) for the year ended March 31, 2000, and are hereby
incorporated by reference. The unaudited Statement of Net Assets as of September
30,  2000;  the  unaudited  Statements  of  Operations  for the six months ended
September 30, 2000;  the  unaudited  Statements of Changes in Net Assets for the
six months ended  September 30, 2000;  the Financial  Highlights for the periods
presented  and the Notes to  Financial  Statements,  each with  respect to Value
Trust,  Total Return  Trust and Special  Investment  Trust,  are included in the
funds' semi-annual  reports (Primary Class and Institutional  Class) for the six
months ended September 30, 2000, and are hereby incorporated by reference.

         The  Statement of Net Assets as of March 31, 2000;  the  Statements  of
Operations  for the year ended March 31, 2000;  the Statements of Changes in Net
Assets for the years ended March 31, 2000 and 1999; the Financial Highlights for
the periods  presented;  the Notes to  Financial  Statements  and the Reports of
Ernst & Young LLP, the funds' independent  auditors for the year ended March 31,
2000, each with respect to American Leading Companies Trust,  Balanced Trust and
U.S.  Small-Cap Value Trust,  are included in the funds' annual reports (Primary
Class and Institutional Class) for the year ended March 31, 2000, and are hereby
incorporated by reference. The unaudited Statement of Net Assets as of September
30,  2000;  the  unaudited  Statements  of  Operations  for the six months ended
September 30, 2000;  the  unaudited  Statements of Changes in Net Assets for the
six months ended  September 30, 2000;  the Financial  Highlights for the periods
presented and the Notes to Financial  Statements,  each with respect to American
Leading  Companies  Trust,  Balanced Trust and U.S.  Small-Cap Value Trust,  are
included in the funds'  semi-annual  reports  (Primary  Class and  Institutional
Class) for the six months ended September 30, 2000, and are hereby  incorporated
by reference.

                  The  Statement  of  Net  Assets  as of  March  31,  2000;  the
Statements of Operations  for the three months ended March 31, 2000 and the year
ended  December 31, 1999;  the Statements of Changes in Net Assets and Financial
Highlights for the three months ended March 31, 2000 and the year ended December
31,  1999;  the Notes to Financial  Statements  and the Reports of Ernst & Young
LLP, the fund's  independent  auditors  for the year ended March 31, 2000,  each
with  respect to Financial  Services  Fund,  are  included in the fund's  annual
reports  (Primary  Class and Class A;  Institutional  Class)  for the year ended
March  31,  2000,  and are  hereby  incorporated  by  reference.  The  unaudited
Statement of Net Assets as of September  30, 2000;  the  unaudited  Statement of
Operations for the six months ended September 30, 2000; the unaudited  Statement
of  Changes  in Net Assets for the six months  ended  September  30,  2000;  the
Financial  Highlights  for the  periods  presented  and the  Notes to  Financial
Statements,  each with respect to Financial  Services  Fund, are included in the
fund's semi-annual reports (Primary Class and Class A; Institutional  Class) for
the six  months  ended  September  30,  2000,  and are  hereby  incorporated  by
reference.

                                       64

<PAGE>

                                                                     Appendix A

                              RATINGS OF SECURITIES

Description of Moody's Investors Service, Inc. ("Moody's") corporate bond
ratings:
-------------------------------------------------------------------------

         Aaa-Bonds  which are rated  Aaa are  judged to be of the best  quality.
They carry the smallest degree of investment risk and are generally  referred to
as "gilt  edge".  Interest  payments are  protected by a large or  exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

         Aa-Bonds  which are rated Aa are  judged to be of high  quality  by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade  bonds.  They are rated lower than the best bonds because  margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements  may be of greater  amplitude  or there may be other  elements  present
which make the long-term risks appear somewhat larger than in Aaa securities.

         A-Bonds which are rated A possess many favorable investment  attributes
and are to be considered upper-medium grade obligations. Factors giving security
to principal  and interest are  considered  adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

         Baa-Bonds which are rated Baa are considered medium-grade  obligations,
i.e., they are neither highly  protected nor poorly secured.  Interest  payments
and principal  security appear  adequate for the present but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

         Ba-Bonds  which are rated Ba are judged to have  speculative  elements;
their future  cannot be  considered  as well  assured.  Often the  protection of
interest  and  principal  payments  may be very  moderate  and  thereby not well
safeguarded  during  both good and bad times  over the  future.  Uncertainty  of
position characterizes bonds in this class.

         B-Bonds  which  are  rated  B  generally  lack  characteristics  of the
desirable  investment.  Assurance  of  interest  and  principal  payments  or of
maintenance  of other terms of the contract  over any long period of time may be
small.

         Caa-Bonds which are rated Caa are of poor standing.  Such issues may be
in default or there may be present  elements of danger with respect to principal
or interest.

         Ca-Bonds which are rated Ca represent obligations which are speculative
in a high  degree.  Such  issues  are  often in  default  or have  other  marked
shortcomings.

         C-Bonds  which  are  rated C are the  lowest  rated  class of bonds and
issues so rated can be  regarded  as having  extremely  poor  prospects  of ever
attaining any real investment standing.

                                      A-1

<PAGE>

Description of Standard & Poor's ("S&P") corporate bond ratings:
---------------------------------------------------------------

         AAA-An obligation rated AAA has the highest rating assigned by S&P. The
obligor's  capacity  to meet  its  financial  commitment  on the  obligation  is
extremely strong.

         AA -An obligation  rated AA differs from the highest rated  obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

         A-An  obligation  rated A is somewhat more  susceptible  to the adverse
effects of changes in circumstances and economic  conditions than obligations in
higher rated categories.  However,  the obligor's capacity to meet its financial
commitment on the obligation is still strong.

         BBB-An  obligation rated BBB exhibits adequate  protection  parameters.
However,  adverse economic conditions or changing  circumstances are more likely
to lead to a weakened  capacity of the obligor to meet its financial  commitment
on the  obligation.  Obligations  rated BB, B, CCC,  CC, and C are  regarded  as
having significant speculative characteristics. BB indicates the least degree of
speculation  and C the  highest.  While such  obligations  will likely have some
quality  and  protective  characteristics,  these  may be  outweighed  by  large
uncertainties or major exposures to adverse conditions.

         BB-An  obligation  rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,  financial,  or economic  conditions  which could lead to the
obligor's   inadequate  capacity  to  meet  its  financial   commitment  on  the
obligation.

         B-An  obligation   rated  B  is  more  vulnerable  to  nonpayment  than
obligations  rated BB, but the obligor  currently  has the  capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's  capacity or willingness to meet its
financial commitment on the obligation.

         CCC-An obligation rated CCC is currently vulnerable to nonpayment,  and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its  financial  commitment  on the  obligation.  In the event of
adverse business,  financial, or economic conditions,  the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

         CC-An obligation rated CC is currently highly vulnerable to nonpayment.

         C-A  subordinated  debt  or  preferred  stock  obligation  rated  C  is
currently highly  vulnerable to nonpayment.  The C rating may be used to cover a
situation where a bankruptcy  petition has been filed or similar action has been
taken,  but payments on this  obligation are being  continued.  A C also will be
assigned to a  preferred  stock issue in arrears on  dividends  or sinking  fund
payments but that is currently paying.

         D-An obligation rated D is in payment default. The D rating category is
used when  payments  on an  obligation  are not made on the date due even if the
applicable grace period has not expired,  unless S&P believes that such payments
will be made during such grace  period.  The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

         Plus (+) or minus (-)-The ratings from AA to CCC may be modified by the
addition  of a plus or minus  sign to show  relative  standing  within the major
rating categories.

         r-This  symbol  is  attached  to  the  ratings  of   instruments   with
significant  noncredit  risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations  linked  or  indexed  to  equities,   currencies,   or  commodities;

                                      A-2

<PAGE>

obligations   exposed  to  severe  prepayment   risk-such  as  interest-only  or
principal-only  mortgage  securities;   and  obligations  with  unusually  risky
interest terms, such as inverse floaters.

N.R.-This   indicates  that  no  rating  has  been  requested,   that  there  is
insufficient  information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.


                                      A-3


<PAGE>

                          Legg Mason Value Trust, Inc.

Part C.  Other Information

Item 23. Exhibits

        (a)  (i)   Articles of Incorporation (2)
             (ii)  Articles of Amendment dated April 24, 1992 (2)
             (iii) Articles Supplementary filed August 1, 1994 (2)
             (iv)  Articles Supplementary dated August 8, 1997 (3)
             (v)   Articles Supplementary dated March 9, 1999 (4)
             (vi)  Articles of Amendment dated September 14, 1999 (7)
             (vii) Articles of Amendment dated November 17, 2000 - filed
                   herewith

        (b)  (i)   By-Laws as Amended and Restated  (2)
             (ii)  Amendment to By-Laws (2)

        (c)  Instruments defining the rights of security holders with respect to
             Legg  Mason  Value  Trust  are   contained   in  the   Articles  of
             Incorporation  and  subsequent  amendments  and By-Laws,  which are
             incorporated  by  reference  to  Exhibit  (b)(1) to  Post-Effective
             Amendment No. 24 to Registrant's  Registration  Statement (SEC File
             No. 2-75766), filed July 31, 1997.

        (d)  (i)   Investment  Advisory and Management Agreement (2)

        (e)  (i)   Underwriting Agreement (1)
             (ii)  Dealer Agreement with respect to Navigator Shares (1)

        (f)  Bonus, profit sharing or pension plans - none

        (g)  (i)   Custodian Contract (2)
             (ii)  Addendum dated February 9, 1988 (2)
             (iii) Addendum dated February 25, 1988 (2)
             (iv)  Addendum dated August 12, 1988 (2)
             (v)   Addendum dated May 28, 1996 (2)

        (h)  (i)   Transfer Agency and Service Agreement (2)
             (ii)  Credit Agreement (4)
             (iii) Amendment to Credit Agreement (6)

        (i)  Opinion and Consent of Counsel - filed herewith

        (j)  Accountant's consent - filed herewith

        (k)  Financial statements omitted from Item 22 - none

        (l)  Agreements for providing initial capital (2)

        (m)  (i)  Amended Distribution Plan pursuant to Rule 12b-1  (1)
             (ii) Distribution Plan for Financial Intermediary class pursuant
                  to Rule 12b-1 - filed herewith

        (n)  Multi-Class Plan pursuant to Rule 18f-3 - filed herewith

        (p)  Code of Ethics for the fund, its investment advisers, and its
             principal underwriter (6)

<PAGE>

(1) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 22 to the Registration Statement, SEC File No. 2-75766, filed July
31, 1996.

(2) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 24 to the
Registration Statement, SEC File No. 2-75766, filed July 31, 1997.

(3) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 25, SEC File No.
2-75766, filed May 29, 1998.

(4) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 26, SEC File No. 2-75766, filed May 28, 1999.

(5) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 27, SEC File No. 2-75766, filed July 30, 1999.

(6) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 2 to the Registration  Statement of Legg Mason  Investment  Trust,
Inc., SEC File No. 333-88715, filed March 28, 2000.

(7) Incorporated herein by reference to corresponding  Exhibit of Post-Effective
Amendment No. 28, SEC File No. 2-75766, filed July 24, 2000.

Item 24.      Persons Controlled By or Under Common Control with Registrant

              None

Item 25.      Indemnification

              This item is  incorporated  by  reference  to Item 27 of Part C of
              Post-Effective Amendment No. 25 to the registration statement, SEC
              File No. 2-75766, filed May 29, 1998.

Item 26.      Business and Other Connections of Manager and Investment Adviser

Legg Mason Funds Management,  Inc. ("LMFM") is an investment  adviser registered
with the Securities and Exchange Commission under the Investment Advisers Act of
1940. The following is a list of other substantial  business activities in which
directors,  officers or partners of LMFM have been engaged as director, officer,
employee, partner, or trustee.

Raymond A. Mason           Chairman and Director, LMFM
                           Chairman, President and CEO, Legg Mason, Inc.
                           Director, Chairman and President, Legg Mason
                             Holdings Limited
                           Director, 3040692 Nova Scotia Company
                           Director, Legg Mason Canada Holdings Ltd.
                           Director, Legg Mason UK
                           Holdings Plc Director, LM Holdings Limited
                           Chairman, CEO and Director, LMWW
                           Director, Batterymarch
                           Director, Howard Weil
                           Director, Gray, Seifert
                           Director, Brandywine
                           Director, Berkshire
                           Director, WAMCL
                           Director, LMRE
                           Director, LMCM

<PAGE>

                           Director, WAM
                           Director, LMFA

William H. Miller III      President, CEO and Director, LMFM
                           Managing Member, LMM
                           Director, LMIA
                           Director, LMCM

Jennifer W. Murphy         Senior Vice President, COO, CFO, and Director, LMFM
                           COO, LMM

Timothy C. Scheve          Director, LMFM
                           Executive Vice President, Legg Mason, Inc.
                           Director and Senior Executive Vice President, LMWW
                           Director, Legg Mason UK Holdings Plc
                           Director, Legg Mason Holdings Limited
                           Director, 3040692 Nova Scotia Company
                           Director, Legg Mason Canada Holdings Ltd.
                           Director, Bartlett
                           Director, WAMCL
                           Director, LMFA
                           Director, LMCM
                           Director, LMT
                           Director, WAM

Edward A. Taber III        Director, LMFM
                           Senior Executive Vice President/Head of Investment
                             Management, Legg Mason, Inc.
                           Director and Vice President, 3040692 Nova Scotia
                             Company
                           Director and Vice President, Legg Mason Canada
                             Holdings Ltd.
                           Director, Legg Mason Holdings Limited
                           Director, Legg Mason UK Holdings Plc
                           Director, LM Holdings Limited
                           Director and Chairman, LMIA
                           Director and Chairman, LMFA
                           Director, Batterymarch
                           Director, Howard Weil
                           Director, Gray, Seifert
                           Director, Brandywine
                           Director, WAMCL
                           Director, LMCM
                           Director, LMT
                           Director, WAM

Bartlett & Co.  ("Bartlett")
36 East Fourth Street
Cincinnati, OH  45202

Batterymarch Financial Management, Inc. ("Batterymarch")
200 Clarendon Street
Boston, MA  02116

<PAGE>

Berkshire Asset Management, Inc.  ("Berkshire")
46 Public Square, Suite 700
Wilkes-Barre, PA  18701

Brandywine Asset Management, Inc. ("Brandywine")
Three Christina Centre, Suite 1200
201 North Walnut Street
Wilmington, DE  19801

Gray, Seifert & Co., Inc.  ("Gray, Seifert")
380 Madison Avenue
New York, NY  10017

Howard, Weil, Labouisse, Friedrichs, Inc.  ("Howard Weil")
1100 Poydras Street
New Orleans, LA  70163

Legg Mason Canada Holdings Ltd.
PO Box 7289, Stn "A"
44 Chipman Hill
Saint John, NB  E24 456

Legg Mason Capital Management, Inc.  ("LMCM")
100 Light Street
Baltimore, MD  21202

Legg Mason Fund Adviser, Inc. ("LMFA")
100 Light Street
Baltimore, MD  21202

Legg Mason Funds Management, Inc. ("LMFM")
100 Light Street
Baltimore, MD  21202

Legg Mason Holdings Limited
155 Bishopsgate
London  EC2M 3XG
England

Legg Mason, Inc.
100 Light Street
Baltimore, MD  21202

Legg Mason Real Estate Services, Inc.  ("LMRE")
Mellon Bank Center, 12th Floor
1735 Market Street
Philadelphia, PA  19103

Legg Mason Trust, fsb  ("LMT")
100 Light Street
Baltimore, MD  21202

<PAGE>

Legg Mason UK Holdings Plc
20 Regent Street
London  SW1Y 4PZ

Legg Mason Wood Walker, Incorporated  ("LMWW")
100 Light Street
Baltimore, MD  21202

LM Holdings Limited
20 Regent Street
London  SW1Y 4PZ

LM Institutional Advisors, Inc.  ("LMIA")
100 Light Street
Baltimore, MD  21202

LMM LLC ("LMM")
100 Light Street
Baltimore, MD  21202

Western Asset Management Company  ("WAM")
117 East Colorado Boulevard
Pasadena, CA  91105

Western Asset Management Company Limited  ("WAMCL")
155 Bishopsgate
London  EC2M 3XG
England

3040692 Nova Scotia Company
Ste 800, 1959 Upper Water Street
PO Box 997
Halifax, N.S.  B3J 2X2

Item 27.  Principal Underwriters

          (a)  Legg Mason Cash Reserve Trust
               Legg Mason Income Trust, Inc.
               Legg Mason Tax-Exempt Trust, Inc.
               Legg Mason Tax-Free Income Fund
               Legg Mason Total Return Trust, Inc.
               Legg Mason Special Investment Trust, Inc.
               Legg Mason Focus Trust, Inc.
               Legg Mason Global Trust, Inc.
               Legg Mason Investors Trust, Inc.
               Legg Mason Light Street Trust, Inc.
               Legg Mason Investment Trust, Inc.
               LM Institutional Fund Advisors I, Inc.
               LM Institutional Fund Advisors II, Inc.

         (b)   The  following  table  sets  forth  information  concerning  each
               director and officer of the Registrant's  principal  underwriter,
               Legg Mason Wood Walker, Incorporated ("LMWW"):

<PAGE>

                                                                  Positions and
Name and Principal               Position and Offices             Offices with
Business Address*                with Underwriter - LMWW          Registrant
--------------------------------------------------------------------------------

Raymond A. Mason                 Chairman of the Board, Chief     Chairman and
                                 Executive Officer and Director   Director

James W. Brinkley                President, Chief Operating          None
                                 Officer and Director

Edmund J. Cashman, Jr.           Senior Executive Vice President     None

Richard J. Himelfarb             Senior Executive Vice President     None

Timothy C. Scheve                Senior Executive Vice President     None
                                 and Director

Manoochehr Abbaei                Executive Vice President            None

Robert G. Donovan                Executive Vice President            None

Thomas P. Mulroy                 Executive Vice President            None
                                 and Director

Robert G. Sabelhaus              Executive Vice President            None
                                 and Director

F. Barry Bilson                  Senior Vice President               None

D. Stuart Bowers                 Senior Vice President               None

W. William Brab                  Senior Vice President               None

Edwin J. Bradley, Jr.            Senior Vice President               None

Thomas M. Daly, Jr.              Senior Vice President               None

Jeffrey W. Durkee                Senior Vice President               None

Harry M. Ford, Jr.               Senior Vice President               None

Dennis A. Green                  Senior Vice President               None

Thomas E. Hill                   Senior Vice President               None
218 N. Washington Street
Suite 31
Easton, MD  21601

Arnold S. Hoffman                Senior Vice President               None
1735 Market Street
Philadelphia, PA  19103

<PAGE>

Carl Hohnbaum                    Senior Vice President               None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA  15222

David M. Jernigan                Senior Vice President               None

William B. Jones, Jr.            Senior Vice President               None
1747 Pennsylvania Avenue, N.W.
Washington, D.C.  20006

Laura L. Lange                   Senior Vice President               None

Horace M. Lowman, Jr.            Senior Vice President               None

Ira H. Malis                     Senior Vice President               None

Marvin H. McIntyre               Senior Vice President               None
1747 Pennsylvania Avenue, N.W.
Washington, D.C.  20006

Jonathan M. Pearl                Senior Vice President               None

Mark I. Preston                  Senior Vice President               None

Robert F. Price                  Senior Vice President, General
                                 Counsel and Secretary               None

Thomas L. Souders                Senior Vice President, Chief
                                 Financial Officer and Treasurer     None

Joseph A. Sullivan               Senior Vice President               None

Joseph E. Timmins III            Senior Vice President               None

Paul J. Ayd                      Vice President                      None

Richard L. Baker                 Vice President                      None

William H. Bass, Jr.             Vice President                      None

Nathan S. Betnun                 Vice President                      None

Andrew J. Bowden                 Vice President and Deputy
                                 General Counsel                     None

Carol A. Brown                   Vice President                      None

Scott R. Cousino                 Vice President                      None

Thomas W. Cullen                 Vice President                      None

Charles J. Daley, Jr.            Vice President and Controller       None

<PAGE>

J. Gregory Driscoll              Vice President                      None

Norman C. Frost, Jr.             Vice President                      None

Keith E. Getter                  Vice President                      None

Daniel R. Greller                Vice President                      None

Richard A. Jacobs                Vice President                      None

Edward W. Lister, Jr.            Vice President                      None

Theresa McGuire                  Vice President                      None

Julia A. McNeal                  Vice President                      None

Gregory B. McShea                Vice President                      None

Edward P. Meehan                 Vice President                      None
12021 Sunset Hills Road
Suite 100
Reston, VA  20190

Thomas C. Merchant               Vice President, Deputy General
                                 Counsel and Assistant Secretary     None

Paul Metzger                     Vice President                      None

Mark C. Micklem                  Vice President                      None
1747 Pennsylvania Ave., N.W.
Washington, DC  20006

John A. Moag, Jr.                Vice President                      None

Ann O'Shea                       Vice President                      None

Robert E. Patterson              Vice President and Deputy
                                 General Counsel                     None

Gerard F. Petrik, Jr.            Vice President                      None

Douglas F. Pollard               Vice President                      None

Thomas E. Robinson               Vice President                      None

Theresa M. Romano                Vice President                      None

James A. Rowan                   Vice President                      None
1747 Pennsylvania Avenue, N.W.
Washington, D.C.  20006

<PAGE>

B. Andrew Schmucker              Vice President                      None
1735 Market Street
Philadelphia, PA  19103

Robert W. Schnakenberg           Vice President                      None

Chris A. Scitti                  Vice President                      None

Eugene B. Shepherd               Vice President                      None
1111 Bagby St.
Houston, TX  77002-2510

Lawrence D. Shubnell             Vice President                      None

Jane Soybelman                   Vice President                      None

Alexsander M. Stewart            Vice President                      None

Joyce Ulrich                     Vice President                      None

Sheila M. Vidmar                 Vice President and Deputy
                                 General Counsel                     None

W. Matthew Zuga                  Vice President                      None

Lauri F. Smith                   Assistant Vice President            None

* All  addresses  are  100  Light  Street,  Baltimore,  Maryland  21202,  unless
otherwise indicated.


(c)      The  Registrant has no principal  underwriter  who is not an affiliated
         person of the Registrant or an affiliated  person of such an affiliated
         person.

Item 28.   Location of Accounts and Records

           State Street Bank and Trust Company     Legg Mason Fund Adviser, Inc.
           P. O. Box 1713                     and  100 Light Street
           Boston, Massachusetts 02105             Baltimore, Maryland  21202

Item 29.   Management Services

           None

Item 30.   Undertakings

           None

<PAGE>

                                 SIGNATURE PAGE

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company Act of 1940, the  Registrant,  Legg Mason Value Trust,  Inc.,  certifies
that it meets all the  requirements  for  effectiveness  of this  Post-Effective
Amendment No. 30 to its Registration Statement pursuant to Rule 485(b) under the
Securities  Act of 1933 and has duly caused this  Registration  Statement  to be
signed  on its  behalf  by the  undersigned,  duly  authorized,  in the  City of
Baltimore and State of Maryland, on the 19th day of January, 2001.

                                       LEGG MASON VALUE TRUST, INC.



                                       By: /s/  Marie K. Karpinski
                                           ------------------------------------
                                           Marie K. Karpinski
                                           Vice President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this  Post-Effective
Amendment No. 30 to the  Registration  Statement of  Registrant  has been signed
below by the following persons in the capacities and on the dates indicated:

Signature                           Title                      Date
---------                           -----                      ----

/s/ Raymond A. Mason*
---------------------------         Chairman of the Board      January 19, 2001
Raymond A. Mason                    and Director

/s/ John F. Curley, Jr.*            President and Director     January 19, 2001
---------------------------
John F. Curley, Jr.

/s/ Nelson A. Diaz**                Director                   January 19, 2001
---------------------------
Nelson A. Diaz

/s/ Richard G. Gilmore*             Director                   January 19, 2001
---------------------------
Richard G. Gilmore

/s/ Arnold L. Lehman*               Director                   January 19, 2001
---------------------------
Arnold L. Lehman

/s/ Jill E. McGovern*               Director                   January 19, 2001
---------------------------
Jill E. McGovern

/s/ G. Peter O'Brien*               Director                   January 19, 2001
---------------------------
G. Peter O'Brien

/s/ T.A. Rodgers*                   Director                   January 19, 2001
---------------------------
T.A. Rodgers

/s/ Edward A. Taber III*            Director                   January 19, 2001
---------------------------
Edward A. Taber III

/s/ Marie K. Karpinski
---------------------------         Vice President             January 19, 2001
Marie K. Karpinski                  and Treasurer

*Signatures  affixed  by Marc R. Duffy  pursuant  to a Power of  Attorney  dated
November 12, 1999, a copy of which is filed herewith.

**Signature  affixed by Marc R. Duffy  pursuant to a Power of Attorney dated May
12, 2000, a copy of which is filed herewith.

<PAGE>

                                POWER OF ATTORNEY

I, the undersigned  Director/Trustee of one or more of the following  investment
companies (as set forth in the companies' Registration Statements on form N-1A):

LEGG MASON CASH RESERVE TRUST        LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC.        LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC.        LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC.    LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND      LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC.         LEGG MASON INVESTMENT TRUST, INC.

plus any other investment  company for which Legg Mason Fund Adviser,  Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as  Director/Trustee  hereby  severally  constitute and appoint each of MARIE K.
KARPINSKI,  MARC R.  DUFFY,  ANDREW J.  BOWDEN,  ARTHUR J.  BROWN and  ARTHUR C.
DELIBERT my true and lawful  attorney-in-fact,  with full power of substitution,
and with full  power to sign for me and in my name in the  appropriate  capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration  Statements on Form N-lA, all  Pre-Effective  Amendments to any
Registration  Statements  of the Funds,  any and all  subsequent  Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments  in connection  therewith,  to file the same with the Securities and
Exchange  Commission  and the securities  regulators of  appropriate  states and
territories,  and  generally  to do all such  things  in my name and  behalf  in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the  provisions  of the  Securities  Act of 1933 and the  Investment
Company Act of 1940,  all related  requirements  of the  Securities and Exchange
Commission and all requirements of appropriate states and territories.  I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.

WITNESS my hand on the date set forth below.

SIGNATURE                                        DATE
---------                                        ----

/s/ Edmund J. Cashman, Jr.                       November 12, 1999
--------------------------
Edmund J. Cashman, Jr.

/s/ John F. Curley, Jr.                          November 12, 1999
-----------------------
John F. Curley, Jr.

/s/ Richard G. Gilmore                           November 12, 1999
----------------------
Richard G. Gilmore

/s/ Arnold L. Lehman                             November 12, 1999
--------------------
Arnold L. Lehman

/s/ Raymond A. Mason                             November 12, 1999
--------------------
Raymond A. Mason

/s/ Jill E. McGovern                             November 12, 1999
--------------------
Jill E. McGovern

/s/ Jennifer W. Murphy                           November 12, 1999
----------------------
Jennifer W. Murphy

/s/ G. Peter O'Brien                             November 12, 1999
--------------------
G. Peter O'Brien

/s/ T. A. Rodgers                                November 12, 1999
------------------
T. A. Rodgers

/s/ Edward A. Taber, III                         November 12, 1999
------------------------
Edward A. Taber, III

<PAGE>

                                POWER OF ATTORNEY

I, the undersigned  Director/Trustee of one or more of the following  investment
companies:

LEGG MASON CASH RESERVE TRUST          LEGG MASON VALUE TRUST, INC.
LEGG MASON LIGHT STREET TRUST, INC.    LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC.          LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON INVESTORS TRUST, INC.       LEGG MASON INVESTMENT TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND        LEGG MASON FOCUS TRUST, INC.

plus any other investment company for which Legg Mason Fund Adviser, Inc. or one
of its  affiliates  acts as  investment  adviser  or  manager  and for which the
undersigned  individual serves as Director/Trustee  ("Funds"),  hereby severally
constitute  and appoint  each of MARIE K.  KARPINSKI,  MARC R. DUFFY,  ANDREW J.
BOWDEN,   ARTHUR  J.   BROWN  and  ARTHUR  C.   DELIBERT   my  true  and  lawful
attorney-in-fact,  with full power of substitution,  and with full power to sign
for me and in my name in the  appropriate  capacity and only for those Funds for
which I serve as Director/Trustee,  any Registration  Statements of the Funds on
Form N-1A, all  Pre-Effective  Amendments to any Registration  Statements of the
Funds,  any and all subsequent  Post-Effective  Amendments to said  Registration
Statements,  and any and all  supplements  or other  instruments  in  connection
therewith,  to file the same with the Securities and Exchange Commission and the
securities regulators of appropriate states and territories, and generally to do
all  such  things  in my  name  and  behalf  in  connection  therewith  as  said
attorney-in-fact deems necessary or appropriate to comply with the provisions of
the Securities  Act of 1933 and the Investment  Company Act of 1940, all related
requirements of the Securities and Exchange  Commission and all  requirements of
appropriate  states and  territories.  I hereby ratify and confirm all that said
attorneys-in-fact  or their  substitutes  may do or  cause to be done by  virtue
hereof.

WITNESS my hand on the date set forth below.

SIGNATURE                                        DATE


/s/ Nelson A. Diaz                               May 12, 2000
-----------------------------
Nelson A. Diaz

<PAGE>

                          Legg Mason Value Trust, Inc.
                                  Exhibit Index


Exhibit (a)(vii)       Articles of Amendment

Exhibit (i)            Opinion and Consent of Counsel

Exhibit (j)            Accountant's Consent

Exhibit (m)(ii)        Distribution Plan for Financial Intermediary class
                       pursuant to Rule 12b-1

Exhibit (n)            Multi-Class Plan pursuant to Rule 18f-3



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