<PAGE>
NAVIGATOR EQUITY FUNDS
PROSPECTUS
JULY 31, 1995
LEGG MASON VALUE TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC. LEGG MASON AMERICAN LEADING
COMPANIES, A SERIES OF
LEGG MASON INVESTORS TRUST, INC.
Shares of Navigator Value Trust, Navigator Total Return Trust, Navigator
Special Investment Trust and Navigator American Leading Companies (collectively
referred to as "Navigator Shares") represent separate classes ("Navigator
Classes") of common stock in Legg Mason Value Trust, Inc. ("Value Trust"), Legg
Mason Total Return Trust, Inc. ("Total Return Trust"), Legg Mason Special
Investment Trust, Inc. ("Special Investment Trust") and Legg Mason American
Leading Companies Trust ("American Leading Companies") (each separately referred
to as a "Fund" and collectively referred to as the "Funds"), respectively.
The Navigator Classes of Shares, described in this Prospectus, are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own funds and funds for which they act in
a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust Company")
for which Trust Company exercises discretionary investment management
responsibility (such institutional investors are referred to collectively as
"Institutional Clients" and accounts of the customers with such Clients
("Customers") are referred to collectively as "Customer Accounts"), to qualified
retirement plans managed on a discretionary basis and having net assets of at
least $200 million, and to The Legg Mason Profit Sharing Plan and Trust.
Navigator Shares may not be purchased by individuals directly, but Institutional
Clients may purchase shares for Customer Accounts maintained for individuals.
SPECIAL INVESTMENT TRUST MAY INVEST UP TO 35% OF ITS NET ASSETS IN
LOWER-RATED DEBT SECURITIES (COMMONLY KNOWN AS "JUNK BONDS"), AND MAY INVEST UP
TO 20% OF ITS TOTAL ASSETS IN THE SECURITIES OF COMPANIES INVOLVED IN ACTUAL OR
ANTICIPATED RESTRUCTURINGS. BOTH TYPES OF INVESTMENTS INVOLVE AN INCREASED RISK
OF PAYMENT DEFAULT AND/OR LOSS OF PRINCIPAL.
SHARES OF SPECIAL INVESTMENT TRUST ARE NOT REGISTERED FOR SALE TO INVESTORS
IN MISSOURI, AND THIS PROSPECTUS IS NOT AN OFFER TO INVESTORS RESIDING IN THAT
STATE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
Funds dated July 31, 1995 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by this reference. The Statement of Additional Information
is available without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed on the
following page).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Navigator Shares are sold and redeemed without any purchase or redemption
charge imposed by the Funds, although Institutional Clients may charge their
Customer Accounts for services provided in connection with the purchase or
redemption of shares. See "How to Purchase and Redeem Shares." Each Fund will
pay management fees to Legg Mason Fund Adviser, Inc., but Navigator Shares pay
no distribution fees.
VALUE TRUST is a diversified, open-end management investment company seeking
long-term growth of capital. Value Trust invests principally in those equity
securities which its investment adviser, Legg Mason Fund Adviser, Inc.
("Adviser" or "Manager"), believes are undervalued and therefore offer
above-average potential for capital appreciation.
TOTAL RETURN TRUST is a diversified, open-end management investment company
seeking capital appreciation and current income in order to achieve an
attractive total investment return consistent with reasonable risk. In
attempting to achieve this objective, the Adviser selects a diversified
portfolio, composed of dividend-paying common stocks and securities convertible
into common stock which, in the opinion of the Adviser, offer the potential for
long-term growth; common stocks
<PAGE>
or securities convertible into common stock which do not pay current dividends
but which offer prospects for capital appreciation and future income; and debt
instruments of various maturities. Total Return Trust may write covered put and
call options. Due to Total Return Trust's investment objective, however,
investors should not expect capital appreciation comparable to funds devoted
solely to growth, or income comparable to funds devoted to maximum current
income.
SPECIAL INVESTMENT TRUST is a diversified, open-end management investment
company seeking capital appreciation. Special Investment Trust invests
principally in equity securities of companies with market capitalizations of
less than $2.5 billion which, in the opinion of the Adviser, have one or more of
the following characteristics: they are not closely followed by, or are out of
favor with, investors generally, and the Adviser believes they are undervalued
in relation to their long-term earning power or asset values; unusual
developments have occurred which suggest the possibility that the market value
of the securities will increase; or they are involved in actual or anticipated
reorganizations or restructurings under the Bankruptcy Code. Special Investment
Trust also invests in the securities of companies with larger capitalizations
which have one or more of these charac-teristics. Special Investment Trust may
invest up to 35% of its assets in debt securities rated below investment grade.
AMERICAN LEADING COMPANIES is a professionally managed portfolio seeking
long-term capital appreciation and current income consistent with prudent
investment risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Trust"), a diversified open-end management investment
company. Under normal market conditions, American Leading Companies will invest
at least 75% of its total assets in a diversified portfolio of dividend-paying
common stocks of Leading Companies that have market capitalizations of at least
$2 billion. The Fund's investment adviser, Legg Mason Capital Management, Inc.
("LMCM"), defines a "Leading Company" as a company that, in the opinion of LMCM,
has attained a major market share in one or more products or services within its
industry(ies), and possesses the financial strength and management talent to
maintain or increase market share and profit in the future. Such companies are
typically well known as leaders in their respective industries; most are found
in the top half of the Standard & Poor's Composite Index of 500 Stocks ("S&P
500").
TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Performance Information 8
Investment Objectives and Policies 9
How To Purchase and Redeem Shares 15
How Your Shareholder Account is
Maintained 16
How Net Asset Value is Determined 16
Dividends and Other Distributions 16
Tax Treatment of Dividends and
Other Distributions 17
Shareholder Services 18
The Funds' Management and Investment Adviser 19
The Funds' Distributor 20
Description of each Corporation/Trust
and Its Shares 20
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
2
<PAGE>
EXPENSES
The purpose of the following tables is to assist an investor in
understanding the various costs and expenses that an investor in Navigator
Shares of a Fund will bear directly or indirectly. The expenses and fees set
forth in the tables are based on average net assets and annual Fund operating
expenses related to Navigator Shares for the period ended March 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<S> <C>
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
</TABLE>
ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING
TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
Management fees 0.78% 0.75% 0.79% 0.58%(A)
12b-1 fees None None None None
Other expenses 0.04% 0.11% 0.11% 0.37%
Total operating
expenses 0.82% 0.86% 0.90% 0.95%(A)
</TABLE>
(A) The management fee, other expenses and total operating expenses for
Navigator American Leading Companies would be 0.75%, 0.37% and 1.12%,
respectively, if the Fund's Manager had not agreed to reimburse certain
management fees and other expenses pursuant to a voluntary expense
limitation. The Manager has agreed, pursuant to the reimbursement agreement,
to reimburse management fees and/or assume other expenses indefinitely to
the extent the expenses of Navigator American Leading Companies (exclusive
of taxes, interest, brokerage and extraordinary expenses) exceed during
any month an annual rate of 0.95% of the Fund's average daily net assets
for such month.
For further information concerning the Funds' expenses, please see "The
Funds' Management and Investment Adviser," page 19.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following examples illustrate the expenses that you would pay on a
$1,000 investment in Navigator Shares over various time periods assuming (1) a
5% annual rate of return and (2) redemption at the end of each time period. As
noted in the prior table, the Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING
TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
1 Year $ 8 $ 9 $ 9 $ 10
3 Years $ 26 $ 27 $ 29 $ 30
5 Years $ 45 $ 48 $ 50 $ 53
10 Years $101 $106 $111 $ 117
</TABLE>
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund Operating
Expenses remain the same over the time periods shown. The above tables and the
assumption in the example of a 5% annual return are required by regulations of
the SEC applicable to all mutual funds. THE ASSUMED 5% ANNUAL RETURN IS NOT A
PREDICTION OF, AND DOES NOT REPRESENT THE PROJECTED OR ACTUAL PERFORMANCE OF,
NAVIGATOR SHARES OF THE FUNDS. THE ABOVE TABLES AND EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The actual expenses attributable to Navigator
Shares will depend upon, among other things, the level of average net assets,
the levels of sales and redemptions of shares, the extent to which the Manager
waives its fees and reimburses all or a portion of each Fund's expenses and the
extent to which Navigator Shares incur variable expenses, such as transfer
agency costs.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Effective December 1, 1994, Value Trust, Total Return Trust and Special
Investment Trust commenced the sale of Navigator Shares. Effective August
1, 1995, American Leading Companies will commence the sale of Navigator
Shares. Navigator Shares pay no 12b-1 distribution fees and may pay lower
transfer agency fees. The information for Primary Shares (the other class
of shares currently offered) reflects the 12b-1 fees paid by that Class.
The financial highlights tables that follow have been derived from each
Fund's financial statements which have been audited for Value Trust, Total
Return Trust and Special Investment Trust by Coopers & Lybrand L.L.P.,
independent accountants and for American Leading Companies by Ernst & Young
LLP, independent auditors. Each Fund's financial statements for the year
ended March 31, 1995 and the report of Coopers & Lybrand L.L.P. or Ernst &
Young LLP thereon are included in that Fund's annual report and are
incorporated by reference in the Statement of Additional Information. The
annual report for each Fund is available to shareholders without charge by
calling your Legg Mason or affiliated investment executive or Legg Mason's
Funds Marketing Department at 800-822-5544.
VALUE TRUST (A)
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995(B) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 18.76 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16 $12.14 $15.07 $15.34 $11.55
Net investment
income .12 .10 .08 .18 .25 .32 .33 .21 .21 .21 .25
Net realized and
unrealized gain
(loss) on
investments 1.40 1.70 .92 2.12 2.34 (.74) .77 1.99 (1.54) 1.11 4.15
Total from
investment
operations 1.52 1.80 1.00 2.30 2.59 (.42) 1.10 2.20 (1.33) 1.32 4.40
Distributions to
shareholders from:
Net investment
income (.01) (.05) (.11) (.18) (.28) (.36) (.33) (.18) (.20) (.20) (.18)
Net realized gain
on investments -- (.04) (.20) -- -- (.03) (.74) -- (1.40) (1.39) (.43)
Net asset value,
end of period $ 20.27 $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16 $12.14 $15.07 $15.34
Total return 8.11%(C) 9.77% 5.65% 14.76% 19.53% (2.88)% 7.74% 18.33% (8.42)% 9.89% 39.75%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average
net assets:
Expenses 0.82%(D) 1.81%(E) 1.82%(E) 1.86%(E) 1.90%(E) 1.90%(E) 1.86%(E) 1.96%(E) 1.97%(E) 2.00%(E) 2.07%(E)
Net investment
income 1.8%(D) 0.5% 0.5% 1.1% 1.7% 2.5% 2.2% 1.6% 1.5% 1.5% 2.0%
Portfolio turnover
rate 20.1% 20.1% 25.5% 21.8% 39.4% 38.8% 30.7% 29.7% 47.8% 42.5% 32.6%
Net assets, end of
period (in
thousands) $36,519 $986,325 $912,418 $878,394 $745,833 $690,053 $808,780 $720,961 $665,689 $819,348 $599,004
</TABLE>
(A) ALL SHARE AND PER SHARE FIGURES REFLECT THE 2-FOR-1 STOCK SPLIT EFFECTIVE
JULY 29, 1991.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 24.46%.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0% THROUGH MAY 11, 1987 AND 0.95%
THEREAFTER.
4
<PAGE>
TOTAL RETURN TRUST
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995(B) 1995 1994 1993 1992 1991 1990 1989 1988
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 12.66 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06 $ 8.86 $11.63
Net investment income .15 .33 .36 .39(C) .34 .28 .21 .15 .18
Net realized and
unrealized gain (loss)
on investments .25 (.19) .24 1.89 1.91 (.31) .15 1.18 (1.35)
Total from investment
operations .40 .14 .60 2.28 2.25 (.03) .36 1.33 (1.17)
Distributions to
shareholders from:
Net investment income (.06) (.29) (.33) (.31) (.25) (.29) (.21) (.13) (.21)
Net realized gain on
investments (.17) (.60) (.34) -- -- (.07) (.18) -- (1.39)
Net asset value, end of
period $ 12.83 $12.79 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06 $ 8.86
Total return 2.28%(F) 1.09% 4.57% 19.88% 23.59% (0.05)% 3.48% 15.16% (10.17)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 0.86%(G) 1.93%(H) 1.94%(H) 1.95%(C,H) 2.34%(H) 2.50%(H) 2.39%(H) 2.40%(H) 2.30%(H)
Net investment income 3.6%(G) 2.5% 2.7% 3.1%(C) 3.1% 3.1% 2.0% 1.6% 1.9%
Portfolio turnover rate 61.9% 61.9% 46.6% 40.5% 38.4% 62.1% 39.2% 25.7% 50.1%
Net assets, end of period
(in thousands) $4,823 $194,767 $184,284 $139,034 $52,360 $22,822 $26,815 $30,102 $35,394
<CAPTION>
Years Ended March 31, 1987 1986(A)
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $10.78 $10.00
Net investment income .18 .13(D)
Net realized and
unrealized gain (loss)
on investments .90 .65
Total from investment
operations 1.08 .78
Distributions to
shareholders from:
Net investment income (.19) --
Net realized gain on
investments (.04) --
Net asset value, end of
period $11.63 $10.78
Total return 10.24% 7.80%(E)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.40%(H) 2.20% (G,H)
Net investment income 1.7% 3.8%(G)
Portfolio turnover rate 82.7% 40.0%(G)
Net assets, end of period
(in thousands) $47,028 $44,357
</TABLE>
(A) FOR THE PERIOD NOVEMBER 21, 1985 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1986.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF AN INDEFINITE VOLUNTARY
EXPENSE LIMITATION OF 1.95% BEGINNING NOVEMBER 1, 1992.
(D) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A 1.2%
ADVISER-IMPOSED EXPENSE LIMITATION.
(E) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 21.73%.
(F) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 6.88%.
(G) ANNUALIZED.
(H) INCLUDES DISTRIBUTION FEE OF 1.0%.
5
<PAGE>
SPECIAL INVESTMENT TRUST
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995(B) 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $19.11 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84 $10.14 $12.80
Net investment income .07 (.06) (.11) .03 .12 .18 .12 .06(C) .13(C)
Net realized and
unrealized gain (loss)
on investments .85 (1.31) 3.93 1.66 2.83 2.42 1.70 1.65 (1.825)
Total from investment
operations .92 (1.37) 3.82 1.69 2.95 2.60 1.82 1.71 (1.695)
Distributions to
shareholders from:
Net investment income -- -- (.03) -- (.14) (.27) (.08) (.01) (.075)
Net realized gain on
investments -- (.23) (.14) (.78) (.40) (1.32) -- -- (.89)
Net asset value, end of
period $20.03 $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84 $10.14
Total return 4.81%(E) (6.37)% 21.35% 10.50% 20.46% 21.46% 15.37% 16.99% (14.18)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 0.90%(F) 1.93%(G) 1.94%(G) 2.00%(G) 2.10%(G) 2.30%(G) 2.30%(G) 2.50%(G) 2.50%(G)
Net investment income 1.0%(F) (0.2)% (0.6)% 0.2% 0.8% 1.4% 1.0% 0.7% 1.0%
Portfolio turnover rate 27.5% 27.5% 16.7% 32.5% 56.9% 75.6% 115.9% 122.4% 158.9%
Net assets, end of
period (in thousands) $26,123 $612,093 $565,486 $322,572 $201,772 $106,770 $68,240 $44,450 $43,611
<CAPTION>
Years Ended March 31, 1987 1986(A)
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $11.53 $10.00
Net investment income --(C) .04(C)
Net realized and
unrealized gain (loss)
on investments 1.51 1.49
Total from investment
operations 1.51 1.53
Distributions to
shareholders from:
Net investment income (.02) --
Net realized gain on
investments (.22) --
Net asset value, end of
period $12.80 $11.53
Total return 13.39% 15.30%(D)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.50%(G) 2.50%(F,G)
Net investment income -- 1.2%(F)
Portfolio turnover rate 77.0% 41.0%(F)
Net assets, end of
period (in thousands) $55,822 $34,337
</TABLE>
(A) FOR THE PERIOD DECEMBER 30, 1985 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1986.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A 2.5%
ADVISER-IMPOSED EXPENSE LIMITATION.
(D) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 60.70%.
(E) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 14.51%.
(F) ANNUALIZED.
(G) INCLUDES DISTRIBUTION FEE OF 1.0%.
6
<PAGE>
AMERICAN LEADING COMPANIES
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1995 1994(A)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.69 $10.00
Net investment income(B) 0.12 0.059
Net realized and unrealized gain (loss) on investments 0.48 (0.344)
Total from investment operations 0.60 (0.285)
Distributions to shareholders from net investment income (0.11) (0.025)
Net asset value, end of period $10.18 $ 9.69
Total return 6.24% (2.86)%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(B) 1.95%(B,D)
Net investment income 1.21%(B) 1.14%(B,D)
Portfolio turnover rate 30.5% 21.0%(D)
Net assets, end of period (in thousands) $59,985 $55,022
</TABLE>
(A) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(B) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 1.95% OF
AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE MANAGER, THE
RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER 1,
1993 TO MARCH 31, 1994 AND THE YEAR ENDED MARCH 31, 1995 WOULD HAVE BEEN
2.28% AND 2.12%, RESPECTIVELY.
(C) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN (4.92)%.
(D) ANNUALIZED.
7
<PAGE>
PERFORMANCE INFORMATION
From time to time the Funds may quote the TOTAL RETURN of each class of
shares in advertisements or in reports or other communications to shareholders.
A mutual fund's total return is a measurement of the overall change in value of
an investment in the fund, including changes in share price and assuming
reinvestment of dividends and other distributions. CUMULATIVE TOTAL RETURN shows
the fund's performance over a specific period of time. AVERAGE ANNUAL TOTAL
RETURN is the average annual compounded return that would have produced the same
cumulative total return if the fund's performance had been constant over the
entire period. Average annual returns, which differ from actual year-to-year
results, tend to smooth out variations in a fund's returns. For comparison
purposes, Value Trust's total return is compared with total returns of the Value
Line Geometric Average, an index of approximately 1,700 stocks ("Value Line
Index"), and Standard & Poor's 500 Stock Composite Index ("S&P Stock Index"),
two unmanaged indexes of widely held common stocks. No adjustment has been made
for any income taxes payable by shareholders.
The investment return and principal value of an investment in each Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns of each Fund would have been lower if the
Adviser and/or Legg Mason had not waived certain fees for the fiscal years ended
March 31, as follows: 1989 through 1995 for Value Trust; 1986 through 1995 for
Total Return and Special Investment; and 1994 through 1995 for American Leading
Companies.
Performance figures reflect past performance only and are not intended to
and do not indicate future performance. Further information about each Fund's
performance is contained in its Annual Report to Shareholders, which may be
obtained without charge by calling your Legg Mason or affiliated investment
executive or Legg Mason's Funds Marketing Department at 800-822-5544.
Total returns as of March 31, 1995 are shown below.
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING VALUE LINE
CUMULATIVE TOTAL RETURN VALUE TRUST TRUST INVESTMENT TRUST COMPANIES INDEX
<S> <C> <C> <C> <C> <C>
Primary Class:
One Year +9.77% +1.09% -6.37% +6.24% +5.12%
Five Years +54.50 +56.57 +83.68 N/A +38.57
Ten Years +177.23 N/A N/A N/A +102.99
Life of Class +584.27(A) +99.17(B) +178.15(C) +3.20(D) +244.66(A)
Navigator Class:
Life of Class(E) +8.11 +2.28 +4.81 N/A +6.37
<CAPTION>
S&P STOCK
CUMULATIVE TOTAL RETURN INDEX
<S> <C>
Primary Class:
One Year +15.54%
Five Years +71.50
Ten Years +284.58
Life of Class +586.40(A)
Navigator Class:
Life of Class(E) +11.37
</TABLE>
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING VALUE LINE
AVERAGE ANNUAL TOTAL RETURN VALUE TRUST TRUST INVESTMENT TRUST COMPANIES INDEX
<S> <C> <C> <C> <C> <C>
Primary Class:
One Year +9.77% +1.09% -6.37% +6.24% +5.12%
Five Years +9.09 +9.38 +12.93 N/A +6.74
Ten Years +10.73 N/A N/A N/A +7.34
Life of Class +16.00(A) +7.64(B) +11.69(C) +2.02(D) +10.02(A)
<CAPTION>
S&P STOCK
AVERAGE ANNUAL TOTAL RETURN INDEX
<S> <C>
Primary Class:
One Year +15.54%
Five Years +11.39
Ten Years +14.42
Life of Class +16.03(A)
</TABLE>
(A) INCEPTION OF VALUE TRUST -- APRIL 16, 1982.
(B) INCEPTION OF TOTAL RETURN TRUST -- NOVEMBER 21, 1985.
(C) INCEPTION OF SPECIAL INVESTMENT TRUST -- DECEMBER 30, 1985.
(D) INCEPTION OF AMERICAN LEADING COMPANIES -- SEPTEMBER 1, 1993.
(E) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
The S&P Stock Index and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Tax consequences are not included
in the illustration, nor are brokerage or other fees calculated in the S&P
Stock Index and Value Line Index figures.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Funds' Board
of Directors without a shareholder vote. There can be no assurance that
any Fund will achieve its investment objective.
VALUE TRUST'S objective is long-term growth of capital. The Adviser
believes that the Fund's objective can best be met through the purchase of
securities that appear to be undervalued in relation to the long-term
earning power or asset value of their issuers. Securities may be
undervalued because of many factors, including market decline, poor
economic conditions, tax-loss selling or actual or anticipated unfavorable
developments affecting the issuer of the security. Any or all of these
factors may provide buying opportunities at attractive prices compared to
historical or market price-earnings ratios, book value, return on equity,
or the long-term prospects for the companies in question.
The Adviser believes that the securities of sound, well-managed
companies that may be temporarily out of favor due to earnings declines or
other adverse developments are likely to provide a greater total return
than securities with prices that appear to reflect anticipated favorable
developments and that are therefore subject to correction should any
unfavorable developments occur.
The Fund's policy of investing in securities that may be temporarily
out of favor differs from the investment approach followed by many other
mutual funds with similar investment objectives. Such mutual funds
typically do not invest in securities that have declined sharply in price,
are not widely followed, or are issued by companies that have reported
poor earnings or that have suffered a cyclical downturn in business. The
Adviser believes, however, that purchasing securities depressed by
temporary factors will provide investment returns superior to those
obtained when premium prices are paid for issues currently in favor.
The Fund invests primarily in companies with a record of earnings and
dividends, reasonable return on equity, and sound finances. The Fund may
from time to time invest in securities that pay no dividends or interest.
Current dividend income is not a prerequisite in the selection of equity
securities.
The Fund may invest in debt securities, including government,
corporate and money market securities, for temporary defensive purposes
and, consistent with its investment objective, during periods when or
under circumstances where the Adviser believes the return on certain debt
securities may equal or exceed the return on equity securities. The Fund
may invest in debt securities of both foreign and domestic issuers of any
maturity without regard to rating, and may invest its assets in such
securities without regard to a percentage limit. Although not a
fundamental policy subject to shareholder vote, the Adviser currently
anticipates that under normal market conditions, the Fund will invest no
more than 25% of its total assets in long-term debt securities. Up to 10%
of its total assets may be invested in debt securities rated below
investment grade, i.e., rated lower than BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which offer prospects for capital
appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers without regard to rating and
may invest its assets in such securities without regard to a percentage
limit. The Adviser currently anticipates that under normal market
conditions, the Fund will invest no more than 50% of its total assets in
intermediate-term and long-term debt securities, and no more than 5% of
its total assets in debt securities rated below investment grade, i.e.,
rated lower than BBB by S&P or Baa by Moody's or, if unrated, deemed by
the Adviser to be of comparable quality.
9
<PAGE>
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities of companies with market capitalizations of less than $2.5
billion which the Adviser believes have one or more of the following
characteristics:
1. Equity securities of companies which generally are not closely
followed by, or are out of favor with, investors, and which appear to be
undervalued in relation to their long-term earning power or asset values.
A security may be undervalued because of many factors, including market
decline, poor economic conditions, tax-loss selling, or actual or
anticipated developments affecting the issuer.
2. Equity securities of companies in which unusual and possibly
non-repetitive developments are taking place which, in the opinion of the
Adviser, may cause the market values of the securities to increase. Such
developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. Equity securities of companies involved in actual or anticipated
reorganizations or restructurings under the Bankruptcy Code. No more than
20% of the Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of possible loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
assets may be invested in debt securities rated below BBB by S&P, or below
Baa by Moody's, and unrated securities deemed by the Adviser to be of
comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be rated in one of the four highest rating categories by
S&P or Moody's or, if unrated by S&P or Moody's, deemed by the Adviser to
be of comparable quality.
10
<PAGE>
AMERICAN LEADING COMPANIES' investment objective is to provide
long-term capital appreciation and current income consistent with prudent
investment risk. The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment, primarily in the common stocks of Leading Companies. The Fund
intends to maintain for its shareholders a portfolio of securities which
an experienced investor charged with fiduciary responsibility might select
under the Prudent Investor Rule, as described in the trust laws or court
decisions of many states, including New York. Under normal market
conditions, the Fund will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the S&P 500. Additionally,
LMCM's goal is to purchase companies having what LMCM believes is a
reasonable price/earnings ratio, and it will favor those companies with
well established histories of dividends and dividend growth rates. The
Fund may also invest in companies having capitalizations above or below $2
billion which LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM will not properly
assess the potential for an issuer's future growth, or that an issuer will
not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and polices require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
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, during periods when LMCM believes the
return on certain debt securities may equal or exceed the return on equity
securities. The Fund may invest in debt securities of any maturity of both
foreign and domestic issuers. The debt securities in which the Fund may
invest will be rated at least A by S&P or Moody's, or deemed by LMCM to be
of comparable quality. The 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 longer the time to maturity the
greater are such variations.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities rated below Ba by Moody's or BB by S&P or, if unrated, deemed
by the Adviser to be of comparable quality.
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in money market instruments,
including repurchase agreements and (with respect to American Leading
Companies) high-quality short-term debt securities. A repurchase agreement
is an agreement under which either U.S. government obligations or
high-quality liquid debt securities are acquired from a securities dealer
or bank subject to resale at an agreed-upon price and date. The securities
are held for each Fund by State Street Bank and Trust Company ("State
Street"), the Funds' custodian, as collateral until resold and will be
supplemented by additional collateral if necessary to maintain a total
value equal to or in excess of the value of the repurchase agreement. Each
Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed
or prevented from exercising its rights to dispose of the collateral
securities, which may decline in value in
11
<PAGE>
the interim. The Funds will enter into repurchase agreements only with
financial institutions determined by the Adviser to present minimal risk
of default during the term of the agreement based on guidelines
established by the Funds' Boards of Directors. A Fund will not enter into
repurchase agreements of more than seven days' duration if more than 10%
(for Value Trust, Total Return Trust and Special Investment Trust) or 15%
(for American Leading Companies) of its net assets would be invested in
such agreements and other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its total assets.
For further information concerning securities lending, see the Statement
of Additional Information.
Foreign Securities
The Funds may also invest in American depositary receipts ("ADRs"),
which are securities issued by domestic banks evidencing their ownership
of specific foreign securities. ADRs may be sponsored or unsponsored;
issuers of securities underlying unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. Accordingly, there
may be less information available about such issuers than there is with
respect to domestic companies and issuers of securities underlying
sponsored ADRs. Although ADRs are denominated in U.S. dollars, the
underlying security often is not; thus, the value of the ADR may be
subject to exchange controls and variations in the exchange rate.
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic
issuers. In addition, with respect to certain foreign countries, there is
the possibility of expropriation, confiscatory taxation, withholding taxes
and limitations on the use or removal of funds or other assets. Although
not a fundamental policy subject to shareholder vote, the Adviser
currently anticipates that Value Trust, Total Return Trust and Special
Investment Trust will each invest no more than 25% of its total assets in
foreign securities. American Leading Companies may not invest more than
25% of its total assets in foreign securities, either directly or through
ADRs.
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST:
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. A Fund
may sell an interest rate futures contract to offset price changes of debt
securities it already owns. This strategy is intended to minimize any
price changes in the debt securities a Fund owns (whether increases or
decreases) caused by interest rate changes, because the value of the
futures contract would be expected to move in the opposite direction from
the value of the securities owned by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of
12
<PAGE>
the put option would be expected to rise and offset all or a portion of
the Fund's resulting losses in its stock holdings. However, option
premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, the Fund would give up
some ability to participate in security price increases when writing call
options.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the Adviser in managing the Funds'
portfolio. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the Adviser is not
successful in employing such instruments in managing a Fund's investments
or in predicting interest rate changes, the Fund's performance will be
worse than if the Fund did not make such investments. It is possible that
there will be imperfect correlation, or even no correlation, between price
movements of the investments being hedged and the options or futures used.
It is also possible that a Fund may be unable to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to
do so, or that a Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or
to segregate securities in connection with hedging transactions and that a
Fund may be unable to close out or liquidate hedged positions. In
addition, the Funds will pay commissions and other costs in connection
with such investments, which may increase each Fund's expenses and reduce
its yield. A more complete discussion of the possible risks involved in
transactions in options and futures contracts is contained in the
Statement of Additional Information. Each Fund's current policy is to
limit options and futures transactions to those described above. The Funds
may purchase and write both over-the-counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. By entering into
a foreign currency contract, a Fund "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for the
duration of the contract. A Fund may enter into these contracts for the
purpose of hedging against risk arising from its investment in securities
denominated in foreign currencies or when it anticipates investing in such
securities. Forward currency contracts involve certain costs and risks,
including the risk that anticipated currency movements will not be
accurately predicted, causing a Fund to sustain losses on these contracts.
AMERICAN LEADING COMPANIES:
The Fund may sell covered call options on any security in which it is
permitted to invest for the purpose of enhancing income. A call option
gives the purchaser the right to purchase the underlying security from the
Fund at a specified price (the "strike price") during a specified period.
A call option is "covered" if, at all times the option is outstanding, the
Fund holds the underlying security or a right to obtain that security at
no additional cost. The Fund may purchase a call
13
<PAGE>
option for the purpose of closing out a short position in an option.
The use of options involves certain risks. These risks include: (1)
the fact that use of these instruments can reduce the opportunity for
gain; (2) dependence on LMCM's ability to predict movements in the prices
of individual securities, fluctuations in the general securities markets
or in market sectors; (3) imperfect correlation between movements in the
price of options and movements in the price of the underlying securities;
(4) the possible lack of a liquid secondary market for a particular option
at any particular time; (5) the possibility that the use of cover
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other
short-term obligations; and (6) the possible need to defer closing out
positions in these instruments in order to avoid adverse tax consequences.
There can be no assurance that the use of options by the Fund will be
successful. As a non-fundamental policy, the Fund will not sell a covered
call option if, as a result, the value of the portfolio securities
underlying all outstanding covered call options would exceed 25% of the
value of the equity securities held by the Fund. See the Statement of
Additional Information for a more detailed discussion of options
strategies.
RISKS OF LOWER RATED DEBT SECURITIES
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST:
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated D by S&P are in default. However, debt
securities, regardless of their ratings, generally have a higher priority
in the issuer's capital structure than do equity securities.
Lower rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the
financial condition of the issuers. Highly leveraged issuers may also
experience financial stress during periods of rising interest rates.
The market for lower rated debt securities has expanded rapidly in
recent years, which growth paralleled a long economic expansion. At
certain times in the past, the prices of many lower rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, the yields on lower
rated debt securities rose dramatically, reflecting the risk that holders
of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur.
The market for lower rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit
a Fund's ability to sell such securities at fair value. Judgment plays a
greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower rated debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. Such
ratings are relative and subjective, and are not absolute standards of
quality. Unrated debt securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by the Adviser to determine, to
the extent possible, that the planned investment is sound. Each Fund does
not intend to invest in securities that are in default, or where, in the
Adviser's opinion, default appears likely.
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or (2) 67% or more
of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Other Fund policies, unless described as fundamental, can be
changed by action of the Board of Directors.
The fundamental restrictions applicable to American Leading Companies
include a prohibition on investing 25% or more of its total assets in the
securities of issuers having their principal business activities in the
same industry (with the
14
<PAGE>
exception of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements with respect
thereto).
HOW TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield may purchase Navigator Shares from
Fairfield, the principal offices of which are located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Other investors eligible to purchase
Navigator Shares may purchase them through a brokerage account with Legg
Mason. (Legg Mason and Fairfield are wholly owned subsidiaries of Legg
Mason, Inc., a financial services holding company.)
Purchase of Shares
The minimum investment is $50,000 for the initial purchase of
Navigator Shares and $100 for each subsequent investment. Each Fund
reserves the right to change these minimum amounts at its discretion.
Institutional Clients may set different minimums for their Customers'
investments in accounts invested in Navigator Shares.
Share purchases will be processed at the net asset value next
determined after Legg Mason or Fairfield has received your order; payment
must be made within three business days to the selling organization.
Orders received by Legg Mason or Fairfield before the close of regular
trading on the New York Stock Exchange ("Exchange") (normally 4:00 p.m.
Eastern time) ("close of the Exchange") on any day the Exchange is open
will be executed at the net asset value determined as of the close of the
Exchange on that day. Orders received by Legg Mason or Fairfield after the
close of the Exchange or on days the Exchange is closed will be executed
at the net asset value determined as of the close of the Exchange on the
next day the Exchange is open. See "How Net Asset Value is Determined" on
page 16. Each Fund reserves the right to reject any order for its shares
or to suspend the offering of shares for a period of time.
In addition to Institutional Clients purchasing shares directly from
Fairfield, Navigator Shares may be purchased through procedures
established by Fairfield in connection with requirements of Customer
Accounts of various Institutional Clients.
No sales charge is imposed by any of the Funds in connection with the
purchase of Navigator Shares. Depending upon the terms of a particular
Customer Account, however, Institutional Clients may charge their
Customers fees for automatic investment and other cash management services
provided in connection with investments in the Funds. Information
concerning these services and any applicable charges will be provided by
the Institutional Clients. This Prospectus should be read by Customers in
connection with any such information received from the Institutional
Clients. Any such fees, charges or other requirements imposed by an
Institutional Client upon its Customers will be in addition to the fees
and requirements described in this Prospectus.
Redemption of Shares
Shares may ordinarily be redeemed by a shareholder via telephone, in
accordance with the procedures described below. However, Customers of
Institutional Clients wishing to redeem shares held in Customer Accounts
at the Institution may redeem only in accordance with instructions and
limitations pertaining to their Account at the Institution.
Fairfield clients can make telephone redemption requests by calling
Fairfield at 1-800-441-3885. Legg Mason clients should call their
investment executives or Legg Mason Funds Processing at
1-800-822-5544. Callers should have available the number of shares (or
dollar amount) to be redeemed and their account number.
Orders for redemption received by Legg Mason or Fairfield before the
close of the Exchange, on any day when the Exchange is open, will be
transmitted to Boston Financial Data Services ("BFDS"), transfer agent for
the Funds, for redemption at the net asset value per share determined as
of the close of the Exchange on that day. Requests for redemption received
by Legg Mason or Fairfield after the close of the Exchange will be
executed at the net asset value determined as of the close of the Exchange
on its next trading day. A redemption request received by Legg Mason or
Fairfield may be treated as a request for repurchase and, if it is
accepted by Legg Mason, your shares will be purchased at the net asset
value per share determined as of the next close of the Exchange.
Shareholders may have their telephone redemption requests paid by a
direct wire to a domestic commercial bank account previously designated by
the shareholder, or mailed to the name and address in which the
shareholder's account is registered with the Fund. Such payments will
normally be transmitted on the next business day following receipt of a
valid request for redemption. However, each Fund reserves the right to
take up to seven days to make payment upon redemption if, in the judgment
of the Adviser, that Fund could be adversely affected by immediate
payment. (The Statement of Additional Information describes several other
circumstances in which the date of payment may be postponed or the right
of redemption
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suspended.) The proceeds of redemption or repurchase may be more or less
than the original cost. If the shares to be redeemed or repurchased were
paid for by check (including certified or cashier's checks) within 15
business days of the redemption or repurchase request, the proceeds may
not be disbursed unless the Fund can be reasonably assured that the check
has been collected.
Each Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. Each Fund may request identifying
information from callers or employ identification numbers. Each Fund may
be liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their investment executive for further
instructions.
Because of the relatively high cost of maintaining small accounts, a
Fund may elect to close any account with a current value of less than $500
by redeeming all of the shares in the account and mailing the proceeds to
the investor. However, the Funds will not redeem accounts that fall below
$500 solely as a result of a reduction in net asset value per share. If a
Fund elects to redeem the shares in an account, the investor will be
notified that the account is below $500 and will be allowed 60 days in
which to make an additional investment in order to avoid having the
account closed.
HOW SHAREHOLDER ACCOUNTS ARE MAINTAINED
A shareholder account is established automatically for each investor.
Any shares the investor purchases or receives as a dividend or other
distribution will be credited directly to the account at the time of
purchase or receipt. No certificates are issued unless the shareholder
specifically requests them in writing. Shareholders who elect to receive
certificates can redeem their shares only by mail. Certificates will be
issued in full shares only. No certificates will be issued for shares of
any Fund prior to 15 business days after purchase of such shares by check
unless the Fund can be reasonably assured during that period that payment
for the purchase of such shares has been collected. Shares may not be held
in, or transferred to, an account with any brokerage firm other than
Fairfield, Legg Mason or their affiliates.
Every shareholder of record will receive a confirmation of each new
share transaction with a Fund, which will also show the total number of
shares being held in safekeeping by the Funds' transfer agent for the
account of the shareholder.
Navigator Shares sold to Institutional Clients acting in a fiduciary,
advisory, custodial or other similar capacity on behalf of persons
maintaining Customer Accounts at Institutional Clients will normally be
held of record by the Institutional Clients. Therefore, in the context of
Institutional Clients, references in this Prospectus to shareholders mean
the Institutional Clients rather than their Customers. Institutional
Clients purchasing or holding Navigator Shares on behalf of their
Customers are responsible for the transmission of purchase and redemption
orders (and the delivery of funds) to a Fund on a timely basis.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Navigator Share of each Fund is determined daily
as of the close of the Exchange, on every day that the Exchange is open,
by subtracting the liabilities attributable to Navigator Shares from the
total assets attributable to such shares and dividing the result by the
number of Navigator Shares outstanding. Securities owned by each Fund for
which market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by each Fund's Board of Directors.
Where a security is traded on more than one market, which may include
foreign markets, the securities are generally valued on the market
considered by the Adviser/LMCM to be the primary market. Securities with
remaining maturities of 60 days or less are valued at amortized cost. Each
Fund will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which consists of net investment
income, any net short-term capital gain and any net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust, and American Leading Companies declare and pay
dividends from net investment income quarterly; they pay dividends from
any net short-term capital gains and net gains from foreign currency
transactions annually. Special Investment Trust declares and pays
dividends from its investment company taxable income following the end of
each taxable year. Each Fund also distributes substantially all of its net
capital
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gain (the excess of net long-term capital gain over net short-term capital
loss) after the end of the taxable year in which the gain is realized. A
second distribution of net capital gain may be necessary in some years to
avoid imposition of the excise tax described under the heading "Additional
Tax Information" in the Statement of Additional Information. Shareholders
may elect to:
1. Receive both dividends and other distributions in Navigator Shares
of the distributing Fund;
2. Receive dividends in cash and other distributions in Navigator
Shares of the distributing Fund;
3. Receive dividends in Navigator Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, shareholders may reinvest dividends and other
distributions in shares of another Navigator fund. A shareholder should
contact its investment executive for additional information about this
option. Qualified retirement plans that obtained Navigator Shares through
exchange generally receive dividends and other distributions in additional
shares.
If no election is made, both dividends and other distributions will be
credited to the Institutional Client's account in Navigator Shares at the
net asset value of the shares determined as of the close of the Exchange
on the reinvestment date. Shares received pursuant to any of the first
three (reinvestment) elections above also will be credited to your account
at that net asset value. If an investor elects to receive dividends or
other distributions in cash, a check will be sent. Investors purchasing
through Fairfield may elect at any time to change the distribution option
by notifying the applicable Fund in writing at: [insert complete Fund
name], c/o Fairfield Group, Inc., 200 Gibraltar Road, Horsham,
Pennsylvania 19044. Those purchasing through Legg Mason should write to:
[insert complete Fund name], c/o Legg Mason Funds Processing, P.O. Box
1476, Baltimore, Maryland 21203-1476. An election must be received at
least 10 days before the record date in order to be effective for
dividends and other distributions paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Code"), so that it will be relieved of federal income tax on that part
of its investment company taxable income (generally consisting of net
investment income, any net short-term capital gain and any net gains from
certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Fund shares) are taxable to their
shareholders (other than tax-exempt investors) as ordinary income to the
extent of each Fund's earnings and profits. Distributions of each Fund's
net capital gain (whether paid in cash or reinvested in Fund shares), when
designated as such, are taxable to those shareholders as long-term capital
gain, regardless of how long they have held their Fund shares.
Each Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amounts of all ordinary
income dividends and other distributions paid (or deemed paid) during that
year.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are
more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Fund shares for shares of any other Navigator fund
generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," page 18. If Fund shares are purchased
within 30 days before or after redeeming other Fund shares at a loss, all
or part of that loss will not be deductible and instead will increase the
basis of the newly purchased shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Fund shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur tax
liabilities and should not be made solely for the purpose of receiving the
dividend or other distribution.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for a further discussion. In addition
to federal income tax, an investor may also be subject to state, local or
foreign taxes on distributions from the Funds, depending on the laws of
its home state and locality. A portion of the dividends paid by the Funds
attributable to direct U.S. government obligations
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is not subject to state and local income taxes in most jurisdictions. Each
Fund's annual notice to shareholders regarding the amount of dividends
identifies this portion. Prospective shareholders are urged to consult
their tax advisers with respect to the effects of this investment on their
own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
Shareholders will receive from Legg Mason a confirmation after each
transaction involving Navigator Shares (except a reinvestment of dividends
and capital gain distributions). An account statement will be sent to each
shareholder monthly unless there has been no activity in the account, in
which case an account statement will be sent quarterly. Reports will be
sent to each Fund's shareholders at least semiannually showing its
portfolio and other information; the annual report for each Fund will
contain financial statements audited by its respective independent
accountants/auditors.
Confirmations for purchases and redemptions of Navigator Shares made
by Institutional Clients acting in a fiduciary, advisory, custodial, or
other similar capacity on behalf of persons maintaining Customer Accounts
at Institutional Clients will be sent to the Institutional Client.
Beneficial ownership of shares by Customer Accounts will be recorded by
the Institutional Client and reflected in the regular account statements
provided by them to their customers.
Shareholder inquiries should be addressed to "[insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476," or "[insert complete Fund name], c/o Fairfield Group, Inc.,
200 Gibraltar Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for
Navigator Shares of the following funds, provided the shares to be
acquired are eligible for sale under applicable state securities laws:
Navigator Money Market Fund, Inc. -- Prime Obligations Portfolio
A money market fund seeking to provide as high a level of current
interest income as is consistent with liquidity and relative stability of
principal.
Navigator Tax-Free Money Market Fund, Inc.
A money market fund seeking to provide its shareholders with as high a
level of current interest income that is exempt from federal income taxes
as is consistent with liquidity and relative stability of principal.
Navigator Value Trust
A mutual fund seeking long-term growth of capital.
Navigator Total Return Trust
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Navigator Special Investment Trust
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
Navigator American Leading Companies Trust
A mutual fund seeking long-term capital appreciation and current
income consistent with prudent investment risk.
Navigator U.S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
Navigator Maryland Tax-Free Income Trust
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Navigator Pennsylvania Tax-Free Income Trust
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Navigator Tax-Free Intermediate-Term Income Trust
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
Legg Mason Cash Reserve Trust
A money market fund seeking stability of principal and current income
consistent with stability of principal.
Investments by exchange into other Navigator funds are made at the per
share net asset value
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next determined on the same business day as redemption of the Fund shares
you wish to exchange. To obtain further information concerning the
exchange privilege and prospectuses of other Navigator funds, or to make
an exchange, please contact your investment executive. To effect an
exchange by telephone, please call your investment executive with the
information described in the section "How to Purchase and Redeem Shares,"
page 15. The other factors relating to telephone redemptions described in
that section apply also to telephone exchanges. Please read the prospectus
for the other fund(s) carefully before you invest by exchange. Each Fund
reserves the right to modify or terminate the exchange privilege upon 60
days' notice to shareholders. There is no assurance the money market funds
will be able to maintain a $1.00 share price. None of the funds is insured
or guaranteed by the U.S. Government.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to each of those Funds. The Adviser administers and
acts as the portfolio manager for each Fund and has responsibility for the
actual investment management of the Funds, including the responsibility
for making decisions and placing orders to buy, sell or hold a particular
security. The Adviser acts as adviser, manager or consultant to sixteen
investment company portfolios which had aggregate assets under management
of approximately $4.6 billion as of June 30, 1995. The Adviser's address
is 111 South Calvert Street, Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Mr. Miller has been responsible for the day-to-day
management of the Total Return Trust since November 1990. Nancy T. Dennin
joined Mr. Miller as co-manager of the Total Return Trust on January 1,
1992. Mr. Miller has also been primarily responsible for the day-to-day
management of the Special Investment Trust since its inception in 1985.
Mr. Miller is a portfolio manager and President of the Adviser. Mr.
Miller has been employed by the Adviser since 1982. Mrs. Dennin is a Vice
President of the Adviser and has been employed by the Adviser since 1985.
From 1985 through 1991, Mrs. Dennin analyzed various industries for the
Adviser including financial services, retail, apparel and insurance.
The Adviser receives for its services a management fee from each Fund
attributable to the net assets of Navigator Shares, calculated daily and
payable monthly. The Adviser receives a fee at an annual rate of 1.0% of
the Value Trust's average daily net assets for the first $100 million of
average net assets; 0.75% of average daily net assets between $100 million
and $1 billion; and 0.65% of average daily net assets exceeding $1
billion. The Adviser receives from Total Return Trust, a management fee at
an annual rate of 0.75% of the average daily net assets of the Fund. The
Adviser receives from Special Investment Trust, a management fee at an
annual rate of 1.0% of the average daily net assets of the Fund for the
first $100 million of average net assets and 0.75% of average daily net
assets exceeding $100 million. The management fee paid by each Fund is
higher than fees paid by most other funds to their investment advisers.
For the Total Return Trust, the Adviser has agreed to waive indefinitely
its fees in any month to the extent the Total Return Trust's expenses
related to Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) exceed during any month an annual rate of 0.95% of
the Fund's average daily net assets. During the fiscal year ended March
31, 1995, Value Trust paid a management fee of 0.78% of its average daily
net assets, Total Return Trust paid a management fee of 0.75% of its
average daily net assets, and Special Investment Trust paid a management
fee of 0.79% of its average daily net assets.
MANAGER
Pursuant to a management agreement with American Leading Companies
("Management Agreement"), which was approved by the Trust's Board of
Directors, Legg Mason Fund Adviser, Inc. ("Manager"), a wholly owned
subsidiary of Legg Mason, Inc., serves as the Fund's manager. The Fund
pays the Manager, pursuant to the Management Agreement, a management fee
equal to an annual rate of 0.75% of the Fund's average daily net assets
attributable to Navigator Shares. The management fee paid by the Fund is
higher than
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fees paid by most other equity funds. The Fund pays all its other expenses
which are not assumed by the Manager. The Manager has agreed to waive its
fees and to reimburse the Fund for its expenses related to Navigator
Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) in excess of 0.95% of the Fund's average net assets
indefinitely. This agreement is voluntary and may be terminated by the
Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays LMCM a fee, computed daily and
payable monthly, at an annual rate equal to 40% of the fee received by the
Manager, or 0.30% of the Fund's average daily net assets attributable to
Navigator Shares.
LMCM has not previously advised a registered investment company.
However, LMCM manages private accounts with a value as of April 30, 1995
of approximately $700 million. The address of LMCM is 111 South Calvert
Street, Baltimore, MD 21202.
J. Eric Leo serves as portfolio manager for the Fund and is primarily
responsible for the selection of investments. Mr. Leo has been Executive
Vice President and Chief Investment Officer of LMCM since December 1991.
From October 1986 to December 1991, he served as Managing Director of
Equitable Capital Management, where he managed, among other assets, the
Equitable Account #1 -- Growth & Income Commingled Fund. Prior to joining
Equitable, Mr. Leo was President and Chief Investment Officer for Sperry
Capital Management Corp., where he was responsible for $1.1 billion in
pension assets.
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to a
separate Underwriting Agreement with each Fund. Each Underwriting
Agreement obligates Legg Mason to pay certain expenses in connection with
the offering of shares, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses, statements of
additional information and reports have been prepared, set in type and
mailed to existing shareholders at the Fund's expense, and for any
supplementary sales literature and advertising costs. Legg Mason also
assists BFDS with certain of its duties as transfer agent; for the year
ended March 31, 1995, Legg Mason received from BFDS $222,259, $52,972,
$178,389 and $19,487 for performing such services in connection with Value
Trust, Total Return Trust, Special Investment Trust and American Leading
Companies, respectively.
Fairfield Group, Inc., a wholly owned subsidiary of Legg Mason, Inc.,
is a registered broker-dealer with principal offices located at 200
Gibraltar Road, Horsham, Pennsylvania 19044. Fairfield may sell Navigator
Shares pursuant to a Dealer Agreement with the Funds' Distributor, Legg
Mason. Neither Fairfield nor Legg Mason receives compensation from the
Funds for selling Navigator Shares.
The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION/TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each has authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of Incorporation of
American Leading Companies authorize the Trust to issue one billion shares
of par value $.001 per share. Each corporation may issue additional series
of shares. Each Fund currently offers two Classes of Shares -- Class A
(known as "Primary Shares") and Class Y (known as "Navigator Shares"). The
two Classes represent interests in the same pool of assets. A separate
vote is taken by a Class of Shares of a Fund if a matter affects just that
Class of Shares. Each Class of Shares may bear certain differing
Class-specific expenses. Salespersons and others entitled to receive
compensation for selling or servicing Fund shares may receive more with
respect to one Class than another.
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The initial and subsequent investment minimums for Primary Shares are
$1,000 and $100, respectively. Investments in Primary Shares may be made
through a Legg Mason or affiliated investment executive, through the
Future First Systematic Investment Plan or through automatic investment
arrangements.
Holders of Primary Shares bear distribution and service fees under
Rule 12b-1 at the rate of 1.0% of the net assets attributable to Primary
Shares of Special Investment Trust, Total Return Trust and American
Leading Companies and 0.95% of the net assets attributable to Primary
Shares of Value Trust. Investors in Primary Shares may elect to receive
dividends and/or capital gain distributions in cash through the receipt of
a check or a credit to their Legg Mason account. The per share net asset
value of the Navigator Shares, and dividends and distributions (if any)
paid to Navigator shareholders, are generally expected to be higher than
those of Primary Shares of the Fund, because of the lower expenses
attributable to Navigator Shares. The per share net asset value of the
Classes of Shares will tend to converge, however, immediately after the
payment of ordinary income dividends. Primary Shares of the Funds may be
exchanged for the corresponding Class of Shares of other Legg Mason funds.
Investments by exchange into the Legg Mason funds sold with an initial
sales charge are made at the per share net asset value, plus the sales
charge, determined on the same business day as redemption of the Fund
shares the investors in Primary Shares wish to redeem.
The Boards of Directors of the Funds do not anticipate that there will
be any conflicts among the interests of the holders of the different
Classes of Fund shares. On an ongoing basis, the Boards will consider
whether any such conflict exists and, if so, take appropriate action.
Shareholders of each Fund are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of each Fund are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters
(including the election of directors, approval of an advisory contract,
and approval of a plan of distribution pursuant to Rule 12b-1). Each Fund
will call a special meeting of the shareholders at the request of 10% or
more of the shares entitled to vote; shareholders wishing to call such a
meeting should submit a written request to the Fund at 111 South Calvert
Street, Baltimore, Maryland 21202, stating the purpose of the proposed
meeting and the matters to be acted upon. The address of BFDS is P.O. Box
953, Boston, Massachusetts 02103.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omission regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
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Notes
