THE
Navigator
Class
OF THE
Legg Mason
Equity Funds
Putting Your Future First
Growth
Navigator Class of Value Trust
Navigator Class of American Leading Companies Trust
Growth & Income
Navigator Class of Total Return Trust
Navigator Class of Balanced Trust
Aggressive Growth
Navigator Class of Special Investment Trust
Prospectus
July 31, 1996
As Amended February 12, 1997
This wrapper is not part of the prospectus.
Addresses
Distributor:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000 800 (bullet) 822 (bullet) 5544
Authorized Dealer:
Fairfield Group, Inc.
200 Gibraltar Road
Horsham, PA 19044
Transfer and Shareholder Servicing Agent:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
Counsel:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036-1800
Independent Accountants/Auditors:
Coopers & Lybrand L.L.P.
217 East Redwood Street
Baltimore, Maryland 21202
Ernst & Young LLP
One North Charles Street
Baltimore, Maryland 21202
No person has been authorized to give any information or to make
any representations not contained in this Prospectus or the State-
ment of Additional Information in connection with the offering
made by the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute
an offering by the Fund or by the principal underwriter in any
jurisdiction in which such offering may not lawfully be made.
[Legg Mason Logo]
FUNDS
<PAGE>
NAVIGATOR EQUITY FUNDS
PROSPECTUS
JULY 31, 1996
AS AMENDED FEBRUARY 12, 1997
LEGG MASON VALUE TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES
TRUST, A SERIES OF LEGG MASON INVESTORS
TRUST, INC. LEGG MASON BALANCED TRUST,
A SERIES OF LEGG MASON INVESTORS TRUST, INC.
Shares of Navigator Value Trust, Navigator Total Return Trust, Navigator
Special Investment Trust, Navigator American Leading Companies and Navigator
Balanced Trust (collectively referred to as ("Navigator Shares") represent
separate classes ("Navigator Classes") of common stock in Legg Mason Value
Trust, Inc. ("Value Trust"), Legg Mason Total Return Trust, Inc. ("Total Return
Trust"), Legg Mason Special Investment Trust, Inc. ("Special Investment Trust"),
Legg Mason American Leading Companies Trust ("American Leading Companies") and
Legg Mason Balanced Trust ("Balanced Trust") (each 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, 1996 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 or securities convertible into common stock
which do
<PAGE>
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. ("Investors Trust"), a diversified open-end management
investment company. Under normal market conditions, American Leading Companies
will invest at least 75% of its total assets in a diversified portfolio of
dividend-paying common stocks of Leading Companies that have market
capitalizations of at least $2 billion. The Fund's investment adviser, Legg
Mason Capital Management, Inc. ("LMCM"), defines a "Leading Company" as a
company that, in the opinion of LMCM, has attained a major market share in one
or more products or services within its industry(ies), and possesses the
financial strength and management talent to maintain or increase market share
and profit in the future. Such companies are typically well known as leaders in
their respective industries; most are found in the top half of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500").
BALANCED TRUST is a professionally managed portfolio seeking long-term
capital appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. Balanced Trust is a separate
series of the Investors Trust. Under normal conditions, Balanced Trust will
invest no more than 75% of its assets in equity securities. The term "equity
securities" includes, without limitation, common stocks, and convertible
securities of domestic issuers, securities of closed-end investment companies
and U.S. dollar-denominated securities of foreign issuers, including American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). Balanced
Trust will invest at least 25% of its portfolio in fixed income securities.
TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Performance Information 8
Investment Objectives and Policies 10
How To Purchase and Redeem Shares 20
How Shareholder Accounts are
Maintained 21
How Net Asset Value is Determined 21
Dividends and Other Distributions 22
Tax Treatment of Dividends and
Other Distributions 22
Shareholder Services 23
The Funds' Management and Investment Advisers 23
The Funds' Distributor 25
Description of each Corporation/Trust
and its Shares 25
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 of Value Trust, Total Return Trust, Special
Investment Trust and American Leading Companies for the year ended March 31,
1996. For Balanced Trust, which has no operating history prior to the date of
this Prospectus, other expenses are based on estimates for the current fiscal
period, and fees are adjusted for current expense limits and fee waiver levels.
ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES(A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
Management fees
(after fee
waivers) 0.77% 0.75% 0.82% 0.50% 0.50%
12b-1 fees None None None None None
Other expenses 0.05% 0.19% 0.06% 0.45% 0.60%
Total operating
expenses (after
fee waivers) 0.82% 0.94% 0.88% 0.95% 1.10%
(A) The Manager has voluntarily agreed to waive the management fee and assume
certain other expenses to the extent necessary to limit total operating
expenses relating to Navigator Shares (exclusive of taxes, brokerage
commissions, interest and extraordinary expenses) as follows: for Total
Return Trust and American Leading Companies, 0.95% of each Fund's average
daily net assets indefinitely; and for Balanced Trust, 1.10% of average
daily net assets until July 31, 1997. In the absence of such waivers, the
management fee, other expenses and total operating expenses relating to
Navigator Shares would have been as follows: for Total Return Trust, the
same as described above; for American Leading Companies, 0.75%, 0.45% and
1.20% of average net assets; and for Balanced Trust, 0.75%, 0.60% and 1.35%
of average net assets.
For further information concerning the Funds' expenses, please see "The
Funds' Management and Investment Advisers," page 23.
EXAMPLE
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.
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING BALANCED
TRUST TRUST TRUST COMPANIES TRUST
1 Year $ 8 $ 10 $ 9 $ 10 $11
3 Years $ 26 $ 30 $ 28 $ 30 $34
5 Years $ 46 $ 52 $ 49 $ 53 N/A
10 Years $101 $115 $108 $117 N/A
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
Each Fund offers two classes of shares, Primary Shares and Navigator
Shares. Navigator Shares pay no 12b-1 distribution fees and may pay lower
transfer agency fees. The information for Primary Shares reflects the 12b-1
fees paid by that Class.
The financial information in the tables that follow has been audited
for Value Trust, Total Return Trust and Special Investment Trust by Coopers
& Lybrand L.L.P., independent accountants and for American Leading
Companies by Ernst & Young LLP, independent auditors. Each Fund's financial
statements for the year ended March 31, 1996 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.
As of the date of this Prospectus, Balanced Trust has not issued any
annual reports.
VALUE TRUST(A)
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S><C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16 $12.14 $15.07
Net investment
income .19 .10 .08 .18 .25 .32 .33 .21 .21
Net realized and
unrealized gain
(loss) on
investments 8.00 1.70 .92 2.12 2.34 (.74) .77 1.99 (1.54)
Total from
investment
operations 8.19 1.80 1.00 2.30 2.59 (.42) 1.10 2.20 (1.33)
Distributions to
shareholders from:
Net investment
income (.17) (.05) (.11) (.18) (.28) (.36) (.33) (.18) (.20)
Net realized gain
on investments (1.24) (.04) (.20) -- -- (.03) (.74) -- (1.40)
Total distributions (1.41) (.09) (.31) (.18) (.28) (.39) (1.07) (.18) (1.60)
Net asset value,
end of period $26.99 $20.21 $18.50 $17.81 $15.69 $13.38 $14.19 $14.16 $12.14
Total return(C) 42.09% 9.77% 5.65% 14.76% 19.53% (2.88)% 7.74% 18.33% (8.42)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average
net assets:
Expenses 1.82%(E) 1.81%(E) 1.82%(E) 1.86%(E) 1.90%(E) 1.90%(E) 1.86%(E) 1.96%(E) 1.97%(E)
Net investment
income 0.8% 0.5% 0.5% 1.1% 1.7% 2.5% 2.2% 1.6% 1.5%
Portfolio turnover
rate 19.6% 20.1% 25.5% 21.8% 39.4% 38.8% 30.7% 29.7% 47.8%
Net assets, end of
period (in
thousands) $1,450,774 $986,325 $912,418 $878,394 $745,833 $690,053 $808,780 $720,961 $665,689
<CAPTION>
NAVIGATOR
CLASS
Years Ended March 31, 1987 1996 1995(B)
<S><C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $15.34 $20.27 $18.76
Net investment
income .21 .43 .12
Net realized and
unrealized gain
(loss) on
investments 1.11 8.02 1.40
Total from
investment
operations 1.32 8.45 1.52
Distributions to
shareholders from:
Net investment
income (.20) (.40) (.01)
Net realized gain
on investments (1.39) (1.24) --
Total distributions (1.59) (1.64) (.01)
Net asset value,
end of period $15.07 $27.08 $20.27
Total return(C) 9.89% 43.53% 8.11%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average
net assets:
Expenses 2.00%(E) 0.82% 0.82%(D)
Net investment
income 1.5% 1.8% 1.8%(D)
Portfolio turnover
rate 42.5% 19.6% 20.1%
Net assets, end of
period (in
thousands) $819,348 $52,332 $36,519
</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 FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0% THROUGH MAY 11, 1987 AND 0.95%
THEREAFTER.
4
<PAGE>
TOTAL RETURN TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $12.79 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06 $ 8.86 $11.63 $10.78
Net investment income .48 .33 .36 .39(B) .34 .28 .21 .15 .18 .18
Net realized and unrealized
gain (loss) on investments 3.69 (.19) .24 1.89 1.91 (.31) .15 1.18 (1.35) .90
Total from investment
operations 4.17 .14 .60 2.28 2.25 (.03) .36 1.33 (1.17) 1.08
Distributions to shareholders
from:
Net investment income (.51) (.29) (.33) (.31) (.25) (.29) (.21) (.13) (.21) (.19)
Net realized gain on
investments -- (.60) (.34) -- -- (.07) (.18) -- (1.39) (.04)
Total distributions (.51) (.89) (.67) (.31) (.25) (.36) (.39) (.13) (1.60) (.23)
Net asset value, end of
period $16.45 $12.79 $13.54 $13.61 $11.64 $ 9.64 $10.03 $10.06 $ 8.86 $11.63
Total return(C) 33.23% 1.09% 4.57% 19.88% 23.59% (0.05)% 3.48% 15.16% (10.17)% 10.24%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(E) 1.93%(E) 1.94%(E) 1.95%(B,E) 2.34%(E) 2.50%(E) 2.39%(E) 2.40%(E) 2.30%(E) 2.40%(E)
Net investment income 3.2% 2.5% 2.7% 3.1%(B) 3.1% 3.1% 2.0% 1.6% 1.9% 1.7%
Portfolio turnover rate 34.7% 61.9% 46.6% 40.5% 38.4% 62.1% 39.2% 25.7% 50.1% 82.7%
Net assets, end of period
(in thousands) $267,010 $194,767 $184,284 $139,034 $52,360 $22,822 $26,815 $30,102 $35,394 $47,028
<CAPTION>
NAVIGATOR
CLASS
Years Ended March 31, 1996 1995(A)
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $12.83 $12.66
Net investment income .62 .15
Net realized and unrealized
gain (loss) on investments 3.72 .25
Total from investment
operations 4.34 .40
Distributions to shareholders
from:
Net investment income (.65) (.06)
Net realized gain on
investments -- (.17)
Total distributions (.65) (.23)
Net asset value, end of
period $16.52 $12.83
Total return(C) 34.67% 2.28%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.94% 0.86%(D)
Net investment income 4.2% 3.6%(D)
Portfolio turnover rate 34.7% 61.9%
Net assets, end of period
(in thousands) $7,058 $4,823
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF AN INDEFINITE VOLUNTARY
EXPENSE LIMITATION OF 1.95% BEGINNING NOVEMBER 1, 1992.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
5
<PAGE>
SPECIAL INVESTMENT TRUST
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S><C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84 $10.14 $12.80 $11.53
Net investment income -- (.06) (.11) .03 .12 .18 .12 .06(B) .13(B) --(B)
Net realized and
unrealized gain (loss)
on investments 5.60 (1.31) 3.93 1.66 2.83 2.42 1.70 1.65 (1.825) 1.51
Total from investment
operations 5.60 (1.37) 3.82 1.69 2.95 2.60 1.82 1.71 (1.695) 1.51
Distributions to
shareholders from:
Net investment income -- -- (.03) -- (.14) (.27) (.08) (.01) (.075) (.02)
Net realized gain on
investments (.47) (.23) (.14) (.78) (.40) (1.32) -- -- (.89) (.22)
Total distributions (.47) (.23) (.17) (.78) (.54) (1.59) (.08) (.01) (.965) (.24)
Net asset value, end of
period $25.09 $19.96 $21.56 $17.91 $17.00 $14.59 $13.58 $11.84 $10.14 $12.80
Total return(C) 28.47% (6.37)% 21.35% 10.50% 20.46% 21.46% 15.37% 16.99% (14.18)% 13.39%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 1.96%(E) 1.93%(E) 1.94%(E) 2.00%(E) 2.10%(E) 2.30%(E) 2.30%(E) 2.50%(E) 2.50%(E) 2.50%(E)
Net investment income --% (0.2)% (0.6)% 0.2% 0.8% 1.4% 1.0% 0.7% 1.0% --
Portfolio turnover rate 35.6% 27.5% 16.7% 32.5% 56.9% 75.6% 115.9% 122.4% 158.9% 77.0%
Net assets, end of period
(in thousands) $792,240 $612,093 $565,486 $322,572 $201,772 $106,770 $68,240 $44,450 $43,611 $55,822
<CAPTION>
NAVIGATOR
CLASS
Years Ended March 31, 1996 1995(A)
<S><C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $20.03 $19.11
Net investment income .09 .07
Net realized and
unrealized gain (loss)
on investments 5.78 .85
Total from investment
operations 5.87 .92
Distributions to
shareholders from:
Net investment income (.17) --
Net realized gain on
investments (.47) --
Total distributions (.64) --
Net asset value, end of
period $25.26 $20.03
Total return(C) 29.85% 4.81%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 0.88% 0.90%(D)
Net investment income 1.0% 1.0%(D)
Portfolio turnover rate 35.6% 27.5%
Net assets, end of period
(in thousands) $35,731 $26,123
</TABLE>
(A) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(B) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A 2.5%
ADVISER-IMPOSED EXPENSE LIMITATION.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0%.
6
<PAGE>
AMERICAN LEADING COMPANIES
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED MARCH 31,
PRIMARY CLASS* SEPTEMBER 30, 1996 1996 1995 1994(A)
(UNAUDITED)
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $12.23 $10.18 $ 9.69 $10.00
Net investment income(B) 0.02 0.07 0.12 0.059
Net realized and unrealized gain (loss) on investments 1.00 2.08 0.48 (0.344)
Total from investment operations 1.02 2.15 0.60 (0.285)
Distributions to shareholders from net investment income (0.01) (0.10) (0.11) (0.025)
Net asset value, end of period $13.24 $12.23 $10.18 $ 9.69
Total return(C) 8.34% 21.24% 6.24% (2.86)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(B) 1.95%(D) 1.95% 1.95% 1.95%(D)
Net investment income(B) 0.25%(D) 0.69% 1.21% 1.14%(D)
Portfolio turnover rate 31.89%(D) 43.4% 30.5% 21.0%(D)
Average commission rate paid(E) $0.0630 -- -- --
Net assets, end of period (in thousands) $80,789 $76,100 $59,985 $55,022
</TABLE>
(*) AS OF SEPTEMBER 30, 1996, THE NAVIGATOR CLASS OF SHARES HAD NOT COMMENCED
OPERATIONS.
(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
ANNUALIZED RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD
SEPTEMBER 1, 1993 TO MARCH 31, 1994 AND THE YEARS ENDED MARCH 31, 1995
AND MARCH 31, 1996 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1996 WOULD HAVE
BEEN 2.28%, 2.12%, 2.20%, AND 2.12%, RESPECTIVELY.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE AVERAGE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY THE FUND.
7
<PAGE>
BALANCED TRUST
<TABLE>
<CAPTION>
OCTOBER 1, 1996(A)
TO
PRIMARY CLASS* DECEMBER 31, 1996
(UNAUDITED)
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Net investment income(B) 0.03
Net realized and unrealized gain on investments 0.35
Total from investment operations 0.38
Distributions to shareholders from net investment income (0.04)
Net asset value, end of period $10.34
Total return 3.83%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses(B) 1.85%(D)
Net investment income(B) 2.50%(D)
Portfolio turnover rate 0.82%(D)
Average commission rate paid(E) $0.0628
Net assets, end of period (in thousands) $14,916
</TABLE>
(*) AS OF DECEMBER 31, 1996, THE NAVIGATOR CLASS OF SHARES HAS NOT COMMENCED
OPERATIONS.
(A) COMMENCEMENT OF OPERATIONS.
(B) NET OF FEES WAIVED AND EXPENSES REIMBURSED PURSUANT TO A VOLUNTARY
EXPENSE LIMITATION OF 1.85%. IF NO FEES HAD BEEN WAIVED BY THE MANAGER,
THE ANNUALIZED RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE
PERIOD OCTOBER 1, 1996 TO DECEMBER 31, 1996 WOULD HAVE BEEN 3.67%.
(C) NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
(D) ANNUALIZED.
(E) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE AVERAGE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY THE FUND.
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, each Fund's total return is compared with total returns of the Value
Line Geometric Average, an index of approximately 1,700 stocks ("Value Line
Index"), and the S&P 500, two unmanaged indexes of widely held common stocks. No
adjustment has been made for any income taxes payable by shareholders.
The investment return and principal value of an investment in each Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns of each Fund would have been lower if the
Advisers and/or Legg Mason had not waived certain fees for the fiscal years
ended March 31, as follows: 1989 through 1996 for Value Trust; 1986 through 1995
for Total Return and 1986 through 1996 for Special Investment; and 1994 through
1996 for American Leading Companies. As of the date of this Prospectus, Balanced
Trust has less than six months' operating history.
8
<PAGE>
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders, which
may be obtained without charge by calling your Legg Mason or affiliated
investment executive or Legg Mason's Funds Marketing Department at
800-822-5544.
Total returns as of March 31, 1996 are shown below.
<TABLE>
<CAPTION>
AMERICAN
TOTAL RETURN SPECIAL LEADING VALUE LINE S&P STOCK
VALUE TRUST TRUST INVESTMENT TRUST COMPANIES INDEX INDEX
<S><C>
CUMULATIVE TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24% +21.19% +32.09%
Five Years +126.03 +108.70 +94.29 N/A +67.41 +98.15
Ten Years +181.74 +146.16 +209.91 N/A +90.46 +269.15
Life of Class -- Value Trust(A) +872.26 +317.14 +806.32
Life of Class -- Total Return Trust(B) +165.36 +125.97 +343.59
Life of Class -- Special Investment Trust(C) +257.33 +116.60 +321.18
Life of Class -- American Leading Companies(D) +25.13 +28.18 +49.11
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A +21.19 +32.09
Life of Class(E) +55.17 +37.74 +36.10 N/A +29.97 +47.09
AVERAGE ANNUAL TOTAL RETURN
Primary Class:
One Year +42.09% +33.23% +28.47% +21.24% +21.19% +32.09%
Five Years +17.72 +15.85 +14.21 N/A +10.86 +14.66
Ten Years +10.91 +9.43 +11.98 N/A +6.65 +13.95
Life of Class -- Value Trust(A) +17.69 +10.77 +17.10
Life of Class -- Total Return Trust(B) +9.88 +8.19 +15.46
Life of Class -- Special Investment Trust(C) +13.22 +7.83 +15.05
Life of Class -- American Leading Companies(D) +9.06 +10.08 +16.72
Navigator Class:
One Year +43.53 +34.67 +29.85 N/A +21.19 +32.09
Life of Class(E) +39.00 +27.12 +25.99 N/A +21.79 +33.66
</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, 1996.
The S&P 500 and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Unlike the figures presented for
the Funds, the S&P 500 and Value Line Index figures do not include
brokerage commissions and other costs of investing.
9
<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 normally invests primarily in equity securities. It may
invest in debt securities, including government, corporate and money
market securities, for temporary defensive purposes and, consistent with
its investment objective, during periods when or under circumstances where
the Adviser believes the return on certain debt securities may equal or
exceed the return on equity securities. The Fund may invest in debt
securities of both foreign and domestic issuers of any maturity without
regard to rating, and may invest its assets in such securities without
regard to a percentage limit. The Adviser currently anticipates that under
normal market conditions, the Fund will invest no more than 25% of its
total assets in long-term debt securities. Up to 10% of its total assets
may be invested in debt securities not rated investment grade, i.e., not
rated at least BBB by Standard & Poor's ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated by those entities,
deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which, in the Adviser's opinion,
offer prospects for capital appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers without regard to rating and
may invest its assets in such securities without regard to a percentage
limit. The Adviser currently anticipates that under normal market
conditions, the Fund will invest no more than 50% of its total assets in
intermediate-term and long-term debt securities, and no more than 5% of
its total assets in debt securities not rated investment grade, i.e., not
rated at least BBB by S&P or Baa by Moody's or, if unrated by those
entities, deemed by the Adviser to be of comparable quality.
10
<PAGE>
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities, and securities convertible into equity securities, of
companies with market capitalizations of less than $2.5 billion which the
Adviser believes have one or more of the following characteristics:
1. The companies generally are not closely followed by, or are out of
favor with, investors, and 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. The companies are experiencing unusual and possibly non-repetitive
developments which, in the opinion of the Adviser, may cause the market
values of the securities to increase. Such developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. The companies are involved in actual or anticipated reorganizations
or restructurings under the Bankruptcy Code. No more than 20% of the
Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
assets may be invested in debt securities not rated at least BBB by S&P,
or Baa by Moody's, and securities unrated by those entities, deemed by the
Adviser to be of comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be 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.
11
<PAGE>
AMERICAN LEADING COMPANIES' investment objective is to provide
long-term capital appreciation and current income consistent with prudent
investment risk. The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment, primarily in the common stocks of Leading Companies. The Fund
intends to maintain for its shareholders a portfolio of securities which
an experienced investor charged with fiduciary responsibility might select
under the Prudent Investor Rule, as described in the trust laws or court
decisions of many states, including New York. Under normal market
conditions, the Fund will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the S&P 500. Additionally,
LMCM's goal is to invest in companies having what LMCM believes is a
reasonable price/earnings ratio, and it will favor those companies with
well established histories of dividends and dividend growth rates. The
Fund may also invest in companies having capitalizations above or below $2
billion which LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM will not properly
assess the potential for an issuer's future growth, or that an issuer will
not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and policies require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
During periods when LMCM believes the return on certain debt
securities may equal or exceed the return on equity securities, the Fund
may invest up to 25% of its total assets in debt securities, including
government, corporate and money market securities, consistent with its
investment objective. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers. The debt securities in
which the Fund may invest will be rated at least A by S&P or Moody's, or
deemed by LMCM to be of comparable quality.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities not rated at least Ba by Moody's or BB by S&P or, if unrated by
those entities, deemed by the Adviser to be of comparable quality.
BALANCED TRUST'S investment objective is to seek long-term capital
appreciation and current income in order to achieve an attractive total
investment return consistent with reasonable risk. The Fund will invest in
a combination of equity, debt and money market securities in attempting to
achieve its objective. Under normal conditions, the Fund will invest no
more than 75% of its assets in equity securities. Bartlett & Co.
("Bartlett"), as investment adviser, will emphasize investments in
dividend-paying equity securities that, in the opinion of Bartlett, offer
the potential for long-term growth, and in common stocks or securities
convertible into common stock that do not pay current dividends but offer
prospects for capital appreciation and future income.
The Fund generally will invest at least 25% of its portfolio in fixed
income securities, including, without limitation, preferred stocks, bonds,
debentures, municipal obligations and mortgage-related securities;
certificates of deposit; Treasury bills, notes, bonds and other
obligations of the U.S. Government, its agencies and instrumentalities;
commercial paper and other money market instruments rated not less than
A-1, P-1 or F-1 by
12
<PAGE>
Moody's, S&P or Fitch Investors Services ("Fitch"), respectively; and
repurchase agreements. No more than 5% of the Fund's total assets may be
invested in fixed income or convertible securities not rated at least BBB
or Baa at the time of purchase, or comparable unrated securities. If an
investment grade security purchased by the Fund subsequently loses its
investment grade rating, Bartlett will determine whether to retain that
security in the Fund's portfolio. The Fund may invest in securities of any
maturity, but, under normal circumstances, expects to maintain its
portfolio of fixed income securities so as to have an average
dollar-weighted maturity of between four and five years.
Balanced Trust is managed as a balanced fund and invests in equity and
debt securities. This approach attempts to "balance" the potential for
growth and greater volatility of stocks with the historically stable
income and more moderate average price fluctuations of fixed income
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Bartlett's
assessment of investment opportunities. It is currently anticipated that
the Fund will invest an average of 60% of its total assets in common and
preferred stocks and the remaining 40% in various fixed income securities.
These percentages may vary in attempting to increase returns or reduce
risk.
The Fund may also acquire securities on a when-issued and
delayed-delivery basis, and may purchase exchange-traded futures contracts
on stock indices and options thereon. The Fund may use derivatives, such
as options and futures, in its investment activities. No more than 15% of
the Fund's net assets may be invested in illiquid securities. The Fund may
also engage in reverse repurchase agreements.
The portfolio turnover rate for the equity portion of the Fund's
portfolio is estimated to be 50% and the portfolio turnover rate for the
fixed income portion is estimated to be 120%. The Fund's portfolio
turnover rate is not expected to exceed 80%.
TYPES OF INVESTMENTS AND ASSOCIATED RISKS
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in money market instruments,
including repurchase agreements 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 the interim. The
Funds will enter into repurchase agreements only with financial
institutions determined by each Fund's adviser to present minimal risk of
default during the term of the agreement based on guidelines established
by the Funds' Boards of Directors. A Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% (for Value
Trust, Total Return Trust and Special Investment Trust) or 15% (for
American Leading Companies and Balanced Trust) of its net assets would be
invested in such agreements and other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its net assets.
For further information concerning securities lending, see the Statement
of Additional Information.
PREFERRED STOCK
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, the
preferred stock is more attractively priced in light of the risks
involved. Preferred stock pays dividends at a specified rate and generally
has preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are subject to changes in interest rates and are more sensitive to
changes in the issuer's creditworthiness than are the prices of debt
securities. Value Trust, Total Return Trust and Special Investment Trust
do not currently expect to invest more than 5% of net assets in preferred
stock.
13
<PAGE>
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. Before
conversion, convertible securities ordinarily provide a stream of income
with generally higher yields than those of common stocks of the same or
similar issuers, but lower than the yield on non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
non-convertible securities but rank senior to common stock in a
corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. A convertible security may be
subject to redemption at the option of the issuer at a price established
in the convertible security's governing instrument.
U.S. GOVERNMENT SECURITIES
U.S. government securities include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by: (1) the
full faith and credit of the United States (e.g., certificates of the
Government National Mortgage Association ("GNMA")); (2) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks
securities); (3) the discretionary authority of the U.S. Treasury to lend
to the issuer (e.g., Federal National Mortgage Association ("FNMA")
securities); and (4) solely the creditworthiness of the issuer (e.g.,
Federal Home Loan Mortgage Corporation ("FHLMC") securities). Neither the
U.S. Government nor any of its agencies or instrumentalities guarantees
the market value of the securities they issue. Therefore, the market value
of such securities can be expected to fluctuate in response to changes in
interest rates.
STRIPPED SECURITIES
Stripped securities are created by separating bonds into their
principal and interest components and selling each piece separately
(commonly referred to as IOs and POs). Stripped securities are more
volatile than other fixed-income securities in their response to changes
in market interest rates. The value of some stripped securities moves in
the same direction as interest rates.
ZERO COUPON BONDS
Zero coupon bonds make no cash interest payments but instead are
issued at a significant discount from face value. Each year, a portion of
the discount is attributed to bond holders as income. Because each Fund is
required to pay out substantially all of its income each year, including
income imputed to zero coupon bonds, a Fund may have to sell other
holdings to raise cash necessary to make the payout.
CLOSED-END INVESTMENT COMPANIES
Each Fund may invest in the securities of closed-end investment
companies. A Fund will invest in such funds, when, in the adviser's
judgment, the potential benefits of such investment justify the payment of
any applicable premium or sales charge.
FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. These risks are intensified when investing in countries
with developing economies and securities markets also known as "emerging
markets." Moreover, securities of many foreign issuers may be less liquid
and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation, confiscatory taxation, withholding taxes and
limitations on the use or removal of funds or other assets.
The Funds may also invest in ADRs, which are securities issued by
banks evidencing their ownership of specific foreign securities. ADRs may
be sponsored or unsponsored; issuers of securities underlying unsponsored
ADRs are not contractually obligated to disclose material information in
14
<PAGE>
the U.S. Accordingly, there may be less information available about such
issuers than there is with respect to domestic companies and issuers of
securities underlying sponsored ADRs. Although ADRs are denominated in
U.S. dollars, the underlying security often is not; thus, the value of the
ADR may be subject to exchange controls and variations in the exchange
rate. The Funds may also invest in GDRs, which are receipts, often
denominated in U.S. dollars, issued by either a U.S. or non-U.S. bank
evidencing its ownership of the underlying foreign securities.
Although not a fundamental policy subject to shareholder vote, the
adviser 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. Bartlett
currently anticipates that Balanced Trust will not invest more than 10% of
its total assets in foreign securities, either directly or through ADRs or
GDRs.
ILLIQUID SECURITIES
Value Trust, Total Return Trust, and Special Investment Trust may each
invest up to 10% of its net assets in illiquid securities. American
Leading Companies and Balanced Trust may each invest up to 15% of its net
assets in illiquid securities. Illiquid securities are securities that
cannot be expected to be sold within seven days at approximately the price
at which they are valued. Due to the absence of an active trading market,
a Fund may have difficulty valuing or disposing of illiquid securities
promptly. Securities that are freely tradable in their country of origin
or in their principal market are not considered illiquid securities even
if they are not registered for sale in the U.S.
WHEN-ISSUED SECURITIES
Each Fund may enter into commitments to purchase securities on a
when-issued basis. A Fund may purchase when-issued securities because such
securities are often the most efficiently priced and have the best
liquidity in the bond market. As with the purchase of all securities, when
a Fund purchases securities on a when-issued basis, it assumes the risks
of ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. However, a Fund does not have to pay
for the obligations until they are delivered to it, which is normally 7 to
15 days later, but could be considerably longer in the case of some
mortgage-backed securities. To meet that payment obligation, that Fund
will set aside cash or liquid, high-quality debt securities in an account
with its custodian equal to the payment that will be due. Depending on
market conditions, a Fund's when-issued purchases could cause its net
asset value to be more volatile, because they will increase the amount by
which that Fund's total assets, including the value of the when-issued
securities held by it, exceed its net assets. A Fund may sell the
securities subject to a when-issued purchase, which may result in a gain
or loss.
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST AND BALANCED TRUST:
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.
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The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, when writing call
options the Fund would give up some ability to participate in security
price increases.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the 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.
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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 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.
THE FOLLOWING DISCUSSION OF INVESTMENTS AND RISKS APPLIES ONLY TO BALANCED
TRUST:
MUNICIPAL OBLIGATIONS
Municipal obligations include obligations issued to obtain funds for
various public purposes, including constructing a wide range of public
facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which
municipal obligations may be issued include the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and the
making of loans to other public institutions and facilities. In addition,
certain types of industrial development bonds ("IDBs") and private
activity bonds ("PABs") are issued by or on behalf of public authorities
to finance various privately operated facilities, including certain
pollution control facilities, convention or trade show facilities, and
airport, mass transit, port or parking facilities.
Municipal obligations also include short-term tax anticipation notes,
bond anticipation notes, revenue anticipation notes and other forms of
short-term debt obligations. Such notes may be issued with a short-term
maturity in anticipation of the receipt of tax payments, the proceeds of
bond placements or other revenues.
Municipal obligations also include municipal lease obligations. These
obligations, which are issued by state and local governments to acquire
land, equipment and facilities, typically are not fully backed by the
municipality's credit, and, if funds are not appropriated for the
following year's lease payments, a lease may terminate, with the
possibility of default on the lease obligation and significant loss to the
Fund. "Certificates of Participation" are participations in municipal
lease obligations or installment sales contracts. Each certificate
represents a proportionate interest in or right to the lease purchase
payments made.
The two principal classifications of municipal obligations are
"general obligation" and "revenue" bonds. "General obligation" bonds are
secured by the issuer's pledge of its faith, credit and taxing power.
"Revenue" bonds are payable only from the revenues derived from a
particular facility or class of facilities or from the proceeds of a
special excise tax or other specific revenue source such as the corporate
user of the facility being financed. IDBs and PABs are usually revenue
bonds and are not payable from the unrestricted revenues of the issuer.
The credit quality of IDBs and PABs is usually directly related to the
credit standing of the corporate user of the facilities.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent interests in pools of mortgages.
Mortgage-related securities may be issued by governmental or government-
related entities or by non-governmental entities such as banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. In contrast, mortgage-related securities provide monthly
payments which consist of interest and, in most cases, principal. In
effect, these payments are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments to holders of mortgage-related securities are caused by
repayments resulting from the sale of the
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underlying residential property, refinancing or foreclosure. Some
mortgage-related securities entitle the holders to receive all interest
and principal payments owed on the mortgages in the pool, net of certain
fees, regardless of whether or not the mortgagors actually make the
payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. The volume of prepayments of
principal on a pool of mortgages underlying a particular mortgage-related
security will influence the yield of that security. Increased prepayment
of principal may limit a Fund's ability to realize the appreciation in the
value of such securities that would otherwise accompany declining interest
rates. An increase in mortgage prepayments could cause the Fund to incur a
loss on a mortgage-related security that was purchased at a premium. On
the other hand, a decrease in the rate of prepayments, resulting from an
increase in market interest rates, among other causes, may extend the
effective maturities of mortgage-related securities, increasing their
sensitivity to changes in market interest rates. In determining the
average maturity of the fixed income portion of the Fund, Bartlett must
apply certain assumptions and projections about the maturity and
prepayment of mortgage-related securities; actual prepayment rates may
differ.
GOVERNMENT MORTGAGE-RELATED SECURITIES
GNMA pass-through securities are considered to have a very low risk of
default in that (i) the underlying mortgage loan portfolio is comprised
entirely of government-backed loans and (ii) the timely payment of both
principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. Government -- regardless of whether they have been
collected. GNMA pass-through securities are, however, subject to the same
market risk as comparable debt securities. Therefore, the effective
maturity and market value of the Fund's GNMA securities can be expected to
fluctuate in response to changes in interest rate levels.
FHLMC, a corporate instrumentality of the U.S. Government, issues
mortgage participation certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. The mortgage loans in FHLMC's
portfolio are not government backed; rather, the loans are either
uninsured with loan-to-value ratios of 80% or less, or privately insured
if the loan-to-value ratio exceeds 80%. FHLMC, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of approved
seller/servicers, including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through
certificates issued by FNMA ("FNMA certificates") are guaranteed as to
timely payment of principal and interest by FNMA, not the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are consid-ered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, or GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Each
class of obligations is scheduled to receive periodic interest payments
according to the coupon rate on the obligations. However, all monthly
principal payments and any prepayments from the collateral pool are paid
first to the "Class 1" bondholders. The principal payments are such that
the Class 1 obligations are scheduled to be completely repaid no later
than, for example, five years after the offering date. Thereafter, all
payments of principal are allocated to the next most senior class of bonds
until that class of bonds has been fully repaid. Although full payoff of
each class of bonds is contractually required by a certain date, any or
all classes of obligations may be paid off sooner than expected because of
an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities, resulting in higher
risks.
The market for conventional pools is smaller and less liquid than the
market for the government and government-related mortgage pools.
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CORPORATE DEBT SECURITIES
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price
of some commodity. These securities may be convertible into preferred or
common equity, or may be bought as part of a unit containing common stock.
In selecting corporate debt securities for a Fund, the 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.
THE FOLLOWING DISCUSSION OF RISKS APPLIES TO EACH FUND AS NOTED:
RISKS OF DEBT SECURITIES
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times
of rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater
are such variations.
RISKS OF LOWER-RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated securities of comparable quality, offer a higher
current yield than that provided by higher grade issues, but also involve
higher risks. Debt securities rated C by Moody's and S&P are bonds on
which no interest is being paid and which can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
However, debt securities, regardless of their ratings, generally have a
higher priority in the issuer's capital structure than do equity
securities.
Lower-rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the
financial condition of the issuers. Highly leveraged issuers may also
experience financial stress during periods of rising interest rates.
Lower-rated debt securities are also sometimes referred to as "junk
bonds."
The market for lower-rated debt securities has expanded rapidly in
recent years. This growth has paralleled a long economic expansion. At
certain times in the past, the prices of many lower-rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, the yields on
lower-rated debt securities rose dramatically, reflecting the risk that
holders of such securities could lose a substantial portion of their value
as a result of the issuers' financial restructuring or default. There can
be no assurance that such declines will not recur.
The market for lower-rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit
a Fund's ability to sell such securities at fair value. Judgment plays a
greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower-rated debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. Such
ratings are relative and subjective, and are not absolute standards of
quality. Unrated debt securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers. If
securities are rated investment grade by one rating organization and below
investment grade by the other, the adviser may rely on the rating that it
believes is more accurate. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) are analyzed
by the adviser to determine, to the extent possible, that the planned
investment is sound. Each Fund does not intend to invest in securities
that are in default, or where, in the adviser's opinion, default appears
likely.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS
Each of Value Trust, Total Return Trust, Special Investment Trust and
Balanced Trust can invest in futures and options transactions, including
puts and calls. Because such investments "derive" their value from the
value of the underlying security, index, or interest rate on which they
are based, they are sometimes referred to as "derivative" securities. As
explained in greater detail above, in the section titled "Futures and
Options Transactions," such investments involve risks that are different
from those presented by investing directly in the securities themselves.
While utilization of options, futures contracts and similar instruments
may be advantageous to the Funds, if the adviser is not successful in
employing such instruments in managing a Fund's investments the Fund's
performance will be worse than if the Fund did not make such investments.
Although American Leading Companies may not invest in futures
transactions, it may to a limited extent sell covered call options on any
security in which it is permitted to invest for the purpose of enhancing
income. American Leading
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Companies may not invest in any other form of option transaction. The
particular risks of covered call options are also discussed above, in the
section titled "Futures and Options Transactions."
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 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.)
Clients of certain institutions that maintain omnibus accounts with
the Funds' transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Funds' distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.
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 21. Each Fund reserves the right to reject any order for its shares
or to suspend the offering of shares for a period of time.
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
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executives 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 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 10 business days of the redemption or repurchase request,
the proceeds may not be disbursed unless the Fund can be reasonably
assured that the check has been collected.
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. Shares may not be held in, or transferred to, an
account with any brokerage firm other than Fairfield, Legg Mason or their
affiliates. The Funds no longer issue share certificates.
Every shareholder of record will receive a confirmation of each new
share transaction with a Fund. In addition, Legg Mason clients will
receive a monthly statement, which will also show the total number of
shares being held in safekeeping by the Funds' transfer agent for the
account of the shareholder.
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
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the absence of readily available market quotations, securities are valued
at fair value as determined by each Fund's Board of Directors. Where a
security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by
each Fund's adviser to be the primary market. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Each Fund will
value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Navigator Shares out of its
investment company taxable income (which consists of net investment
income, any net short-term capital gain and any net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust and Balanced Trust declare and pay dividends from net
investment income quarterly; they pay dividends from any net short-term
capital gains and net gains from foreign currency transactions annually.
Special Investment Trust and American Leading Companies declare and pay
dividends from investment company taxable income following the end of each
taxable year. Each Fund also distributes substantially all of its net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) after the end of the taxable year in which the gain is
realized. A second distribution of net capital gain may be necessary in
some years to avoid imposition of the 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 are
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 are 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 (or to qualify in the case of
Balanced Trust) 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 Navigator 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 Navigator Shares),
when designated as such, are taxable to those shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Each Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amounts of all ordinary
income dividends and other distributions paid (or deemed paid) during that
year.
A redemption of Navigator Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's
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adjusted basis for the redeemed shares. An exchange of Navigator Shares
for shares of any other Navigator fund generally will have similar tax
consequences. See "Shareholder Services -- Exchange Privilege," below. If
Fund shares are purchased within 30 days before or after redeeming other
shares of the same Fund (regardless of class) 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 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
Confirmations for each purchase and redemption transaction (except a
reinvestment of dividends and capital gain distributions) of Navigator
Shares made by Institutional Clients acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of persons maintaining
Customer Accounts at Institutional Clients will be sent to the
Institutional Client by the transfer agent. Beneficial ownership of shares
by Customer Accounts will be recorded by the Institutional Client and
reflected in the regular account statements provided by them to their
customers.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; the annual report for each
Fund will contain financial statements audited by its respective
independent accountants/auditors.
Shareholder inquiries should be addressed to "[insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476," or "[insert complete Fund name], c/o Fairfield Group, Inc.,
200 Gibraltar Road, Horsham, Pennsylvania 19044."
EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for a
corresponding class of shares, provided the shares to be acquired are
eligible for sale under applicable state securities laws.
Investments by exchange into other Navigator funds are made at the per
share net asset value next determined on the same business day as
redemption of the Fund shares you wish to exchange. To obtain further
information concerning the exchange privilege and prospectuses of other
Navigator funds, or to make an exchange, please contact your 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 20. The other factors relating to telephone
redemptions described in that section apply also to telephone exchanges.
Please read the prospectus for the other fund(s) carefully before you
invest by exchange. Each Fund reserves the right to modify or terminate
the exchange privilege upon 60 days' notice to shareholders.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc., 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 seventeen
investment company portfolios which had aggregate assets under management
of
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approximately $5.7 billion as of May 31, 1996. 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; 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 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, 1996, Value Trust paid a management fee of 0.77% 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 0.82% of its average daily net assets.
MANAGER
Pursuant to separate management agreements with American Leading
Companies and Balanced Trust (each a "Management Agreement"), which were
approved by the Investors Trust's Board of Directors, Legg Mason Fund
Adviser, Inc. ("Manager"), a wholly owned subsidiary of Legg Mason, Inc.,
serves as the Funds' manager. The Funds pay the Manager, pursuant to the
respective Management Agreements, a management fee equal to an annual rate
of 0.75% of each Fund's average daily net assets and an annual rate of
0.75% of Balanced Trust's average daily net assets attributable to
Navigator Shares. The management fees paid by the Funds are higher than
fees paid by most other equity funds. Each Fund pays all its other
expenses which are not assumed by the Manager. The Manager has agreed to
waive its fees and to reimburse each Fund for its expenses related to
Navigator Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) as follows: for American Leading Companies, 0.95%
of average net assets indefinitely; and for Balanced Trust, 1.10% of
average net assets until July 31, 1997. These agreements are voluntary and
may be terminated by the Manager at any time.
LMCM
LMCM, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to American Leading Companies pursuant to the terms of
an Investment Advisory Agreement with the Manager, which was approved by
the Trust's Board of Directors. LMCM manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays LMCM a fee, computed daily and
payable monthly, at an annual rate equal to 40% of the fee received by the
Manager, or 0.30% of the Fund's average daily net assets attributable to
Navigator Shares.
LMCM has not previously advised a registered investment company.
However, LMCM manages private accounts with a value as of May 31, 1996 of
approximately $1.0 billion. The address of LMCM is 111 South Calvert
Street, Baltimore, MD 21202.
E. Robert Quasman is a Senior Investment Manager for LMCM and has been
primarily responsible for the day-to-day management of American Leading
Companies since October 1996. Prior to that, Mr. Quasman was Director of
Research for Legg Mason for over six years.
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
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and under circumstances consistent with the policy of best execution.
BARTLETT
Bartlett, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to Balanced Trust pursuant to the terms of an
Investment Advisory Agreement with the Manager, which was approved by the
Trust's Board of Directors. Bartlett manages the investment and other
affairs of the Fund and directs the investments of the Fund in accordance
with its investment objectives, policies and limitations. For these
services, the Manager (not the Fund) pays Bartlett a fee, computed daily
and paid monthly, at an annual rate equal to 66 2/3% of the fee received
by the Manager, or 0.50% of the Fund's average daily net assets. Bartlett
acts as adviser to individuals, corporations, pension and profit sharing
plans and trust accounts, as well as to five investment company portfolios
which had aggregate assets under management of approximately $2.4 billion
as of May 31, 1996. The address of Bartlett is 36 East Fourth Street,
Cincinnati, Ohio 45202.
Dale H. Rabiner, CFA and Woodrow H. Uible, CFA jointly manage the
Fund. Both are senior portfolio managers of Bartlett. Mr. Rabiner has been
employed by Bartlett since 1983 and has served since then as Director of
its Fixed Income Group. He is a member of Bartlett's Management Committee
and Investment Policy Committee. Mr. Uible has been employed by Bartlett
since 1980. He chairs Bartlett's Equity Investment Group, and is
responsible for Bartlett's equity investment processes. He is a member of
Bartlett's Management Committee and Investment Policy Committee.
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, 1996, Legg Mason received from BFDS $228,000, $56,000,
$189,000 and $22,000 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 have authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of the Investors
Trust authorize issuance of one billion shares of par value $.001 per
share of American Leading Companies and 250 million shares of par value
$.001 per share of Balanced Trust. Each corporation may issue additional
series of shares. Each Fund currently offers two Classes of
Shares -- Class A (known as "Primary Shares") and Class Y (known as
"Navigator Shares"). The two Classes represent interests in the same pool
of assets. A separate vote is taken by a Class of Shares of a Fund if a
matter affects just that Class of Shares. Each Class of Shares may bear
certain differing Class-specific expenses. Salespersons and others
entitled to receive compensation for selling or servicing Fund shares may
receive more with respect to one Class than another.
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
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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 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 omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
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