<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 4
Financial Highlights 5
Performance Information 9
Investment Objectives and Policies 10
How You Can Invest in the Funds 16
How Your Shareholder Account is Maintained 17
How You Can Redeem Your Primary Shares 18
How Net Asset Value is Determined 19
Dividends and Other Distributions 19
Tax Treatment of Dividends and Other Distributions 20
Shareholder Services 20
Investing Through Tax-Deferred Retirement Plans 22
The Funds' Management and Investment Adviser 23
The Funds' Distributor 24
Description of each Corporation /Trust and its Shares 25
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
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 M Street, N.W., Washington, DC 20036
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 STATEMENT 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 ANY FUND OR ITS
DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY ANY FUND OR
BY THE PRINCIPAL UNDERWRITER IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
(recycle logo appears here) PRINTED ON RECYCLED PAPER
LMF-001
LEGG MASON
EQUITY FUNDS
VALUE TRUST, INC.
TOTAL RETURN TRUST, INC.
SPECIAL INVESTMENT
TRUST, INC.
AMERICAN LEADING
COMPANIES TRUST
PRIMARY SHARES
PUTTING YOUR FUTURE FIRST
PROSPECTUS
JULY 31, 1995
--Legg Mason logo appears here--
<PAGE>
LEGG MASON EQUITY FUNDS -- PRIMARY SHARES
LEGG MASON VALUE TRUST, INC.
LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON AMERICAN LEADING COMPANIES
TRUST (A SERIES OF LEGG MASON INVESTORS TRUST, INC.)
This Prospectus sets forth concisely the information about the
funds that a prospective investor ought to know before investing. It
should be read and retained for future reference. A Statement of
Additional Information about the funds dated July 31, 1995 has been
filed with the Securities and Exchange Commission ("SEC") and, as
amended or supplemented from time to time, is incorporated herein by
this reference. The Statement of Additional Information is available
without charge upon request from the distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers
listed below).
Legg Mason Special Investment Trust, Inc. 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 Legg Mason Special Investment Trust, Inc. are not
registered for sale to investors in Missouri, and this Prospectus is
not an offer to investors residing in that State.
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.
PROSPECTUS
July 31, 1995
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
THE LEGG MASON VALUE TRUST, INC. ("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. The Adviser believes that Value Trust
shares may be appropriate for investments by Individual Retirement
Accounts, Keogh Plans, Simplified Employee Pension Plans and other
qualified retirement plans (collectively referred to as "Retirement
Plans") whose principal investment objective is capital appreciation.
Other investors who seek capital appreciation may also invest in Value
Trust shares.
THE LEGG MASON TOTAL RETURN TRUST, INC. ("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 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. The
Adviser believes that Total Return Trust shares may be appropriate for
investments by Retirement Plans. 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.
THE LEGG MASON SPECIAL INVESTMENT TRUST, INC. ("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
characteristics. Special Investment Trust may invest up to 35% of its
assets in debt securities rated below investment grade.
THE LEGG MASON AMERICAN LEADING COMPANIES TRUST ("American Leading
Companies") is a professionally managed portfolio seeking long-term
capital appreciation and current income consistent with prudent investment
risk. American Leading Companies is a separate series of Legg Mason
Investors Trust, Inc. ("Trust"), a diversified, open-end management
investment company. Under normal market conditions, American Leading
Companies will invest at least 75% of its total assets in a diversified
portfolio of dividend-paying common stocks of Leading Companies that have
market capitalizations of at least $2 billion. American Leading Companies'
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
2
<PAGE>
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").
Value Trust, Total Return Trust, Special Investment Trust and American
Leading Companies (each separately referred to as a "Fund"and collectively
referred to as the "Funds") each may invest a significant portion of its
assets in debt securities, and may invest to some extent in securities
rated below investment grade. Each Fund may invest in foreign securities,
which would expose it to the possibility of currency fluctuations and
other risks of foreign investing. Each Fund may use futures and/or options
for hedging or income purposes.
Of course, there can be no assurance that any Fund will achieve its
objective. See "Investment Objectives and Policies," page 10.
Each Fund offers two classes of shares, Primary Class ("Primary
Shares") and Navigator Class ("Navigator Shares"). Primary Shares offered
in this Prospectus are available to all investors except certain
institutions (see page 5). No initial sales charge is payable on
purchases, and no redemption charge is payable on sales of the Funds'
shares. Each Fund pays management fees to the Adviser/Manager and
distribution fees (Primary Shares only) to Legg Mason, as described in
this Prospectus.
DISTRIBUTOR :
Legg Mason Wood Walker, Incorporated
INVESTMENT ADVISER :
Legg Mason Fund Adviser, Inc. (for Value Trust, Total Return Trust and
Special Investment Trust)
Legg Mason Capital Management, Inc. (for American Leading Companies)
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASE:
$100 minimum, generally.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. See "How You Can
Invest in the Funds," page 16.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 21.
DIVIDENDS :
Declared and paid quarterly for Value Trust, Total Return Trust and
American Leading Companies. Declared and paid after the end of each
taxable year of Special Investment Trust. See "Dividends and Other
Distributions," page 19.
REINVESTMENT :
All dividends and other distributions are automatically reinvested in
Primary Shares unless cash payments are requested.
3
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Primary
Shares of a Fund will bear directly or indirectly. The expenses and fees
set forth in the table are based on average net assets and annual Fund
operating expenses related to Primary Shares for the year ended March 31,
1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING
TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
Management fees 0.78% 0.75% 0.79% 0.58%(B)
12b-1 fees 0.95% 1.00% 1.00% 1.00%
Other expenses 0.12% 0.19% 0.16% 0.37%
Total operating
expenses(A) 1.85% 1.94% 1.95% 1.95%(B)
<CAPTION>
</TABLE>
(A) Total operating expenses have been restated to reflect current 12b-1
fees.
(B) Pursuant to a voluntary expense limitation, the Manager and Legg Mason
have agreed to waive indefinitely the management and 12b-1 fees and
assume certain other expenses to the extent necessary to limit total
operating expenses relating to Primary Shares (exclusive of taxes,
brokerage commissions, interest and extraordinary expenses) to 1.95% of
American Leading Companies' average daily net assets. In the absence of
such waivers, the expected management fee, 12b-1 fee, other expenses and
total operating expenses relating to Primary Shares would be 0.75%,
1.00%, 0.37% and 2.12% of average net assets, respectively.
For further information concerning the Funds' expenses, please see
"The Funds' Management and Investment Adviser" and "The Funds'
Distributor," pages 23-24. Because each Fund pays 12b-1 fees with respect
to Primary Shares, long-term investors in Primary Shares may pay more in
distribution expenses than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1)
a 5% annual rate of return and (2) redemption at the end of each time
period. As noted in the prior table, the Funds charge no redemption fees
of any kind.
<TABLE>
<CAPTION>
TOTAL SPECIAL AMERICAN
VALUE RETURN INVESTMENT LEADING
TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
1 Year $ 19 $ 20 $ 20 $ 20
3 Years $ 58 $ 61 $ 61 $ 61
5 Years $100 $105 $105 $ 105
10 Years $217 $226 $227 $ 227
</TABLE>
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same over the time periods shown. The above
tables and the assumption in the example of a 5% annual return are
required by regulations of the SEC applicable to all mutual funds. THE
ASSUMED 5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT
THE PROJECTED OR ACTUAL PERFORMANCE OF, PRIMARY 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 Primary 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 and/or
Legg Mason waive their fees and reimburse all or a portion of each Fund's
expenses and the extent to which Primary Shares incur variable expenses,
such as transfer agency costs.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Effective December 1, 1994, Value Trust, Total Return Trust and Special
Investment Trust commenced the sale of Navigator Shares. Effective August
1, 1995, American Leading Companies will commence the sale of Navigator
Shares. Navigator Shares 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, 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 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 highlights tables that follow have been derived from each
Fund's financial statements which have been audited for Value Trust, Total
Return Trust and Special Investment Trust by Coopers & Lybrand L.L.P.,
independent accountants and for American Leading Companies by Ernst & Young
LLP, independent auditors. Each Fund's financial statements for the year
ended March 31, 1995 and the report of Coopers & Lybrand L.L.P. or Ernst &
Young LLP thereon are included in that Fund's annual report and are
incorporated by reference in the Statement of Additional Information. The
annual report for each Fund is available to shareholders without charge by
calling your Legg Mason or affiliated investment executive or Legg Mason's
Funds Marketing Department at 800-822-5544.
VALUE TRUST(A)
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995(B) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $18.76 $18.50 $17.81 $15.69 $13.38 $14.19
Net investment income .12 .10 .08 .18 .25 .32
Net realized and unrealized
gain (loss) on investments 1.40 1.70 .92 2.12 2.34 (.74)
Total from investment
operations 1.52 1.80 1.00 2.30 2.59 (.42)
Distributions to shareholders
from:
Net investment income (.01) (.05) (.11) (.18) (.28) (.36)
Net realized gain on
investments -- (.04) (.20) -- -- (.03)
Net asset value, end of
period $20.27 $20.21 $18.50 $17.81 $15.69 $13.38
Total return 8.11%(C) 9.77% 5.65% 14.76% 19.53% (2.88)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 0.82%(D) 1.81%(E) 1.82%(E) 1.86%(E) 1.90%(E) 1.90%(E)
Net investment income 1.8%(D) 0.5% 0.5% 1.1% 1.7% 2.5%
Portfolio turnover rate 20.1% 20.1% 25.5% 21.8% 39.4% 38.8%
Net assets, end of period
(in thousands) $36,519 $986,325 $912,418 $878,394 $745,833 $690,053
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $14.16 $12.14 $15.07 $15.34 $11.55
Net investment income .33 .21 .21 .21 .25
Net realized and unrealized
gain (loss) on investments .77 1.99 (1.54) 1.11 4.15
Total from investment
operations 1.10 2.20 (1.33) 1.32 4.40
Distributions to shareholders
from:
Net investment income (.33) (.18) (.20) (.20) (.18)
Net realized gain on
investments (.74) -- (1.40) (1.39) (.43)
Net asset value, end of
period $14.19 $14.16 $12.14 $15.07 $15.34
Total return 7.74% 18.33% (8.42)% 9.89% 39.75%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.86%(E) 1.96%(E) 1.97%(E) 2.00%(E) 2.07%(E)
Net investment income 2.2% 1.6% 1.5% 1.5% 2.0%
Portfolio turnover rate 30.7% 29.7% 47.8% 42.5% 32.6%
Net assets, end of period
(in thousands) $808,780 $720,961 $665,689 $819,348 $599,004
</TABLE>
(A) ALL SHARE AND PER SHARE FIGURES REFLECT THE 2-FOR-1 STOCK SPLIT
EFFECTIVE JULY 29, 1991.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 24.46%.
(D) ANNUALIZED.
(E) INCLUDES DISTRIBUTION FEE OF 1.0% THROUGH MAY 11, 1987 AND 0.95%
THEREAFTER.
5
<PAGE>
TOTAL RETURN TRUST
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995B 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period $12.66 $13.54 $13.61 $11.64 $9.64 $10.03
Net investment income .15 .33 .36 .39(C) .34 .28
Net realized and
unrealized
gain (loss) on
investments .25 (.19) .24 1.89 1.91 (.31)
Total from investment
operations .40 .14 .60 2.28 2.25 (.03)
Distributions to
shareholders from:
Net investment income (.06) (.29) (.33) (.31) (.25) (.29)
Net realized gain on
investments (.17) (.60) (.34) -- -- (.07)
Net asset value, end of
period $12.83 $12.79 $13.54 $13.61 $11.64 $9.64
Total return 2.28%(F) 1.09% 4.57% 19.88% 23.59% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 0.86%(G) 1.93%(H) 1.94%(H) 1.95%(C,H) 2.34%(H) 2.50%(H)
Net investment income 3.6% 2.5% 2.7% 3.1%(C) 3.1% 3.1%
Portfolio turnover rate 61.9% 61.9% 46.6% 40.5% 38.4% 62.1%
Net assets, end of period
(in thousands) $4,823 $194,767 $184,284 $139,034 $52,360 $22,822
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1990 1989 1988 1987 1986(A)
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period $10.06 $8.86 $11.63 $10.78 $10.00
Net investment income .21 .15 .18 .18 .13(D)
Net realized and
unrealized
gain (loss) on
investments .15 1.18 (1.35) .90 .65
Total from investment
operations .36 1.33 (1.17) 1.08 .78
Distributions to
shareholders from:
Net investment income (.21) (.13) (.21) (.19) --
Net realized gain on
investments (.18) -- (1.39) (.04) --
Net asset value, end of
period $10.03 $10.06 $8.86 $11.63 $10.78
Total return 3.48% 15.16% (10.17)% 10.24% 7.80%(E)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.39%(H) 2.40%(H) 2.30%(H) 2.40%(H) 2.20%(G,H)
Net investment income 2.0% 1.6% 1.9% 1.7% 3.8%(G)
Portfolio turnover rate 39.2% 25.7% 50.1% 82.7% 40.0%(G)
Net assets, end of period
(in thousands) $26,815 $30,102 $35,394 $47,028 $44,357
</TABLE>
(A) FOR THE PERIOD NOVEMBER 21, 1985 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1986.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) NET OF FEES WAIVED BY THE ADVISER IN EXCESS OF AN INDEFINITE VOLUNTARY
EXPENSE LIMITATION OF 1.95% BEGINNING NOVEMBER 1, 1992.
(D) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A
1.2% ADVISER-IMPOSED EXPENSE LIMITATION.
(E) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 21.73%.
(F) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 6.88%.
(G) ANNUALIZED.
(H) INCLUDES DISTRIBUTION FEE OF 1.0%.
6
<PAGE>
SPECIAL INVESTMENT TRUST
<TABLE>
<CAPTION>
NAVIGATOR
CLASS PRIMARY CLASS
Years Ended March 31, 1995(B) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period $19.11 $21.56 $17.91 $17.00 $14.59 $13.58
Net investment income .07 (.06) (.11) .03 .12 .18
Net realized and
unrealized
gain (loss) on
investments .85 (1.31) 3.93 1.66 2.83 2.42
Total from investment
operations .92 (1.37) 3.82 1.69 2.95 2.60
Distributions to
shareholders from:
Net investment income -- -- (.03) -- (.14) (.27)
Net realized gain on
investments -- (.23) (.14) (.78) (.40) (1.32)
Net asset value, end of
period $20.03 $19.96 $21.56 $17.91 $17.00 $14.59
Total return 4.81%(E) (6.37)% 21.35% 10.50% 20.46% 21.46%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 0.90%(F) 1.93%(G) 1.94%(G) 2.00%(G) 2.10%(G) 2.30%(G)
Net investment income 1.0%(F) (0.2)% (0.6)% 0.2% 0.8% 1.4%
Portfolio turnover rate 27.5% 27.5% 16.7% 32.5% 56.9% 75.6%
Net assets, end of period
(in thousands) $26,123 $612,093 $565,486 $322,572 $201,772 $106,770
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1990 1989 1988 1987 1986(A)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period $11.84 $10.14 $12.80 $11.53 $10.00
Net investment income .12 .06(C) .13(C) --(C) .04(C)
Net realized and
unrealized
gain (loss) on
investments 1.70 1.65 (1.825) 1.51 1.49
Total from investment
operations 1.82 1.71 (1.695) 1.51 1.53
Distributions to
shareholders from:
Net investment income (.08) (.01) (.075) (.02) --
Net realized gain on
investments -- -- (.89) (.22) --
Net asset value, end of
period $13.58 $11.84 $10.14 $12.80 $11.53
Total return 15.37% 16.99% (14.18)% 13.39% 15.30%(D)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net
assets:
Expenses 2.30%(G) 2.50%(G) 2.50%(G) 2.50%(G) 2.50%(F,G)
Net investment income 1.0% 0.7% 1.0% -- 1.2%(F)
Portfolio turnover rate 115.9% 122.4% 158.9% 77.0% 41.0%(F)
Net assets, end of period
(in thousands) $68,240 $44,450 $43,611 $55,822 $34,337
</TABLE>
(A) FOR THE PERIOD DECEMBER 30, 1985 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1986.
(B) FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF SALE OF NAVIGATOR
SHARES) TO MARCH 31, 1995.
(C) EXCLUDES INVESTMENT ADVISORY FEES AND OTHER EXPENSES IN EXCESS OF A
2.5% ADVISER-IMPOSED EXPENSE LIMITATION.
(D) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 60.70%.
(E) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN 14.51%.
(F) ANNUALIZED.
(G) INCLUDES DISTRIBUTION FEE OF 1.0%.
7
<PAGE>
AMERICAN LEADING COMPANIES
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended March 31, 1995 1994(A)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.69 $10.00
Net investment income(B) 0.12 0.059
Net realized and unrealized gain (loss) on investments 0.48 (0.344)
Total from investment operations 0.60 (0.285)
Distributions to shareholders from net investment income (0.11) (0.025)
Net asset value, end of period $10.18 $9.69
Total return 6.24% (2.86)%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.95%(B) 1.95%(B,D)
Net investment income 1.21%(B) 1.14%(B,D)
Portfolio turnover rate 30.5% 21.0%(D)
Net assets, end of period (in thousands) $59,985 $55,022
</TABLE>
(A) FOR THE PERIOD SEPTEMBER 1, 1993 (COMMENCEMENT OF OPERATIONS) TO MARCH
31, 1994.
(B) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 1.95% OF
AVERAGE DAILY NET ASSETS. IF NO FEES HAD BEEN WAIVED BY THE MANAGER, THE
RATIO OF EXPENSES TO AVERAGE DAILY NET ASSETS FOR THE PERIOD SEPTEMBER 1,
1993 TO MARCH 31, 1994 AND THE YEAR ENDED MARCH 31, 1995 WOULD HAVE BEEN
2.28% AND 2.12%, RESPECTIVELY.
(C) NOT ANNUALIZED. THE ANNUALIZED TOTAL RETURN FOR THE PERIOD WOULD HAVE
BEEN (4.92)%.
(D) ANNUALIZED.
8
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may quote the TOTAL RETURN of each class
of shares in advertisements or in reports or other communications to
shareholders. A mutual fund's total return is a measurement of the overall
change in value of an investment in the fund, including changes in share
price and assuming reinvestment of dividends and other distributions.
CUMULATIVE TOTAL RETURN shows the fund's performance over a specific
period of time. AVERAGE ANNUAL TOTAL RETURN is the average annual
compounded return that would have produced the same cumulative total
return if the fund's performance had been constant over the entire period.
Average annual returns, which differ from actual year-to-year results,
tend to smooth out variations in a fund's returns. For comparison
purposes, Value Trust's total return is compared with total returns of the
Value Line Geometric Average, an index of approximately 1,700 stocks
("Value Line Index"), and Standard & Poor's 500 Stock Composite Index
("S&P Stock Index"), two unmanaged indexes of widely held common stocks.
No adjustment has been made for any income taxes payable by shareholders.
The investment return and principal value of an investment in each
Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Returns of each Fund would
have been lower if the Adviser and/or Legg Mason had not waived certain
fees for the fiscal years ended March 31, as follows: 1989 through 1995
for Value Trust; 1986 through 1995 for Total Return Trust and Special
Investment Trust; and 1994 through 1995 for American Leading Companies.
Performance figures reflect past performance only and are not intended
to and do not indicate future performance. Further information about each
Fund's performance is contained in its Annual Report to Shareholders,
which may be obtained without charge by calling your Legg Mason or
affiliated investment executive or Legg Mason's Funds Marketing
Department at 800-822-5544.
Total returns as of March 31, 1995 were as follows:
<TABLE>
<CAPTION>
SPECIAL AMERICAN
TOTAL RETURN INVESTMENT LEADING
CUMULATIVE TOTAL RETURN VALUE TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
Primary Class:
One Year +9.77 % +1.09 % -6.37 % +6.24%
Five Years +54.50 +56.57 +83.68 N/A
Ten Years +177.23 N/A N/A N/A
Life of Class +584.27(A) +99.17(B) +178.15(C) +3.20(D)
Navigator Class:
Life of Class(E) +8.11 +2.28 +4.81 N/A
<CAPTION>
VALUE LINE S&P STOCK
CUMULATIVE TOTAL RETURN INDEX INDEX
<S> <C> <C>
Primary Class:
One Year +5.12 % +15.54 %
Five Years +38.57 +71.50
Ten Years +102.99 +284.58
Life of Class +244.66(A) +586.40(A)
Navigator Class:
Life of Class(E) +6.37 +11.37
</TABLE>
<TABLE>
<CAPTION>
SPECIAL AMERICAN
TOTAL RETURN INVESTMENT LEADING
AVERAGE ANNUAL TOTAL RETURN VALUE TRUST TRUST TRUST COMPANIES
<S> <C> <C> <C> <C>
Primary Class:
One Year +9.77 % +1.09 % -6.37 % +6.24%
Five Years +9.09 +9.38 +12.93 N/A
Ten Years +10.73 N/A N/A N/A
Life of Class +16.00(A) +7.64(B) +11.69(C) +2.02(D)
<CAPTION>
VALUE LINE S&P STOCK
AVERAGE ANNUAL TOTAL RETURN INDEX INDEX
<S> <C> <C>
Primary Class:
One Year +5.12 % +15.54 %
Five Years +6.74 +11.39
Ten Years +7.34 +14.42
Life of Class +10.02(A) +16.03(A)
</TABLE>
(A) Inception of Value Trust -- April 16, 1982.
(B) Inception of Total Return Trust -- November 21, 1985.
(C) Inception of Special Investment Trust -- December 30, 1985.
(D) Inception of American Leading Companies -- September 1, 1993.
(E) For the period December 1, 1994 (commencement of sale of Navigator
Shares) to March 31, 1995.
The S&P Stock Index and Value Line Index figures assume reinvestment of
dividends paid by their component stocks. Tax consequences are not included
in the illustration, nor are brokerage or other fees calculated in the S&P
Stock Index and Value Line Index figures.
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 may invest in debt securities, including government,
corporate and money market securities, for temporary defensive purposes
and, consistent with its investment objective, during periods when or
under circumstances where the Adviser believes the return on certain debt
securities may equal or exceed the return on equity securities. The Fund
may invest in debt securities of both foreign and domestic issuers of any
maturity without regard to rating, and may invest its assets in such
securities without regard to a percentage limit. Although not a
fundamental policy subject to shareholder vote, the Adviser currently
anticipates that under normal market conditions, the Fund will invest no
more than 25% of its total assets in long-term debt securities. Up to 10%
of its total assets may be invested in debt securities rated below
investment grade, i.e., rated lower than BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, deemed by the Adviser to be of comparable quality.
TOTAL RETURN TRUST'S objective is to obtain capital appreciation and
current income in order to achieve an attractive total investment return
consistent with reasonable risk. The Adviser attempts to meet its
objective by investing in dividend-paying common stocks, debt securities
and securities convertible into common stocks which, in the opinion of the
Adviser, offer potential for attractive total return. The Fund also
invests in common stocks and securities convertible into common stocks
which do not pay current dividends but which offer prospects for capital
appreciation and future income.
The Fund may invest in debt securities, including government,
corporate and money market securities, consistent with its investment
objective, during periods when or under circumstances where the Adviser
believes the return on certain debt securities may equal or exceed the
return on equity securities. The Fund may invest in debt securities of any
maturity of both foreign and domestic issuers without regard to rating and
may invest its assets in such securities without regard
10
<PAGE>
to a percentage limit. The Adviser currently anticipates that under normal
market conditions, the Fund will invest no more than 50% of its total
assets in intermediate-term and long-term debt securities, and no more
than 5% of its total assets in debt securities rated below investment
grade, i.e., rated lower than BBB by S&P or Baa by Moody's or, if unrated,
deemed by the Adviser to be of comparable quality.
SPECIAL INVESTMENT TRUST'S objective is capital appreciation. Current
income is not a consideration. The Fund invests principally in equity
securities of companies with market capitalizations of less than $2.5
billion which the Adviser believes have one or more of the following
characteristics:
1. Equity securities of companies which generally are not closely
followed by, or are out of favor with, investors, and which appear to be
undervalued in relation to their long-term earning power or asset values.
A security may be undervalued because of many factors, including market
decline, poor economic conditions, tax-loss selling, or actual or
anticipated developments affecting the issuer.
2. Equity securities of companies in which unusual and possibly
non-repetitive developments are taking place which, in the opinion of the
Adviser, may cause the market values of the securities to increase. Such
developments may include:
(a) a sale or termination of an unprofitable part of the company's
business;
(b) a change in the company's management or in management's
philosophy;
(c) a basic change in the industry in which the company operates;
(d) the introduction of new products or technologies; or
(e) the prospect or effect of acquisition or merger activities.
3. Equity securities of companies involved in actual or anticipated
reorganizations or restructurings under the Bankruptcy Code. No more than
20% of the Fund's total assets may be invested in such securities.
The Fund also invests in debt securities of companies having one or
more of the characteristics listed above.
Investments in securities with such characteristics may involve
greater risks of possible loss than investments in securities of larger,
well-established companies with a history of consistent operating
patterns. However, the Adviser believes that such investments also may
offer greater than average potential for capital appreciation.
Although the Fund primarily invests in companies with the
characteristics described previously, the Adviser may invest in larger,
more highly-capitalized companies when circumstances warrant such
investments.
The Adviser believes that the comparative lack of attention by
investment analysts and institutional investors to small and mid-sized
companies may result in opportunities to purchase the securities of such
companies at attractive prices compared to historical or market
price-earnings ratios, book value, return on equity or long-term
prospects. The Fund's policy of investing primarily in the securities of
smaller companies differs from the investment approach of many other
mutual funds, and investment in such securities involves special risks.
Among other things, the prices of securities of small and mid-sized
companies generally are more volatile than those of larger companies; the
securities of smaller companies generally are less liquid; and smaller
companies generally are more likely to be adversely affected by poor
economic or market conditions.
It is anticipated that some of the portfolio securities of the Fund
may not be widely traded, and that the Fund's position in such securities
may be substantial in relation to the market for such securities.
Accordingly, it may be difficult for the Fund to dispose of such
securities at prevailing market prices in order to meet redemptions.
However, as a non-fundamental policy, the Fund will not invest more than
10% of its net assets in illiquid securities.
The Fund may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or
restructurings. Investments in such securities involve special risks,
including difficulty in obtaining information as to the financial
condition of such issuers and the fact that the market prices of such
securities are subject to sudden and erratic market movements and
11
<PAGE>
above-average price volatility. Such securities require active monitoring.
The Fund invests primarily in equity securities and securities
convertible into equities, but also purchases debt securities including
government, corporate and money market securities. Up to 35% of the Fund's
assets may be invested in debt securities rated below BBB by S&P, or below
Baa by Moody's, and unrated securities deemed by the Adviser to be of
comparable quality.
When conditions warrant, for temporary defensive purposes, the Fund
also may invest without limit in short-term debt instruments, including
government, corporate and money market securities. Such short-term
investments will be rated in one of the four highest rating categories by
S&P or Moody's or, if unrated by S&P or Moody's, deemed by the Adviser to
be of comparable quality.
AMERICAN LEADING COMPANIES' investment objective is to provide
long-term capital appreciation and current income consistent with prudent
investment risk. The Fund seeks to provide fiduciaries, organizations,
institutions and individuals with a convenient and prudent medium of
investment, primarily in the common stocks of Leading Companies. The Fund
intends to maintain for its shareholders a portfolio of securities which
an experienced investor charged with fiduciary responsibility might select
under the Prudent Investor Rule, as described in the trust laws or court
decisions of many states, including New York. Under normal market
conditions, the Fund will invest at least 75% of its total assets in a
diversified portfolio of dividend-paying common stocks of Leading
Companies that have market capitalizations of at least $2 billion. LMCM
defines a "Leading Company" as a company that, in the opinion of LMCM, has
attained a major market share in one or more products or services within
its industry(ies), and possesses the financial strength and management
talent to maintain or increase market share and profit in the future. Such
companies are typically well known as leaders in their respective
industries; most are found in the top half of the S&P 500. Additionally,
LMCM's goal is to purchase companies having what LMCM believes is a
reasonable price/earnings ratio, and it will favor those companies with
well established histories of dividends and dividend growth rates. The
Fund may also invest in companies having capitalizations above or below $2
billion which LMCM believes show strong potential for future market
leadership, and in companies which LMCM believes, because of corporate
restructuring or other changes, are undervalued based on their potential
for future growth. There is always a risk that LMCM will not properly
assess the potential for an issuer's future growth, or that an issuer will
not realize that potential.
While the Fund may invest in foreign securities, the Fund under normal
market conditions intends to invest at least 65% of its total assets in
domestic Leading Companies. "Domestic" company, for this purpose, means a
company that has its principal corporate offices in the U.S. or that
derives at least 50% of its revenues from operations in the U.S.
The Fund's objective and polices require traditional investment
management techniques that involve, for example, the evaluation and
financial analysis of specific foreign and domestic issuers as well as
economic and political analysis. The Fund's portfolio turnover rate is not
expected to exceed 100%. Under normal circumstances, the Fund expects to
own a minimum of 35 different securities. The Fund may also invest in
common stocks and securities convertible into common stocks which do not
pay current dividends but which offer prospects for capital appreciation
and future income. The Fund may invest in when-issued securities, which
may involve additional risks.
The Fund may invest up to 25% of its total assets in debt securities,
including government, corporate and money market securities, consistent
with its investment objective, during periods when LMCM believes the
return on certain debt securities may equal or exceed the return on equity
securities. The Fund may invest in debt securities of any maturity of both
foreign and domestic issuers. The debt securities in which the Fund may
invest will be rated at least A by S&P or Moody's, or deemed by LMCM to be
of comparable quality. The prices of debt securities fluctuate in response
to perceptions of the issuer's creditworthiness, and also tend to vary
inversely with market interest
12
<PAGE>
rates. The longer the time to maturity the greater are such variations.
The Fund may invest up to 5% of its net assets in convertible
securities. Many convertible securities are rated below investment grade
or, if unrated, are considered comparable to securities rated below
investment grade. The Fund does not intend to invest in convertible
securities rated below Ba by Moody's or BB by S&P or, if unrated, deemed
by the Adviser to be of comparable quality.
FOR EACH FUND:
When cash is temporarily available, or for temporary defensive
purposes, each Fund may invest without limit in money market instruments,
including repurchase agreements and (with respect to American Leading
Companies) high-quality short-term debt securities. A repurchase agreement
is an agreement under which either U.S. government obligations or
high-quality liquid debt securities are acquired from a securities dealer
or bank subject to resale at an agreed-upon price and date. The securities
are held for each Fund by State Street Bank and Trust Company ("State
Street"), the Funds' custodian, as collateral until resold and will be
supplemented by additional collateral if necessary to maintain a total
value equal to or in excess of the value of the repurchase agreement. Each
Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed
or prevented from exercising its rights to dispose of the collateral
securities, which may decline in value in the interim. The Funds will
enter into repurchase agreements only with financial institutions
determined by the Adviser to present minimal risk of default during the
term of the agreement based on guidelines established by the Funds' Boards
of Directors. A Fund will not enter into repurchase agreements of more
than seven days' duration if more than 10% (for Value Trust, Total Return
Trust and Special Investment Trust) or 15% (for American Leading
Companies) of its net assets would be invested in such agreements and
other illiquid investments.
The Funds may engage in securities lending. However, no Fund currently
intends to loan securities with a value exceeding 5% of its total assets.
For further information concerning securities lending, see the Statement
of Additional Information.
FOREIGN SECURITIES
The Funds may also invest in American depositary receipts ("ADRs"),
which are securities issued by domestic banks evidencing their ownership
of specific foreign securities. ADRs may be sponsored or unsponsored;
issuers of securities underlying unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. Accordingly, there
may be less information available about such issuers than there is with
respect to domestic companies and issuers of securities underlying
sponsored ADRs. Although ADRs are denominated in U.S. dollars, the
underlying security often is not; thus, the value of the ADR may be
subject to exchange controls and variations in the exchange rate.
Each Fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic
issuers. In addition, with respect to certain foreign countries, there is
the possibility of expropriation, confiscatory taxation, withholding taxes
and limitations on the use or removal of funds or other assets. Although
not a fundamental policy subject to shareholder vote, the Adviser
currently anticipates that Value Trust, Total Return Trust and Special
Investment Trust will each invest no more than 25% of its total assets in
foreign securities. American Leading Companies may not invest more than
25% of its total assets in foreign securities, either directly or through
ADRs.
13
<PAGE>
FUTURES AND OPTIONS TRANSACTIONS
VALUE TRUST, TOTAL RETURN TRUST AND SPECIAL INVESTMENT TRUST:
The Funds may engage in futures strategies to attempt to reduce the
overall investment risk that would normally be expected to be associated
with ownership of the securities in which each invests. For example, a
Fund may sell a stock index futures contract in anticipation of a general
market or market sector decline that could adversely affect the market
value of the Fund's portfolio. To the extent that a Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus
provide an alternative to the liquidation of securities positions. A Fund
may sell an interest rate futures contract to offset price changes of debt
securities it already owns. This strategy is intended to minimize any
price changes in the debt securities a Fund owns (whether increases or
decreases) caused by interest rate changes, because the value of the
futures contract would be expected to move in the opposite direction from
the value of the securities owned by the Fund.
Each Fund may purchase call options on interest rate futures contracts
to hedge against a market advance in debt securities that the Fund plans
to acquire at a future date. The purchase of such options is analogous to
the purchase of call options on an individual debt security that can be
used as a temporary substitute for a position in the security itself. The
Funds may purchase put options on stock index futures contracts. This is
analogous to the purchase of protective put options on individual stocks
where a level of protection is sought below which no additional economic
loss would be incurred by the Funds. The Funds may purchase and write
options in combination with each other to adjust the risk and return of
the overall position. For example, the Funds may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are
similar to selling a futures contract.
The Funds may purchase put options to hedge sales of securities, in a
manner similar to selling futures contracts. If stock prices fall, the
value of the put option would be expected to rise and offset all or a
portion of the Fund's resulting losses in its stock holdings. However,
option premiums tend to decrease over time as the expiration date nears.
Therefore, because of the cost of the option (in the form of premium and
transaction costs), a Fund would expect to suffer a loss in the put option
if prices do not decline sufficiently to offset the deterioration in the
value of the option premium.
The Funds may write put options as an alternative to purchasing actual
securities. If stock prices rise, a Fund would expect to profit from a
written put option, although its gain would be limited to the amount of
the premium it received. If stock prices remain the same over time, it is
likely that the Fund will also profit, because it should be able to close
out the option at a lower price. If stock prices fall, the Fund would
expect to suffer a loss.
By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying index, with results similar to
those obtainable from purchasing a futures contract, but with risk limited
to the cost of the option if stock prices fell. At the same time, a Fund
can expect to suffer a loss if stock prices do not rise sufficiently to
offset the cost of the option.
The characteristics of writing call options are similar to those of
writing put options, as described above, except that writing covered call
options generally is a profitable strategy if prices remain the same or
fall. Through receipt of the option premium, a Fund would seek to mitigate
the effects of a price decline. At the same time, the Fund would give up
some ability to participate in security price increases when writing call
options.
The purchase and sale of options and futures contracts involve risks
different from those involved with direct investments in securities, and
also require different skills from the Adviser in managing the Funds'
portfolio. While utilization of options, futures contracts and similar
instruments may be advantageous to the Funds, if the Adviser is not
successful in employing such instruments in managing a Fund's investments
or in predicting interest rate changes, the Fund's performance will be
worse than if the Fund did not make such
14
<PAGE>
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 its hedged position. In addition, the Funds will pay commissions
and other costs in connection with such investments, which may increase
each Fund's expenses and reduce its yield. A more complete discussion of
the possible risks involved in transactions in options and futures
contracts is contained in the Statement of Additional Information. Each
Fund's current policy is to limit options and futures transactions to
those described above. The Funds may purchase and write both over-the-
counter and exchange-traded options.
A Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and related
options and premiums paid for related options the Fund has purchased would
exceed 5% of the Fund's total assets. A Fund will not purchase futures
contracts or related options if, as a result, more than 20% of the Fund's
total assets would be so invested.
The Funds may also enter into forward foreign currency contracts. A
forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. By entering into
a foreign currency contract, a Fund "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for the
duration of the contract. A Fund may enter into these contracts for the
purpose of hedging against risk arising from its investment in securities
denominated in foreign currencies or when it anticipates investing in such
securities. Forward currency contracts involve certain costs and risks,
including the risk that anticipated currency movements will not be
accurately predicted, causing a Fund to sustain losses on these contracts.
AMERICAN LEADING COMPANIES:
The Fund may sell covered call options on any security in which it is
permitted to invest for the purpose of enhancing income. A call option
gives the purchaser the right to purchase the underlying security from the
Fund at a specified price (the "strike price") during a specified period.
A call option is "covered" if, at all times the option is outstanding, the
Fund holds the underlying security or a right to obtain that security at
no additional cost. The Fund may purchase a call option for the purpose of
closing out a short position in an option.
The use of options involves certain risks. These risks include: (1)
the fact that use of these instruments can reduce the opportunity for
gain; (2) dependence on LMCM's ability to predict movements in the prices
of individual securities, fluctuations in the general securities markets
or in market sectors; (3) imperfect correlation between movements in the
price of options and movements in the price of the underlying securities;
(4) the possible lack of a liquid secondary market for a particular option
at any particular time; (5) the possibility that the use of cover
involving a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other
short-term obligations; and (6) the possible need to defer closing out
positions in these instruments in order to avoid adverse tax consequences.
There can be no assurance that the use of options by the Fund will be
successful. As a non-fundamental policy, the Fund will not sell a covered
call option if, as a result, the value of the portfolio securities
underlying all outstanding covered call options would exceed 25% of the
value of the equity securities held by the Fund. See the Statement of
Additional Information for a more detailed discussion of options
strategies.
RISKS OF LOWER RATED DEBT SECURITIES
Generally, debt securities rated below BBB by S&P, or below Baa by
Moody's, and unrated
15
<PAGE>
securities of comparable quality, offer a higher current yield than that
provided by higher grade issues, but also involve higher risks. Debt
securities rated D by S&P are in default. However, debt securities,
regardless of their ratings, generally have a higher priority in the
issuer's capital structure than do equity securities.
Lower rated debt securities are especially affected by adverse changes
in the industries in which the issuers are engaged and by changes in the
financial condition of the issuers. Highly leveraged issuers may also
experience financial stress during periods of rising interest rates.
The market for lower rated debt securities has expanded rapidly in
recent years, which growth paralleled a long economic expansion. At
certain times in the past, the prices of many lower rated debt securities
declined, indicating concerns that issuers of such securities might
experience financial difficulties. At those times, the yields on lower
rated debt securities rose dramatically, reflecting the risk that holders
of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur.
The market for lower rated debt securities is generally thinner and
less active than that for higher quality debt securities, which may limit
a Fund's ability to sell such securities at fair value. Judgment plays a
greater role in pricing such securities than is the case for securities
having more active markets. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may also decrease the values
and liquidity of lower rated debt securities, especially in a thinly
traded market.
The ratings of Moody's and S&P represent the opinions of those
agencies as to the quality of the debt securities which they rate. Such
ratings are relative and subjective, and are not absolute standards of
quality. Unrated debt securities are not necessarily of lower quality than
rated securities, but they may not be attractive to as many buyers.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by the Adviser to determine, to
the extent possible, that the planned investment is sound. Each Fund does
not intend to invest in securities that are in default, or where, in the
Adviser's opinion, default appears likely.
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment limitations that,
like its investment objective, can be changed only by a vote of the
holders of a majority of the outstanding voting securities of the Fund.
For these purposes a "vote of the holders of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or (2) 67% or more
of the shares present at a shareholders' meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
These investment limitations are set forth in the Statement of Additional
Information under "Additional Information About Investment Limitations and
Policies." Other Fund policies, unless described as fundamental, can be
changed by action of the Board of Directors.
The fundamental restrictions applicable to American Leading Companies
include a prohibition on investing 25% or more of its total assets in the
securities of issuers having their principal business activities in the
same industry (with the exception of securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements with respect thereto).
HOW YOU CAN INVEST IN THE FUNDS
You may purchase Primary Shares of the Funds through a brokerage
account with Legg Mason or with an affiliate that has a dealer agreement
with Legg Mason (Legg Mason is a wholly owned subsidiary of Legg Mason,
Inc., a financial services holding company). Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Funds and answer any questions you may have. Documents
available from your Legg Mason or affiliated investment executive should
be completed if you invest in shares of the Funds through an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan
("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
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The minimum initial investment in Primary Shares for each Fund
account, including investments made by exchange from other Legg Mason
funds, is $1,000, and the minimum investment for each purchase of
additional shares is $100, except as noted below. Initial investments in
an IRA account established on behalf of a nonworking spouse of a
shareholder who has an IRA invested in the Funds require a minimum amount
of only $250. Subsequent investments in an IRA or similar plan require a
minimum amount of $100. However, once an account is established, the
minimum amount for subsequent investments will be waived if an investment
in an IRA or similar plan will bring the investment for the year to the
maximum amount permitted under the Internal Revenue Code of 1986, as
amended ("Code"). For those investing through the Funds' Future First
Systematic Investment Plan, payroll deduction plans and plans involving
automatic payment of funds from financial institutions or automatic
investment of dividends from certain unit investment trusts, minimum
initial and subsequent investments are lower. Each Fund may change these
minimum amount requirements at its discretion.
Primary Shares purchased on behalf of an IRA, Keogh Plan, SEP or other
qualified retirement plan will be processed at the net asset value next
determined after Legg Mason's Funds Processing receives a check for the
amount of the purchase. Other Primary Share purchases will be processed at
the net asset value next determined after your Legg Mason or affiliated
investment executive has received your order; payment must be made within
three business days to Legg Mason. Orders received by your Legg Mason or
affiliated investment executive before the close of business of 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 your Legg Mason or affiliated investment executive
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," page 19. Each Fund reserves the right to reject any order for
its shares or to suspend the offering of shares for a period of time.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares of the Funds:
1. THROUGH YOUR LEGG MASON OR AFFILIATED INVESTMENT EXECUTIVE
Shares may be purchased through any Legg Mason or affiliated
investment executive. An investment executive will be pleased to open an
account for you, explain to you the shareholder services available from
the Funds and answer any questions you may have. After you have
established a Legg Mason or affiliated account, you can order shares from
your investment executive in person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Funds of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Funds' transfer agent, to prepare a check each month drawn
on your checking account. There is no minimum initial investment. Please
contact any Legg Mason or affiliated investment executive for further
information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be
possible for dividends from certain unit investment trusts to be invested
automatically in shares. Persons interested in establishing such automatic
investment programs should contact the Funds through any Legg Mason or
affiliated investment executive.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or
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receipt. No certificates are issued unless you specifically request them
in writing. Shareholders who elect to receive certificates can redeem
their shares only by mail. Certificates will be issued in full shares
only. No certificates will be issued for shares of any Fund prior to 15
business days after purchase of such shares by check unless the Fund can
be reasonably assured during that period that payment for the purchase of
such shares has been collected. Shares may not be held in, or transferred
to, an account with any brokerage firm other than Legg Mason or its
affiliates.
HOW YOU CAN REDEEM YOUR PRIMARY SHARES
There are two ways you can redeem your Primary Shares. First, you may
give your Legg Mason or affiliated investment executive an order for
redemption of your shares. Please have the following information ready
when you call: the name of the Fund, the number of shares to be redeemed
and your shareholder account number. Second, you may send a written
request for redemption to: [insert complete Fund name], c/o Legg Mason
Funds Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476.
Requests for redemption in "good order," as described below, received
by your Legg Mason or affiliated investment executive before the close of
the Exchange on any day when the Exchange is open, will be transmitted to
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 your Legg Mason or affiliated investment
executive 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 your Legg Mason or affiliated
investment executive 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.
Proceeds from your redemption will settle in your Legg Mason brokerage
account two days after trade date. However, each Fund reserves the right
to take up to seven days to make payment upon redemption if, in the
judgment of the Adviser, the respective 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 your redemption or
repurchase may be more or less than your original cost. If the shares to
be redeemed or repurchased were paid for by check (including certified or
cashier's checks), within 15 business days of the redemption or repurchase
request, the proceeds will not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
A redemption request will be considered to be received in "good order"
only if:
1. You have indicated in writing the number of Primary Shares to be
redeemed, the complete Fund name and your shareholder account number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of shares, contact your Legg Mason or
affiliated investment executive.
The Funds will not be responsible for the authenticity of redemption
instructions received by telephone, provided they follow reasonable
procedures to identify the caller. The Funds may request identifying
information from callers or employ identification numbers. The Funds may
be liable for losses due to unauthorized or fraudulent
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instructions if they do 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 Legg Mason or affiliated
investment executive for further instructions.
To redeem your Legg Mason retirement account, a Distribution Request
Form must be completed and returned to Legg Mason Client Services for
processing. This form can be obtained through your Legg Mason or
affiliated investment executive or Legg Mason Client Services in
Baltimore, Maryland.
Because of the relatively high cost of maintaining small accounts,
each 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 you. 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 your account, you will be
notified that your account is below $500 and will be allowed 60 days in
which to make an additional investment in order to avoid having your
account closed.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Primary 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 Primary Shares from the total
assets attributable to such shares and dividing the result by the number
of Primary Shares outstanding. Securities owned by each Fund for which
market quotations are readily available are valued at current market
value. In the absence of readily available market quotations, securities
are valued at fair value as determined by each Fund's Board of Directors.
Where a security is traded on more than one market, which may include
foreign markets, the securities are generally valued on the market
considered by the Adviser/LMCM to be the primary market. Securities with
remaining maturities of 60 days or less are valued at amortized cost. Each
Fund will value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends to holders of Primary Shares out of its
investment company taxable income (which consists of net investment
income, any net short-term capital gain and any net gains from certain
foreign currency transactions) attributable to those shares. Value Trust,
Total Return Trust and American Leading Companies declare and pay
dividends from net investment income quarterly; they pay dividends from
any net short-term capital gains and net gains from foreign currency
transactions annually. Special Investment Trust declares and pays
dividends from its investment company taxable income following the end of
each taxable year. Each Fund also distributes substantially all of its net
capital 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. Dividends and other distributions, if any, on shares held in
an IRA, Keogh Plan, SEP or other qualified retirement plan and by
shareholders maintaining a Systematic Withdrawal Plan generally are
reinvested in Primary Shares of the distributing Fund on the payment
dates. Other shareholders may elect to:
1. Receive both dividends and other distributions in Primary Shares of
the distributing Fund;
2. Receive dividends in cash and other distributions in Primary Shares
of the distributing Fund;
3. Receive dividends in Primary 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 the corresponding class of shares of another Legg Mason
fund. Please contact your investment executive for additional information
about this option.
If no election is made, both dividends and other distributions will be
credited to your Fund account in Primary Shares at the net asset value of
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the shares determined as of the close of the Exchange on the reinvestment
date. Shares received pursuant to any of the first three (reinvestment)
elections above also will be credited to your account at that net asset
value. Shareholders electing to receive dividends or other distributions
in cash will be sent a check or will have their Legg Mason account
credited after the payment date. You may elect at any time to change your
option by notifying the applicable Fund in writing at: [insert complete
Fund name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore,
Maryland 21203-1476. Your election must be received at least 10 days
before the record date in order to be effective for dividends and other
distributions paid to shareholders as of that date.
TAX TREATMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income and net
capital gain that is distributed to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Fund shares) are taxable to its shareholders
(other than IRAs, Keogh Plans, SEPs, other qualified retirement plans and
other tax-exempt investors) as ordinary income to the extent of the Fund's
earnings and profits. Distributions of each Fund's net capital gain
(whether paid in cash or reinvested in Fund shares), when designated as
such, are taxable to those shareholders as long-term capital gain,
regardless of how long they have held their Fund shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during that year. Each Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number. Each Fund also is required to withhold 31%
of all dividends and capital gain distributions payable to such
shareholders who otherwise are subject to backup withholding.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are
more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Fund shares for shares of any other Legg Mason fund
generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," page 21. If shares of a Fund are
purchased within 30 days before or after redeeming other shares of that
Fund 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, you may also be subject to state, local or foreign
taxes on distributions from the Funds, depending on the laws of your 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
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends, capital gain
distributions and shares purchased through the Future First Systematic
Investment Plan or
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through automatic investments). An account statement will be sent to you
monthly unless there has been no activity in the account or you are
purchasing shares only through the Future First Systematic Investment Plan
or through automatic investments, in which case an account statement will
be sent quarterly. Reports will be sent to each Fund's shareholders at
least semiannually showing its portfolio and other information; the annual
report for each Fund will contain financial statements audited by its
respective independent accountants/auditors.
Shareholder inquiries should be addressed to: [insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan with respect to that Fund. Please contact your Legg Mason
or affiliated investment executive for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares of a Fund for the corresponding class of shares of any of the Legg
Mason Funds, provided that such shares are eligible for sale in your state
of residence:
Legg Mason Cash Reserve Trust
A money market fund seeking stability of principal and current income
consistent with stability of principal.
Legg Mason Tax Exempt Trust, Inc.
A money market fund seeking high current income exempt from federal
income tax, preservation of capital, and liquidity.
Legg Mason U. S. Government Money Market Portfolio
A money market fund seeking high current income consistent with
liquidity and conservation of principal.
Legg Mason Value Trust, Inc.
A mutual fund seeking long-term growth of capital.
Legg Mason Special Investment Trust, Inc.
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
Legg Mason Total Return Trust, Inc.
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Legg Mason American Leading Companies Trust
A mutual fund seeking long-term capital appreciation and current
income consistent with prudent investment risk.
Legg Mason Global Equity Trust
A mutual fund seeking maximum long-term total return, by investing in
common stocks of companies located in at least three different countries.
Legg Mason U. S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U. S. Government, its agencies or
instrumentalities, while maintaining an average dollar-weighted maturity
of between three and ten years.
Legg Mason Investment Grade Income Portfolio
A mutual fund seeking a high level of current income, primarily
through investment in a diversified portfolio of investment grade debt
securities.
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Legg Mason High Yield Portfolio
A mutual fund seeking primarily a high level of current income and
secondarily, capital appreciation, by investing principally in
lower-rated, fixed-income securities.
Legg Mason Global Government Trust
A mutual fund seeking capital appreciation and current income by
investing principally in debt securities issued or guaranteed by foreign
governments, the U.S. Government, their agencies, instrumentalities and
political subdivisions.
Legg Mason Maryland Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income Trust(A)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income Trust(A,B)
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
(A) Shares of these funds are sold with an initial sales charge.
(B) Effective August 1, 1995 through January 31, 1996, the sales charge
will be waived for all new accounts and subsequent investments into
existing accounts. After January 31, 1996, any exchanges of these
shares will be subject to the full sales charge, if any, since no sales
charge will be paid on shares purchased during this period.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. 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
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by exchange from a fund on which the same
or higher initial sales charge previously was paid. There is no charge for
the exchange privilege, but each Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from that Fund in one calendar year. To obtain further
information concerning the exchange privilege and prospectuses of other
Legg Mason funds, or to make an exchange, please contact your Legg Mason
or affiliated investment executive. To effect an exchange by telephone,
please call your Legg Mason or affiliated investment executive with the
information described in "How You Can Redeem Your Primary Shares," page
18. The other factors relating to telephone redemptions described in that
section apply also to telephone exchanges. Please read the prospectus for
the other fund(s) carefully before you invest by exchange. Each Fund
reserves the right to modify or terminate the exchange privilege upon 60
days' notice to shareholders.
There is no assurance the money market funds will be able to maintain
a $1.00 share price. None of the funds is insured or guaranteed by the
U.S. Government.
INVESTING THROUGH TAX-DEFERRED RETIREMENT PLANS
Investors who are considering establishing an IRA, Keogh Plan, SEP or
other qualified retirement plan may wish to consult their attorneys or tax
advisers with respect to individual tax questions. Your Legg Mason or
affiliated investment executive can make available to you forms of plans.
The option of investing in these plans through regular payroll deductions
may be arranged with Legg Mason and your employer. Additional information
with respect to these plans is available upon request from any Legg Mason
or affiliated investment executive.
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THE FUNDS' MANAGEMENT AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of its Board of Directors.
ADVISER
Pursuant to separate advisory agreements with Value Trust, Total
Return Trust and Special Investment Trust (each an "Advisory Agreement"),
which were approved by each respective Fund's Board of Directors, the
Adviser, a wholly owned subsidiary of Legg Mason, Inc., serves as
investment adviser to each of those Funds. The Adviser administers and
acts as the portfolio manager for each Fund and has responsibility for the
actual investment management of the Funds, including the responsibility
for making decisions and placing orders to buy, sell or hold a particular
security. The Adviser acts as adviser, manager or consultant to sixteen
investment company portfolios which had aggregate assets under management
of approximately $4.6 billion as of June 30, 1995. The Adviser's address
is 111 South Calvert Street, Baltimore, Maryland 21202.
William H. Miller, III co-managed Value Trust from its inception in
1982 to November 1990, when he assumed primary responsibility for the
day-to-day management. Mr. Miller has been responsible for the day-to-day
management of Total Return Trust since November 1990. Nancy T. Dennin
joined Mr. Miller as co-manager of Total Return Trust on January 1, 1992.
Mr. Miller has also been primarily responsible for the day-to-day
management of 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
attibutable to the net assets of Primary Shares, calculated daily and
payable monthly. The Adviser receives a fee at an annual rate of 1.0% of
Value Trust's average daily net assets for the first $100 million of
average net assets; 0.75% of average daily net assets between $100 million
and $1 billion; and 0.65% of average daily net assets exceeding $1
billion. The Adviser receives from Total Return Trust, a management fee at
an annual rate of 0.75% of the average daily net assets of the Fund. The
Adviser receives from Special Investment Trust, a management fee at an
annual rate of 1.0% of the average daily net assets of the Fund for the
first $100 million of average net assets and 0.75% of average daily net
assets exceeding $100 million. The management fee paid by each Fund is
higher than fees paid by most other funds to their investment advisers.
For Total Return Trust, the Adviser has agreed to waive indefinitely its
fees in any month to the extent Total Return Trust's expenses related to
Primary Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during any month an annual rate of 1.95% of the Fund's
average daily net assets. During the fiscal year ended March 31, 1995,
Value Trust paid a management fee of 0.78% of its average daily net
assets, Total Return Trust paid a management fee of 0.75% of its average
daily net assets, and Special Investment Trust paid a management fee of
0.79% of its average daily net assets.
MANAGER
Pursuant to a management agreement with American Leading Companies
("Management Agreement"), which was approved by the Trust's Board of
Directors, Legg Mason Fund Adviser, Inc. ("Manager"), a wholly owned
subsidiary of Legg Mason, Inc., serves as the Fund's manager. The Fund
pays the Manager, pursuant to the Management Agreement, a management fee
equal to an annual rate of 0.75% of the Fund's average daily net assets.
The management fee paid by the Fund is higher than most other equity
funds. The Fund pays all its other expenses which are not assumed by the
Manager. The Manager has agreed to waive its fees and to reimburse the
Fund for its expenses related to Primary Shares (exclusive of taxes,
interest, brokerage and extraordinary expenses) in excess of 1.95% of the
Fund's average net assets indefinitely; this agreement is voluntary and
may be terminated by the Manager at any time.
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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.
LMCM has not previously advised a registered investment company.
However, LMCM manages private accounts with a value as of April 30, 1995
of approximately $700 million. The address of LMCM is 111 South Calvert
Street, Baltimore, MD 21202.
J. Eric Leo serves as portfolio manager for the Fund and is primarily
responsible for the selection of investments. Mr. Leo has been Executive
Vice President and Chief Investment Officer of LMCM since December 1991.
From October 1986 to December 1991, he served as Managing Director of
Equitable Capital Management, where he managed, among other assets, the
Equitable Account #1 -- Growth & Income Commingled Fund. Prior to joining
Equitable, Mr. Leo was President and Chief Investment Officer for Sperry
Capital Management Corp., where he was responsible for $1.1 billion in
pension assets.
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to a
separate Underwriting Agreement with each Fund. Each Underwriting
Agreement obligates Legg Mason to pay certain expenses in connection with
the offering of shares, including any compensation to its investment
executives, the printing and distribution of prospectuses, statements of
additional information and periodic reports used in connection with the
offering to prospective investors, after the prospectuses, statements of
additional information and reports have been prepared, set in type and
mailed to existing shareholders at the Fund's expense, and for any
supplementary sales literature and advertising costs. Legg Mason also
assists BFDS with certain of its duties as transfer agent; for the year
ended March 31, 1995, Legg Mason received from BFDS $222,259, $52,972,
$178,389 and $19,487 for performing such services in connection with Value
Trust, Total Return Trust, Special Investment Trust and American Leading
Companies, respectively.
The Board of Directors of each Fund has adopted a Distribution and
Shareholder Services Plan ("Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"). The Plan provides that as
compensation for its ongoing services to investors in Primary Shares and
its activities and expenses related to the sale and distribution of
Primary Shares, Legg Mason receives from each Fund an annual distribution
fee payable from the assets attributable to Primary Shares, of up to:
0.75% of the average daily net assets attributable to Primary Shares of
the Total Return Trust, Special Investment Trust and American Leading
Companies and 0.70% of the average daily net assets attributable to
Primary Shares of Value Trust; and an annual service fee equal to 0.25% of
the average daily net assets attributable to Primary Shares of each of the
Funds. The distribution fee and service fee are calculated daily and paid
monthly. The fees received by Legg Mason during any year may be more or
less than its cost of providing distribution and shareholder services for
Primary Shares. Legg Mason has agreed to waive indefinitely distribution
fees in any month to the extent the Total Return Trust's and American
Leading Companies' expenses related to Primary Shares (exclusive of taxes,
interest, brokerage costs and extraordinary expenses) exceed an annual
rate of 1.95% each of Total Return Trust's and American Leading Companies
average daily net assets.
NASD rules limit the amount of annual distribution fees that may be
paid by mutual funds and impose a ceiling on the cumulative distribution
fees received. Each Fund's Plan complies with those rules.
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The Chairman, President and Treasurer of each Fund are employed by
Legg Mason.
DESCRIPTION OF EACH CORPORATION/TRUST AND ITS SHARES
Value Trust, Total Return Trust, Special Investment Trust and Legg
Mason Investors Trust, Inc. were established as Maryland corporations on
January 20, 1982, May 22, 1985, October 31, 1985 and May 5, 1993,
respectively. Value Trust has authorized capital of 200 million shares of
common stock, par value $0.001 per share. Total Return Trust and Special
Investment Trust each has authorized capital of 100 million shares of
common stock, par value $0.001 per share. The Articles of Incorporation of
American Leading Companies authorize the Trust to issue one billion shares
of par value $.001 per share. Each corporation may issue additional series
of shares. Each Fund currently offers two Classes of Shares -- Class A
(known as "Primary Shares") and Class Y (known as "Navigator Shares"). The
two Classes represent interests in the same pool of assets. A separate
vote is taken by a Class of Shares of a Fund if a matter affects just that
Class of Shares. Each Class of Shares may bear certain differing
Class-specific expenses. Salespersons and others entitled to receive
compensation for selling or servicing Fund shares may receive more with
respect to one Class than another.
The initial and subsequent investment minimums for Navigator Shares
are $50,000 and $100, respectively. Investments in Navigator Shares may be
made through investment executives of Fairfield Group, Inc., Horsham,
Pennsylvania, or Legg Mason.
Each Fund pays no Rule 12b-1 fee with respect to Navigator Shares. The
per share net asset value of Navigator Shares, and dividends and
distributions (if any) paid to Navigator shareholders, are generally
expected to be higher than those of Primary Shares of the Funds, 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. Navigator
Shares of the Funds may be exchanged for the corresponding class of shares
of certain other Legg Mason funds. Investments by exchange into other Legg
Mason funds are made at the per share net asset value, determined on the
same business day as redemption of the Navigator Shares the investors 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 the Funds are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Funds are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
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 their respective Fund at 111 South Calvert
Street, Baltimore, Maryland 21202, stating the purpose of the proposed
meeting and the matters to be acted upon.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omission regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
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