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TABLE OF CONTENTS
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Prospectus Highlights 2
Fund Expenses 3
Financial Highlights 4
Performance Information 5
The Fund's Investment Objective and
Policies 6
How You Can Invest in the Fund 7
How Your Shareholder Account is Maintained 8
How You Can Redeem Your Fund Shares 8
How Net Asset Value is Determined 10
Dividends 10
Tax Treatment of Dividends 10
Shareholder Services 11
Investing through Tax-Deferred Retirement
Plans 13
The Fund's Board of Directors, Manager and
Investment Adviser 13
The Fund's Distributor 13
The Fund's Custodian and Transfer and
Dividend-Disbursing Agent 14
Description of the Corporation and its
Shares 14
</TABLE>
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
1800 M Street, N.W., Washington, DC 20036
INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand L.L.P.
217 East Redwood 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 THE FUND OR ITS
DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE PRINCIPAL UNDERWRITER IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
(recycling logo appears here) PRINTED ON RECYCLED PAPER
LMF-019
PROSPECTUS
MAY 1, 1995
LEGG MASON
U.S.
GOVERNMENT
MONEY MARKET
PORTFOLIO
PUTTING YOUR FUTURE FIRST
(Legg Mason logo appears here)<PAGE>
<PAGE>
THE LEGG MASON U.S. GOVER NMENT MONEY MARKET PORTFOLIO
PROSPECTUS
The Legg Mason U.S. Government Money Market Portfolio ("Fund") is a
professionally managed portfolio seeking high current income consistent
with liquidity and conservation of principal. The Fund is a separate
portfolio of Legg Mason Income Trust, Inc. ("Corporation"), a diversified
open-end investment company which currently has four portfolios. In
seeking to achieve the Fund's objective, the Fund's investment adviser,
Western Asset Management Company ("Adviser"), invests the Fund's assets in
debt obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and in repurchase agreements secured by such
instruments. The Fund attempts to stabilize the value of its shares at
$1.00. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ALWAYS BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The Adviser believes that shares of the Fund may be appropriate both
for direct investment and for investment through Individual Retirement
Accounts and qualified retirement plans.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. It should be
retained for future reference. A Statement of Additional Information about
the Fund dated May 1, 1995 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information
is available without charge upon request from Legg Mason Wood Walker,
Incorporated ("Legg Mason") (address and telephone numbers listed at
right).
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.
Dated: May 1, 1995
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
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<PAGE>
PROSPECTUS HIGHLIGHTS
THE LEGG MASON U.S. GOVERNMENT MONEY MARKET PORTFOLIO
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus.
FUND TYPE:
The Fund, a separate portfolio of Legg Mason Income Trust, Inc., is a
no-load, open-end, diversified management investment company. You may
purchase or redeem shares of the Fund through a brokerage account with
Legg Mason or certain of its affiliates. See "How You Can Invest in the
Fund," page 7, and "How You Can Redeem Your Fund Shares," page 8.
FUND STARTED:
January 31, 1989
NET ASSETS:
Over $232.9 million as of February 28, 1995
INVESTMENT OBJECTIVE AND POLICIES:
The Fund's investment objective is high current income consistent with
liquidity and conservation of principal. The Fund attempts to meet this
investment objective by investing its assets in debt obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
in repurchase agreements secured by such instruments. Of course, there can
be no assurance that the Fund will achieve its objective. See "The Fund's
Investment Objective and Policies," page 6.
DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated
MANAGER AND ADVISER:
Legg Mason Fund Adviser, Inc. serves as the Fund's manager, and
Western Asset Management Company serves as investment adviser to the Fund.
TRANSFER AND SHAREHOLDER SERVICING AGENT :
Boston Financial Data Services
CUSTODIAN:
State Street Bank and Trust Company
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 11.
YIELD:
Varies with current money market rates; quoted in the financial
section of most newspapers.
DIVIDENDS:
Declared daily and paid monthly.
REINVESTMENT :
All dividends are automatically reinvested in Fund shares unless cash
payments are requested.
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$100 minimum, generally. See "How You Can Invest in the Fund," page 7.
PURCHASE METHODS:
Send bank/personal check or wire federal funds.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value, which the Fund seeks to maintain at $1.00 per share.
CHECKWRITING:
Available to qualified shareholders upon request. Unlimited number of
checks. Minimum amount per check: $500.
2
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FUND EXPENSES
The purpose of the following table is to assist an investor in understanding
the various costs and expenses that an investor in the 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 for the year ended December 31,
1994.
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management fees 0.50%
12b-1 fees None
Other expenses 0.19%
Total operating expenses 0.69%
</TABLE>
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) full redemption at the end of each time period. As noted in the
table above, the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$7 $22 $38 $ 86
</TABLE>
This example assumes that all dividends 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 FUND'S PROJECTED OR ACTUAL PERFORMANCE. THE ABOVE TABLES SHOULD
NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The Fund's actual expenses will depend
upon, among other things, the level of average net assets, the levels of sales
and redemptions of shares, and the extent to which the Fund incurs variable
expenses, such as transfer agency costs.
3
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FINANCIAL HIGHLIGHTS
The financial highlights for the period January 31, 1989 (commencement
of operations) to December 31, 1989 and for each of the five years ended
December 31, 1990 through December 31, 1994 have been derived from
financial statements which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The Fund's financial statements for the year ended
December 31, 1994 and the report of Coopers & Lybrand L.L.P thereon are
included in the Fund's annual report and are incorporated by reference in
the Statement of Additional Information. The annual report 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.
<TABLE>
<CAPTION>
JANUARY 31, 1989*
FOR THE YEARS ENDED DECEMBER 31, TO
1994 1993 1992 1991 1990 DECEMBER 31, 1989
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .04 .03 .03 .05 .07 .08(1)
Net realized gain (loss) on
investments (Nil) -- -- Nil -- --
Total from investment
operations .04 .03 .03 .05 .07 .08
Dividends paid from:
Net investment income (.04) (.03) (.03) (.05) (.07) (.08)
Realized gain on investments -- -- -- (Nil) -- --
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total return 3.66% 2.80% 3.49% 5.87% 7.56% 8.68%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses .69% .71% .73% .73% .81% .80%(1)(2)
Net investment income 3.66% 2.76% 3.45% 5.36% 7.29% 8.35%(2)
Net assets, end of period
(in thousands) $214,576 $172,533 $170,910 $180,733 $132,408 $87,958
</TABLE>
* Commencement of operations.
(1) Net of fees waived by the manager for expenses in excess of the
following annual rates: 0.50% through March 28, 1989; 0.75% through
June 30, 1989; and 0.85% through December 31, 1989.
(2) Annualized.
4
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PERFORMANCE INFORMATION
From time to time, the Fund may quote its yield, including a compound
effective yield, in advertisements or in reports or other communications to
shareholders. The Fund's "yield" refers to the income generated by an investment
in the Fund over a stated seven-day period. This income is then "annualized."
That is, the average daily net income generated by the investment during that
week is assumed to be generated each day over a 365-day period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but
assumes that the income earned by an investment is reinvested. The Fund's
effective yield will be slightly higher than the Fund's yield because of the
compounding effect of this assumed reinvestment.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
since the calculation is based on past performance and the Fund's yield changes
in response to fluctuations in interest rates and Fund expenses, any given yield
quotation should not be considered representative of the Fund's yield for any
future period.
The Fund's yield for the seven-day period ended December 31, 1994 was 4.88%.
The effective yield for the same period was 5.00%.
5
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<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
The objective of the Fund is to obtain high current income consistent
with liquidity and conservation of principal. There can be no assurance
that the Fund's investment objective will be achieved. The investment
objective of the Fund may not be changed without a vote of Fund
shareholders; however, except as otherwise noted, the investment policies
of the Fund described below may be changed by the Corporation's Board of
Directors without a shareholder vote.
The Fund will invest only in U.S. government obligations and
repurchase agreements secured by such instruments. U.S. government
obligations include (1) U.S. Treasury obligations, which differ only in
their interest rates, maturities and times of issuance, and (2)
obligations issued or guaranteed by U.S. government agencies and
instrumentalities which are supported by any of the following: (a) the
full faith and credit of the U.S. Government (such as certificates of the
Government National Mortgage Association), (b) the right of the issuer to
borrow an amount limited to a specific line of credit from the U.S.
Government (such as obligations of the Federal Home Loan Bank), or (c)
only the credit of the instrumentality (such as the Federal National
Mortgage Association). In the case of obligations not backed by the full
faith and credit of the United States, the Fund must look to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its
commitments. The U.S. Government does not insure or guarantee the market
value of the Fund's shares.
The market value of the interest-bearing debt securities held by the
Fund is affected by changes in market interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates; i.e., a
decline in interest rates produces an increase in market value, while an
increase in interest rates produces a decrease in market value. Moreover,
the longer the remaining maturity of a security, the greater the effect of
interest rate changes on the market value of such a security. In addition,
changes in the ability of an issuer to make repayments of interest and
principal and in the market's perception of an issuer's creditworthiness
also affect the market value of the debt securities of that issuer.
The Fund attempts to stabilize the net asset value of a Fund share at
$1.00. To maintain that net asset value, the Fund pursues several
practices intended to minimize the effect of interest rate fluctuations.
It invests in a portfolio of money market instruments with remaining
maturities of 397 days or less; it maintains the dollar-weighted average
maturity of the portfolio at 90 days or less; and it buys only high
quality securities which present minimal credit risk. The Fund, of course,
cannot guarantee a net asset value of $1.00 per share. The Fund may invest
in variable rate U.S. government obligations that have stated maturities
in excess of 397 days. Also, securities held by the Fund as collateral for
repurchase agreements and other collateralized transactions may have
remaining maturities in excess of 397 days.
The Fund has adopted certain fundamental investment limitations which,
like its investment objective, may not be changed without the approval of
the Fund's shareholders. A full description of those investment
limitations is included in the Statement of Additional Information.
Repurchase Agreements
Repurchase agreements are agreements under which U.S. government
obligations are acquired from a securities dealer or bank subject to
resale at an agreed-upon price and date. The securities are held for the
Fund by State Street Bank and Trust Company ("State Street"), the Fund's
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. The 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 Fund 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 Corporation's Board of Directors. Although
not a
6
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<PAGE>
fundamental investment limitation, the Fund will not enter into repurchase
agreements of more than seven days' duration if more than 10% of its total
assets would be invested in such agreements and other illiquid
investments.
When-Issued Securities
The Fund may enter into commitments to purchase short-term U.S.
government securities on a when-issued basis. When-issued securities are
often the most efficiently priced and have the best liquidity in the bond
market. As with the purchase of any security, when the Fund purchases
securities on a when-issued basis, it assumes the risks of ownership at
the time of purchase, not at the time of receipt. However, the Fund does
not have to pay for the obligations until they are delivered to the Fund.
This is normally seven to 15 days later, but could be considerably longer
in the case of some mortgage-backed securities. To meet that payment
obligation, the Fund will set aside cash or liquid debt securities equal
to the payment that will be due. Failure by the issuer to deliver a
security purchased on a when-issued basis may result in a loss or missed
opportunity to make an alternative investment. The Fund does not expect
that its commitment to purchase when-issued securities will at any time
exceed, in the aggregate, 20% of its total assets.
HOW YOU CAN INVEST IN THE FUND
You may purchase shares of the Fund 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 Fund 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 Fund through an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan
("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
The minimum initial investment in the Fund for each 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. Those investing through the Fund's 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 are subject to
lower minimum initial and subsequent investments.
Cash held in Legg Mason brokerage accounts of Fund shareholders may be
invested in the Fund during regularly scheduled "sweeps" of such accounts
made twice each month. (Brokerage accounts participating in the Premier
Asset Management Account described on page 11 are swept daily for free
credit balances of $100 or more and weekly for free credit balances of
less than $100.) The Fund reserves the right to change these minimum
amount requirements at its discretion. You should always furnish your
shareholder account number when making additional purchases of shares of
the Fund.
Initial investments in an IRA account established on behalf of a
nonworking spouse of a shareholder who has an IRA invested in the Fund
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 annual
investment therein to the maximum amount permitted under the Internal
Revenue Code of 1986, as amended ("Code").
There are four ways you can invest:
1. BY MAIL
Once you have opened an account with the Fund, you may purchase shares
by mail by sending a check for $100 or more (payable to "Legg Mason U.S.
Government Money Market Portfolio") to:
Legg Mason U.S. Government
Money Market Portfolio
P.O. Box 1476
Baltimore, Maryland 21203-1476
[Insert your name and account number.]
7
<PAGE>
2. BY TELEPHONE OR WIRE TRANSFER OF FUNDS
Once you have opened an account with the Fund you can also purchase
shares by telephone from available cash balances in your Legg Mason or
affiliated brokerage account or by wire transfer of funds from your bank
directly to Legg Mason. Please contact any Legg Mason or affiliated
investment executive for further information. Wire transfers may be
subject to a service charge by your bank. Purchases made by telephone from
available cash balances in your Legg Mason or affiliated brokerage account
or wire payments representing federal funds will normally be completed on
the same or the next business day.
Any order for which your investment executive has submitted a purchase
by 12:00 noon, Eastern time, and for which wired funds have been received,
will earn dividends on shares purchased that day.
3. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares in the Fund through the Future First
Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in the Fund of $50 or more by authorizing Boston
Financial Data Services ("BFDS"), the Fund's 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.
4. 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 of the Fund. In addition, it
may be possible for dividends from certain unit investment trusts to be
invested automatically in Fund shares. Persons interested in establishing
such automatic investment programs should contact the Fund through any
Legg Mason or affiliated investment executive.
Shares of the Fund are issued at the net asset value next determined
after receipt of a purchase order and payment in proper form. Many
instruments in which the Fund invests must be paid for in immediately
available money called "federal funds." Therefore, payments received from
you for the purchase of shares in other than federal funds form will
require conversion into federal funds before your purchase order may be
executed. For checks, this normally will take two days but may take up to
nine days. All checks are accepted subject to collection at full face
value in federal funds and must be drawn in U.S. dollars on a domestic
bank. If an order and payment in federal funds is received by your Legg
Mason or affiliated investment executive prior to 12:00 noon, Eastern
time, on any day that the New York Stock Exchange, Inc. ("Exchange") is
open, the shares will be purchased and earn dividends on that day; if such
an order is received at 12:00 noon or later, the shares will be purchased
at the next determined net asset value and will earn dividends on the next
day the Exchange is open. See "How Net Asset Value is Determined," page
10.
The Fund reserves the right to reject any order for shares of the Fund
or to suspend the offering of shares for a period of time.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares of the Fund, a shareholder account
is automatically established for you. Any shares that you purchase or
receive as a dividend will be credited directly to your account at the
time of purchase or receipt. No certificates are issued unless you
specifically request them in writing. Shareholders who elect to receive
certificates can redeem shares only by mail. Certificates will be issued
in full shares only. No certificates will be issued for shares 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. Fund 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 FUND SHARES
All redemptions will be made in cash at the net asset value per share
next determined after the receipt by the Fund of a redemption request in
proper form either in writing or by telephone as described below. Requests
for redemption received after 12:00 noon, Eastern time, will be executed
on the next day the Exchange is open, at the net asset value next
determined. However, payment of
8
<PAGE>
redemption proceeds for shares purchased by check and shares acquired
through reinvestment of dividends on such shares may be delayed for up to
10 days after receipt of the check in order to allow time for the check to
clear. Any of the following methods may be used to redeem shares:
1. REDEMPTION BY TELEPHONE
Telephone redemptions may be made by calling your Legg Mason or
affiliated investment executive. However, you may not redeem shares by
telephone for which certificates have been issued. The minimum amount for
telephone redemptions is $100 unless you require a lesser amount to
complete a transaction in your Legg Mason or affiliated brokerage account.
Proceeds of redemptions requested by telephone will be transmitted only to
you. They may be transferred by mail or wire, at your direction (see
below). Proceeds of redemptions authorized by telephone will be credited
directly to your Legg Mason or affiliated brokerage account the same day.
Checks representing redemption proceeds normally will be mailed within
seven calendar days of redemption. Wire transfers of proceeds to you from
your Legg Mason or affiliated brokerage account will normally be
transmitted within two business days.
To make a telephone redemption, you should call your Legg Mason or
affiliated investment executive and provide your name, the Fund's name,
your Fund account number and the number of shares or dollar amount you
wish to redeem. In the event that you are unable to reach your Legg Mason
or affiliated investment executive by telephone, you may make a redemption
request by mail. There is no fee for telephone redemptions with the
exception of wire redemptions by telephone, as described below.
You may request by telephone that your shares be redeemed and the
proceeds wired to your account at a commercial bank in the United States.
In order to initiate a wire redemption by telephone, you must inform your
Legg Mason or affiliated investment executive of the name and address of
your bank and your bank account number. If your designated bank is not a
member of the Federal Reserve System, the proceeds will be wired to a
member bank that has a correspondent relationship with your bank. The
failure of the member bank immediately to notify your bank of the wire
transfer could delay the crediting of redemption proceeds to your bank. An
$18 fee for using the wire redemption service will be deducted by Legg
Mason or its affiliate from the redemption proceeds that are wired to your
bank.
The Fund will not be responsible for the authenticity of redemption
instructions received by telephone, provided it follows reasonable
procedures to identify the caller. The Fund may request identifying
information from callers or employ identification numbers. The Fund may be
liable for losses due to unauthorized or fraudulent instructions if it
does not follow reasonable procedures. Telephone redemption privileges are
available automatically to all shareholders unless certificates have been
issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
2. REDEMPTION BY CHECK
The Fund offers a free checkwriting service that permits you to write
checks to anyone in amounts of $500 or more. The checks will be paid at
the time they are received by BFDS for payment by redeeming the
appropriate number of shares in your account; the shares will earn
dividends until the check clears BFDS for payment. Please contact your
Legg Mason or affiliated investment executive for further information
regarding this service.
3. REDEMPTION BY MAIL
You may request the redemption of your shares by sending a letter
signed by all of the registered owners of the account to: "Legg Mason U.S.
Government Money Market Portfolio, c/o Legg Mason Funds Processing, P.O.
Box 1476,
Baltimore, Maryland 21203-1476." Any stock certificates issued for the
shares must be surrendered at the same time. For your protection,
certificates, if any, should be sent by registered mail. On all requests
for the redemption of shares valued at $10,000 or more, or when the
proceeds of the redemption are to be paid to someone other than you, your
signature must 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. Legg
9<PAGE>
<PAGE>
Mason or its affiliates may request further documentation from
corporations, executors, partnerships, administrators, trustees or
custodians. Checks normally will be mailed within seven calendar days of
receipt of a proper redemption request to your address of record or, in
accordance with your written request, to some other person.
4. REDEMPTION TO PAY FOR SECURITIES PURCHASES AT LEGG MASON
Legg Mason has established special redemption procedures for Fund
shareholders who wish to purchase stocks, bonds or other securities at
Legg Mason. You may place an order to buy securities through your Legg
Mason or affiliated investment executive and, in the absence of any
indication that you wish to make payment in another manner, Fund shares
will be redeemed on the settlement date for the amount due. Fund shares
may also be redeemed by Legg Mason to cover debit balances in your
brokerage account. Contact your Legg Mason or affiliated investment
executive for details.
Because of the relatively high cost of maintaining small accounts, the
Fund may elect to close any account with a current value due to
redemptions of less than $500, by redeeming all of the shares in the
account and mailing the proceeds to you. If the 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.
To redeem your Fund 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.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Fund share is determined twice daily, as of 12:00
noon, Eastern time, and the close of business of the Exchange (normally
4:00 p.m., Eastern time), on every day that the Exchange is open, by
subtracting the Fund's liabilities from its total assets and dividing the
result by the number of shares outstanding. The Fund attempts to maintain
a per share net asset value of $1.00 by using the amortized cost method of
valuation. The Fund cannot guarantee that net asset value will always
remain at $1.00 per share.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in shares of the Fund unless
cash payments are requested by writing to a Legg Mason or affiliated
investment executive. Requests for payments of dividends in cash must be
received at least 10 days prior to a payment date in order to be honored
on that date.
In certain cases, you may reinvest your dividends in shares of another
Legg Mason fund. Please contact your Legg Mason or affiliated investment
executive for additional information about this option.
Since the Fund's policy is, under normal circumstances, to hold
portfolio securities to maturity and to value portfolio securities at
amortized cost, it does not expect to realize any capital gain or loss. If
the Fund does realize any net short-term capital gains, it will distribute
them at least once every 12 months.
TAX TREATMENT OF DIVIDENDS
The 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
(generally consisting of net investment income and any net short-term
capital gain) that is distributed to its shareholders. Such distributions
(whether paid in cash or reinvested in Fund shares) are taxable to the
Fund's 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.
The Fund sends each shareholder a notice following the end of each
calendar year specifying, among other things, the amount of all dividends
paid (or deemed paid) during that year. The Fund is required to withhold
31% of all dividends payable to any individuals and certain other
noncorporate shareholders who do not provide the Fund with a certified
taxpayer identification number or who otherwise are subject to backup
withholding.
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The foregoing is only a summary of some of the important federal
income tax considerations generally affecting the Fund and its
shareholders; for further information, see the Statement of Additional
Information. In addition to federal income tax, you may also be subject to
state and local income taxes on distributions from the Fund, depending on
the laws of your home state and locality, though the portion of the
dividends paid by the Fund attributable to direct U.S. government
obligations is not subject to state and local income taxes in most
jurisdictions. The 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
As transfer agent for the Fund, BFDS maintains a share account for
each shareholder. Share certificates are not issued unless requested by
writing to your Legg Mason or affiliated investment executive.
You will receive from the distributor a confirmation after each
transaction (except a reinvestment of dividends, capital gains and shares
purchased through the Future First Systematic Investment Plan or 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 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 shareholders at least semiannually
showing the Fund's portfolio and other information; the annual report will
contain financial statements audited by the Fund's independent
accountants.
Shareholder inquires should be addressed to "Legg Mason U.S.
Government Money Market Portfolio, 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. Please contact your Legg
Mason or affiliated investment executive for further information.
LEGG MASON PREMIER ASSET MANAGEMENT ACCOUNT
Shareholders may participate in Legg Mason's Premier Asset Management
Account, which combines the Fund account, a preferred customer VISA Gold
debit card, a Legg Mason brokerage account with margin borrowing
availability and unlimited checks with no minimum check amount. Other
services include automatic transfer of free credit balances in a
participant's brokerage account to the Fund account and automatic
redemption of Fund shares to offset debit balances in the participant's
brokerage account. Legg Mason charges an annual fee for the Premier Asset
Management Account, which is currently $85 for individuals and $100 for
corporations and businesses. For further information, contact your Legg
Mason or affiliated investment executive.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your shares of the
Fund for shares of the following funds in the Legg Mason Family of 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 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.
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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 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 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.
Legg Mason High Yield Portfolio
A mutual fund primarily seeking a high level of current income and
secondarily, capital appreciation by investing principally in lower-rated,
fixed-income securities.
Legg Mason Maryland Tax-Free Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income Trust*
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
*Shares of these funds are sold with an initial sales charge.
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 the Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from the Fund in one calendar year. 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 the section "How You Can Redeem Your Fund
Shares -- Redemption By Telephone" on page 9. The other factors relating
to telephone redemptions described in that section apply also to telephone
exchanges. Please read the prospectus for the other funds carefully before
you invest by exchange. The 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.
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INVESTING THROUGH TAX-DEFERRED RETIREMENT PLANS
An investment in shares of the Fund may be appropriate for IRAs, Keogh
Plans, SEPs and other qualified retirement plans. Investors who are
considering establishing such a plan may wish to consult their attorneys
or other 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.
THE FUND'S BOARD OF DIRECTORS, MANAGER AND INVESTMENT ADVISER
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction
of the Corporation's Board of Directors.
MANAGER
Pursuant to a management agreement with the Fund ("Management
Agreement"), which was approved by the Corporation'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 Manager manages the
non-investment affairs of the Fund, directs all matters related to the
operation of the Fund and provides office space and administrative staff
for the Fund. The Fund pays the Manager, pursuant to the Management
Agreement, a management fee equal to an annual rate of 0.50% of the Fund's
average daily net assets.
The Manager acts as investment adviser, manager or consultant to
fifteen investment company portfolios (excluding the Fund) which had
aggregate assets under management of over $3.8 billion as of February 28,
1995. The Manager's address is 111 South Calvert Street, Baltimore,
Maryland 21202.
INVESTMENT ADVISER
Western Asset Management Company, another wholly owned subsidiary of
Legg Mason, Inc., serves as investment adviser to the Fund pursuant to the
terms of an Investment Advisory Agreement with the Manager, which was
approved by the Corporation's Board of Directors. The Adviser manages the
investment and other affairs of the Fund and directs the investments of
the Fund in accordance with its investment objective, policies and
limitations. For these services, the Manager (not the Fund) pays the
Adviser a fee, computed daily and payable monthly, at an annual rate equal
to 30% of the fee received by the Manager, or 0.15% of the Fund's average
daily net assets.
The Adviser also renders investment advice to eleven open-end
investment companies and one closed-end investment company which together
had aggregate assets under management of approximately $2.3 billion as of
February 28, 1995. The Adviser also renders investment advice to private
accounts with fixed income assets under management of approximately $10.8
billion as of that date. The address of the Adviser is 117 East Colorado
Boulevard, Pasadena, California 91105.
THE FUND'S DISTRIBUTOR
Legg Mason acts as distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Corporation. The Underwriting Agreement
obligates Legg Mason to pay all expenses in connection with the offering
of shares of the Fund, 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 periodic 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
receives no compensation from the Fund for these expenses.
Pursuant to a distribution plan ("Plan") adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act"), the Fund
may pay Legg Mason a fee for its distribution services in an amount not to
exceed an annual rate of 0.20% of the Fund's average daily net assets.
Legg Mason has no current intention of requesting any such payments from
the Fund, but may do so in the future. Payments may not be made pursuant
to the Plan, however, until the Board of Directors has approved its
implementation. Activities for which such payments could be
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made if the Plan is implemented include, but are not limited to,
compensation to persons, including Legg Mason investment executives, who
engage in or support distribution of shares or who provide shareholder
services, printing of prospectuses and reports for persons other than
existing shareholders, advertising, preparation and distribution of sales
literature, overhead, travel and telephone expenses. In any given year,
such expenses might exceed or be less than the fee payable to Legg Mason
under the Plan. Legg Mason may also receive payments for shareholder
services from the Manager out of fees paid to the Manager, its past
profits or other source of funds available to it.
Legg Mason also receives a fee from BFDS for assisting it with its
transfer agent and shareholder servicing functions. For the year ended
December 31, 1994, Legg Mason received $62,115 for performing such
services in connection with this Fund.
The Chairman, President and Treasurer of the Corporation are employed
by Legg Mason.
THE FUND'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105,
is custodian for the securities and cash of the Fund. Boston Financial
Data Services, P.O. Box 953, Boston, MA 02103 is transfer agent for Fund
shares, and dividend-disbursing agent for the Fund.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
The Corporation is a diversified open-end investment company which was
incorporated in Maryland on April 28, 1987. The Articles of Incorporation
of the Corporation permit the Board of Directors to create additional
series (or portfolios), each of which issues a separate class of shares.
There are currently four portfolios of the Corporation, including the
Fund. While additional series may be created in the future, there is no
intention at this time to form any particular additional series.
The Corporation has authorized capital of one billion shares of common
stock, par value $.001 per share. The Board has designated 800,000,000 of
those shares as shares of the Fund. Shareholders of each portfolio of the
Corporation are entitled to one vote per share and fractional votes for
fractional shares held. However, shareholders of the Fund vote separately
on certain matters affecting it. For example, a change in investment
policy for the Fund would be voted upon only by its shareholders. Voting
rights are not cumulative. All shares of the Corporation are fully paid
and nonassessable and have no preemptive or conversion rights.
Although the Fund is not required to hold annual shareholder meetings,
it will hold a special meeting of shareholders when 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). The Corporation will call a special
meeting of the shareholders at the request of 10% of more of the shares
entitled to vote; shareholders wishing to call such a meeting should
submit a written request to the Fund at 111 South Calvert Street,
Baltimore, Maryland 21202, stating the purpose of the proposed meeting and
the matters to be acted upon.
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