[GRAPHIC]
NAVIGATOR TAXABLE INCOME FUNDS:
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NAVIGATOR CLASS OF LEGG MASON U.S. GOVERNMENT
INTERMEDIATE-TERM PORTFOLIO
NAVIGATOR CLASS OF LEGG MASON INVESTMENT GRADE INCOME PORTFOLIO
NAVIGATOR CLASS OF LEGG MASON HIGH YIELD PORTFOLIO
NAVIGATOR SHARES PROSPECTUS May 3, 1999
[LEGG MASON FUNDS LOGO]
HOW TO INVEST(SM)
As with all mutual funds, the Securities and Exchange Commission has not
passed upon the adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>
TABLE OF CONTENTS
ABOUT THE FUNDS:
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<TABLE>
<S> <C>
1 Investment objectives
4 Principal risks
6 Performance
9 Fees and expenses of the funds
10 Management
</TABLE>
ABOUT YOUR INVESTMENT:
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<TABLE>
<S> <C>
11 How to invest
12 How to sell your shares
13 Account policies
14 Services for investors
15 Dividends and taxes
16 Financial highlights
</TABLE>
<PAGE>
LEGG MASON INCOME TRUST, INC.
[GRAPHIC]
INVESTMENT OBJECTIVES
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The Legg Mason Income Trust, Inc. offers four series, three of which are
offered through this prospectus: Legg Mason U.S. Government
Intermediate-Term Portfolio, Legg Mason Investment Grade Income
Portfolio and Legg Mason High Yield Portfolio.
Western Management Company is the fund's adviser. Western Asset's
approach in managing these three funds revolves around an investment
outlook developed by its Investment Strategy Group, a team of senior
professionals that meets at least twice a week to review developments in
the economy and the markets. Based on their consensus view of the
economic outlook for the following six months, this group arrives at a
recommended portfolio structure, including targets for duration, yield
curve exposure, and sector allocation. Western Asset's Portfolio
Management Group implements the strategy in a manner consistent with the
investment policies of each fund, using information on the relative
credit strength, liquidity, issue structure, event risk, covenant
protection and market valuation of available securities developed by
Webster's Research Group. Each fund is managed in accordance with the
investment objective and policies described below.
U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO
INVESTMENT OBJECTIVE: High current income consistent with prudent
investment risk and liquidity needs.
PRINCIPAL INVESTMENT STRATEGIES:
The fund, under normal circumstances, invests at least 75% of its total
assets in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or repurchase agreements secured by such
securities. Investments in mortgage-related securities issued by
governmental or government-related entities will be included in the 75%
limitation.
The balance of the fund, up to 25% of its total assets, may be invested
in commercial paper and investment grade debt securities rated within one
of the four highest grades assigned by Standard & Poor's or Moody's
Investors Service, Inc., securities comparably rated by another
nationally recognized statistical rating organization, or unrated
securities judged by the adviser to be of comparable quality.
Although the fund can invest in securities of any maturity, it expects to
maintain a dollar-weighted average maturity of between three and ten
years.
The fund may hold cash or money market instruments without limit for
temporary defensive purposes or pending investment. As a result, the fund
may not achieve its investment objective when so invested.
Legg Mason Income Trust 1
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO
INVESTMENT OBJECTIVE: High level of current income through investment in
a diversified portfolio of debt securities.
PRINCIPAL INVESTMENT STRATEGIES:
The fund invests primarily in fixed-income securities which the adviser
considers to be investment grade. Although the fund can invest in
securities of any maturity, it expects to maintain a dollar-weighted
average maturity of between five and twenty years.
The fund, under normal circumstances, invests at least 75% of its total
assets in the following types of investment grade fixed income
securities:
o Debt securities which are rated at the time of purchase within the
four highest grades assigned by Moody's or S&P, or, if unrated by
Moody's or S&P, judged by the adviser to be of comparable quality;
o Securities of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities;
o Commercial paper and other money market instruments which are rated
A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's at the date of
investment or, if unrated by Moody's or S&P, judged by the adviser
to have investment quality comparable to securities which may be
purchased under the first item above; bank certificates of deposit;
and bankers' acceptances; and
o Preferred stocks (including step down preferred securities) rated no
lower than Baa by Moody's or, if unrated by Moody's, judged by the
adviser to be of comparable quality.
The remainder of the fund's assets, not in excess of 25% of its total
assets, may be invested in:
o Debt securities of issuers which are rated at the time of purchase
below Moody's and S&P's four highest grades, but rated B or better
by Moody's or S&P or, if unrated by Moody's or S&P, judged by the
adviser to be of comparable quality; and
o Securities which may be convertible into or exchangeable for, or
carry warrants to purchase, common stock or other equity interests.
Securities purchased by the fund may be privately placed. The fund may
hold cash or money market instruments without limit for temporary
defensive purposes or pending investment. As a result, the fund may not
achieve its investment objective when so invested.
2 Legg Mason Income Trust
<PAGE>
HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVES: High current income and, secondarily, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The fund's adviser, under normal circumstances, invests at least 65% of
the fund's total assets in high yield, fixed income securities, including
those commonly known as "junk bonds." Such securities include, but are
not limited to: foreign and domestic corporate debt securities and debt
securities of other issuers, preferred stocks, convertible securities,
zero coupon securities, deferred interest securities, mortgage-backed
securities, asset-backed securities, commercial paper and obligations
issued or guaranteed by foreign governments or any of their respective
political subdivisions, agencies or instrumentalities, including
repurchase agreements secured by such instruments. Most fixed income
securities in which the fund invests are rated BBB/Baa or lower, or are
unrated but deemed by the adviser to be of equivalent quality.
The fund's remaining assets may be held in cash or money market
instruments, or invested in common stocks and other equity securities
when these types of investments are consistent with the objectives of the
fund or are acquired as part of a unit consisting of a combination of
fixed income securities and equity investments. Such remaining assets may
also be invested in fixed income securities rated above BBB by S&P or Baa
by Moody's, securities comparably rated by another nationally recognized
statistical rating organization, or unrated securities deemed by the
adviser to be of equivalent quality.
The fund may invest up to 25% of its total assets in private placements
and securities which, though not registered at the time of their initial
sale, are issued with registration rights. This limitation does not apply
to securities purchased pursuant to Rule 144A.
The fund may invest up to 25% of its total assets in securities
denominated in foreign currencies, including securities of issuers based
in emerging markets.
The fund may hold cash or money market instruments without limit for
temporary defensive purposes or pending investment. As a result, the fund
may not achieve its investment objective when so invested.
Legg Mason Income Trust 3
<PAGE>
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PRINCIPAL RISKS
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IN GENERAL:
As with all mutual funds, an investment in any of these funds is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency; investors can lose money by investing in the
funds. There is no guarantee that any fund will achieve its objective.
INTEREST RATE RISK:
Each fund is subject to interest rate risk, which is the possibility that
the market prices of the funds' investments may decline due to an
increase in market interest rates. Generally, the longer the maturity of
a fixed income security, the greater is the effect on its value when
rates increase.
Certain securities pay interest at variable or floating rates. Variable
rate securities reset at specified intervals, while floating rate
securities reset whenever there is a change in a specified index rate. In
most cases, these reset provisions reduce the effect of market interest
rates on the value of the security. However, some securities do not track
the underlying index directly, but reset based on formulas that can
produce an effect similar to leveraging; others may provide for interest
payments that vary inversely with market rates. The market prices of
these securities may fluctuate significantly when interest rates change.
CREDIT RISK:
Each fund is also subject to credit risk, I.E., the risk that an issuer
of securities will be unable to pay principal and interest when due, or
that the value of the security will suffer because investors believe the
issuer is less able to pay. This is broadly gauged by the credit ratings
of the securities in which each fund invests. However, ratings are only
the opinions of the agencies issuing them and are not absolute guarantees
as to quality.
Moody's considers debt securities rated Baa to have speculative
characteristics. Debt securities rated below Baa/BBB are deemed by the
ratings agencies to be speculative and may involve major risk of exposure
to adverse conditions. High Yield may invest in securities rated as low
as C by Moody's or D by S&P. These ratings indicate that the securities
are highly speculative and may be in default or in danger of default as
to principal and interest.
Not all government securities are backed by the full faith and credit of
the United States. Some are backed only by the credit of the issuing
agency or instrumentality. Accordingly, there is at least a chance of
default on these securities.
CALL RISK:
Many fixed income securities, especially those issued at high interest
rates, provide that the issuer may repay them early. Issuers often
exercise this right when interest rates are low. Accordingly, holders of
callable securities may not benefit fully from the increase in value that
other fixed income securities experience when rates decline. Furthermore,
the fund reinvests the proceeds of the payoff at current yields, which
are lower than those paid by the security that was called.
SPECIAL RISKS OF HIGH YIELD SECURITIES:
Securities rated below Baa/BBB are subject to greater fluctuations in
value and risk of loss of income and principal due to default by the
issuer, than are higher rated securities. These securities may be less
liquid than higher-rated securities, which means the fund may have
difficulty selling them at times, and may have to apply a greater degree
of judgment in establishing a price. These securities constitute the
primary focus of the High Yield Portfolio. Investment Grade Portfolio can
invest in them to a limited extent.
SPECIAL RISKS OF MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities represent an interest in a pool of mortgages.
When market interest rates decline, many mortgages are refinanced, and
mortgage-backed securities are paid off earlier than expected. The effect
on the fund's
4 Legg Mason Income Trust
<PAGE>
return is similar to that discussed above for call risk. When market
interest rates increase, the market values of mortgage-backed securities
decline. At the same time, however, mortgage refinancing slows, which
lengthens the effective maturities of these securities. As a result, the
negative effect of the rate increase on the market value of mortgage
securities is usually more pronounced than it is for other types of fixed
income securities.
OTHER RISKS:
The use of certain derivatives to hedge interest rate or other risks
could affect fund performance if the derivatives do not perform as
expected.
The values of foreign securities are subject to economic and political
developments in the countries and regions where the companies operate,
such as changes in economic or monetary policies, and to changes in
exchange rates. In general, less information is publicly available about
foreign companies than about U.S. companies. Some foreign governments
have defaulted on principal and interest payments.
The investment strategies employed by the funds often involve high
turnover rates. This results in higher trading costs and could cause a
fund to realize higher levels of taxable gains.
Compliance with the percentage investment policies and limitations
described in this prospectus is measured as of the time an investment is
made. A fund is not required to sell a security if changing market prices
or changes in the level of fund assets cause a percentage limitation to
be exceeded. Accordingly, a fund's composition at any given time may not
be within the stated limitations.
YEAR 2000:
Like other mutual funds (and most organizations around the world), the
funds could be adversely affected by computer problems related to the
year 2000. These could interfere with operations of the funds, their
manager, distributor or adviser, or could impact companies in which the
funds invest. The year 2000 poses an even greater risk for foreign
securities.
While no one knows if these problems will have any impact on the funds or
on financial markets in general, the manager and its affiliates are
taking steps to protect fund investors. These include efforts to
determine that the problem will not directly affect the systems used by
major service providers.
Whether these steps will be effective can only be known for certain in
the year 2000.
Legg Mason Income Trust 5
<PAGE>
[GRAPHIC]
PERFORMANCE
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The information below provides an indication of the risks of investing in
a fund by showing changes in the fund's performance from year to year.
Annual returns assume reinvestment of dividends and distributions.
Historical performance of a fund does not necessarily indicate what will
happen in the future. A fund's yield is its net income over a recent
30-day period, expressed as an annualized rate of return. For a fund's
current yield, call toll-free 1-800-822-5544.
The Navigator Class of High Yield commenced operations on May 5, 1998.
The returns presented for High Yield are for the fund's Primary Class
shares, which are not offered in this prospectus. Primary shares and
Navigator shares are invested in the same portfolio of securities. Annual
returns for Primary shares and Navigator shares differ only to the extent
that Navigator shares pay lower expenses, and therefore have higher
returns.
U.S. GOVERNMENT INTERMEDIATE-TERM PORTFOLIO -- NAVIGATOR CLASS
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
---- ---- ---- ----
14.45% 5.09% 7.45% 7.16%
DURING THE LAST FOUR CALENDAR YEARS OF THE CLASS:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
- ------------------- ------------------ -------------------
BEST QUARTER JUNE 30, 1995 +4.90%
WORST QUARTER JUNE 30, 1999 -1.01%
</TABLE>
In the following table, average annual total returns as of December 31,
1998, are compared with the Salomon Brothers Medium-Term
Treasury/Government-Sponsored Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS (a)
- -------------------------------------- ------------ -----------------------
U.S. GOVERNMENT INTERMEDIATE-TERM
PORTFOLIO +7.16% +8.43%
SALOMON BROTHERS MEDIUM-TERM
TREASURY/GOVERNMENT-SPONSORED
INDEX +8.51% +8.53%
</TABLE>
These figures include changes in principal value, reinvested dividends
and capital gain distributions, if any.
---------
(a) December 1, 1994 (commencement of operations) to December 31, 1998.
6 Legg Mason Income Trust
<PAGE>
INVESTMENT GRADE INCOME PORTFOLIO -- NAVIGATOR CLASS
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
[BAR CHART APPEARS HERE]
1996 1997 1998
---- ---- ----
4.88% 10.95% 7.57%
DURING THE LAST THREE CALENDAR YEARS OF THE CLASS:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
- ------------------- ------------------- -------------------
BEST QUARTER JUNE 30, 1997 +4.18%
WORST QUARTER MARCH 31, 1996 -1.41%
</TABLE>
In the following table, average annual total returns as of December 31,
1998, are compared with the Salomon Brothers Broad Investment-Grade Bond
Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS (a)
- --------------------------------------- ------------ -----------------------
INVESTMENT GRADE INCOME PORTFOLIO +7.57% +8.17%
SALOMON BROTHERS BROAD
INVESTMENT-GRADE BOND INDEX +8.71% +7.55%
</TABLE>
These figures include changes in principal value, reinvested dividends
and capital gain distributions, if any.
---------
(a) December 1, 1995 (commencement of operations) to December 31, 1998.
Legg Mason Income Trust 7
<PAGE>
HIGH YIELD PORTFOLIO -- PRIMARY CLASS
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
[BAR CHART APPEARS HERE]
1995 1996 1997 1998
18.01% 14.91% 15.86% (1.79)%
DURING THE LAST FOUR CALENDAR YEARS OF THE CLASS:
<TABLE>
<S> <C> <C>
QUARTER ENDED TOTAL RETURN
- ------------------- ---------------------- -------------------
BEST QUARTER MARCH 31, 1999 +11.34%
WORST QUARTER SEPTEMBER 30, 1998 -9.52%
</TABLE>
In the following table, average annual total returns as of December 31,
1998, are compared with the Lehman High Yield Index.
<TABLE>
<S> <C> <C>
1 YEAR LIFE OF CLASS
- ------------------------------------ ------------ ---------------------
HIGH YIELD PORTFOLIO -- PRIMARY
CLASS -1.79% +8.57%(a)
LEHMAN HIGH YIELD INDEX +1.87% +8.44%
</TABLE>
These figures include changes in principal value, reinvested dividends
and capital gain distributions, if any.
---------
(a) February 1, 1994 (commencement of operations) to December 31, 1998.
8 Legg Mason Income Trust
<PAGE>
[GRAPHIC]
FEES AND EXPENSES OF THE FUNDS
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The table below describes the fees and expenses you will incur directly
or indirectly as an investor in a fund. Each fund pays operating expenses
directly out of its assets, so they will lower that fund's share price
and dividends. Other expenses include transfer agency, custody,
professional and registration fees. The funds have no sales charge or
redemption fee and are not subject to a 12b-1 fee.
The fees shown are current fees, and the expenses shown are based on
expenses for the fiscal year ended December 31, 1998. The fees and
expenses are calculated as a percentage of average net assets.
<TABLE>
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- -----------------------------------------------------------------------------------
GOVERNMENT INVESTMENT HIGH
INTERMEDIATE GRADE YIELD
- -------------------------------- ----------- ------------- ---------
MANAGEMENT FEES 0.55%(a) 0.60%(a) 0.20%
DISTRIBUTION AND/OR SERVICE
(12B-1) FEES NONE NONE NONE
OTHER EXPENSES 0.11% 0.20% 0.14%
- -------------------------------- ------------ ----------- -------
TOTAL ANNUAL FUND OPERATING
EXPENSES 0.66%(a) 0.80%(a) 0.79%
</TABLE>
(a) The manager has a voluntary agreement to waive fees so that Navigator
Class expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) do not exceed an annual rate of .50% of average daily net
assets attributable to Navigator shares during any month for Government
Intermediate or until its net assets reach $500 million, and for
Investment Grade, or until its net assets reach $250 million. These
voluntary waivers will continue until August 1, 1999, but may be
terminated at any time.
EXAMPLE:
This example helps you compare the cost of investing in a fund with the
cost of investing in other mutual funds. Although your actual costs may
be higher or lower, you would pay the following expenses on a $10,000
investment in a fund, assuming (1) a 5% return each year, (2) the fund's
operating expenses remain the same as shown in the table above, and (3)
that you redeem all of your shares at the end of the time periods shown.
Actual returns may be higher or lower than 5% per year.
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------- ---------- ----------- ----------- -----------
GOVERNMENT INTERMEDIATE $ 67 $ 211 $ 368 $ 822
INVESTMENT GRADE $ 82 $ 255 $ 444 $ 990
HIGH YIELD $ 81 $ 252 $ 439 $ 978
</TABLE>
Under the fee waiver arrangements described above, your costs for the
one-, three-, five- and ten-year periods would be: for Government
Intermediate, $47, $148, $258 and $579, respectively; and for Investment
Grade, $46, $144, $252 and $567, respectively.
Legg Mason Income Trust 9
<PAGE>
[GRAPHIC]
MANAGEMENT
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MANAGEMENT AND ADVISER:
Legg Mason Fund Adviser, Inc., 100 Light Street, Baltimore, Maryland
21202, is the funds' manager. The manager is responsible for the
non-investment affairs of the funds, providing office space and
administrative staff for the funds and directing all matters related to
the operation of the funds. The manager acts as adviser or manager to
twenty investment company portfolios which had aggregate assets under
management of approximately $18.1 billion as of March 31, 1999.
For its services during the fiscal year ended December 31, 1998, each
fund paid the manager a percentage of its average daily net assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
GOVERNMENT INTERMEDIATE 0.35%
INVESTMENT GRADE 0.25%
HIGH YIELD 0.65%
Western Asset Management Company, 117 East Colorado Boulevard, Pasadena,
California 91105, is the funds' investment adviser. The adviser is
responsible for the actual investment management of the funds, which
includes making investment decisions and placing orders to buy, sell or
hold a particular security. The adviser acts as investment adviser to
investment companies and private accounts with aggregate assets of $52.5
billion as of March 31, 1999. An investment committee has been
responsible for the day-to-day management of each fund since its
inception.
For its services, the manager paid the adviser a fee, which is calculated
daily and payable monthly, at annual rates of each fund's average daily
net assets as follows, for the fiscal year ended December 31, 1998:
<CAPTION>
<S> <C>
GOVERNMENT INTERMEDIATE 0.20%, NOT TO EXCEED THE FEE PAID TO THE
MANAGER (AFTER ANY FEE WAIVERS)
INVESTMENT GRADE 0.24%, OR 40% OF THE FEE RECEIVED BY THE
MANAGER
HIGH YIELD 0.50%, OR 77% OF THE FEE RECEIVED BY THE
MANAGER
</TABLE>
DISTRIBUTOR OF THE FUNDS' SHARES:
Legg Mason Wood Walker, Incorporated, 100 Light Street, Baltimore,
Maryland 21202, distributes the funds' shares under separate Underwriting
Agreements with each fund. Each Underwriting Agreement obligates Legg
Mason to pay certain expenses in connection with offering fund shares,
including compensation to its financial advisors; the printing and
distribution of prospectuses, statements of additional information, and
shareholder reports (after these have been printed and mailed to existing
shareholders at the funds' expense); supplementary sales literature; and
advertising materials.
The manager, adviser, and distributor are wholly owned subsidiaries of
Legg Mason, Inc., a financial services holding company.
Government Intermediate, Investment Grade and High Yield currently offer
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 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.
10 Legg Mason Income Trust
<PAGE>
[GRAPHIC]
HOW TO INVEST
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Navigator Class shares are currently offered for sale only to:
o Institutional clients of Legg Mason Trust Company ("Institutional
Clients") for which they exercise discretionary investment
management responsibility and accounts of the customers with such
Institutional Clients ("Customers").
o Qualified retirement plans managed on a discretionary basis and
having net assets of at least $200 million.
o Clients of Bartlett & Co. who, as of December 19, 1996, were
shareholders of Bartlett Short Term Bond Fund or Bartlett Fixed
Income Fund and for whom Bartlett acts as an ERISA fiduciary.
o Any qualified retirement plan of Legg Mason, Inc. or of any of its
affiliates.
o Certain institutions who were clients of Fairfield Group, Inc. as of
February 28, 1999, for investment of their own monies and monies for
which they act in a fiduciary capacity.
Eligible investors may purchase Navigator shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 and the
minimum for each purchase of additional shares is $100. Institutional
Clients may set different minimums for their Customers' investments in
accounts invested in Navigator shares.
Customers of certain Institutional Clients that have omnibus accounts
with the funds' transfer agent can purchase shares through those
institutions. The distributor may pay such Institutional Clients for
account servicing. Institutional Clients may charge their Customers for
services provided in connection with the purchase and redemption of
shares. Information concerning these services and any applicable charges
will be provided by the Institutional Clients. This prospectus should by
read by Customers in connection with any such information received by
Institutional Clients. Any such fees, charges or requirements imposed by
Institutional Clients will be in addition to the fees and requirements of
this prospectus.
Certain institutions that have agreements with Legg Mason or the funds
may be authorized to accept purchase and redemption orders on their
behalf. Once the authorized institution accepts the order, your order
will be processed at the next determined net asset value. You should
consult with your institution to determine the time by which it must
receive your order to get that day's share price. It is the institution's
responsibility to transmit your order to the fund in a timely fashion.
Purchase orders received by Legg Mason before the close of the New York
Stock Exchange (normally 4:00 p.m., Eastern time) will be processed at
the fund's net asset value as of the close of the Exchange on that day.
Orders received after the close of the Exchange will be processed at the
fund's net asset value as of the close of the Exchange on the next day.
Payment must be made within three business days to the selling
organization.
You will begin to earn dividends as of settlement date, which is normally
the third business day after your order is placed.
Legg Mason Income Trust 11
<PAGE>
[GRAPHIC]
HOW TO SELL YOUR SHARES
----------------------------------------------------------------------------
To redeem your shares by telephone:
o Legg Mason clients may call 1-800-822-5544
Please have available the number of shares (or dollar amount) to be
redeemed and the account number.
The fund will follow reasonable procedures to ensure the validity of any
telephone redemption request, such as requesting identifying information
from callers or employing identification numbers. Unless you specify that
you do not wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the
Institution.
Redemption orders received by Legg Mason before the close of the Exchange
will be transmitted to the funds' transfer agent. Your order will be
processed at that day's net asset value. Redemption orders received by
Legg Mason after the close of the Exchange will be processed at the
closing net asset value on the next day the Exchange is open.
Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration
within a week. You may also have your telephone redemption requests paid
by a direct wire to a previously designated domestic commercial bank
account.
Redemptions of shares that were recently purchased by check or acquired
through reinvestment of dividends on such shares may be delayed for up to
10 days from the purchase date in order to allow for the check to clear.
12 Legg Mason Income Trust
<PAGE>
[GRAPHIC]
ACCOUNT POLICIES
----------------------------------------------------------------------------
Net asset value per Navigator Class share is determined daily, as of the
close of the New York Stock Exchange, on every day the Exchange is open.
To calculate each fund's Navigator share price, the fund's assets
attributable to Navigator shares are valued and totaled, liabilities
attributable to Navigator shares are subtracted, and the resulting net
assets are divided by the number of Navigator shares outstanding. Each
fund's securities are valued on the basis of market quotations or,
lacking such quotations, at fair value as determined under the guidance
of the Board of Directors. Securities with remaining maturities of 60
days or less are valued at amortized cost.
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 to be the primary market. The fund will value
its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
Fund shares may not be held in, or transferred to, an account with any
firm that does not have an agreement with Legg Mason or its affiliates.
If your account falls below $500, the fund may ask you to increase your
balance. If, after 60 days, your account is still below $500, the fund
may close your account and send you the proceeds.
Each fund reserves the right to:
o Reject any order for shares or suspend the offering of shares for a
period of time.
o Change its minimum investment amounts.
o Delay sending out redemption proceeds for up to seven days. This
generally applies only in cases of very large redemptions, excessive
trading or during unusual market conditions. The funds may delay
redemptions beyond seven days, or suspend redemptions, only as
permitted by the SEC.
Legg Mason Income Trust 13
<PAGE>
[GRAPHIC]
SERVICES FOR INVESTORS
----------------------------------------------------------------------------
CONFIRMATIONS AND ACCOUNT STATEMENTS:
Confirmations will be sent to Institutional Clients after each
transaction involving Navigator shares which will include the total
number of shares being held in safekeeping by the transfer agent. The
transfer agent will send confirmations of each purchase and redemption
transaction (except a reinvestment of dividends or capital gain
distributions). Beneficial ownership of shares by Customer accounts will
be recorded by the Institutional Client and reflected in their regular
account statements.
EXCHANGE PRIVILEGE:
Navigator shares of a fund may be exchanged for Navigator shares of any
of the other Legg Mason funds or the Legg Mason Cash Reserve Trust,
provided these funds are eligible for sale in your state of residence.
You can request an exchange in writing or by phone. Be sure to read the
current prospectus for any fund into which you are exchanging.
There is currently no fee for exchanges. An exchange of a fund's shares
will be treated as a sale of the shares and any gain on the transaction
may be subject to tax.
Each fund reserves the right to:
o Terminate or limit the exchange privilege of any shareholder who
makes more than four exchanges from a fund in one calendar year.
o Terminate or modify the exchange privilege after 60 days' notice to
shareholders.
Some Institutional Clients may not offer all of the Navigator funds for
exchange.
14 Legg Mason Income Trust
<PAGE>
[GRAPHIC]
DIVIDENDS AND TAXES
----------------------------------------------------------------------------
Government Intermediate and Investment Grade each declares dividends
from its net investment income daily and pays them monthly. High Yield
declares and pays these dividends monthly.
Each fund declares and pays dividends from net short-term capital gain
and distributions of substantially all net capital gain (the excess of
net long-term capital gain over net short-term capital loss) and, in the
case of High Yield, net realized gains from foreign currency transactions
after the end of the tax year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of a federal excise tax.
Your dividends and distributions will be automatically reinvested in
additional shares of the distributing fund. If you wish to receive
dividends and/or distributions in cash, you must notify Legg Mason at
least 10 days before the next dividend or distribution is to be paid. You
may also request that your dividends and distributions be reinvested in
Navigator shares of another Legg Mason fund. Qualified retirement plans
that obtained Navigator shares through exchange generally receive
dividends and distributions in additional shares of the distributing
fund.
If a shareholder has elected to receive dividends and/or distributions in
cash and the postal or other delivery service is unable to deliver checks
to the shareholder's address of record, such shareholder's distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
Fund dividends and distributions are taxable to investors (other than
qualified retirement plans and other tax exempt investors) whether
received in cash or reinvested in additional Navigator shares of the
fund. Dividends of net investment income and any net short-term capital
gains will be taxable as ordinary income. Distributions of a fund's net
capital gain will be taxable as long-term capital gain, regardless of how
long you have held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your
shares.
A tax statement will be sent to each investor at the end of each year
detailing the tax status of your distributions.
Each fund will withhold 31% of all dividends, capital gains distributions
and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the fund with a valid
taxpayer identification number. The funds will also withhold 31% of all
dividends and capital gain distributions payable to such shareholders who
are otherwise subject to backup withholding.
Because each investor's tax situation is different, please consult your
tax adviser about federal, state and local tax considerations.
Legg Mason Income Trust 15
<PAGE>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------
The financial highlights table is intended to help you understand each
fund's financial performance for the past 5 years. Total return
represents the rate that an investor would have earned (or lost) on an
investment in a fund, assuming reinvestment of all dividends and
distributions. This information has been audited by the funds'
independent accountants, PricewaterhouseCoopers LLP, whose report, along
with the funds' financial statements, is incorporated by reference into
the Statement of Additional Information (see back cover) and is included
in the annual report. The annual report is available upon request by
calling toll-free 1-800-822-5544.
U.S. GOVERNMENT INTERMEDIATE NAVIGATOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCOME FROM
INVESTMENT OPERATIONS
---------------------------------------------------------
NET REALIZED &
UNREALIZED GAIN
(LOSS) ON
FOR THE NET ASSET NET INVESTMENTS, TOTAL FROM
YEARS ENDED VALUE, INVESTMENT OPTIONS AND INVESTMENT
DEC. 31, BEGINNING OF YEAR INCOME FUTURES OPERATIONS
1998 $ 10.40 $ .61 (a) $ .11 $ .72
1997 10.31 .65 (a) .09 .74
1996 10.47 .67 (a) (.16) .51
1995 9.72 .62 (a) .75 1.37
1994 (b) 9.72 .05 (a) -- .05
<CAPTION>
<S> <C> <C> <C> <C> <C>
DISTRIBUTIONS
- --------------------------------------------------------------------------------------
IN EXCESS FROM NET
FOR THE FROM NET OF NET REALIZED NET ASSET
YEARS ENDED INVESTMENT INVESTMENT GAIN ON TOTAL VALUE,
DEC. 31, INCOME INCOME INVESTMENTS DISTRIBUTIONS END OF YEAR
1998 $ (.60) $ (.01) $ -- $ (.61) $ 10.51
1997 (.64) (.01) -- (.65) 10.40
1996 (.66) (.01) -- (.67) 10.31
1995 (.62) -- -- (.62) 10.47
1994 (b) (.05) -- -- (.05) 9.72
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT
EXPENSES INCOME (LOSS)
FOR THE TO AVERAGE TO AVERAGE PORTFOLIO NET ASSETS,
YEARS ENDED TOTAL RETURN NET ASSETS NET ASSETS TURNOVER RATE END OF YEAR
DEC. 31, (%) (%) (%) (%) (000)
1998 7.16 .46(a) 5.85(a) 356 $ 7,340
1997 7.45 .45(a) 6.40(a) 252 7,914
1996 5.09 .42(a) 6.47(a) 354 8,082
1995 14.45 .44(a) 6.08(a) 290 4,184
1994 (b) .50(c) .40(a,d) 6.44(a,d) 316(d) 4,024
</TABLE>
16 Legg Mason Income Trust
<PAGE>
INVESTMENT GRADE NAVIGATOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCOME FROM
INVESTMENT OPERATIONS
------------------------------------------------------------
NET REALIZED &
UNREALIZED GAIN
FOR THE NET ASSET NET (LOSS) ON TOTAL FROM
YEARS ENDED VALUE, INVESTMENT INVESTMENTS, INVESTMENT
DEC. 31, BEGINNING OF YEAR INCOME OPTIONS AND FUTURES OPERATIONS
1998 $ 10.59 $ .66(e) $ .12 $ .78
1997 10.22 .71 (e) .37 1.08
1996 10.44 .70 (e) (.22) .48
1995 (f) 10.32 .03 (e) .12 .15
<CAPTION>
<S> <C> <C> <C> <C> <C>
DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
IN EXCESS FROM NET
FOR THE FROM NET OF NET REALIZED NET ASSET
YEARS ENDED INVESTMENT INVESTMENT GAIN ON TOTAL VALUE,
DEC. 31, INCOME INCOME INVESTMENTS DISTRIBUTIONS END OF YEAR
1998 $ (.66) $ -- $ (.19) $ (.85) $ 10.52
1997 (.71) -- -- (.71) 10.59
1996 (.70) -- -- (.70) 10.22
1995 (f) (.03) -- -- (.03) 10.44
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT
EXPENSES INCOME (LOSS)
FOR THE TO AVERAGE TO AVERAGE PORTFOLIO NET ASSETS,
YEARS ENDED TOTAL RETURN NET ASSETS NET ASSETS TURNOVER RATE END OF YEAR
DEC. 31, (%) (%) (%) (%) (000)
1998 7.57 .45(e) 6.24(e) 279 $ 255
1997 10.95 .43(e) 6.87(e) 259 252
1996 4.88 .41(e) 6.99(e) 383 243
1995 (f) 1.42(c) .40(e,d) 6.73(e,d) 221(d) 249
</TABLE>
Legg Mason Income Trust 17
<PAGE>
HIGH YIELD NAVIGATOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCOME FROM
INVESTMENT OPERATIONS
-----------------------------------------------------
NET REALIZED &
UNREALIZED GAIN
(LOSS) ON
FOR THE NET ASSET NET INVESTMENTS, TOTAL FROM
YEAR ENDED VALUE, INVESTMENT OPTIONS AND INVESTMENT
DEC. 31, BEGINNING OF YEAR INCOME FUTURES OPERATIONS
1998 (g) $ 16.85 $ .86 $ (1.98) $ (1.12)
<CAPTION>
<S> <C> <C> <C> <C> <C>
DISTRIBUTIONS
- -------------------------------------------------------------------------------------
IN EXCESS FROM NET
FOR THE FROM NET OF NET REALIZED NET ASSET
YEAR ENDED INVESTMENT INVESTMENT GAIN ON TOTAL VALUE,
DEC. 31, INCOME INCOME INVESTMENTS DISTRIBUTIONS END OF YEAR
1998 (g) $ (1.05) $ -- $ (.01) $ (1.06) $ 14.67
<CAPTION>
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT
EXPENSES INCOME (LOSS)
FOR THE TO AVERAGE TO AVERAGE PORTFOLIO NET ASSETS,
YEAR ENDED TOTAL RETURN NET ASSETS NET ASSETS TURNOVER RATE END OF YEAR
DEC 31, (%) (%) (%) (%) (000)
1998 (g) (6.91)(c) .79(d) 8.68(d) 107(d) $ 65
</TABLE>
(a) Net of fees waived by the manager for expenses exceeding the following
expense limitations: 0.4% until April 30, 1995; 0.45% until April 30, 1996;
and 0.50% until August 1, 1999. If no fees had been waived by LMFA, the
annualized ratio of expenses to average daily net assets for each period
would have been as follows: 1998, .65%; 1997, .66%; 1996, .69%; 1995, .74%;
and 1994, .66%.
(b) December 1, 1994 (commencement of sale of Navigator shares) to December 31,
1994.
(c) Not annualized.
(d) Annualized.
(e) Net of fees waived by the manager for expenses exceeding the following
expense limitations: 0.4% until April 30, 1996; and 0.50% until August 1,
1999. If no fees had been waived by LMFA, the annualized ratio of expenses
to average daily net assets for each period would have been as follows:
1998, .80%; 1997, .82%; 1996, .88%; and 1995, .82%.
(f) December 1, 1995 (commencement of sale of Navigator shares) to December 31,
1995.
(g) May 5, 1998 (commencement of sale of Navigator shares) to December 31, 1998.
18 Legg Mason Income Trust
<PAGE>
LEGG MASON INCOME TRUST, INC.
---------------------------------------------------------------------
The following additional information about the funds is available upon
request and without charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI) - The SAI is filed with the
Securities and Exchange Commission (SEC) and is incorporated by reference
into (is considered part of) the prospectus. The SAI provides additional
details about each fund and its policies.
ANNUAL AND SEMI-ANNUAL REPORTS - Additional information about each fund's
investments is available in the funds' annual and semi-annual reports to
shareholders. These reports provide detailed information about each
fund's portfolio holdings and operating results.
TO REQUEST THE SAI OR ANY REPORTS TO SHAREHOLDERS, OR TO OBTAIN MORE
INFORMATION:
- call toll-free 1-800-822-5544
- visit us on the Internet via http://www.leggmason.com
- write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, Maryland 21203-1476
Information about the funds, including the SAI, can be reviewed and
copied at the SEC's public reference room in Washington, D.C. (phone
1-800-SEC-0330). Reports and other information about the funds are
available on the SEC's Internet site at http://www.sec.gov. Investors may
also write to: SEC, Public Reference Section, Washington, DC 20549-6009.
The SEC charges a fee for making copies.
SEC file number 811-5029
