LEGG MASON
INCOME TRUST, INC.:
-------------------
LEGG MASON U.S. GOVERNMENT
INTERMEDIATE-TERM PORTFOLIO
LEGG MASON INVESTMENT GRADE INCOME
PORTFOLIO
LEGG MASON HIGH YIELD PORTFOLIO
LEGG MASON U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
PRIMARY CLASS PROSPECTUS April 28, 2000
THE ART OF INVESTING(SM)
As with all mutual funds, the Securities and
Exchange Commission has not passed upon the
accuracy or 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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1 Investment objectives and policies
6 Principal risks
9 Performance
14 Fees and expenses of the funds
16 Management
About your investment:
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18 How to invest
20 How to sell your shares
22 Account policies
24 Services for investors
26 Distributions and taxes
28 Financial highlights
<PAGE>
LEGG MASON INCOME TRUST, INC.
[GRAPHIC]
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The Legg Mason Income Trust, Inc. offers four series: Legg Mason U.S. Government
Intermediate-Term Portfolio ("Government Intermediate"), Legg Mason Investment
Grade Income Portfolio ("Investment Grade"), Legg Mason High Yield Portfolio
("High Yield") and Legg Mason U.S. Government Money Market Portfolio
("Government Money Market").
Western Asset Management Company ("Western Asset" or "Adviser") is the funds'
investment adviser. Western Asset's approach in managing these four 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. 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:
Under normal circumstances, the fund 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 are 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 a nationally recognized statistical rating
organization ("NRSRO"), such as Standard & Poor's, Inc. ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), or unrated securities judged by the Adviser
to be of comparable quality.
Although it can invest in securities of any maturity, the fund normally expects
to maintain a dollar-weighted average maturity of between three and ten years.
For temporary defensive purposes or pending investment, the fund may invest
without limit in cash and U.S. dollar denominated money market instruments,
including repurchase agreements, having shorter than usual maturities. If the
fund invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
<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 that the Adviser considers
to be investment grade. Although the fund can invest in securities of any
maturity, it normally expects to maintain a dollar-weighted average maturity of
between five and twenty years.
The fund invests, under normal circumstances, at least 75% of its total assets
in the following types of investment grade fixed-income securities:
o debt securities that are rated at the time of purchase within the four
highest grades assigned by a NRSRO, or judged by the Adviser to be of
comparable quality;
o securities of, or guaranteed by, the U.S. Government, it agencies or
instrumentalities;
o commercial paper and other money market instruments that 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 that 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 that 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 that 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. For temporary
defensive purposes or pending investment, the fund may invest without limit in
cash or U. S. dollar denominated money market instruments, having shorter than
usual maturities. If the fund invests substantially in such instruments, the
fund may not be pursuing its principal investment strategies and the fund may
not achieve its investment objective.
<PAGE>
High Yield Portfolio
Investment objectives: high current income and, secondarily, capital
appreciation.
Principal investment strategies:
The 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 debt securities of corporations and 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 or lower by S&P or Baa or
lower by Moody's, 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. The 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 NRSRO, or 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.
For temporary defensive purposes or pending investment, the fund may invest
without limit in cash or U.S. dollar denominated money market instruments,
having shorter than normal maturities. If the fund invests substantially in such
instruments, the fund may not be pursuing its principal investment strategies
and the fund may not achieve its investment objective.
<PAGE>
U. S. Government Money Market Portfolio
Investment objective: high current income consistent with liquidity and
conservation of principal.
Principal investment strategies:
The fund is a money market fund that seeks to maintain a net asset value of
$1.00 per share. To achieve its objective, the fund adheres to the following
practices:
o it invests only in U.S. Government obligations, repurchase agreements
secured by such instruments, and securities issued or guaranteed by
multi-national development banks of which the U.S. is a member, such as
the World Bank.
o it invests at least 65% of its total assets in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
in repurchase agreements secured by such securities.
o it buys money market securities maturing in 397 days or less. (It can also
buy certain variable and floating rate securities the Adviser believes
will act as though they have maturities of 397 days or less.)
o it maintains a dollar-weighted average portfolio maturity of 90 days or
less.
o it buys only high-quality money market securities that the Adviser
determines to present minimal credit risk.
<PAGE>
[GRAPHIC] PRINCIPAL RISKS
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In general:
There is no guarantee that any fund will achieve its objective. 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.
Although Government Money Market seeks to maintain a net asset value of $1.00
per share, there can be no assurance that the fund will always be able to do so;
investors can lose money by investing in the funds.
Debt securities:
Debt securities are subject to interest rate risk, which is the possibility that
the market prices of the fund's 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 change.
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.
Debt securities are 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 the fund invests. However, ratings are only the opinions of the
organizations 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. Therefore, High
Yield is subject to credit risk to a greater extent than the other funds.
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 paid off.
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 High Yield. Investment Grade can
invest in these securities 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 a
fund's 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.
<PAGE>
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 (except Government Money Market)
often involve high turnover rates. This results in higher trading costs and
could cause higher levels of realized capital gains.
<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 each fund's performance from year to year. Annual returns
assume reinvestment of dividends and distributions, if any. 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 (or 7-day with
respect to a money market fund) period, expressed as an annualized rate of
return. For a fund's current yield, call toll-free 1-800-822-5544.
Government Intermediate -- Primary Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.10 14.40 6.26 6.64 -1.93 13.88 4.47 6.95 6.56 -0.48
DURING THE PAST TEN CALENDAR YEARS:
Quarter Ended Total Return
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Best quarter: June 30, 1995 4.76%
Worst quarter: March 31, 1994 -1.45%
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Lehman Intermediate
Government/Corporate Index and Salomon Brothers Medium-Term
Treasury/Government-Sponsored Index.
1 Year 5 Years 10 Years
------ ------- --------
Government Intermediate -0.48% 6.18% 6.46%
Lehman Intermediate
Government/Corporate Index -2.15% 7.61% 7.65%
Salomon Brothers Medium-Term
Treasury/Government-Sponsored
Index 0.49% 6.95% 7.13%
The fund changed its comparative index from the Salomon Brothers Medium-Term
Treasury/Government-Sponsored Index to the Lehman Intermediate
Government/Corporate Index. While the duration of the two indices is similar,
the Lehman Intermediate Government/Corporate Index has broader sector exposure,
which is more representative of the fund's diversified holdings.
<PAGE>
Investment Grade -- Primary Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.80 16.00 6.77 11.22 -4.82 20.14 4.31 10.31 6.99 -0.91
DURING THE PAST TEN CALENDAR YEARS:
Quarter Ended Total Return
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Best quarter: June 30, 1995 6.25%
Worst quarter: March 31, 1994 -2.91%
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Lehman Aggregate Index and the Salomon
Brothers Broad Investment-Grade Bond Index.
1 Year 5 Years 10 Years
------ ------- --------
Investment Grade -0.91% 7.94% 7.35%
Lehman Aggregate Index -0.82% 7.73% 7.70%
Salomon Brothers Broad
Investment-Grade Bond Index -0.83% 7.74% 7.75%
The fund changed its comparative index from the Salomon Brothers Broad
Investment-Grade Bond Index to the Lehman Aggregate Index. While these two
indices, the most commonly used for diversified core portfolios, have similar
duration and sector profiles, the use of the Lehman Aggregate Index as the
fund's comparative index is consistent with the indices used by other funds in
this prospectus.
<PAGE>
High Yield -- Primary Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
18.01 14.91 15.86 -1.79 8.82
DURING THE PAST FIVE CALENDAR YEARS:
Quarter Ended Total Return
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Best quarter: March 31, 1999 11.34%
Worst quarter: September 30, 1998 -9.52%
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Lehman High Yield Index.
1 Year 5 Years Life of Class
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High Yield 8.82% 10.92% 8.62%(a)
Lehman High Yield Index 2.51% 9.31% 7.38%(b)
(a) February 1, 1994 (commencement of operations) to December 31, 1999.
(b) For the period February 28, 1994 to December 31, 1999.
<PAGE>
Government Money Market
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.56 5.87 3.49 2.80 3.66 5.31 4.81 4.86 4.83 4.44
DURING THE PAST TEN CALENDAR YEARS:
Quarter Ended Total Return
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Best quarter: June 30, 1990 1.86%
Worst quarter: September 30, 1993 0.68%
AVERAGE ANNUAL TOTAL RETURNS FOR THE YEARS ENDED DECEMBER 31, 1999:
1 Year 5 Years 10 Years Life of Fund(a)
------ ------- -------- ---------------
Government Money Market 4.44% 4.85% 4.75% 5.08%
(a) January 31, 1989 (commencement of operations) to December 31, 1999.
<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 lower that fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
The funds have no sales charge but are subject to a 12b-1 fee. The funds charge
no redemption fees.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------
Government
Government Investment High Money
Intermediate Grade Yield Market
Management fees 0.55%(a) 0.60%(a) 0.65% 0.50%
Distribution and/or
Service (12b-1) fees 0.50% 0.50% 0.50% 0.20%(b)
Other expenses 0.14% 0.21% 0.16% 0.13%
- -------------- ----- ------ ----- -----
Total Annual Fund
Operating Expenses 1.19%(a) 1.31%(a) 1.31% 0.83%(b)
(a) Legg Mason Fund Adviser, Inc., as manager, has voluntarily agreed to waive
fees so that Primary Class share expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) do not exceed an annual rate of 1.00%
of average daily net assets attributable to Primary Class 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 through April 30, 2001, but
can be terminated at any time. With these waivers, management fees and total
annual fund operating expenses for the fiscal year ended December 31, 1999,
were 0.36% and 1.00%, for Government Intermediate and 0.29% and 1.00%, for
Investment Grade.
(b) Legg Mason has agreed to waive 0.10% of the 12b-1service fee indefinitely,
reducing total expenses from 0.83% to 0.73%.
<PAGE>
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) 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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Government
Intermediate $121 $378 $654 $1,443
Investment Grade $133 $415 $718 $1,579
High Yield $133 $415 $718 $1,579
Government
Money Market $85 $265 $460 $1,025
Under the fee waiver arrangements described above, your costs for the one,
three, five and ten year periods would be: $102, $318, $552 and $1,225 for
Government Intermediate; $102, $318, $552 and $1,225 for Investment Grade; and
$75, $233, $406 and $906 for Government Money Market.
<PAGE>
[GRAPHIC] MANAGEMENT
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Management and Adviser:
Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the funds' manager. LMFA 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. LMFA acts as
adviser or manager to investment companies with aggregate assets under
management of approximately $18.2 billion as of December 31, 1999.
For its services, each fund paid the manager the following percentage of its
average daily net assets for the fiscal year ended December 31, 1999:
Government Intermediate 0.36%
Investment Grade 0.29%
High Yield 0.65%
Government Money Market 0.50%
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 approximately $52.2 billion as of
December 31, 1999. An investment committee has been responsible for the
day-to-day management of each fund since its inception.
For its services during the fiscal year ended December 31, 1999, LMFA 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:
Government 0.20%, not to exceed the fee paid to LMFA
Intermediate (after any fee waivers)
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Investment Grade 0.24%, or 40% of the fee received by LMFA
---------------- -----------------------------------------
High Yield 0.50%, or 77% of the fee received by LMFA
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Government
Money Market 0.15%, or 30% of the fee received by LMFA
------------ -----------------------------------------
<PAGE>
Distributor of the funds' shares:
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, is the distributor of each fund's shares. Each fund
has adopted a plan under Rule 12b-1 that allows it to pay distribution fees
and/or shareholder service fees for the sale of its shares and for services
provided to shareholders.
Under each plan, Government Intermediate, Investment Grade and High Yield each
may pay Legg Mason an annual distribution fee equal to 0.25% of the fund's
average daily net assets and an annual service fee, equal to 0.25% of the fund's
average daily net assets attributable to Primary Class shares. Government Money
Market may pay Legg Mason an annual fee equal to 0.20% of its average daily net
assets. However, for Government Money Market, Legg Mason has agreed to waive
0.10% of the 12b-1 service fee indefinitely.
Because these fees are paid out of the funds' assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Legg Mason may enter into agreements with other brokers to sell Primary Class
shares of each fund. Legg Mason pays these brokers up to 90% of the distribution
and/or shareholder service fee that it receives from a fund for those sales.
LMFA, the Adviser and Legg Mason are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
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.
<PAGE>
[icon] H O W T O I N V E S T
To open a regular account or a retirement account, contact a Legg Mason
Financial Advisor, Legg Mason Funds Investor Services ("FIS"), or another entity
that has entered into an agreement with Legg Mason to sell shares of the fund.
The minimum initial investment is $1,000 and the minimum for each purchase of
additional shares is $100.
Retirement accounts include traditional IRAs, spousal IRAs, Education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. The investment amount for an
Education IRA is $500. Contact your financial adviser, FIS, or other entity
offering the funds to discuss which one might be appropriate for you.
Certain investment methods (for example, through certain retirement plans) may
be subject to lower minimum initial and additional investments. Arrangements may
also be made with some employers and financial institutions for regular
automatic monthly investments of $50 or more in shares of the fund. Contact your
financial adviser or FIS with any questions regarding your investment options.
Once your account is open, you may use the following methods to purchase shares
of the funds:
- --------------------------------------------------------------------------------
In Person Give your financial adviser a check for $100 or more
($500 or more for Government Money Market) payable to
the fund.
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Mail Mail your check, payable to the fund, for $100 or more
($500 or more for Government Money Market) to your
financial adviser or to Legg Mason Funds Investor
Services at P.O. Box 17023, Baltimore, MD 21297-0356.
- --------------------------------------------------------------------------------
Telephone or Wire Call your financial adviser or FIS at 1-800-822-5544
to transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
- --------------------------------------------------------------------------------
Internet or TeleFund FIS clients may purchase shares of the fund through
Legg Mason's Internet site at
http://www.leggmasonfunds.com or through a telephone
account management service "TeleFund" at
1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Automatic Investments Arrangements may be made with some employers and
financial institutions for regular automatic monthly
investments of $50 or more in shares of the fund. You
may also reinvest dividends from certain unit
investment trusts in shares of the fund.
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Future First Systematic Contact a Legg Mason Financial Advisor to enroll in
Investment Plan Legg Mason's Future First Systematic Investment Plan.
Under this plan, you may arrange for automatic monthly
investments in a fund of $50 or more. The transfer
agent will transfer funds monthly from your Legg Mason
account or from your checking/savings account to
purchase shares of the desired fund.
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Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
Navigator Class shares, which are not subject to a Rule 12b-1 fee, are offered
through a separate prospectus only to certain investors.
<PAGE>
For Government Intermediate, Investment Grade and High Yield:
Purchase orders received by your financial adviser, FIS or other authorized
entity before the close of the New York Stock Exchange ("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 the Exchange is open. Payment must be made within three
business days to Legg Mason.
You will begin to earn dividends as of settlement date, which is normally the
third business day after your order is placed with a financial adviser.
For Government Money Market:
Purchase orders received in federal funds form, by either your Legg Mason
Financial Adviser, FIS or other authorized entity, on any day that the Exchange
is open will be processed as follows:
Shares will be purchased
If the purchase order at the net asset value Such shares will begin
is received determined on the to earn dividends on the
- --------------------- ------------------------ ------------------------
before 12:00 noon, same day same day
Eastern time
12:00 noon or after, same day next day
but before 4:00 p.m.,
Eastern time
4:00 p.m. or after,
Eastern time next day next day
If you do not make payment in federal funds, your order will be processed when
payment is converted into federal funds, which is usually completed in two days,
but may take up to ten days. Most bank wires are federal funds.
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
You may use any of the following methods to sell shares of the funds:
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Telephone Call your financial adviser or FIS at 1-800-822-5544 or entity
offering a fund to request a redemption. Please have the
following information ready when you call: the name of the fund,
the number of shares (or dollar amount) to be redeemed and your
shareholder account number.
Proceeds will be credited to your brokerage account or a check
will be sent to you, at your direction, at no charge to you. Wire
requests will be subject to a fee of $12. Be sure that your
financial adviser has your bank account information on file.
- --------------------------------------------------------------------------------
Internet or FIS clients may request a redemption of fund shares through Legg
TeleFund Mason's Internet site at TeleFund http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Mail Send a letter to the fund requesting redemption of your shares.
The letter should be signed by all of the owners of the account
and, for Government Intermediate, Investment Grade and High
Yield, their signatures guaranteed without qualification. For
Government Money Market, redemption requests for shares valued at
$10,000 or more or when the proceeds are to be paid to someone
other than the accountholder will require a signature guarantee.
You may obtain a signature guarantee from most banks or
securities dealers.
- --------------------------------------------------------------------------------
Checkwriting The fund offers free checkwriting service. You may write checks
(Governmment to anyone in amounts of $500 or more. The fund's transfer agent
Money Market will redeem sufficient shares from your account to pay the
only) checks. You will continue to earn dividends on your shares until
the check clears at the transfer agent. Please do not use your
checks to close your account.
- --------------------------------------------------------------------------------
Payment for Legg Mason has special redemption procedures for investors who
Securities wish to purchase stocks, bonds or other securities at Legg Mason.
Purchases at Once you've placed an order for securities, and have not
Legg Mason indicated any other payment method, fund shares will be redeemed
(Government on the settlement date for the amount due. Fund shares may also
Money Market be redeemed to cover debit balances in your brokerage account.
only)
- --------------------------------------------------------------------------------
The funds will follow reasonable procedures to ensure the validity of any
telephone or Internet redemption request, such as requesting identifying
information from users 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.
Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser or FIS.
Redemption orders will be processed promptly. You will generally receive the
proceeds within a week. Normally, proceeds from redemption orders from
Government Money Market received before 11:00 a.m. Eastern time will be sent
that same day. Payment of the proceeds of redemptions of shares that were
recently purchased by check or acquired through reinvestment of distributions on
such shares may be delayed for up to 10 days from the purchase date in order to
allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
<PAGE>
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions established by those entities. You should
consult their program literature for further information.
Each fund has reserved the right under certain conditions to redeem its shares
in kind by distributing portfolio securities in payment for redemptions.
<PAGE>
[GRAPHIC] ACCOUNT POLICIES
----------------
Calculation of Net Asset Value:
For Government Intermediate, Investment Grade and High Yield:
Net asset value per Primary Class share is determined daily, as of the close of
the Exchange, on every day the Exchange is open. The Exchange is closed on all
national holidays and Good Friday. To calculate each fund's Primary Class share
price, the fund's assets are valued and totaled, liabilities are subtracted, and
the resulting net assets are divided by the number of Primary Class shares
outstanding. Each fund's securities are valued on the basis of market quotations
or, lacking such quotations, at fair value as determined under policies approved
by the Board of Directors. Securities with remaining maturities of 60 days or
less are usually 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. Each fund will value its foreign securities in
U.S. dollars on the basis of the then-prevailing exchange rates.
To the extent that a fund has portfolio securities that are primarily listed on
foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the funds' shares.
For Government Money Market:
To calculate the fund's share price, the fund's assets are valued and totaled,
liabilities are subtracted, and the resulting net assets are divided by the
number of shares outstanding. The fund seeks to maintain a share price of $1.00
per share. The fund is priced twice a day, as of 12:00 noon, Eastern time, and
at the close of the Exchange (normally 4:00 p.m., Eastern time), on every day
the Exchange is open. Like most other money market funds, the fund normally
values its investments using the amortized cost method.
For each fund:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason.
If your account in a fund 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. A fund will not redeem accounts
that fall below $500 solely as a result of a reduction in net asset value per
share.
Each fund reserves the right to:
- - reject any order for shares or suspend the offering of shares for a period of
time.
- - change its minimum investment amounts.
- - delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions or excessive trading or
during unusual market conditions. Each fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the SEC.
<PAGE>
[GRAPHIC] SERVICES FOR INVESTORS
----------------------
For further information regarding any of the services below, please contact your
financial adviser or other entity offering the funds for sale.
Confirmations and Account Statements:
Confirmations will be sent to you after each transaction involving Primary Class
shares of Government Intermediate, Investment Grade and High Yield (except a
reinvestment of dividends or capital gain distributions and purchases made
through the Future First Systematic Investment Plan or through automatic
investments).
Legg Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account. Legg Mason
will send you statements quarterly if there has been no activity in your
account, if you participate in the Future First Systematic Investment Plan, or
if you purchase shares through automatic investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares of a fund with a net asset value of
$5,000 or more, you may elect to make systematic withdrawals from the fund. The
minimum amount for each withdrawal is $50. You should not purchase shares of the
fund when you are participating in the Plan.
Exchange Privilege:
Primary Class shares of the funds may be exchanged for Primary Class shares of
any of the other Legg Mason funds, 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; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, 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:
- - terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year.
- - terminate or modify the exchange privilege after 60 days' notice to
shareholders.
Premier Account Status (Government Money Market only):
Legg Mason offers a Premier Asset Management Account, which allows you to
combine your fund account with a preferred customer VISA Gold debit card, a Legg
Mason brokerage account with margin borrowing availability and unlimited
checkwriting with no minimum check amount. Other services include the ability to
automatically transfer free credit balances in your brokerage account to your
fund account and the automatic redemption of fund shares to offset debit
balances in your brokerage account. Legg Mason charges an annual fee for the
Premier Account, which is currently $85 for individuals and $100 for
corporations and businesses.
<PAGE>
[GRAPHIC] DISTRIBUTIONS AND TAXES
-----------------------
Government Intermediate, Investment Grade and Government Money Market declare
any dividends from their net investment income daily and pay them monthly. High
Yield declares and pays any such dividends monthly.
Government Intermediate, Investment Grade and High Yield declare and pay
dividends from net short-term capital gain and distributions of substantially
all net capital gain (the excess of any 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 taxable year in which the
gain is realized. A second distribution of net capital gain may be necessary in
some years to avoid imposition of a federal excise tax.
Government Money Market does not expect to realize any capital gain or loss;
however, if the fund realizes any capital gains, it will pay them at least once
every twelve months.
Your dividends and distributions will be automatically reinvested in additional
Primary Class shares of the distributing fund unless you elect to receive your
dividends and/or distributions in cash. To change your election, you must notify
the fund at least 10 days before the next dividend and/or distribution is to be
paid. You may also request that your dividends and distributions be reinvested
in shares of another eligible Legg Mason fund.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and distributions reinvested in fund shares. No interest will accrue
on amounts represented by uncashed distribution or redemption checks.
Fund dividends and distributions are taxable to most investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Primary Class shares of the fund. Dividends from
investment company taxable income (which includes net investment income and net
short-term capital gains) are taxable as ordinary income. Distributions of a
fund's net capital gain, if any, 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.
Each fund's dividend and interest income and gains realized from disposition of
foreign securities may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions.
A tax statement is 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. Government Intermediate, Investment Grade and High Yield will also
withhold 31% of all dividends and capital gain distributions payable to
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.
<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.
<TABLE>
<CAPTION>
Investment Operations Distributions
--------------------- -------------
Net Realized
and Unrealized Net
Net Asset Net Gain (Loss) on In Excess From Net Asset
Years Value, Investment Investments, Total From From Net of Net Realized Value,
Ended Beginning Income Options Investment Investment Investment Gain on Total End of
Dec. 31, of Year (Loss) and Futures Operations Income Income Investments Distributions Year
U.S. Government Intermediate-Term Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 10.51 $.54A $ (.59) (0.05) $(.54) $--- $--- $(.54) $9.92
1998 10.40 .56A .11 .67 (.55) (0.01) --- (.56) 10.51
1997 10.31 .60A .09 .69 (.59) (0.01) --- (0.60) 10.40
1996 10.47 .61A (0.16) .45 (.60) (0.01) --- (.61) 10.31
1995 9.72 .57A 0.75 1.32 (0.57) --- --- (0.57) 10.47
Investment Grade Income Portfolio
1999 10.52 $ .61B $ (.71) (0.10) $ (.61) $--- ($0.03) $(.64) $9.78
1998 10.59 .60B 0.12 0.72 (0.60) --- (0.19) (.79) 10.52
1997 10.22 .65B .37 1.02 (.65) --- --- (.65) 10.59
1996 10.44 .64B (.22) .42 (.64) --- --- (.64) 10.22
1995 9.27 .65B 1.17 1.82 (0.65) --- --- (0.65) 10.44
High Yield Portfolio
1999 14.72 1.01 $ .29 1.30 ($1.05) $--- $-- (1.05) 14.97
1998 16.29 1.32 (1.56) (.24) (1.32) --- (0.01) (1.33) 14.72
1997 15.37 1.35 .99 2.34 (1.34) --- (0.08) (1.42) 16.29
1996 14.62 1.33 .76 2.09 (1.34) --- --- (1.34) 15.37
1995 13.57 1.29 1.05 2.34 (1.29) --- --- (1.29) 14.62
U.S. Government Money Market Portfolio
1999 $1.00 $ .04 $ Nil 0.04 $(.04) $--- $--- $(.04) $1.00
1998 1.00 0.05 (Nil) 0.05 (0.05) --- --- (0.05) 1.00
1997 1.00 .05 Nil .05 (.05) --- --- (.05) 1.00
1996 1.00 .05 Nil .05 (.05) --- --- (.05) 1.00
1995 1.00 0.05 Nil 0.05 (0.05) --- --- (0.05) 1.00
</TABLE>
A Net of fees waived by LMFA for expenses in excess of voluntary expense
limitations of: 0.9% until April 30, 1995; 0.95% until April 30, 1996; and
1.00% until May 1, 2000. 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: 1999, 1.19%; 1998, 1.20%; 1997, 1.21%; 1996, 1.26%; and
1995, 1.24%.
B Net of fees waived by LMFA for expenses in excess of voluntary expense
limitations of: 0.85% until April 30, 1995; 0.9% until April 30, 1996; and
1.00% until May 1, 2000. 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: 1999, 1.31%; 1998, 1.35%; 1997, 1.39%; 1996, 1.43%; and
1995, 1.38%.
<PAGE>
Ratios/Supplemental Data
------------------------
Net
Investment Net Assets,
Years Expenses Income (Loss) Portfolio End of
Ended Total to Average to Average Turnover Year
Dec. 31, Return Net Assets Net Assets Rate (in thousands)
- ------- ------ ---------- ------------ --------- ------------
U.S. Government Intermediate-Term Portfolio
1999 -0.48% 1.00%A 5.28%A 979% 298,207
1998 6.56% 1.00%A 5.30%A 356% 352,729
1997 6.95% 1.00%A 5.84%A 252% 300,952
1996 4.47% .98%A 5.91%A 354% 293,846
1995 13.88% .93%A 5.59%A 290% 231,886
Investment Grade Income Portfolio
1999 -0.91% 1.00%B 6.08%B 145% 183,615
1998 6.99% 1.00%B 5.68%B 279% 169,129
1997 10.31% 1.00%B 6.28%B 259% 122,100
1996 4.31% .97%B 6.42%B 383% 91,928
1995 20.14% .88%B 6.49%B 221% 85,633
High Yield Portfolio
1999 8.82% 1.31% 6.51% 83% 375,099
1998 -1.79% 1.30% 8.17% 107% 433,947
1997 15.86% 1.30% 8.60% 116% 382,143
1996 14.91% 1.35% 9.05% 77% 234,108
1995 18.01% 1.47% 9.28% 47% 108,417
U.S. Government Money Market Portfolio
1999 4.44% 0.73% 4.34% -- 379,994
1998 4.83% .75%I 4.73% -- 389,466
1997 4.86% 0.75% 4.77% -- 324,696
1996 4.81% 0.66% 4.71% -- 325,210
1995 5.31% 0.67% 5.17% -- 316,646
A Net of fees waived by LMFA for expenses in excess of voluntary expense
limitations of: 0.9% until April 30, 1995; 0.95% until April 30, 1996; and
1.00% until May 1, 2000. 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: 1999, 1.19%; 1998, 1.20%; 1997, 1.21%; 1996, 1.26%; and
1995, 1.24%.
B Net of fees waived by LMFA for expenses in excess of voluntary expense
limitations of: 0.85% until April 30, 1995; 0.9% until April 30, 1996; and
1.00% until May 1, 2000. 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: 1999, 1.31%; 1998, 1.35%; 1997, 1.39%; 1996, 1.43%; and
1995, 1.38%.
<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 further information and
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. In the funds' annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected each
fund's performance during its last fiscal year.
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.leggmasonfunds.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. Information on the operation
of the Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. Reports and other information about the funds are available on
the Edgar database on the SEC's Internet site at http://www.sec.gov. Investors
may also obtain this information, after paying a duplication fee, by electronic
request at the following e-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549- 0102.
LMF-025 SEC file number 811-5029
<PAGE>
NAVIGATOR TAXABLE INCOME FUNDS:
- ------------------------------
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 CLASS PROSPECTUS April 28, 2000
[LOGO]
The Art of Investing (SM)
As with all mutual funds, the Securities and Exchange Commission
has not passed upon the accuracy or adequacy of this prospectus, nor
has it approved or disapproved these securities. It is a criminal
offense to state otherwise.
<PAGE>
T A B LE O F C O N T E N T S
A b o u t t h e f u n d s:
2 Investment Objectives
6 Principal Risks
8 Performance
11 Fees and Expenses of the funds
13 Management
A b o u t y o u r i n v e s t m e n t:
14 How to invest
15 How to sell your shares
16 Account policies
17 Services for investors
18 Distributions and taxes
19 Financial Highlights
<PAGE>
LEGG MASON INCOME TRUST, INC.
[GRAPHIC]
INVESTMENT OBJECTIVES
---------------------
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 ("Government Intermediate"),
Legg Mason Investment Grade Income Portfolio ("Investment Grade")
and Legg Mason High Yield Portfolio ("High Yield").
Western Asset Management Company ("Western Asset" or "Adviser") is
the funds' investment adviser. Western Asset's approach in managing
these four 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. 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:
Under normal circumstances, the fund 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 are 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 a
nationally recognized statistical rating organization ("NRSRO"),
such as Standard & Poor's, Inc. ("S&P") or Moody's Investors
Service, Inc. ("Moody's"), or unrated securities judged by the
Adviser to be of comparable quality.
Although it can invest in securities of any maturity, the fund
normally expects to maintain a dollar-weighted average maturity of
between three and ten years.
For temporary defensive purposes or pending investment, the fund
may invest without limit in cash and U.S. dollar denominated money
market instruments, including repurchase agreements, having shorter
than usual maturities. If the fund invests substantially in such
instruments, the fund may not be pursuing its principal investment
strategies and the fund may not achieve its investment objective.
<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 that the
Adviser considers to be investment grade. Although the fund can
invest in securities of any maturity, it normally expects to
maintain a dollar-weighted average maturity of between five and
twenty years.
The fund invests, under normal circumstances, at least 75% of its
total assets in the following types of investment grade
fixed-income securities:
o debt securities that are rated at the time of purchase within the
four highest grades assigned by a NRSRO, or judged by the Adviser
to be of comparable quality;
o securities of, or guaranteed by, the U.S. Government, it agencies
or instrumentalities;
o commercial paper and other money market instruments that 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
that 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 that 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 that 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. For
temporary defensive purposes or pending investment, the fund may
invest without limit in cash or U. S. dollar denominated money
market instruments, having shorter than usual maturities. If the
fund invests substantially in such instruments, the fund may not be
pursuing its principal investment strategies and the fund may not
achieve its investment objective.
<PAGE>
High Yield Portfolio
Investment objectives: high current income and, secondarily,
capital appreciation.
Principal investment strategies:
The 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 debt
securities of corporations and 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 or lower by S&P or Baa or lower by
Moody's, 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.
The 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 NRSRO, or 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.
For temporary defensive purposes or pending investment, the fund
may invest without limit in cash or U.S. dollar denominated money
market instruments, having shorter than normal maturities. If the
fund invests substantially in such instruments, the fund may not be
pursuing its principal investment strategies and the fund may not
achieve its investment objective.
<PAGE>
PRINCIPAL RISKS
---------------
[GRAPHIC]
In general:
There is no guarantee that any fund will achieve its objective. 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.
Debt securities:
Debt securities are subject to interest rate risk, which is the
possibility that the market prices of the fund's 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 change.
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.
Debt securities are 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 the
fund invests. However, ratings are only the opinions of the
organizations 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.
Therefore, High Yield is subject to credit risk to a greater extent
than the other funds.
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 paid off.
<PAGE>
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 High Yield. Investment
Grade can invest in these securities 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 a fund's 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 higher levels of realized capital gains.
<PAGE>
[GRAPHIC] PERFORMANCE
-----------
The information below provides an indication of the risks of investing in a fund
by showing changes in each fund's performance from year to year. Government
Intermediate, Investment Grade and High Yield currently offer two classes of
shares: Primary Class shares and Navigator Class shares. The returns presented
for High Yield are for Primary Class shares, which are not offered in this
prospectus. Navigator Class and Primary Class shares are invested in the same
portfolio of securities, and the annual returns for each class of shares would
differ only to the extent that the Navigator Class would pay lower expenses, and
therefore would have higher returns. Each class is subject to different
expenses. Annual returns assume reinvestment of dividends and distributions.
Historical performance of a fund does not necessarily indicate what will happen
in the future.
Government Intermediate -- Navigator Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
14.45 5.09 7.45 7.16 0.04
DURING THE PAST FIVE CALENDAR YEARS:
Quarter Ended Total Return
------------- ------------
Best quarter: March 31, 1999 5.65%
Worst quarter: June 30, 1999 1.00%
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Lehman Intermediate
Government/Corporate Index and the Salomon Brothers Medium-Term
Treasury/Government Sponsored Index.
1 Year 5 Years Life of Class
------ ------- -------------
Government Intermediate-
Navigator Class 0.04% 6.74% 6.73%(a)
Lehman Intermediate
Government/Corporate Index -2.15% 7.61% 7.61%(b)
Salomon Brothers Medium-Term
Treasury/Government-Sponsored
Index 0.49% 6.95% .69%(b)
The fund changed its comparative index from the Salomon Brothers Medium-Term
Treasury/Government-Sponsored Index to the Lehman Intermediate
Government/Corporate Index. While the duration of the two indices is similar,
the Lehman Intermediate Government/Corporate Index has broader sector exposure,
which is more representative of the fund's diversified holdings.
(a) December 1, 1994 (commencement of operations) to December 31, 1999.
(b) For the period November 30, 1994 to December 31, 1999.
<PAGE>
Investment Grade -- Navigator Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1996 1997 1998 1999
---- ---- ---- ----
4.88 10.95 7.57 -0.33
DURING THE PAST FOUR CALENDAR YEARS:
Quarter Ended Total Return
------------- ------------
Best quarter: June 30, 1997 4.18%
Worst quarter: March 31, 1996 1.41%
In the following table, average annual total returns for the years
ended December 31, 1999, are compared with the Lehman Aggregate
Index and the Salomon Brothers Broad Investment-Grade Bond Index.
1 Year Life of Class
------ -------------
Investment Grade Income Portfolio -0.33% 6.00% (a)
Lehman Aggregate Index -0.82% 5.45% (b)
Salomon Brothers Broad -0.83% 5.43% (b)
Investment-Grade Bond Index
The fund changed its comparative index from the Salomon Brothers
Broad Investment-Grade Bond Index to the Lehman Aggregate Index.
While these two indices, the most commonly used for diversified
core portfolios, have similar duration and sector profiles, the use
of the Lehman Aggregate Index as the fund's comparative index is
consistent with the indices used by other funds in this prospectus.
(a) December 1, 1995 (commencement of operations) to December 31,
1999.
(b) For the period November 30, 1995 to December 31, 1999.
<PAGE>
High Yield -- Primary Class shares
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%):
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
18.01 14.91 15.86 -1.79 8.82
DURING THE PAST FIVE CALENDAR YEARS:
Quarter Ended Total Return
------------- ------------
Best quarter: March 31, 1999 11.34%
Worst quarter: September 30, 1998 -9.52%
In the following table, average annual total returns as of December
31, 1999, are compared with the Lehman High Yield Index.
1 Year 5 Years Life of Class
------ ------- -------------
High Yield--Primary Class 8.82% 10.92% 8.62%(a)
Lehman High Yield Index 2.51% 9.31% 7.38%(b)
(a) February 1, 1994 (commencement of operations) to December 31,
1999.
(b) For the period February 28, 1994 to December 31, 1999.
<PAGE>
[GRAPHIC] FEES AND EXPENSES OF THE FUNDS
------------------------------
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 lower that
fund's share price and dividends. Other expenses include transfer
agency, custody, professional and registration fees. The funds have no
sales charge and are not subject to a 12b-1 fee. The funds charge no
redemption fees.
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) 0.65%
Other expenses 0.11% 0.17% 0.17%
-------------- ----- ----- -----
Total Annual Fund
Operating Expenses 0.66% 0.77% 0.82%
(a)Legg Mason Fund Adviser, Inc., as manager, has voluntarily agreed
to waive fees so that Navigator Class share expenses (exclusive of
taxes, interest, brokerage and extraordinary expenses) do not
exceed .50% of average daily net assets attributable to Navigator
Class 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 through April 30, 2001, but can be terminated at any
time. With these waivers, management fees and total annual fund
operating expenses for the fiscal year ended December 31, 1999,
were 0.36% and 0.46% for Government Intermediate, and 0.29% and
0.42% for Investment Grade.
<PAGE>
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) 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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Government
Intermediate $67 $211 $368 $ 822
Investment Grade $79 $246 $428 $ 954
High Yield $84 $262 $455 $1,014
Under the fee waiver arrangements described above, your costs for
the one, three, five and ten year periods would be: $51, $160, $280
and $628 for Government Intermediate, and $51, $160, $280, and $628
for Investment Grade.
<PAGE>
[icon] M A N A G E M E N T
-------------------
Management and Adviser:
Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the manager of the funds. LMFA 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.
LMFA acts as adviser or manager to investment companies with aggregate assets of
approximately $18.2 billion as of December 31, 1999.
For it services, each fund paid the manager the following percentage of its
average daily net assets during the fiscal year ended December 31, 1999:
Government Intermediate 0.36%
Investment Grade 0.29%
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 about $52.5 billion as of December 31,
1999. An investment committee has been responsible for the day-to-day management
of each fund since its inception.
For its services during the fiscal year ended December 31, 1999, LMFA 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:
- --------------------------------------------------------------------------------
Government Intermediate 0.20%, not to exceed the fee paid to LMFA (after
any fee waivers)
- --------------------------------------------------------------------------------
Investment Grade 0.24%, or 40% of the fee received by LMFA
- --------------------------------------------------------------------------------
High Yield 0.50%, or 77% of the fee received by LMFA
- --------------------------------------------------------------------------------
Distributor of the funds' shares:
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, distributes the funds' shares under an Underwriting
Agreement. Each Underwriting Agreement obligates Legg Mason to pay certain
expenses for offering fund shares, including compensation to 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.
Legg Mason and LMFA may pay non-affiliated entities out of their own assets to
support the distribution of Navigator Class shares and shareholder servicing.
LMFA, the Adviser, and Legg Mason are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company.
<PAGE>
[icon] H O W T O I N V E S T
Navigator Shares are currently offered for sale only to:
o Institutional Clients of Legg Mason Trust, fsb, 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 Any qualified retirement plan having net assets of at least $300
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.
o Any open-end management investment company advised or managed by LMFA
or by any person controlling, controlled by, or under common control
with LMFA.
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, except as noted below. 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, you will receive 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 your financial adviser, FIS or other authorized
entity before the close of the New York Stock Exchange ("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.
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
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 receive that day's
net asset value. Redemption orders received by Legg Mason after the close of the
Exchange will receive 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
Payment of the proceeds of 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.
Each fund has reserved the right under certain conditions to redeem its shares
in kind by distributing portfolio securities in payment for redemption.
<PAGE>
[icon] A C C O U N T P O L I C I E S
Calculation of Net Asset Value:
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. The Exchange is
normally closed on all national holidays and Good Friday. To calculate the
fund's Navigator Class share price, the fund's assets attributable to Navigator
Class shares are valued and totaled, liabilities attributable to Navigator Class
shares are subtracted, and the resulting net assets are divided by the number of
Navigator Class shares outstanding. Each fund's securities are valued on the
basis of market quotations or, lacking such quotations, at fair value as
determined under procedures established by 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
funds' 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.
To the extent that a fund has portfolio securities that are primarily listed on
foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
Other:
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.
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. Each fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the SEC.
<PAGE>
[icon] S E R V I C E S F O R I N V E S T O R S
Confirmations and Account Statements:
Confirmations will be sent to Institutional Clients after each transaction
involving Navigator Class 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 Class 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; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, 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.
<PAGE>
[icon] D I S T R I B U T I O N S A N D T A X E S
Government Intermediate and Investment Grade each declare any dividends from its
net investment income daily and pays them monthly. High Yield declares and pays
any 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 any 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 taxable year in which the gain is realized. A second distribution of net
capital gain may be necessary in some years to avoid imposition of a federal
excise tax.
Your dividends and other distributions will be automatically reinvested in
additional Navigator Class shares of the fund, unless you elect to receive them
in cash. To change your election, you must notify the fund at least 10 days
before the next dividend and/or other distribution is to be paid. You may also
request that your dividends and distributions be reinvested in Navigator Class
shares of another Legg Mason fund.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Navigator Class shares of the fund. Dividends from
investment company taxable income (which includes net investment income and net
short-term capital gains) are taxable as ordinary income. Distributions of a
fund's net capital gain, if any, 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.
Each fund's dividend and interest income, and gains realized from disposition of
foreign securities, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions.
A tax statement is sent to you at the end of each year detailing the tax status
of your distributions.
Each fund will withhold 31% of all dividends, capital gain 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. Each fund will also withhold 31% of all dividends and capital gain
distributions payable to 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.
<PAGE>
[icon] F I N A N C I A L H I G H L I G H T S
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.
<TABLE>
<CAPTION>
Investment Operations Distributions
--------------------- -------------
Net Realized
and Unrealized
Net Asset Net Gain (Loss) on In Excess From Net Net Asset
Value, Investment Investments, Total From From Net of Net Realized Value,
Beginning Income Options Investment Investment Investment Gain on Total End of
of Year (Loss) and Futures Operations Income Income Investments Distributions Year
--------- ---------- ----------- ---------- ---------- -------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Intermediate-Term
Portfolio
Years Ended Dec. 31,
1999 $10.51 $.59A ($0.59) $ --- $(.59) $--- $--- $(.59) $9.92
1998 10.40 .61A .11 .72 (.60) -0.01 --- (.61) 10.51
1997 10.31 .65A .09 .74 (.64) -0.01 --- (.65) 10.4
1996 10.47 .67A (.16) .51 (.66) -0.01 --- (.67 10.31
1995 9.72 .62A 0.75 1.37 -0.62 --- --- -0.62 10.47
Investment Grade
Income Portfolio
Years Ended Dec. 31,
1999 $10.52 $.66B ($0.70) $(.04) $(.66) $--- $(.03) $(.69) $9.79
1998 10.59 .66B .12 0.78 -0.66 --- -0.19 (.85) 10.52
1997 10.22 .71B .37 1.08 (.71) --- --- (.71) 10.59
1996 10.44 .70B (.22) .48 (.70) --- --- (.70) 10.22
1995C 10.32 .03B 0.12 0.15 -0.03 --- --- 0.03 10.44
High Yield Portfolio
Period From March 8
to Dec. 31, 1999 $15.98 $0.89 ($0.92) ($0.03) $(.98) $--- $--- $(.98) 14.97
Period Ended
January 28, 1999 14.67 0.08 0.72 0.8 $(.04) $--- $--- $(.04) 15.43
Period Ended
Dec. 31, 1998F 16.85 0.86 ($1.98) ($1.12) ($1.05) $--- ($0.01) ($1.06) 14.67
</TABLE>
A Net of fees waived by LMFA for expenses in excess of voluntary limitations
of: 0.4% until April 30, 1995; 0.45% until April 30, 1996; and 0.50% until
May 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: 1999, .66%; 1998, .65%; 1997, .66%; 1996, .69% and 1995, .74%.
B Net of fees waived by LMFA for expenses in excess of voluntary limitations
of: 0.4% until April 30, 1996, and 0.50% until May 1, 1999. If no fees had
been waived by LMFA, the annualized ratio of expenses to the average daily
net assets for each period would have been as follows: 1999, .77%; 1998,
.80%; 1997, .82%; 1996, .88%; and 1995, .82%.
C For the period December 1, 1995 (commencement of sale of Navigator Class
shares) to December 31, 1995.
D Not annualized.
E Annualized.
F For the period May 5, 1998 (commencement of sale of Navigator Class shares)
to December 31, 1998.
<PAGE>
Ratios/Supplemental Data
------------------------
Net
Investment
Expenses Income(Loss) Portfolio Net Assets,
Total to Average to Average Turnover End of Year
Return Net Assets Net Assets Rate (in thousands)
------ ---------- ---------- -------- ------------
U.S Government
Intermediate-Term
Portfolio
Years Ended Dec.31,
1999 0.0004 .47%A 5.84%A 979% 9,076
1998 0.0716 .46%A 5.85%A 356% 7,340
1997 0.0745 .45%A 6.40%A 252% 7,914
1996 0.0509 .42%A 6.47%A 354% 8,082
1995 0.1445 .44%A 6.08%A 290% 4,184
Investment Grade
Income Portfolio
Years Ended Dec.31,
1999 -0.33% .46%B 6.59%B 145% $238
1998 0.0757 .45%B 6.24%B 279% 255
1997 0.1095 .43%B 6.87%B 259% 252
1996 0.0488 .41%B 6.99%B 383% 243
1995C 1.42%D .40%B,E 6.73%B,E 221%E 249
High Yield Portfolio
Period From March 8
to Dec. 31, 1999 (.20)%D .82%E 7.19%E 78%E $673
Period Ended
January 28, 1999 5.47%D .81%E 7.17%E 116%E $ 0
Period Ended
Dec. 31, 1998F (6.91)%D .79%E 8.68%E 107%E $ 65
A Net of fees waived by LMFA for expenses in excess of voluntary limitations
of: 0.4% until April 30, 1995; 0.45% until April 30, 1996; and 0.50% until
May 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: 1999, .66%; 1998, .65%; 1997, .66%; 1996, .69% and 1995, .74%.
B Net of fees waived by LMFA for expenses in excess of voluntary limitations
of: 0.4% until April 30, 1996, and 0.50% until May 1, 1999. If no fees had
been waived by LMFA, the annualized ratio of expenses to the average daily
net assets for each period would have been as follows: 1999, .77%; 1998,
.80%; 1997, .82%; 1996, .88%; and 1995, .82%.
C For the period December 1, 1995 (commencement of sale of Navigator Class
shares) to December 31, 1995.
D Not annualized.
E Annualized.
F For the period May 5, 1998 (commencement of sale of Navigator Class shares)
to December 31, 1998.
<PAGE>
L e g g M a s o n I n c o m e T r u s t, I n c.
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) this 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. In the fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o 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. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. Reports and other information about the funds are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov. Investors
may also obtain this information, after paying a duplicating fee, by electronic
request at the following email address: [email protected] or by writing the
SEC's, Public Reference Section, Washington, D.C. 20549-0102.
LMF-160 SEC file number 811-5029
