<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 4
Financial Highlights 5
Performance Information 7
Investment Objectives and Policies 8
How You Can Invest in the Funds 20
How Your Shareholder Account is
Maintained 21
How You Can Redeem Your Primary Shares 22
How Net Asset Value is Determined 23
Dividends and Other Distributions 23
Taxes 24
Shareholder Services 25
The Funds' Management and Investment Advisers 26
The Funds' Distributor 28
The Funds' Custodian and Transfer Agent 28
Description of the Corporation and its Shares 28
ADDRESSES
DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000 800 (Bullet) 822 (Bullet) 5544
TRANSFER AND SHAREHOLDER SERVICING AGENT:
Boston Financial Data Services
P.O. Box 953, Boston, MA 02103
COUNSEL:
Kirkpatrick & Lockhart LLP
1800 M Street, N.W., Washington, DC 20036
INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand L.L.P.
217 East Redwood Street, Baltimore, MD 21202
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY EITHER FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY EITHER FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
(Recycled Logo)PRINTED ON RECYCLED PAPER
LMF-041
(The following text appears in a box on the right hand side of the page)
LEGG MASON
GLOBAL
FUNDS
GLOBAL GOVERNMENT TRUST
GLOBAL EQUITY TRUST
PRIMARY SHARES
PUTTING YOUR FUTURE FIRST
PROSPECTUS
OCTOBER 30, 1995
(Legg Mason Logo Appears Here)
<PAGE>
LEGG MASON GLOBAL FUNDS -- PRIMARY SHARES
LEGG MASON GLOBAL TRUST , INC.:
LEGG MASON GLOBAL GOVERNMENT TRUST
LEGG MASON GLOBAL EQUITY TRUST
The Legg Mason Global Trust, Inc. ("Corporation") is an open-end management
investment company which currently offers two series: The Legg Mason Global
Government Trust ("Global Government") and The Legg Mason Global Equity Trust
("Global Equity") (each separately referred to as a "Fund" and collectively
referred to as the "Funds"). Global Government is a bond fund and Global Equity
is an equity fund.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information about the
Funds dated October 30, 1995 has been filed with the Securities and Exchange
Commission ("SEC") and, as amended or supplemented from time to time, is
incorporated herein by reference. The Statement of Additional Information is
available without charge upon request from the Funds' distributor, Legg Mason
Wood Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).
GLOBAL EQUITY MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN THE SECURITIES OF
COMPANIES LOCATED IN DEVELOPING COUNTRIES, INCLUDING COUNTRIES OR REGIONS WITH
RELATIVELY LOW GROSS NATIONAL PRODUCT PER CAPITA COMPARED TO THE WORLD'S MAJOR
ECONOMIES, AND IN COUNTRIES OR REGIONS WITH THE POTENTIAL FOR RAPID BUT UNSTABLE
ECONOMIC GROWTH (COLLECTIVELY, "EMERGING MARKETS"). BECAUSE OF THE RISKS
ASSOCIATED WITH COMMON STOCK INVESTMENTS, THE FUND IS INTENDED TO BE A LONG-TERM
INVESTMENT VEHICLE AND IS NOT DESIGNED TO PROVIDE INVESTORS WITH A MEANS OF
SPECULATING ON SHORT-TERM STOCK MARKET MOVEMENTS. INVESTORS SHOULD BE ABLE TO
TOLERATE SUDDEN, SOMETIMES SUBSTANTIAL FLUCTUATIONS IN THE VALUE OF THEIR
INVESTMENT.
INVESTORS SHOULD BE COGNIZANT OF THE UNIQUE RISKS OF INTERNATIONAL
INVESTING, INCLUDING EXPOSURE TO CURRENCY FLUCTUATIONS. BECAUSE OF THESE RISKS,
AN INVESTMENT IN EITHER FUND SHOULD NOT BE CONSIDERED A COMPLETE INVESTMENT
PROGRAM. BECAUSE OF THE SPECIAL RISKS ASSOCIATED WITH EMERGING MARKETS, AN
INVESTMENT IN EITHER FUND ALSO SHOULD BE CONSIDERED SPECULATIVE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
October 30, 1995
Legg Mason Wood Walker, Inc.
111 South Calvert Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544
<PAGE>
PROSPECTUS HIGHLIGHTS
The following summary is qualified in its entirety by the more
detailed information appearing in the body of this Prospectus and in the
Statement of Additional Information.
GLOBAL GOVERNMENT is a non-diversified, professionally managed
portfolio seeking capital appreciation and current income in order to
achieve an attractive total return consistent with prudent investment
risk. In attempting to achieve the Fund's objective, the Fund's investment
adviser, Legg Mason Fund Adviser, Inc. ("LMFA"), normally invests at least
75% of the Fund's total assets in debt securities issued or guaranteed by
foreign governments, the U.S. Government, their agencies,
instrumentalities and political subdivisions. At least 75% of the Fund's
total assets normally will be invested in investment grade debt securities
of foreign or domestic corporations, governments or other issuers, certain
money market instruments, and repurchase agreements collateralized by such
securities.
The value of the debt instruments held by the Fund, and thus the net
asset value of Fund shares, generally fluctuates inversely with movements
in market interest rates. The prices of longer-term securities generally
fluctuate more than those of shorter-term securities. As a non-diversified
series, the Fund may be subject to greater risk with respect to its
portfolio securities than an investment company that has a broader range
of investments.
The Fund may invest up to 25% of its assets in debt securities rated
below investment grade, whose credit quality is generally considered the
equivalent of U.S. corporate debt securities commonly known as "junk
bonds." Such securities are considered predominantly speculative and may
involve a substantial risk of default. The Fund may also invest in loans
and loan participations, and may use interest rate, currency and index
swaps, caps, collars and floors, all of which involve certain risks and
costs. See "Investment Techniques and Risks" in "Investment Objectives and
Policies," at pages 10-20.
GLOBAL EQUITY is a diversified, professionally managed portfolio
seeking maximum long-term total return. In attempting to achieve the
Fund's objective, the Fund's investment adviser, Batterymarch Financial
Management, Inc. ("Batterymarch"), normally invests the Fund's assets in
common stocks of companies located anywhere in the world, including the
United States. The Fund may invest up to 35% of its total assets in the
securities of companies located in developing countries, including
countries or regions with relatively low gross national product per capita
compared to the world's major economies, and in countries or regions with
the potential for rapid but unstable economic growth. Because of the
special risks associated with emerging markets, an investment in the Fund
should be considered speculative.
Global Equity is intended for investors who are seeking maximum
long-term total return. Because of the risks associated with common stock
investments, the Fund is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of speculating on
short-term stock market movements. Investors should be able to tolerate
sudden, sometimes substantial fluctuations in the value of their
investment. The value of the equity and other instruments held by the
Fund, and thus the net asset value of Fund shares, is subject to market
risk. See "Investment Techniques and Risks" in "Investment Objectives and
Policies," at pages 10-20.
Each Fund's participation in hedging and option income strategies also
involves certain investment risks and transaction costs. Investors also
should be cognizant of the unique risks of international investing,
including exposure to currency fluctuations. Because of these risks, each
Fund should not be considered a complete investment program.
There can be no assurance that either Fund will achieve its objective.
See "Investment Objectives and Policies," page 8. Changes in economic
conditions in, or governmental policies of, foreign nations will have a
significant impact on the performance of the Funds. Foreign investment
involves a possibility of expropriation, nationalization, confiscatory
taxation, limitations on the use or removal of funds or other assets of a
Fund, the withholding of tax on interest or dividends, and
2
<PAGE>
restrictions on the ownership of securities by foreign entities such as
the Funds. Fluctuations in the value of foreign currencies relative to the
U.S. dollar will affect the value of Fund holdings denominated in such
currencies. The risks of foreign investment are greater for investments in
emerging markets.
Global Government and Global Equity each offers two classes of shares
-- Primary Class ("Primary Shares") and Navigator Class ("Navigator
Shares"). Primary Shares offered in this Prospectus are available to all
investors except certain institutions (see page 5). No initial sales
charge is payable on purchases, and no redemption charge is payable on
sales of the Funds' shares. Each Fund pays management fees to its
respective adviser, and distribution fees with respect to Primary Shares
to its distributor, Legg Mason, as described on pages 26-28 of this
Prospectus.
DISTRIBUTOR :
Legg Mason Wood Walker, Incorporated
INVESTMENT ADVISER :
Legg Mason Fund Adviser, Inc. (for Global Government)
Batterymarch Financial Management, Inc. (for Global Equity)
INITIAL PURCHASE:
$1,000 minimum, generally.
SUBSEQUENT PURCHASES:
$100 minimum, generally.
PURCHASE METHODS:
Send bank/personal check or wire federal funds. See "How You Can
Invest in the Funds," page 20.
PUBLIC OFFERING PRICE PER SHARE:
Net asset value
EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 25.
DIVIDENDS:
Declared and paid monthly for Global Government. Declared and paid
quarterly for Global Equity. See "Dividends and Other Distributions," page
23. All dividends and other distributions are automatically reinvested in
Fund shares unless cash payments are requested.
3
<PAGE>
EXPENSES
The purpose of the following table is to assist an investor in understanding
the various costs and expenses that an investor in Primary Shares will bear
directly or indirectly. The expenses and fees set forth in the table are based
on average net assets and annual Fund operating expenses related to Primary
Shares of Global Government for the year ended December 31, 1994. For Global
Equity, the expenses and fees are based on estimated Fund operating expenses for
the current fiscal year, adjusted for current expense and fee waiver levels.
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<S> <C>
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees None
</TABLE>
ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GLOBAL GLOBAL
GOVERNMENT EQUITY
<S> <C> <C>
Management fees 0.27%A 0.60%B
12b-1 fees 0.75% 1.00%
Other expenses 0.32% 0.65%C
Total operating expenses
(after fee waivers) 1.34%A 2.25%B
</TABLE>
A Pursuant to a voluntary expense limitation, LMFA and Legg Mason have agreed to
waive the management and 12b-1 fees and assume certain other expenses to the
extent necessary to limit total operating expenses attributable to Primary
Shares (exclusive of taxes, interest, brokerage and extraordinary expenses) to
1.90% of average daily net assets annually until December 31, 1995. In the
absence of such waivers, the expected management fee, 12b-1 fee, other
expenses and total operating expenses would be 0.75%, 0.75%, 0.32% and 1.82%
of average net assets, respectively.
B Pursuant to a voluntary expense limitation, Batterymarch, LMFA and Legg Mason
have agreed to waive the management and 12b-1 fees and assume certain other
expenses to the extent necessary to limit total operating expenses
attributable to Primary Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) to 2.25% of average daily net assets annually until
December 31, 1995. In the absence of such waivers, the expected management
fee, 12b-1 fee, other expenses and total operating expenses would be 0.75%,
1.00%, 0.65% and 2.40% of average net assets, respectively.
C Other expenses are based on estimated amounts for the current fiscal year.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment in Primary Shares over various time periods assuming (1) a 5%
annual rate of return and (2) full redemption at the end of each time period. As
noted in the prior table, the Funds charge no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Global Government $ 14 $42 $73 $161
Global Equity $ 23 $70 N/A N/A
</TABLE>
This example assumes that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same over the time periods shown and that all
dividends and other distributions are reinvested. If the waivers are not
extended beyond December 31, 1995, the expense figures in the example will be
higher.
The above tables and the assumption in the example of a 5% annual return are
required by regulations of the SEC applicable to all mutual funds. THE ASSUMED
5% ANNUAL RETURN IS NOT A PREDICTION OF, AND DOES NOT REPRESENT, THE PROJECTED
OR ACTUAL PERFORMANCE OF PRIMARY SHARES OF THE FUNDS. THE ABOVE TABLES AND
EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The actual expenses
attributable to Primary Shares will depend upon, among other things, the level
of average net assets, the levels of sales and redemptions of shares, the extent
to which LMFA (and/or Batterymarch) and Legg Mason waive their fees and
reimburse all or a portion of each Fund's expenses and the extent to which
Primary Shares incur variable expenses, such as transfer agency costs.
Because each Fund pays a 12b-1 fee with respect to Primary Shares, long-term
shareholders may pay more in distribution expenses than the economic equivalent
of the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"). For further information concerning Fund
expenses, see "The Funds' Management and Investment Advisers," page 26.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Effective October 30, 1995, Global Government and Global Equity
commenced the sale of Navigator Shares. Navigator Shares are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own funds and funds for which they
act in a fiduciary capacity, to clients of Legg Mason Trust Company ("Trust
Company") for which Trust Company exercises discretionary investment
management responsibility, to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to
The Legg Mason Profit Sharing Plan and Trust. The information for Primary
Shares reflects the 12b-1 fees paid by that Class.
The year-end financial information that follows has been derived from
each Fund's financial statements. Global Government's financial statements
for the year ended December 31, 1994 and the report of Coopers & Lybrand
L.L.P. thereon are included in that Fund's annual report and are
incorporated by reference into the Statement of Additional Information. The
annual report for each Fund is available to shareholders without charge by
calling your Legg Mason or affiliated investment executive or Legg Mason's
Funds Marketing Department at 800-822-5544. Information shown for the
period ended June 30, 1995 has not been audited.
GLOBAL GOVERNMENT
<TABLE>
<CAPTION>
PRIMARY CLASS
Years Ended December 31, 1995B 1994 1993A
(Unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.54 $10.27 $10.00
Net investment incomeC 0.31 0.57 0.36
Net realized and unrealized gain (loss) on investments, forward
currency contracts, options and currency translations 1.11 (0.71) 0.31
Total from investment operations 1.42 (0.14) 0.67
Distributions to shareholders:
Net investment income (0.27) (0.59) (0.36)
Net realized gain on investments -- -- (0.04)
Net asset value, end of period $10.69 $ 9.54 $10.27
Total returnD 16.4% (1.4)% 6.8%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses 1.8%C,E 1.3%C 0.3%C,E
Net investment income 6.2%C,E 5.7%C 5.4%C,E
Portfolio turnover rate 162.6%E 127.0% 127.8%E
Net assets, end of period (in thousands) $152,568 $145,415 $161,072
</TABLE>
A FOR THE PERIOD APRIL 15, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1993.
B FOR THE SIX MONTHS ENDED JUNE 30, 1995.
C NET OF FEES WAIVED AND REIMBURSEMENTS MADE BY LMFA FOR EXPENSES IN EXCESS
OF VOLUNTARY LIMITATIONS AS FOLLOWS: 0.2% UNTIL SEPTEMBER 30, 1993; 0.35%
UNTIL DECEMBER 31, 1993; 0.5% UNTIL JANUARY 31, 1994; 0.7% UNTIL FEBRUARY
28, 1994; 0.9% UNTIL MARCH 31, 1994; 1.1% UNTIL APRIL 30, 1994; 1.3%
UNTIL MAY 31, 1994; 1.5% UNTIL JUNE 30, 1994; 1.7% UNTIL JULY 31, 1994;
AND 1.9% UNTIL DECEMBER 31, 1995.
D NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
E ANNUALIZED.
5
<PAGE>
GLOBAL EQUITY
<TABLE>
<CAPTION>
PRIMARY CLASS
Year Ended December 31, 1995A
(Unaudited)
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
Net investment incomeB 0.03
Net realized and unrealized gain on investments and currency translations 0.37
Total from investment operations 0.40
Distributions to shareholders from:
Net investment income --
Net realized gain on investments --
Net asset value, end of period $10.40
Total returnC 4.0%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
ExpensesB 2.25%D
Net investment incomeB 1.51%D
Portfolio turnover rate 28.17%D
Net assets, end of period (in thousands) $28,539
</TABLE>
A FOR THE PERIOD FEBRUARY 17, 1995 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1995.
B NET OF FEES WAIVED AND EXPENSES REIMBURSED PURSUANT TO A VOLUNTARY EXPENSE
LIMITATION OF 2.25%.
C NOT ANNUALIZED FOR PERIODS OF LESS THAN A FULL YEAR.
D ANNUALIZED.
6
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may quote the TOTAL RETURN of each class of
shares in advertisements or in reports or other communications to shareholders.
A mutual fund's total return is a measurement of the overall change in value,
including changes in share price and assuming reinvestment of dividends and
capital gain distributions, of an investment in the fund. CUMULATIVE TOTAL
RETURN shows the fund's performance over a specific period of time. AVERAGE
ANNUAL TOTAL RETURN is the average annual compounded return that would have
produced the same cumulative total return if the fund's performance had been
constant over the entire period. Average annual returns, which differ from
actual year-by-year results, tend to smooth out variations in a fund's return.
No adjustment has been made for any income taxes payable by shareholders. The
total returns shown below would have been lower if LMFA had not waived certain
fees for the periods presented below.
Total returns of Primary Shares as of June 30, 1995 were as follows:
GLOBAL
CUMULATIVE TOTAL RETURN GOVERNMENT GLOBAL EQUITY
One Year +16.43% N/A
Life of Class +21.14%A +4.00%B
AVERAGE ANNUAL TOTAL GLOBAL
RETURN GOVERNMENT GLOBAL EQUITY
One Year +16.43% N/A
Life of Class +9.06%A N/A
A INCEPTION OF GLOBAL GOVERNMENT -- APRIL 15, 1993.
B INCEPTION OF GLOBAL EQUITY -- FEBRUARY 17, 1995.
Global Government also may advertise its YIELD. Yield reflects investment
income net of expenses over a 30-day (or one-month) period on a Fund share,
expressed as an annualized percentage of the offering price per share at the end
of the period. The effective yield, although calculated similarly, will be
slightly higher than the yield because it assumes that income earned from the
investment is reinvested (i.e., it includes the compounding effect of
reinvestment). Yield computations differ from other accounting methods and
therefore may differ from dividends actually paid or reported net income.
Total return and yield information reflect past performance and are not
predictions or guarantees of future results. Investment return and share price
will fluctuate, and the value of your shares, when redeemed, may be worth more
or less than their original cost. Further information about each Fund's
performance is contained in its annual report to shareholders, which may be
obtained without charge by calling your Legg Mason or affiliated investment
executive or Legg Mason's Funds Marketing Department at 800-822-5544.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective may not be changed without
shareholder approval; however, except as otherwise noted, the investment
policies of each Fund described below may be changed by the Corporation's
Board of Directors without a shareholder vote. There can be no assurance
that either Fund will achieve its investment objective.
GLOBAL GOVERNMENT'S investment objective is to provide capital
appreciation and current income in order to achieve an attractive total
return consistent with prudent investment risk. The Fund normally attempts
to achieve this objective by investing at least 75% of its total assets in
debt securities issued or guaranteed by the U. S. Government or foreign
governments, their agencies, instrumentalities or political subdivisions.
The Fund normally will invest at least 75% of its assets in debt
securities issued or guaranteed by the U. S. Government or foreign
governments, the agencies or instrumentalities of either, supranational
organizations and foreign or domestic corporations, trusts, or financial
institutions rated within the four highest grades by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's ("S&P") or, if unrated by
Moody's or S&P, judged by LMFA to be of comparable quality, certain money
market instruments and repurchase agreements involving any of the
foregoing. These are considered investment grade debt securities.
Under normal circumstances, the Fund will be invested in at least
three different countries, including the United States. The Fund will
invest no more than 40% of its total assets in any one country other than
the United States. There is no other limit on the percentage of the Fund's
assets that may be invested in any one country or currency.
The money market instruments in which the Fund may invest include
commercial paper and other money market instruments which are: rated A-1
or A-2 by S&P or Prime-1 or Prime-2 by Moody's at the date of investment;
issued or guaranteed as to principal and interest by issuers or guarantors
having an existing debt security rating of A or better by Moody's or S&P,
or if unrated by Moody's or S&P, judged by LMFA to be of comparable
quality; and bank certificates of deposit and bankers' acceptances judged
by LMFA to be of comparable quality.
The remainder of the Fund's assets, not in excess of 25% of its
assets, may be invested in: (1) debt securities of issuers which are rated
at the time of purchase below Moody's or S&P's four highest grades, or
unrated securities judged by LMFA to be of comparable quality. This may
include lower-rated debt securities issued or guaranteed by foreign
governments or by domestic or foreign corporations, trusts or financial
institutions; (2) loans and participations in loans originated by banks
and other financial institutions, which also may be below investment
grade; (3) securities which may be convertible into or exchangeable for,
or carry warrants to purchase, common stock, or other equity interests
(such securities may offer attractive income opportunities, and the debt
securities of certain issuers may not be available without such features);
and (4) common and preferred stocks. See page 15 for a discussion of the
risks of lower-rated debt securities. If a security is downgraded
subsequent to its purchase, the Fund will sell that security or another if
that is necessary to assure that 75% of its assets are investment grade or
equivalent quality instruments.
The Fund may invest directly in U.S. dollar-denominated or foreign
currency-denominated foreign debt (including preferred or preference
stock) and money market securities issued or guaranteed by governmental
and non-governmental issuers, international agencies and supranational
entities. Some securities issued by foreign governments or their
subdivisions, agencies and instrumentalities may not be backed by the full
faith and credit of the foreign government.
The Fund's foreign investments may include securities of issuers based
in developed countries (including, but not limited to, countries in the
European Community, Canada, Japan, Australia, New Zealand and newly
industrialized countries, such as Singapore, Taiwan and South Korea).
The Fund may invest in "Brady Bonds," which are debt restructurings
that provide for the exchange of cash and loans for newly issued bonds.
Brady Bonds have so far been issued by thirteen emerging market
governments, and other such governments are expected to issue them in
8
<PAGE>
the future. Brady Bonds currently are rated below investment grade. As of
the date of this Prospectus, LMFA is not aware of the occurrence of any
payment defaults on Brady Bonds. Investors should recognize, however, that
Brady Bonds have been issued only recently and, accordingly, do not have a
long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily the U. S.
dollar) and are actively traded in the secondary market for Latin American
debt.
The Fund may invest in either collateralized or uncollateralized Brady
Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are collateralized
in full as to principal by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of
fixed-rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at
least one year's rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals
thereafter.
Foreign government securities may include debt securities denominated
in multinational currency units. An example of a multinational currency
unit is the European Currency Unit ("ECU"). An ECU represents specified
amounts of currencies of certain member states of the European Economic
Community. The specific amounts of currencies comprising the ECU may be
adjusted to reflect changes in relative values of the underlying
currencies. LMFA does not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranational entities, in particular, issue
ECU-denominated obligations. The market for ECUs may become illiquid at
times of rapid change in the European currency markets, limiting the
Fund's ability to prevent potential losses.
The Fund may buy and sell options, futures and forward contracts for
hedging purposes and, to the extent permitted by regulatory agencies, for
non-hedging purposes in an effort to enhance income. See "Options and
Futures; Forward Currency Exchange Contracts," page 13 and "Risks of
Futures, Options and Forward Contracts," page 14. The Fund may purchase
securities on a when-issued basis and enter into forward commitments to
purchase securities; may enter into swaps, caps, collars and floors for
hedging and other purposes; may lend its securities to brokers, dealers
and other financial institutions to earn income; may borrow money for
temporary or emergency purposes; and may enter into short sales "against
the box." See "When-Issued Securities and Standby Commitments," page 19.
When LMFA believes such action is warranted by unusual market
conditions, the Fund may invest temporarily without limit in cash (U.S.
dollars) and U.S. dollar-denominated money market instruments.
GLOBAL EQUITY'S investment objective is to seek maximum long-term
total return. The Fund attempts to meet this objective by investing
primarily in common stocks of companies located anywhere in the world,
including the United States. Under normal circumstances, the Fund will
invest in equity securities of issuers located in at least three different
countries. Batterymarch examines securities from over 20 international
stock markets, with emphasis on several of the largest -- Japan, the
United Kingdom, France, Canada, Germany and the United States. Common
stocks are chosen using Batterymarch's system for identifying common
stocks it believes to be undervalued. The weighting of the Fund's assets
among individual countries will reflect an assessment of the
attractiveness of individual equity securities regardless of where they
trade.
In addition, the Fund may invest up to 35% of its total assets in the
securities of companies located in emerging markets. Emerging markets will
include any country: (i) having an "emerging stock market" as defined by
the International Finance Corporation; (ii) with low- to middle-income
economies according to the International Bank for Reconstruction and
Development ("World Bank"); (iii) listed in World Bank publications as
developing or (iv) determined by Batterymarch to be an emerging market as
defined above. The following issuers are considered to be located in
emerging markets: (i) companies the principal securities trading market
for which is an emerging market; (ii) companies organized under the laws
of, and with a principal office in, emerging markets; (iii) companies
whose principal activities are
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located in emerging markets; and (iv) companies that derive 50% or more of
their total revenue from either goods or services produced in emerging
markets or sold in emerging markets.
The Fund's investment portfolio will normally be diversified across a
broad range of industries and across a number of countries, consistent
with the objective of maximum total return. The Fund is expected to remain
substantially fully invested in equity securities. However, when cash is
temporarily available, or for temporary defensive purposes, the Fund may
invest without limit in repurchase agreements of domestic issuers. When
conditions warrant, for temporary defensive purposes, the Fund also may
invest without limit in short-term debt instruments, including government,
corporate and money market securities of domestic issuers. Such short-term
investments will be rated in one of the four highest rating categories by
S&P or Moody's or, if unrated by S&P or Moody's, deemed by Batterymarch to
be of comparable quality.
The Fund is authorized to invest in stock index futures and options as
discussed below. The Fund may also enter into forward foreign currency
exchange contracts in order to protect against fluctuations in exchange
rates. See "Options, Futures and Forward Currency Exchange Contracts,"
page 13 and "Risks of Futures, Options and Forward Contracts," page 14.
The Fund is permitted to hold securities other than common stock, such
as debentures or preferred stock that may or may not be convertible into
common stock. Some of these instruments may be rated below investment
grade. The Fund will not purchase securities rated below investment grade
(or comparable unrated securities) if, as a result, more than 5% of the
Fund's net assets would be so invested.
INVESTMENT RESTRICTIONS
Global Government is a "non-diversified" investment company;
therefore, the percentage of its assets invested in any single issuer is
not limited by the Investment Company Act of 1940 ("1940 Act"). However,
the Fund intends to continue to qualify as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
which requires that, at the close of each quarter of the Fund's taxable
year: (1) with respect to 50% of the Fund's total assets, no more than 5%
of its total assets may be invested in the securities of any one issuer;
and (2) no more than 25% of the value of the Fund's total assets may be
invested in the securities of a single issuer. To the extent the Fund's
assets are invested in the obligations of a limited number of issuers or
in a limited number of countries or currencies, the value of the Fund's
shares will be more susceptible to any single economic, political or
regulatory occurrence than would the shares of a diversified company.
The fundamental restrictions applicable to the Fund include a
prohibition on investing 25% or more of total assets in the securities of
issuers having their principal business activities in the same industry
(with the exception of securities issued or guaranteed by the U. S.
Government, its agencies or instrumentalities and repurchase agreements
with respect thereto). Additional fundamental and non-fundamental
investment restrictions are set forth in the Statement of Additional
Information.
INVESTMENT TECHNIQUES AND RISKS
The following investment techniques and risks apply to each of the
Funds unless otherwise stated.
Foreign Securities
Investing in the securities of issuers in any foreign country involves
special risks and considerations not typically associated with investing
in U.S. companies. These include risks resulting from differences in
accounting, auditing and financial reporting standards; lower liquidity
than U.S. securities; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer
currency out of a country); and political instability. In many cases,
there is less publicly available information concerning foreign issuers
than is available concerning U.S. issuers. Additionally, purchases and
sales of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes and tax withholding. Foreign
securities generally exhibit greater price volatility and a greater risk
of illiquidity. Changes in foreign exchange rates will affect the value of
securities denominated or quoted in currencies other than the U.S. dollar
irrespective of the performance of the underlying investment.
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The relative performance of various countries' fixed income and equity
markets historically has reflected wide variations relating to the unique
characteristics of each country's economy. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Bank deposit insurance, if any, may be subject to widely varying
regulations and limits in foreign countries.
Foreign securities purchased by a Fund may be listed on foreign
exchanges or traded over-the-counter. Transactions on foreign exchanges
are usually subject to mark-ups or commissions higher than negotiated
commissions on U.S. transactions, although each Fund will endeavor to
obtain the best net results in effecting transactions. There is less
government supervision and regulation of exchanges and brokers in many
foreign countries than in the United States. Additional costs associated
with an investment in foreign securities will include higher custodial
fees than apply to domestic custodial arrangements and transaction costs
of foreign currency conversions.
Each Fund may invest in securities of issuers based in emerging
markets (including, but not limited to, countries in Latin America,
Eastern Europe, Asia and Africa). The risks of foreign investment,
described above, are greater for investments in emerging markets. Because
of the special risks associated with investing in emerging markets, an
investment in either Fund should be considered speculative. With respect
to Global Government, debt securities of governmental and corporate
issuers in such countries will typically be rated below investment grade
or be of comparable quality.
Investors are strongly advised to consider carefully the special risks
involved in emerging markets, which are in addition to the usual risks of
investing in developed markets around the world. Many emerging market
countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. Inflation and rapid fluctuations
in inflation rates have had, and may continue to have, very negative
effects on the economies and securities markets of certain emerging
markets.
Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be
affected adversely by economic conditions, trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which
they trade.
The securities markets of emerging markets are substantially smaller,
less developed, less liquid and more volatile than the securities markets
of the U.S. and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. and other
major markets. There also may be a lower level of monitoring and
regulation of emerging markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely
limited.
Some emerging markets have different settlement and clearance
procedures. In certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. The inability of a Fund
to make intended securities purchases due to settlement problems could
cause that Fund to miss attractive investment opportunities. Inability to
dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, in possible liability to the purchaser.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease
or may be substantially curtailed and prices for a Fund's portfolio
securities in such markets may not be readily available.
Global Equity may invest more than 25% of its total assets in
securities of Japanese issuers. Japan is the largest capitalized stock
market outside the United States. The performance of the Fund may
therefore be significantly affected by events affecting the Japanese
economy and the exchange rate between the Japanese yen and the U.S.
dollar. Japan has recently experienced a recession, including a decline in
real estate values that adversely affected the balance sheets of many
financial institutions. The strength of the Japanese currency may
adversely affect industries engaged substantially in export. Japan's
economy is heavily
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dependent on foreign oil. Japan is located in a seismically active area,
and severe earthquakes may damage important elements of the country's
infrastructure. Japanese economic prospects may be affected by the
political and military situations of its nearby neighbors, notably North
and South Korea, China, and Russia.
Global Government may invest in sovereign debt securities of emerging
market governments. Sovereign debt is subject to risks in addition to
those relating to foreign investments generally. As a sovereign entity,
the issuing government may be immune from lawsuits in the event of its
failure or refusal to pay the obligations when due. The debtor's
willingness or ability to repay in a timely manner may be affected by,
among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the
economy as a whole, the sovereign debtor's policy toward principal
international lenders and the political constraints to which the sovereign
debtor may be subject. Sovereign debtors also may be dependent on expected
disbursements from foreign governments or multilateral agencies, the
country's access to trade and other international credits, and the
country's balance of trade. Some emerging market sovereign debtors have in
the past rescheduled their debt payments or declared moratoria on
payments, and similar occurrences may happen in the future.
Repurchase Agreements
Repurchase agreements are agreements under which either U.S.
government obligations or other high-quality, liquid debt securities are
acquired from a securities dealer or bank subject to resale at an
agreed-upon price and date. The securities are held for the Funds by State
Street Bank and Trust Company ("State Street"), the Funds' custodian, as
collateral until resold and will be supplemented by additional collateral
if necessary to maintain a total value equal to or in excess of the value
of the repurchase agreement. A Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations and
that Fund is delayed or prevented from exercising its right to dispose of
the collateral securities, which may decline in value in the interim. A
Fund will enter into repurchase agreements only with financial
institutions which its adviser believes present minimal risk of default
during the term of the agreement based on guidelines established by the
Corporation's Board of Directors.
Neither Fund will enter into repurchase agreements of more than seven
days' duration if more than 15% of its net assets would be invested in
such agreements and other illiquid investments.
Loans of Portfolio Securities
Each Fund may lend portfolio securities to brokers or dealers in
corporate or government securities, banks or other recognized
institutional borrowers of securities, provided that cash or equivalent
collateral, equal to at least 100% of the market value of the securities
loaned, is continuously maintained by the borrower with that Fund. During
the time securities are on loan, the borrower will pay the Fund an amount
equivalent to any dividends or interest paid on such securities, and the
Fund may invest the cash collateral and earn income, or it may receive an
agreed upon amount of interest income from the borrower who has delivered
equivalent collateral. These loans are subject to termination at the
option of the Fund or the borrower. Each Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. Each Fund presently does not
expect to have on loan at any given time securities totaling more than
one-third of its net asset value. When a Fund loans a security to another
party, it runs the risk that the other party will default on its
obligation, and that the value of the collateral will decline before the
Fund can dispose of it.
Restricted and Illiquid Securities
Restricted securities are securities subject to legal or contractual
restrictions on resale, such as private placements. Such restrictions
might prevent the sale of restricted securities at a time when a sale
would otherwise be desirable. No Fund will acquire a security for which
there is not a readily available market ("illiquid assets") if such
acquisition would cause the aggregate value of illiquid assets to exceed
15% of its net assets. Time deposits and repurchase agreements maturing in
more than seven days are considered illiquid. Illiquid securities may be
difficult to value, and the Fund
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<PAGE>
may have difficulty disposing of such securities promptly.
The Funds do not consider foreign securities to be illiquid if they
can be freely sold in the principal markets in which they are traded, even
if they are not registered for sale in the U.S. Rule 144A securities,
although not registered, may be sold to qualified institutional buyers in
accordance with Rule 144A under the Securities Act of 1933. Each Fund's
adviser, acting pursuant to guidelines established by the Corporation's
Board of Directors, may determine that some Rule 144A securities are
liquid. If the newly-developing institutional markets for restricted
securities do not develop as anticipated, it could adversely affect the
liquidity of a Fund.
Options, Futures and Forward Currency Exchange Contracts
A futures contract is an agreement between the parties to buy or sell
a specified amount of one or more securities or currencies at a specified
price and date; futures contracts are generally closed out by the parties
in advance of that date for a cash settlement. Under an option contract,
one party has the right to require the other to buy or sell a specific
security, currency or futures contract, and may exercise that right if the
market price of the underlying instrument moves in a direction
advantageous to the holder of the option. A forward foreign currency
exchange contract is an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract agreed upon by the parties, at a price set at the time of the
contract. Options, futures and forward currency exchange contracts are
generally considered to be "derivatives."
FOR GLOBAL GOVERNMENT:
The Fund may use options to attempt to enhance income; use options and
futures contracts for hedging purposes; and use forward currency contracts
for hedging purposes or to attempt to enhance income. The Fund may
purchase and sell call and put options on bond indices and on securities
in which the Fund is authorized to invest for hedging purposes or to
enhance income. The Fund may also purchase and sell interest rate and bond
index futures contracts and options thereon for hedging purposes.
The Fund may enter into forward currency contracts for the purchase or
sale of a specified currency at a specified future date either with
respect to specified transactions or with respect to its portfolio
positions. For example, when LMFA anticipates making a currency exchange
transaction in connection with the purchase or sale of a security, the
Fund may enter into a forward contract in order to set the exchange rate
at which the transaction will be made. The Fund may enter into a forward
contract to sell an amount of a foreign currency approximating the value
of some or all of its security positions denominated in such currency. It
may also engage in cross-hedging by using a forward contract in one
currency to hedge against fluctuations in the value of securities
denominated in a different currency. The purpose of these contracts is to
minimize the risk to the Fund from adverse changes in the relationship
between two currencies. Cross-currency hedging requires a degree of
correlation between the two currencies involved. Some currency
relationships thought to be correlated have proven highly volatile on some
occasions.
The Fund may also purchase and sell foreign currency futures
contracts, options thereon and options on foreign currencies to hedge
against the risk of fluctuations in the market value of foreign securities
it holds or intends to purchase, resulting from changes in foreign
exchange rates. The Fund may also purchase and sell options on foreign
currencies and use forward currency contracts to enhance income.
FOR GLOBAL EQUITY:
The Fund may enter into forward foreign currency exchange contracts in
order to protect against uncertainty in the level of future foreign
exchange rates in the purchase and sale of investment securities. It may
not enter into such contracts for speculative purposes. Forward currency
contracts may be bought or sold to protect the Fund to a limited extent
against adverse changes in exchange rates between foreign currencies and
the U.S. dollar.
The Fund may utilize futures contracts and options to a limited
extent. Specifically, the Fund may enter into futures contracts and
related options provided that not more than 5% of its assets are required
as a futures contract deposit and/or premium; in addition, the Fund may
not enter into futures contracts or related options if, as
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a result, more than 20% of the Fund's total assets would be so invested.
Futures contracts and options may be used for several reasons: to
simulate full investment in underlying securities while retaining a cash
balance for Fund management purposes, to facilitate trading, to reduce
transaction costs, or to seek higher investment returns when a futures
contract is priced more attractively than the underlying equity security
or index.
Risks of Futures, Options and Forward Currency Exchange Contracts
The use of options, futures and forward currency exchange contracts
involves certain investment risks and transaction costs. These risks
include (1) dependence on the ability of each Fund's adviser to predict
movements in the prices of individual securities, fluctuations in the
general securities markets or in market sectors and movements in interest
rates and currency markets; (2) imperfect correlation, or no correlation
at all, between movements in the price of options, currencies, futures
contracts or forward currency contracts and movements in the price of the
underlying securities or currencies; (3) the fact that skills needed to
use these instruments are different from those needed to select a Fund's
portfolio securities; (4) the possible lack of a liquid secondary market
for any particular instrument at any particular time; (5) the possibility
that the use of cover or segregation involving a large percentage of the
Fund's assets could impede portfolio management or that Fund's ability to
meet redemption requests or other short-term obligations; (6) the possible
need to defer closing out positions in these instruments in order to avoid
adverse tax consequences; and (7) the fact that, although use of these
instruments for hedging purposes can reduce the risk of loss, they can
also reduce the opportunity for gain, or even result in losses, by
offsetting favorable price movements in hedged investments. There can be
no assurance that a Fund's use of futures contracts, forward currency
contracts or options will be successful. Moreover, in the event that an
anticipated change in the price of the securities or currencies that are
the subject of the strategy does not occur, the Fund might have been in a
better position had it not used that strategy at all. Forward currency
contracts, which protect the value of a Fund's investment securities
against a decline in the value of a currency, do not eliminate
fluctuations in the underlying prices of the securities. They simply
establish an exchange rate at a future date. The use of options and
futures contracts for speculative purposes, i.e., to enhance income or to
increase a Fund's exposure to a particular security or foreign currency,
subjects the Fund to additional risk. The use of options, futures or
forward contracts to hedge an anticipated purchase also subjects a Fund to
additional risk until the purchase is completed or the position is closed
out.
When a Fund purchases or sells a futures contract, it is required to
deposit with its custodian (or a broker, if legally permitted) a specified
amount of cash or U. S. government securities ("initial margin"). A Fund
will not enter into futures contracts or commodities option positions
(other than option positions that are "in-the-money" at the time of
purchase) if, immediately thereafter, its initial margin deposits plus
premiums paid by it, would exceed 5% of the fair market value of the
Fund's net assets. If a Fund writes an option or sells a futures contract
and is not able to close out that position prior to settlement date, the
Fund may be required to deliver cash or securities substantially in excess
of these amounts.
Many options on securities are traded primarily on the
over-the-counter ("OTC") market. OTC options are two-party contracts with
price and other terms negotiated between buyer and seller and generally do
not have as much liquidity as exchange-traded options. Thus, when a Fund
purchases an OTC option, it relies on the dealer from which it has
purchased the option to make or take delivery of the securities underlying
the option. Failure by the dealer to do so would result in the loss of the
premium paid by that Fund as well as the loss of the expected benefit of
the transaction. OTC options may be considered "illiquid securities" for
purposes of each Fund's investment limitations. Options and futures traded
on U.S. or other exchanges may be subject to position and daily
fluctuation limits, which may limit the ability of a Fund to reduce risk
using such options and futures and may limit their liquidity.
When using options, futures or forwards, each Fund will cover its
short positions or maintain a segregated asset account, to the extent
required by SEC staff positions. The Statement of Additional Information
contains a more detailed description of futures, options and forward
strategies.
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THE FOLLOWING DESCRIBES CERTAIN INVESTMENT TECHNIQUES USED PRIMARILY
BY GLOBAL GOVERNMENT:
Lower-Rated Debt Securities
The Fund may invest in debt obligations of any grade. LMFA seeks to
minimize the risks of investing in all securities through in-depth credit
analysis and attention to current developments in interest rates and
market conditions.
Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's describes securities rated Baa as
"medium-grade" obligations; they are "neither highly protected nor poorly
secured . . . [I]nterest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well." Where one rating organization has assigned an
investment grade rating to an instrument and others have given it a lower
rating, the Fund may consider the instrument to be investment grade. The
ratings do not include the risk of market fluctuations.
The Fund may invest up to 25% of its total assets in high-yield,
high-risk securities rated below investment grade. Such securities are
deemed by Moody's and S&P to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal. Those in the
lowest rating categories may involve a substantial risk of default or may
be in default. Changes in economic conditions or developments regarding
the individual issuer are more likely to cause price volatility and weaken
the capacity of such securities to make principal and interest payments
than is the case for higher grade debt securities. An economic downturn
affecting the issuers may result in an increased incidence of default. The
market for lower-rated securities may be thinner and less active than that
for higher-rated securities. LMFA will invest in such securities only when
it concludes that the anticipated return to the Fund on such an investment
warrants exposure to the additional level of risk. A further description
of Moody's and S&P's ratings is included in the Appendix to the Statement
of Additional Information. Although the Fund may invest in lower-rated
debt securities of domestic issuers, it currently intends to limit
investments in lower-rated debt securities to those issued by foreign
corporations, those issued or guaranteed by foreign governmental issuers,
and those issued by domestic corporations but linked to the performance of
such foreign-issue debt. See "Foreign Securities" page 10.
The table below provides a summary of ratings assigned to debt
holdings in Global Government's portfolio. These figures are
dollar-weighted averages of month-end portfolio holdings during the fiscal
year ended December 31, 1994, presented as a percentage of total
investments. These percentages are historical and are not necessarily
indicative of the quality of current or future portfolio holdings, which
may vary.
MOODY'S Aaa/
RATINGS Aa/A Baa Ba B Caa Ca C NR
Average 63.1% -- 12.0% 4.9% -- -- -- 20.0%
AAA/ CC/
S&P RATINGS AA/A BBB BB B CCC C D NR
Average 64.9% 1.3% 4.2% 0.2% -- -- -- 29.4%
The dollar-weighted average of securities not rated by either Moody's
or S&P amounted to 17.6%. This may include securities rated by other
nationally recognized rating organizations, as well as unrated securities.
Unrated securities are not necessarily lower-quality securities.
U.S. Government Securities
The U.S. government securities in which the Fund may invest include
direct obligations of the U.S. Treasury (such as Treasury bills, notes and
bonds) and obligations issued by U.S. government agencies and
instrumentalities, including securities that are supported by the full
faith and credit of the United States (such as Government National
Mortgage Association ("GNMA") certificates), securities that are supported
by the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Federal Home Loan Banks) and securities supported solely
by the creditworthiness of the issuer (such as Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")
securities).
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Mortgage-Related Securities
The Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of mortgages created by lenders
such as commercial banks, savings and loan institutions, mortgage bankers
and others. Mortgage-related securities may be issued by governmental or
government-related entities or by non-governmental entities such as banks,
savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers.
Interests in pools of mortgage-related securities differ from other
forms of debt securities which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified
call dates. In contrast, mortgage-related securities provide monthly
payments which consist of interest and, in most cases, principal. In
effect, these payments are a "pass-through" of the monthly payments made
by the individual borrowers on their residential mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments to holders of mortgage-related securities are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure. Some mortgage-related securities entitle the
holders to receive all interest and principal payments owed on the
mortgages in the pool, net of certain fees, regardless of whether or not
the mortgagors actually make the payments.
As prepayment rates of individual pools of mortgage loans vary widely,
it is not possible to predict accurately the average life of a particular
mortgage-related security. Although mortgage-related securities are issued
with stated maturities of up to forty years, unscheduled or early payments
of principal and interest on the underlying mortgages may shorten
considerably the securities' effective maturities. When interest rates are
declining, such prepayments usually increase. On the other hand, a
decrease in the rate of prepayments, resulting from an increase in market
interest rates, among other causes, may extend the effective maturities of
mortgage-related securities, increasing their sensitivity to changes in
market interest rates. The volume of prepayments of principal on a pool of
mortgages underlying a particular mortgage-related security will influence
the yield of that security. Increased prepayment of principal may limit a
Fund's ability to realize the appreciation in the value of such securities
that would otherwise accompany declining interest rates. An increase in
mortgage prepayments could cause a Fund to incur a loss on a
mortgage-related security that was purchased at a premium. In determining
the Fund's average maturity, LMFA must apply certain assumptions and
projections about the maturity and prepayment of mortgage-related
securities; actual prepayment rates may differ.
Mortgage-related securities offered by private issuers include
pass-through securities comprised of pools of conventional residential
mortgage loans; mortgage-backed bonds which are considered to be
obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs")
which are collateralized by mortgage-related securities issued by FHLMC,
FNMA, GNMA or by pools of conventional mortgages.
CMOs are typically structured with two or more classes or series which
have different maturities and are generally retired in sequence. Although
full payoff of each class of bonds is contractually required by a certain
date, any or all classes of obligations may be paid off sooner than
expected because of an increase in the payoff speed of the pool.
Mortgage-related securities created by non-governmental issuers
generally offer a higher rate of interest than government and government-
related securities because there are no direct or indirect government
guarantees of payments in the former securities. However, many issuers or
servicers of mortgage-related securities guarantee timely payment of
interest and principal on such securities. Timely payment of principal may
also be supported by various forms of insurance, including individual
loan, title, pool and hazard policies. There can be no assurance that the
private issuers or insurers will be able to meet their obligations under
the relevant guarantees and insurance policies. Where privately issued
securities are collateralized by securities issued by FHLMC, FNMA or GNMA,
the timely payment of interest and principal is supported by the
government-related securities collateralizing such obligations.
Some mortgage-related securities will be considered illiquid and will
be subject to the Fund's investment limitation that no more than 15% of
its net assets will be invested in illiquid securities.
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Stripped Mortgage-Backed Securities
The Fund may invest in stripped mortgage-backed securities, which are
classes of mortgage-backed securities that receive different proportions
of interest and principal distribution from an underlying pool of mortgage
assets. These securities are more sensitive to changes in prepayment and
interest rates and the market for them is less liquid than is the case for
traditional mortgage-backed and other debt securities. A common type of
stripped mortgage-backed security will have one class receiving some of
the interest and most of the principal from the mortgage assets, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the
interest (the interest only or "IO" class), while the other class will
receive all of the principal (the principal only or "PO" class). The yield
to maturity of an IO class is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. If the
Fund purchases an IO and the underlying principal is repaid faster than
expected, the Fund will recoup less than the purchase price of the IO,
even one that is highly rated. Extensions of maturity resulting from
increases of market interest rates may have an especially pronounced
effect on POs. Most IOs and POs are regarded as illiquid and will be
included in the Fund's 15% limit on illiquid securities. U.S.
government-issued IOs and POs backed by fixed-rate mortgages may be deemed
liquid by LMFA, following guidelines and standards established by the
Corporation's Board of Directors.
Asset-Backed Securities
Asset-backed securities are securities that represent direct or
indirect participations in, or are secured by and payable from, assets
such as motor vehicle installment sales contracts, installment loan
contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets
are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest on
asset-backed securities may be supported by credit enhancements, such as
various forms of cash collateral accounts or letters of credit. Like
mortgage-related securities, asset-backed securities are subject to the
risk of prepayment. The risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed
securities, however, is greater than in the case of mortgage-backed
securities.
Loans and Loan Participations
The Fund may purchase loans and participation interests in loans
originally made by banks and other lenders to governmental borrowers. Many
such interests are not rated by any rating agency and may involve
borrowers considered to be poor credit risks. The Fund's interests in
these loans may not be secured, and the Fund will be exposed to a risk of
loss if the borrower defaults. Many such interests will be illiquid and
therefore subject to the Fund's 15% limit on illiquid investments.
In purchasing a loan participation, the Fund may have less protection
under the federal securities laws than it has in purchasing traditional
types of securities. The Fund's ability to assert its rights against the
borrower will also depend on the particular terms of the loan agreement
among the parties.
Commercial Paper and Other Short-Term Instruments
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies.
The Fund may purchase commercial paper issued pursuant to the private
placement exemption in Section 4(2) of the Securities Act of 1933. Section
4(2) paper is restricted as to disposition under the federal securities
laws in that any resale must similarly be made in an exempt transaction.
The Fund may or may not regard such securities as illiquid, depending on
the circumstances of each case. See "Restricted and Illiquid Securities,"
page 12.
The Fund may also invest in obligations (including certificates of
deposit, demand and time deposits and bankers' acceptances) of U.S. banks
and savings and loan institutions if the issuer has total assets in excess
of $1 billion at the time of purchase or if the principal amount of the
instrument is insured by the Federal Deposit Insurance Corporation. A
bankers' acceptance is a time draft
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drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of
time at a specified interest rate. Certificates of deposit are negotiable
short-term obligations issued by banks against funds deposited in the
issuing institution. The interest rate on some certificates of deposit is
periodically adjusted prior to the stated maturity, based upon a specified
market rate. While domestic bank deposits are insured by an agency of the
U. S. Government, the Fund will generally assume positions considerably in
excess of the insurance limits.
Preferred Stock
The Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of LMFA, the preferred
stock is more attractively priced in light of the risks involved.
Preferred stock pays dividends at a specified rate and generally has
preference over common stock in the payment of dividends and the
liquidation of the issuer's assets but is junior to the debt securities of
the issuer in those same respects. Unlike interest payments on debt
securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Preferred shareholders may
have certain rights if dividends are not paid, but do not generally have a
legal right to demand payment. Shareholders may suffer a loss of value if
dividends are not paid. The market prices of preferred stocks are subject
to changes in interest rates and are more sensitive to changes in the
issuer's creditworthiness than are the prices of debt securities. Under
ordinary circumstances, preferred stock does not carry voting rights.
Convertible Securities
A convertible security is a bond, debenture, note, preferred stock or
other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt
or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital
structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at
market value, if converted into the underlying common stock. Convertible
securities are typically issued by smaller capitalized companies whose
stock prices may be volatile. The price of a convertible security often
reflects such variations in the price of the underlying common stock in a
way that non-convertible debt does not. The Fund has no current intention
of converting any convertible securities it may own into equity or holding
them as equity upon conversion, although it may do so for temporary
purposes. A convertible security may be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Fund is called
for redemption, the Fund will be required to convert it into the
underlying common stock, sell it to a third party or permit the issuer to
redeem the security. Any of these actions could have an adverse effect on
the Fund's ability to achieve its investment objective.
Variable and Floating Rate Securities
The Fund may invest in variable and floating rate securities. These
securities provide for periodic adjustment in the interest rate paid on
the obligations. LMFA believes that the variable or floating rate of
interest paid on these securities may reduce the wide fluctuations in
market value typical of fixed-rate, long-term securities. The yield
available on floating rate securities is typically less than that on
fixed-rate notes of similar maturity issued by the same company. The rates
of some securities vary according to a formula based on one or more
interest rates, and some vary inversely with changes in the underlying
rates. The value of these securities can be very volatile when market
rates change.
Zero Coupon and Pay-In-Kind Bonds
A zero coupon bond is a security that makes no fixed interest payments
but instead is sold at a
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deep discount from its face value. The bond is redeemed at its face value
on the specified maturity date. Zero coupon bonds may be issued as such,
or they may be created by a broker who strips the coupons from a bond and
separately sells the rights to receive principal and interest. Pay-in-kind
securities pay interest in the form of additional securities, thereby
adding additional debt to the issuer's balance sheet. The prices of both
types of bonds fluctuate more in response to changes in market interest
rates than do the prices of debt securities with similar maturities that
pay interest in cash.
An investor in zero coupon or pay-in-kind bonds generally accrues
income on such securities prior to the receipt of cash payments. Since a
fund must distribute substantially all of its income to shareholders to
qualify for pass-through treatment under the federal income tax laws, a
fund investing in such bonds may have to dispose of other securities to
generate the cash necessary for the distribution of income attributable to
its zero coupon or pay-in-kind bonds. Such disposal could occur at a time
which would be disadvantageous to the fund and when the fund would not
otherwise choose to dispose of the assets.
Reverse Repurchase Agreements and Other Borrowing
In a reverse repurchase agreement, the Fund temporarily transfers
possession of a portfolio instrument to another person, such as a
financial institution or broker-dealer, in return for cash and agrees to
repurchase the instrument at an agreed upon time (normally within seven
days) and price, including interest payment. The Fund may also enter into
dollar rolls, in which the Fund sells a fixed income security for delivery
in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Fund would forego
principal and interest paid on such securities. The Fund would be
compensated by the difference between the current sales price and the
forward price for the future purchase, as well as by the interest earned
on the proceeds of the initial sale.
The Fund may engage in reverse repurchase agreements, dollar rolls and
other borrowing as a means of raising cash to satisfy redemption requests
or for other temporary or emergency purposes without selling portfolio
instruments. While engaging in reverse repurchase agreements and dollar
rolls, the Fund will maintain cash or high-grade, liquid debt securities
in a segregated account at its custodian bank with a value at least equal
to the Fund's obligation under the agreements, adjusted daily.
To avoid potential leveraging effects of borrowing (including reverse
repurchase agreements and dollar rolls), the Fund will not purchase
securities while such borrowing is in excess of 5% of its total assets.
The Fund will limit its borrowing to no more than one-third of its total
assets.
When-Issued Securities and Standby Commitments
The Fund may enter into commitments to purchase U. S. government
securities or other securities on a when-issued basis. Such securities are
often the most efficiently priced and have the best liquidity in the bond
market. When the Fund purchases securities on a when-issued basis, it
assumes the risks of ownership at the time of purchase, not at the time of
receipt. However, the Fund does not have to pay for the obligations until
they are delivered to it. This is normally seven to 15 days later, but
could be considerably longer in the case of some mortgage-backed
securities. Use of this practice would have a leveraging effect on the
Fund. The Fund does not expect that its commitment to purchase when-issued
securities will at any time exceed, in the aggregate, 20% of its total
assets.
Issuance of securities purchased on a when-and if-issued basis depends
on the occurrence of an event. If the anticipated event does not occur,
the securities are not issued. The characteristics and risks of
when-and-if-issued securities are similar to those involved in writing put
options.
To meet its payment obligation, the Fund will establish a segregated
account with its custodian and maintain cash or liquid high-grade debt
obligations, in an amount at least equal in value to the Fund's
commitments to purchase when- and if-issued securities.
Indexed Securities
The Fund may purchase various fixed income and debt securities whose
principal value or rate of return is linked or indexed to relative
exchange rates among two or more currencies or linked to commodities
prices or other financial indicators. Such securities may be more volatile
than the
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underlying instruments, resulting in a leveraging effect on the Fund.
The value of such securities may fluctuate in response to changes in
the index, market conditions, and the creditworthiness of the issuer.
These securities may vary directly or inversely with the underlying
investments.
Swaps, Caps, Floors and Collars
The Fund does not intend to purchase swaps, caps, collars, or floors
if, as a result, more than 5% of the Fund's net assets would thereby be
placed at risk. The Statement of Additional Information contains a more
detailed description of swaps, caps, floors and collars.
Capital Appreciation and Risk
The market value of fixed income and other debt securities is
partially a function of changes in the current level of interest rates. An
increase in interest rates generally reduces the market value of existing
fixed income and other debt securities, while a decline in interest rates
generally increases the market value of such securities. The longer the
maturity, the more pronounced is the rise or decline in the security's
price. When interest rates are falling, a fund with a shorter maturity
generally will not generate as high a level of total return as a fund with
a longer maturity. Conversely, when interest rates are rising, a fund with
a shorter maturity will generally outperform longer maturity portfolios.
When interest rates are flat, shorter duration portfolios generally will
not generate as high a level of total return as longer maturity portfolios
(assuming that long-term interest rates are higher than short-term rates,
which is commonly the case).
Changes in the creditworthiness, or the market's perception of the
creditworthiness, of the issuers of fixed income and other debt securities
will also affect their prices.
A debt security may be callable, i.e., subject to redemption at the
option of the issuer, at a price established in the security's governing
instrument. If a debt security held by the Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security or
sell it to a third party. Either of these actions could have an adverse
effect on the Fund's ability to achieve its investment objective.
FOR EACH FUND:
Portfolio Turnover
For the year ended December 31, 1994, Global Government's portfolio
turnover rate was 127.0%. Global Government and Global Equity each
anticipates that in the future its portfolio turnover rate will not exceed
250% and 100%, respectively. Global Government may sell fixed-income
securities and buy similar securities to obtain yield and take advantage
of market anomalies, a practice which will increase the reported turnover
rate of that Fund. The portfolio turnover rate is computed by dividing the
lesser of purchases or sales of securities for the period by the average
value of portfolio securities for that period. Short-term securities are
excluded from the calculation. High portfolio turnover rates (100% or
more) will involve correspondingly greater transaction costs which will be
borne directly by that Fund. It may also increase the amount of short-term
capital gains, if any, realized by a Fund and will affect the tax
treatment of distributions paid to shareholders because distributions of
net short-term capital gains are taxable as ordinary income. Each Fund
will take these possibilities into account as part of its investment
strategy.
HOW YOU CAN INVEST IN THE FUNDS
You may purchase Primary Shares of the Funds through a brokerage
account with Legg Mason or with an affiliate that has a dealer agreement
with Legg Mason (Legg Mason is a wholly owned subsidiary of Legg Mason,
Inc., a financial services holding company). Your Legg Mason or affiliated
investment executive will be pleased to explain the shareholder services
available from the Funds and answer any questions you may have. Documents
available from your Legg Mason or affiliated investment executive should
be completed if you invest in shares of the Funds through an Individual
Retirement Account ("IRA"), Self-Employed Individual Retirement Plan
("Keogh Plan"), Simplified Employee Pension Plan ("SEP") or other
qualified retirement plan.
The minimum initial investment in Primary Shares for each Fund
account, including investments made by exchange from other Legg Mason
funds, is $1,000, and the minimum investment for each purchase of
additional shares is $100, except as noted below. Initial investments in
an IRA
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account established on behalf of a nonworking spouse of a shareholder who
has an IRA invested in the Funds require a minimum amount of only $250.
Subsequent investments in an IRA or similar plan require a minimum amount
of $100. However, once an account is established, the minimum amount for
subsequent investments will be waived if an investment in an IRA or
similar plan will bring the investment for the year to the maximum amount
permitted under the Code. For those investing through a Fund's Future
First Systematic Investment Plan, payroll deduction plans and plans
involving automatic payment of funds from financial institutions or
automatic investment of dividends from certain unit investment trusts,
minimum initial and subsequent investments are lower. Each Fund may change
these minimum amount requirements at its discretion.
Primary Shares purchased on behalf of an IRA, Keogh Plan, SEP or other
qualified retirement plan will be processed at the net asset value next
determined after your Legg Mason or affiliated investment executive
receives a check for the amount of the purchase. Other share purchases
will be processed at the net asset value next determined after your Legg
Mason or affiliated investment executive has received your order; payment
must be made within three business days to Legg Mason. Orders received by
your Legg Mason or affiliated investment executive before the close of
regular trading on the New York Stock Exchange ("Exchange") (normally 4:00
p.m. Eastern time) ("close of the Exchange") on any day the Exchange is
open will be executed at the net asset value determined as of the close of
the Exchange on that day. Orders received by your Legg Mason or affiliated
investment executive after the close of the Exchange or on days the
Exchange is closed will be executed at the net asset value determined as
of the close of the Exchange on the next day the Exchange is open. See
"How Net Asset Value is Determined," page 23. Each Fund reserves the right
to reject any order for its shares or to suspend the offering of shares
for a period of time.
You should always furnish your shareholder account number when making
additional purchases of shares.
There are three ways you can invest in Primary Shares:
1. THROUGH YOUR LEGG MASON OR AFFILIATED INVESTMENT EXECUTIVE
Shares may be purchased through any Legg Mason or affiliated
investment executive. An investment executive will be pleased to open an
account for you, explain to you the shareholder services available from
the Funds and answer any questions you may have. After you have
established a Legg Mason or affiliated account, you can order shares from
your investment executive in person, by telephone or by mail.
2. THROUGH THE FUTURE FIRST SYSTEMATIC INVESTMENT PLAN
You may also buy shares through the Future First Systematic Investment
Plan. Under this plan, you may arrange for automatic monthly investments
in the Fund of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the Funds' transfer agent, to prepare a check each month drawn
on your checking account. There is no minimum initial investment. Please
contact any Legg Mason or affiliated investment executive for further
information.
3. THROUGH AUTOMATIC INVESTMENTS
Arrangements may be made with some employers and financial
institutions, such as banks or credit unions, for regular automatic
monthly investments of $50 or more in shares. In addition, it may be
possible for dividends from certain unit investment trusts to be invested
automatically in shares. Persons interested in establishing such automatic
investment programs should contact the Funds through any Legg Mason or
affiliated investment executive.
HOW YOUR SHAREHOLDER ACCOUNT IS MAINTAINED
When you initially purchase shares, a shareholder account is
established automatically for you. Any shares that you purchase or receive
as a dividend or other distribution will be credited directly to your
account at the time of purchase or receipt. No certificates are issued
unless you specifically request them in writing. Shareholders who elect to
receive certificates can redeem their shares only by mail. Certificates
will be issued in full shares only. No certificates will be issued for
shares of either Fund prior to 15 business days after purchase of such
shares by check unless that Fund can be reasonably assured during that
period that payment for the purchase of such shares has
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<PAGE>
been collected. Shares may not be held in, or transferred to, an account
with any brokerage firm other than Legg Mason or its affiliates.
HOW YOU CAN REDEEM YOUR PRIMARY SHARES
There are two ways you can redeem your Primary Shares. First, you may
give your Legg Mason or affiliated investment executive an order for
repurchase of your shares. Please have the following information ready
when you call: the name of the Fund, the number of shares to be redeemed
and your shareholder account number. Second, you may send a written
request for redemption to: [insert complete Fund name], c/o Legg Mason
Funds Processing, P.O. Box 1476, Baltimore, Maryland 21203-1476.
Requests for redemption in "good order," as described below, received
by your Legg Mason or affiliated investment executive before the close of
the Exchange on any day when the Exchange is open, will be transmitted to
BFDS, transfer agent for the Funds, for redemption at the net asset value
per share determined as of the close of the Exchange on that day. Requests
for redemption received by your Legg Mason or affiliated investment
executive after the close of the Exchange will be executed at the net
asset value determined as of the close of the Exchange on its next trading
day. A redemption request received by your Legg Mason or affiliated
investment executive may be treated as a request for repurchase and, if it
is accepted by Legg Mason, your shares will be purchased at the net asset
value per share determined as of the next close of the Exchange.
Proceeds from your redemption will settle in your Legg Mason brokerage
account two business days after trade date. However, each Fund reserves
the right to take up to seven days to make payment upon redemption if, in
the judgment of LMFA, the respective Fund could be adversely affected by
immediate payment. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.) The proceeds of your redemption or
repurchase may be more or less than your original cost. If the shares to
be redeemed or repurchased were paid for by check (including certified or
cashier's checks), within 15 business days of the redemption or repurchase
request, the proceeds will not be disbursed unless the Fund can be
reasonably assured that the check has been collected.
A redemption request will be considered to be received in "good order"
only if:
1. You have indicated in writing the number of Primary Shares to be
redeemed, the complete Fund name and your shareholder account number;
2. The written request is signed by you and by any co-owner of the
account with exactly the same name or names used in establishing the
account;
3. The written request is accompanied by any certificates representing
the shares that have been issued to you, and you have endorsed the
certificates for transfer or an accompanying stock power exactly as the
name or names appear on the certificates; and
4. The signatures on the written redemption request and on any
certificates for your shares (or an accompanying stock power) have been
guaranteed without qualification by a national bank, a state bank, a
member firm of a principal stock exchange or other entity described in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
Other supporting legal documents may be required from corporations or
other organizations, fiduciaries or persons other than the shareholder of
record making the request for redemption or repurchase. If you have a
question concerning the redemption of Fund shares, contact your Legg Mason
or affiliated investment executive.
The Funds will not be responsible for the authenticity of redemption
instructions received by telephone, provided they follow reasonable
procedures to identify the caller. The Funds may request identifying
information from callers or employ identification numbers. The Funds may
be liable for losses due to unauthorized or fraudulent instructions if
they do not follow reasonable procedures. Telephone redemption privileges
are available automatically to all shareholders unless certificates have
been issued. Shareholders who do not wish to have telephone redemption
privileges should call their Legg Mason or affiliated investment executive
for further instructions.
To redeem your Legg Mason Fund retirement account, a Distribution
Request Form must be completed and returned to Legg Mason Client Services
for processing. This form can be obtained through your Legg Mason or
affiliated investment
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executive or Legg Mason Client Services in Baltimore, Maryland.
Because of the relatively high cost of maintaining small accounts,
each Fund may elect to close any account with a current value of less than
$500 by redeeming all of the shares in the account and mailing the
proceeds to you. However, the Funds will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
If a Fund elects to redeem the shares in your account, you will be
notified that your account is below $500 and will be allowed 60 days in
which to make an additional investment in order to avoid having your
account closed.
HOW NET ASSET VALUE IS DETERMINED
Net asset value per Primary Share of each Fund is determined daily as
of the close of the Exchange on every day that the Exchange is open, by
subtracting the liabilities attributable to Primary Shares from the total
assets attributable to such shares and dividing the result by the number
of Primary Shares outstanding. Each Fund's securities are valued on the
basis of market quotations or, lacking such quotations, at fair value as
determined under the guidance of the Board of Directors. Securities for
which market quotations are readily available are valued at the last sale
price of the day for a comparable position, or, in the absence of any such
sales, the last available bid price for a comparable position. Where a
security is traded on more than one market, which may include foreign
markets, the securities are generally valued on the market considered by
each Fund's adviser to be the primary market. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Each Fund will
value its foreign securities in U.S. dollars on the basis of the
then-prevailing exchange rates.
Most securities held by Global Government are valued on the basis of
valuations furnished by a service which utilizes both dealer-supplied
valuations and electronic data processing techniques which take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other data.
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are declared and paid monthly for
Global Government and are declared and paid quarterly for Global Equity.
Shareholders begin to earn dividends on their Global Government shares as
of settlement date, which is normally the third business day after their
orders are placed with their Legg Mason or affiliated investment
executive. Dividends from net short-term capital gain and distributions of
substantially all net capital gain (the excess of net long-term capital
gain over net short-term capital loss), and any net realized gain from
foreign currency transactions generally are declared and paid after the
end of the taxable year in which the gain is realized. A second
distribution of net capital gain may be necessary in some years to avoid
imposition of the excise tax described under the heading "Additional Tax
Information" in the Statement of Additional Information. Dividends and
other distributions, if any, on shares held in an IRA, Keogh Plan, SEP or
other qualified retirement plan and by shareholders maintaining a
Systematic Withdrawal Plan generally are reinvested in Primary Shares on
the payment dates. Other shareholders may elect to:
1. Receive both dividends and other distributions in Primary Shares of
the distributing Fund;
2. Receive dividends in cash and other distributions in Primary Shares
of the distributing Fund;
3. Receive dividends in Primary Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.
In certain cases, you may reinvest dividends and other distributions
in the corresponding class of shares of another Legg Mason fund. Please
contact your Legg Mason or affiliated investment executive for additional
information about this option.
If no election is made, both dividends and other distributions will be
credited to your account in Primary Shares of the distributing Fund at the
net asset value of the shares determined as of the close of the Exchange
on the reinvestment date. Shares received pursuant to any of the first
three (reinvestment) elections above also are credited to your account at
that net asset value. If you elect to receive dividends and/or other
distributions in
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cash, you will be sent a check or will have your Legg Mason account
credited after the payment date. You may elect at any time to change your
option by notifying the Fund in writing at: [insert complete Fund name],
c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, MD 21203-1476.
Your election must be received at least 10 days before the payment date in
order to be effective for dividends and other distributions paid as of
that date.
TAXES
Each Fund intends to continue to qualify for treatment as a RIC under
the Code so that it will be relieved of federal income tax on that part of
its investment company taxable income (generally consisting of net
investment income and any net short-term capital gain and net gains from
certain foreign currency transactions) and net capital gain that is
distributed to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Primary Shares) are taxable to its
shareholders (other than IRAs, Keogh Plans, SEPs, other qualified
retirement plans and other tax-exempt investors) as ordinary income to the
extent of the Fund's earnings and profits. Distributions of each Fund's
net capital gain (whether paid in cash or reinvested in Primary Shares),
when designated as such, are taxable to those shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Each Fund sends its shareholders a notice following the end of each
calendar year specifying, among other things, the amounts of all dividends
and other distributions paid (or deemed paid) during the year. Each Fund
is required to withhold 31% of all dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
non-corporate shareholders who do not provide that Fund with a certified
taxpayer identification number. Each Fund also is required to withhold 31%
of all dividends and other distributions payable to such shareholders who
otherwise are subject to backup withholding.
A redemption of Primary Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds
are more or less than the shareholder's adjusted basis for the redeemed
shares. An exchange of Primary Shares for shares of any other Legg Mason
fund generally will have similar tax consequences. See "Shareholder
Services -- Exchange Privilege," below. If Fund shares are purchased
within 30 days before or after redeeming other shares of the same Fund
(regardless of class) at a loss, all or part of that loss will not be
deductible and instead will increase the basis of the newly purchased
shares.
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 that
would reduce the yield on that Fund's securities. Tax conventions between
certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Primary Shares immediately prior to the record date for a
dividend or other distribution could cause the investor to incur tax
liabilities and should not be made solely for the purpose of receiving the
dividend or other distribution.
If more than 50% of the value of Global Equity's total assets at the
close of any taxable year consists of securities of foreign corporations,
the Fund may file an election with the Internal Revenue Service that will
enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to any foreign and U.S. possessions' income taxes
paid by it. Pursuant to any such election, the Fund would treat those
taxes as dividends paid to its shareholders, and each shareholder would be
required to (1) include in gross income, and treat as paid by the
shareholder, the shareholder's proportionate share of those taxes, (2)
treat the shareholder's share of those taxes and of any dividend paid by
the Fund that represents income from foreign or U.S. possessions' sources
as the shareholder's own income from those sources, and (3) either deduct
the taxes deemed paid by the shareholder in computing the shareholder's
taxable income, or alternately, use the foregoing information in
calculating the foreign tax credit against the shareholder's federal
income tax.
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The Fund will report to its shareholders shortly after each taxable year
their respective shares of the Fund's income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this
election.
The foregoing is only a summary of some of the important federal
income tax considerations generally affecting each Fund and its
shareholders; see the Statement of Additional Information for a further
discussion. In addition to those considerations, which are applicable to
any investment in the Funds, there may be other federal, state, local or
foreign tax considerations applicable to a particular investor.
Prospective shareholders are urged to consult their tax advisers with
respect to the effects of this investment on their own tax situations.
SHAREHOLDER SERVICES
CONFIRMATIONS AND REPORTS
You will receive from Legg Mason a confirmation after each transaction
involving Primary Shares (except a reinvestment of dividends, capital gain
distributions and purchases made through the Future First Systematic
Investment Plan or through automatic investments). An account statement
will be sent to you monthly unless there has been no activity in the
account or you are purchasing shares through the Future First Systematic
Investment Plan or through automatic investments, in which case an account
statement will be sent quarterly. Reports will be sent to each Fund's
shareholders at least semi-annually showing its portfolio and other
information; the annual report will contain financial statements audited
by the Corporation's independent accountants.
Shareholder inquiries should be addressed to: [insert complete Fund
name], c/o Legg Mason Funds Processing, P.O. Box 1476, Baltimore, Maryland
21203-1476.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make systematic withdrawals from your Fund account of
a minimum of $50 on a monthly basis if you are purchasing or already own
shares with a net asset value of $5,000 or more. Shareholders should not
purchase shares of a Fund while they are participating in the Systematic
Withdrawal Plan. Please contact your Legg Mason or affiliated investment
executive for further information.
EXCHANGE PRIVILEGE
As a Fund shareholder, you are entitled to exchange your Primary
Shares of a Fund for the corresponding class of shares of any of the Legg
Mason Funds, provided that such shares are eligible for sale in your state
of residence:
Legg Mason Cash Reserve Trust
A money market fund seeking stability of principal and current income
consistent with stability of principal.
Legg Mason Tax Exempt Trust, Inc.
A money market fund seeking high current income exempt from federal
income tax, preservation of capital, and liquidity.
Legg Mason U. S. Government Money Market Portfolio
A money market fund seeking high current income consistent with
liquidity and conservation of principal.
Legg Mason Value Trust, Inc.
A mutual fund seeking long-term growth of capital.
Legg Mason Special Investment Trust, Inc.
A mutual fund seeking capital appreciation by investing principally in
issuers with market capitalizations of less than $2.5 billion.
Legg Mason Total Return Trust, Inc.
A mutual fund seeking capital appreciation and current income in order
to achieve an attractive total investment return consistent with
reasonable risk.
Legg Mason American Leading Companies Trust
A mutual fund seeking long-term capital appreciation and current
income consistent with prudent investment risk.
Legg Mason Global Equity Trust
A mutual fund seeking maximum long-term total return, by investing in
common stocks of companies located in at least three different countries.
Legg Mason U. S. Government Intermediate-Term Portfolio
A mutual fund seeking high current income consistent with prudent
investment risk and liquidity needs, primarily by investing in debt
obligations issued or guaranteed by the U. S. Government, its agencies or
instrumentalities, while
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maintaining an average dollar-weighted maturity of between three and ten
years.
Legg Mason Investment Grade Income Portfolio
A mutual fund seeking a high level of current income, primarily
through investment in a diversified portfolio of investment grade debt
securities.
Legg Mason High Yield Portfolio
A mutual fund primarily seeking a high level of current income and
secondarily, capital appreciation, by investing principally in
lower-rated, fixed-income securities.
Legg Mason Global Government Trust
A mutual fund seeking capital appreciation and current income by
investing principally in debt securities issued or guaranteed by foreign
governments, the U.S. Government, their agencies, instrumentalities and
political subdivisions.
Legg Mason Maryland Tax-Free Income TrustA
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal and Maryland state and local income taxes,
consistent with prudent investment risk and preservation of capital.
Legg Mason Pennsylvania Tax-Free Income TrustA
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax and Pennsylvania personal income
tax, consistent with prudent investment risk and preservation of capital.
Legg Mason Tax-Free Intermediate-Term Income TrustA,B
A tax-exempt municipal bond fund seeking a high level of current
income exempt from federal income tax, consistent with prudent investment
risk.
AShares of these funds are sold with an initial sales charge.
BEffective August 1, 1995 through January 31, 1996, the sales charge will
be waived for all new accounts and subsequent investments into existing
accounts. After January 31, 1996, any exchanges of these shares will be
subject to the full sales charge, if any, since no sales charge will be
paid on shares purchased during this period.
Investments by exchange into the Legg Mason funds sold without an
initial sales charge are made at the per share net asset value determined
on the same business day as redemption of the Fund shares you wish to
exchange. Investments by exchange into the Legg Mason funds sold with an
initial sales charge are made at the per share net asset value, plus the
applicable sales charge, determined on the same business day as redemption
of the Fund shares you wish to redeem; except that no sales charge will be
imposed upon proceeds from the redemption of Fund shares to be exchanged
that were originally purchased by exchange from a Fund on which the same
or higher initial sales charge previously was paid. There is no charge for
the exchange privilege, but each Fund reserves the right to terminate or
limit the exchange privilege of any shareholder who makes more than four
exchanges from that Fund in one calendar year. To obtain further
information concerning the exchange privilege and prospectuses of other
Legg Mason funds, or to make an exchange, please contact your Legg Mason
or affiliated investment executive. To effect an exchange by telephone,
please call your Legg Mason or affiliated investment executive with the
information described in "How You Can Redeem Your Primary Shares," page
22. The other factors relating to telephone redemptions described in that
section apply also to telephone exchanges. Please read the prospectus for
the other fund(s) carefully before you invest by exchange. Each Fund
reserves the right to modify or terminate the exchange privilege upon 60
days' notice to shareholders.
There is no assurance the money market funds will be able to maintain
a $1.00 share price. None of the funds is insured or guaranteed by the
U.S. Government.
THE FUNDS' MANAGEMENT AND INVESTMENT ADVISERS
BOARD OF DIRECTORS
The business and affairs of each Fund are managed under the direction
of the Corporation's Board of Directors.
INVESTMENT ADVISER TO GLOBAL GOVERNMENT
Pursuant to separate management or advisory agreements with each Fund
(each a "Management Agreement" or "Advisory Agreement"), which were
approved by the Corporation's Board of Directors, Legg Mason Fund Adviser,
Inc., a wholly owned subsidiary of Legg Mason, Inc., serves as investment
adviser to Global Government and manager to Global Equity. LMFA
administers and acts as the portfolio manager for Global Government and is
responsible for the
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actual investment management of the Fund, including the responsibility for
making decisions and placing orders to buy, sell or hold a particular
security. As manager, LMFA manages the non-investment affairs of Global
Equity, directs all matters related to the operation of that Fund and
provides office space and administrative staff for the Fund. Each Fund
pays LMFA, pursuant to its Advisory Agreement or Management Agreement, a
fee equal to an annual rate of 0.75% of its average daily net assets. Each
Fund pays all its other expenses which are not assumed by LMFA. LMFA has
voluntarily agreed to waive its fees and to reimburse Global Government to
the extent necessary to limit total operating expenses attributable to
Primary Shares (exclusive of taxes, interest, brokerage and extraordinary
expenses) to 1.90% of Global Government's average daily net assets
annually until December 31, 1995.
Keith J. Gardner has been primarily responsible for the day-to-day
management of Global Government since its inception. Mr. Gardner has been
Vice President of Legg Mason since November, 1992. From 1985 to 1992, he
served as Vice President, bond trader and portfolio manager for both U.S.
and global portfolios at T. Rowe Price Associates, Inc.
LMFA acts as investment adviser, manager or consultant to sixteen
investment company portfolios which had aggregate assets under management
of over $4.8 billion as of July 31, 1995.
SUB-ADVISER TO GLOBAL GOVERNMENT
Western Asset Management Company ("Western Asset"), another wholly
owned subsidiary of Legg Mason, Inc., serves as investment sub-adviser to
Global Government pursuant to the terms of a sub-advisory agreement with
LMFA dated May 1, 1995. Western Asset is responsible for providing LMFA
with research and analysis on domestic and foreign fixed-income
securities, and consulting with LMFA on portfolio strategy. For these
services, LMFA (not the Fund) pays Western Asset a fee, computed daily and
payable monthly, at an annual rate equal to 53 1/3% of the fee received by
LMFA, or 0.40% of the Fund's average daily net assets.
Western Asset also renders investment advice to sixteen open-end
investment companies and one closed-end investment company, which together
had aggregate assets under management of approximately $3.8 billion as of
July 31, 1995. Western Asset also renders investment advice to private
accounts with fixed-income assets under management of approximately $13
billion as of that date. The address of Western Asset is 117 East Colorado
Boulevard, Pasadena, California 91105.
Western Asset has managed fixed-income portfolios continuously since
its founding in 1971, and has focused exclusively on such accounts since
1984.
INVESTMENT ADVISER TO GLOBAL EQUITY
Pursuant to an advisory agreement with LMFA ("Advisory Agreement"),
which was approved by the Corporation's Board of Directors, Batterymarch,
a wholly owned subsidiary of Legg Mason, Inc., serves as investment
adviser to Global Equity. Batterymarch acts as the portfolio manager for
the Fund and is responsible for the actual investment management of the
Fund, including the responsibility for making decisions and placing orders
to buy, sell or hold a particular security. LMFA pays Batterymarch,
pursuant to the Advisory Agreement, a management fee equal to an annual
rate of 0.50% of the Fund's average daily net assets. LMFA and
Batterymarch have voluntarily agreed to waive their fees and to reimburse
the Fund for its expenses to the extent necessary to limit the Fund's
total operating expenses attributable to Primary Shares (exclusive of
taxes, interest, brokerage and extraordinary expenses) to 2.25% of its
average daily net assets. This agreement will expire on December 31, 1995,
unless extended by LMFA or Batterymarch.
Batterymarch acts as investment adviser to institutional accounts,
such as mutual funds, corporate pension plans and endowment funds, as well
as to individual investors. Total assets under management by Batterymarch
were approximately $5.4 billion as of July 31, 1995.
Charles Lovejoy is the Portfolio Manager for Global Equity. Mr.
Lovejoy joined Batterymarch in 1992 as an investment strategist. From 1990
to 1992, he was a Managing Director of Boston International Advisors where
he managed international and emerging markets portfolios. From 1980 to
1990, Mr. Lovejoy was Senior Vice President at Putnam Management Company
where he headed the Quantitative Research Department; his responsibilities
included portfolio management and product development as well as
quantitative research
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for international, emerging markets and U.S. equities. A past president of
the Boston Quantitative Discussion Group and the Boston Security Analysts
Society, Mr. Lovejoy is a Director of the International Society of
Financial Analysts. Mr. Lovejoy is a Chartered Financial Analyst.
THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to
separate Underwriting Agreements with the Funds. The Underwriting
Agreement obligates Legg Mason to pay certain expenses in connection with
the offering of shares of each Fund, including any compensation to its
investment executives, the printing and distribution of prospectuses,
statements of additional information and periodic reports used in
connection with the offering to prospective investors, after the
prospectuses, statements of additional information and periodic reports
have been prepared, set in type and mailed to existing shareholders at the
Fund's expense, and for any supplementary sales literature and advertising
costs.
Legg Mason receives a fee from BFDS for assisting it with its transfer
agent and shareholder servicing functions; for the year ended December 31,
1994, Legg Mason received $32,407 for performing such services in
connection with Global Government.
The Funds may use Legg Mason, among others, as broker for agency
transactions in listed and over-the-counter securities at commission rates
and under circumstances consistent with the policy of best execution.
The Board of Directors of the Corporation has adopted Distribution and
Shareholder Services Plans (each a "Plan") pursuant to Rule 12b-1 under
the 1940 Act for each Fund. The Plans provide that as compensation for
Legg Mason's ongoing services to investors in Primary Shares and its
activities and expenses related to the sale and distribution of Primary
Shares, Legg Mason receives an annual distribution fee from each Fund
equal to 0.50% of Global Government's average daily net assets, and 0.75%
of Global Equity's average daily net assets; and an annual service fee
from each Fund equal to 0.25% of its average daily net assets. The
distribution fee and the service fee are calculated daily and paid
monthly. The fees received by Legg Mason during any year may be more or
less than its cost of providing distribution and shareholder services to
the Funds. Legg Mason has temporarily agreed to waive the distribution fee
to the extent necessary to limit total expenses attributable to Primary
Shares of each Fund (exclusive of taxes, interest, brokerage fees and
extraordinary expenses) as described above.
NASD rules limit the amount of annual distribution fees that may be
paid by mutual funds and impose a ceiling on the cumulative distribution
fees received. Each Fund's Plan complies with those rules.
The Chairman, President and Treasurer of the Corporation are employed
by Legg Mason.
THE FUNDS' CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, is custodian for the securities and cash of
each Fund. Boston Financial Data Services, P.O. Box 953, Boston,
Massachusetts 02103, serves as transfer agent for Fund shares and
dividend-disbursing agent for each Fund.
Pursuant to rules adopted under Section 17(f) of the 1940 Act, each
Fund may maintain foreign securities and cash in the custody of certain
eligible foreign banks and securities depositories. Selection of these
foreign custodial institutions is made by the Board of Directors in
accordance with SEC rules. The Board of Directors will consider a number
of factors, including, but not limited to, the relationship of the
institution to State Street, the reliability and financial stability of
the institution, the ability of the institution to capably perform
custodial services for the Funds, the reputation of the institution in its
national market, the political and economic stability of the countries in
which the sub-custodians will be located and risks of potential
nationalization or expropriation of Fund assets. No assurance can be given
that the Board of Directors' appraisal of the risks in connection with
foreign custodial arrangements will always be correct or that
expropriation, nationalization, freezes, or confiscation of Fund assets
will not occur.
DESCRIPTION OF THE CORPORATION AND ITS SHARES
The Corporation was established as a Maryland corporation on December
31, 1992. The Articles of Incorporation authorize the Corporation to issue
one billion shares of par value $.001 per
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share and to create additional series, each of which may issue separate
classes of shares.
Each Fund currently offers two Classes of Shares -- Class A (known as
"Primary Shares") and Class Y (known as "Navigator Shares"). The two
Classes represent interests in the same pool of assets. A separate vote is
taken by a Class of Shares of a Fund if a matter affects just that Class
of Shares. Each Class of Shares may bear certain differing Class-specific
expenses. Salespersons and others entitled to receive compensation for
selling or servicing Fund shares may receive more with respect to the one
Class than another.
Navigator Shares are currently offered for sale only to institutional
clients of Fairfield for investment of their own funds and funds for which
they act in a fiduciary capacity, to clients of Trust Company for which
Trust Company exercises discretionary investment management
responsibility, to qualified retirement plans managed on a discretionary
basis and having net assets of at least $200 million, and to The Legg
Mason Profit Sharing Plan and Trust. The initial and subsequent investment
minimums for Navigator Shares are $50,000 and $100, respectively.
Investments in Navigator Shares may be made through investment executives
of Fairfield Group, Inc., Horsham, Pennsylvania, or Legg Mason.
Each Fund pays no Rule 12b-1 fee with respect to Navigator Shares. The
per share net asset value of Navigator Shares, and dividends and
distributions (if any) paid to Navigator shareholders, are generally
expected to be higher than those of Primary Shares of the Funds, because
of the lower expenses attributable to Navigator Shares. The per share net
asset value of the classes of shares will tend to converge, however,
immediately after the payment of ordinary income dividends. Navigator
Shares of a Fund may be exchanged for the corresponding class of shares of
certain other Legg Mason funds. Investments by exchange into the other
Legg Mason funds are made at the per share net asset value, determined on
the same business day as redemption of the Navigator Shares the investors
wish to redeem.
The Board of Directors of the Corporation does not anticipate that
there will be any conflicts among the interests of the holders of the
different Classes of Fund shares. On an ongoing basis, the Boards will
consider whether any such conflict exists and, if so, take appropriate
action.
Shareholders of the Funds are entitled to one vote per share and
fractional votes for fractional shares held. Voting rights are not
cumulative. All shares of the Funds are fully paid and nonassessable and
have no preemptive or conversion rights.
Shareholders' meetings will not be held except where the 1940 Act
requires a shareholder vote on certain matters (including the election of
directors, approval of an advisory contract, and approval of a plan of
distribution pursuant to Rule 12b-1). The Corporation will call a special
meeting of the shareholders at the request of 10% or more of the shares
entitled to vote; shareholders wishing to call such a meeting should
submit a written request to their respective Fund at 111 South Calvert
Street, Baltimore, Maryland 21202, stating the purpose of the proposed
meeting and the matters to be acted upon.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus
and in the joint Statement of Additional Information, and no other Fund is
responsible therefor. There is a possibility that one Fund might be deemed
liable for misstatements or omission regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.
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