LEGG MASON GLOBAL TRUST INC, 497, 1998-05-26

LEGG MASON GLOBAL TRUST INC
497, 1998-05-26

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<PAGE>
TABLE OF CONTENTS
Prospectus Highlights 2
Expenses 4
Financial Highlights 5
Performance Information 6
Investment Objectives and Policies 7
How You Can Invest in the Funds 21
How Your Shareholder Account is
Maintained 22
How You Can Redeem Your Primary Shares 22
How Net Asset Value is Determined 24
Dividends and Other Distributions 24
Taxes 25
Shareholder Services 26
The Funds' Management and Investment Advisers 27
The Funds' Distributor 29
The Funds' Custodian and Transfer Agent 29
Description of the Corporation and its Shares 30

ADDRESSES

DISTRIBUTOR:
Legg Mason Wood Walker, Inc.
100 Light 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 Massachusetts Avenue, N.W.,
Washington, DC 20036-1800

INDEPENDENT ACCOUNTANTS:
Coopers & Lybrand L.L.P.
250 W. Pratt Street
Baltimore, MD 21201

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ANY FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY ANY FUND OR BY THE PRINCIPAL UNDERWRITER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

[RECYCLED LOGO] Printed on Recycled Paper

LMF-041

LEGG MASON
GLOBAL
FUNDS

Global Government Trust
International Equity Trust
Emerging Markets Trust

Primary Shares

---------------------------
The Art of Investing

Prospectus
May 1, 1998

[LEGG MASON FUNDS LOGO]

<PAGE>
LEGG MASON GLOBAL FUNDS -- PRIMARY SHARES
LEGG MASON GLOBAL TRUST , INC.:
LEGG MASON GLOBAL GOVERNMENT TRUST
LEGG MASON INTERNATIONAL EQUITY TRUST
LEGG MASON EMERGING MARKETS TRUST

The Legg Mason Global Trust, Inc. ("Corporation") is an open-end management
investment company which currently offers three series: the Legg Mason Global
Government Trust ("Global Government"), the Legg Mason International Equity
Trust ("International Equity") and the Legg Mason Emerging Markets Trust
("Emerging Markets") (each a "Fund"). Global Government is a bond fund;
International Equity and Emerging Markets are equity funds.

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 May 1, 1998 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).

INTERNATIONAL EQUITY AND EMERGING MARKETS MAY INVEST UP TO 35% AND 100%,
RESPECTIVELY, OF THEIR 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, BOTH INTERNATIONAL EQUITY AND EMERGING MARKETS ARE INTENDED
TO BE LONG-TERM INVESTMENT VEHICLES AND ARE NOT DESIGNED TO PROVIDE INVESTORS
WITH A MEANS OF SPECULATING ON SHORT-TERM STOCK MARKET MOVEMENTS. INVESTORS IN
THESE TWO FUNDS SHOULD BE ABLE TO TOLERATE SUDDEN, SOMETIMES SUBSTANTIAL
FLUCTUATIONS IN THE VALUE OF THEIR INVESTMENTS.

INVESTORS SHOULD BE COGNIZANT OF THE UNIQUE RISKS OF INTERNATIONAL
INVESTING, INCLUDING EXPOSURE TO CURRENCY FLUCTUATIONS. BECAUSE OF THESE RISKS,
AN INVESTMENT IN ANY OF THESE FUNDS SHOULD NOT BE CONSIDERED A COMPLETE
INVESTMENT PROGRAM. BECAUSE OF THE SPECIAL RISKS ASSOCIATED WITH EMERGING
MARKETS, AN INVESTMENT IN EITHER OF THE EQUITY FUNDS ALSO SHOULD BE CONSIDERED
SPECULATIVE.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PROSPECTUS
May 1, 1998

Legg Mason Wood Walker, Inc.
100 Light 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 to provide 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, Western Asset Management Company ("Western Asset"),
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 or 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 fluctuate 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," pages 10-21.

INTERNATIONAL 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 outside the United States.
The Fund may invest up to 35% of its total assets in emerging market
securities.

EMERGING MARKETS is a diversified, professionally managed portfolio
seeking long-term capital appreciation. In attempting to achieve the
Fund's objective, Batterymarch, the Fund's investment adviser, normally
invests at least 65% of the Fund's total assets in equity securities of
emerging market companies. Assets not invested in emerging market equity
securities may be invested in any combination of debt securities of the
U.S. Government, equity securities of issuers in developed countries, cash
and money market instruments.

The adviser considers emerging markets to include most of the
countries of Asia, Africa, Latin America, Eastern Europe and the Middle
East, as well as certain countries in Western or Southern Europe. Most
emerging market countries or regions have relatively low gross national
products per capita compared to the world's major economies, and have the
potential for rapid but unstable economic growth. The risks of foreign
investing are heightened in emerging markets.

Because of the risks associated with common stock investments in
emerging markets, International Equity and Emerging Markets are intended
to be long-term investment vehicles and are 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 these Funds, and thus the net
asset values of Fund shares, are subject to market risk. See "Investment
Techniques and Risks" in "Investment Objectives and Policies," pages
10-21.

There can be no assurance that any Fund will achieve its objective.
See "Investment Objectives and Policies," page 7. Changes in economic
conditions in, or governmental policies of, foreign

<PAGE>
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 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. Each Fund's participation in
hedging and option income strategies also involves certain investment
risks and transaction costs. Because of these risks, each Fund should not
be considered a complete investment program.

No initial sales charge is payable on purchases, and no redemption
charge is payable on sales of Global Government and International Equity
shares. For Emerging Markets, a 2% redemption fee is charged on the
proceeds of shares redeemed or exchanged within one year of purchase. Each
Fund pays management fees to its respective adviser, and distribution fees
to its distributor, Legg Mason, as described on pages 27-29 of this
Prospectus.

DISTRIBUTOR:
Legg Mason Wood Walker, Incorporated

MANAGER:
Legg Mason Fund Adviser, Inc. ("LMFA")

INVESTMENT ADVISERS:
Western Asset Management Company and Western Asset Global Management,
Ltd. (for Global Government)

Batterymarch Financial Management, Inc. (for International Equity and
Emerging Markets)

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 21.

PUBLIC OFFERING PRICE PER SHARE:
Net asset value

EXCHANGE PRIVILEGE:
All funds in the Legg Mason Family of Funds. See "Exchange Privilege,"
page 26.

DIVIDENDS:
Declared and paid monthly for Global Government. Declared and paid
annually for International Equity and Emerging Markets. See "Dividends and
Other Distributions," page 24. All dividends and other distributions are
automatically reinvested in Fund shares unless cash payments are
requested.

<PAGE>
EXPENSES

The purpose of the following tables 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 below are
based on average net assets and annual Fund operating expenses related to
Primary Shares for the year ended December 31, 1997.

SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND

<TABLE>
<S> <C>
Maximum sales charge on purchases or
reinvested dividends None
Redemption or exchange fees:
For Global Government and International
Equity None
For Emerging Markets 2.00%*
</TABLE>

- ---------------

* Because of the costs involved in trading emerging market securities, Emerging
Markets assesses a 2.00% redemption fee on the proceeds of shares redeemed or
exchanged within one year of purchase. The fee is paid directly to the Fund,
and not to LMFA or Legg Mason. See page 23.

ANNUAL FUND OPERATING EXPENSES -- PRIMARY SHARES (A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL EMERGING
GOVERNMENT EQUITY MARKETS
---------------------------------------
<S> <C> <C> <C>
Management fees 0.75% 0.75% 0.64%(B)
12b-1 fees 0.75% 1.00% 1.00%
Other expenses 0.36% 0.42% 0.86%
---------------------------------------
Total operating
expenses 1.86% 2.17% 2.50%(B)
---------------------------------------
</TABLE>

- ---------------

(A) After fee waivers. Pursuant to voluntary expense limitations, LMFA, Legg
Mason, and each Fund's adviser have agreed to waive the management and 12b-1
fees to the extent necessary to limit total operating expenses attributable
to Primary Shares of each Fund (exclusive of taxes, interest, brokerage and
extraordinary expenses) as follows: for Global Government, 1.90% of average
daily net assets indefinitely; for International Equity, 2.25% of average
daily net assets indefinitely; and for Emerging Markets, 2.50% of average
daily net assets until May 1, 1999. In the fiscal year ended December 31,
1997, no fee waivers were necessary for Global Government or International
Equity.
(B) After fee waivers. In the absence of such waivers, the expected management
fee, 12b-1 fee, other expenses, and total operating expenses of Emerging
Markets would be 1.00%, 1.00%, .86% and 2.86% of average net assets.

EXAMPLE
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.
With the exception of shares of Emerging Markets redeemed within one year of
purchase, 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 $ 19 $58 $101 $218
International Equity $ 22 $68 $116 $250
Emerging Markets $ 46 $78 $133 $284
Emerging Markets
(Assuming no
redemption) $ 25 $78 $133 $284
</TABLE>

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 a Fund's adviser) and Legg Mason waive their fees 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 27.

<PAGE>
FINANCIAL HIGHLIGHTS

The financial information in the table that follows has been audited by
Coopers & Lybrand L.L.P., independent accountants. Global Government's,
International Equity's and Emerging Markets' financial statements for the
year ended December 31, 1997 and the report of Coopers & Lybrand L.L.P.
thereon are included in the Corporation's Annual Report to Shareholders and
are incorporated by reference into the Statement of Additional Information.
The annual report is available to shareholders without charge by calling
your Legg Mason or affiliated financial advisor or Legg Mason's Funds
Marketing Department at 800-822-5544.

<TABLE>
<CAPTION>
INVESTMENT OPERATIONS DISTRIBUTIONS FROM:
------------------------------------------------------ ----------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVEST- IN EXCESS
NET ASSET NET MENTS, OPTIONS, TOTAL IN EXCESS NET OF NET
VALUE, INVESTMENT FUTURES AND FROM NET OF NET REALIZED REALIZED
BEGINNING INCOME FOREIGN CURRENCY INVESTMENT INVESTMENT INVESTMENT GAIN ON GAIN ON
OF YEAR (LOSS) TRANSACTIONS OPERATIONS INCOME INCOME INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL GOVERNMENT TRUST
Years Ended Dec. 31,
1997 $ 10.41 $ .54 $ (.71) $ (.17) $ (.48) $(.05) $(.11) $ --
1996 10.33 .59 .21 .80 (.62) -- (.10) --
1995 9.54 .63 1.32 1.95 (1.16) -- -- --
1994 10.27 .57(A) (.71) (.14) (.59) -- -- --
1993(D) 10.00 .36(A) .31 .67 (.36) -- (.04) --

INTERNATIONAL EQUITY
TRUST
Years Ended Dec. 31,
1997 $ 12.09 $ .02 $ .19 $ .21 $ (.08) $ -- $(.44) $ --
1996 10.70 .02(B) 1.74 1.76 (.05) -- (.32) --
1995(E) 10.00 .04(B) .77 .81 (.04) -- -- (.07)

EMERGING MARKETS TRUST
Years Ended Dec. 31,
1997 $ 10.51 $ (.02)(C) $ (.63) $ (.65) $ (.01) $ -- $ -- $ --
1996(F) 10.00 (.03)(C) .57 .54 (.03) -- -- --

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------
NET
NET ASSET INVESTMENT AVERAGE NET ASSETS,
VALUE, EXPENSES INCOME (LOSS) PORTFOLIO COMMISSION END OF
TOTAL END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER RATE YEAR
DISTRIBUTIONS YEAR RETURN NET ASSETS NET ASSETS RATE PAID(G) (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL GOVERNMENT TRUST
Years Ended Dec. 31,
1997 $ (.64) $ 9.60 (1.69)% 1.86% 5.39% 241% $ -- $136,732
1996 (.72) 10.41 8.22% 1.86% 5.80% 172% -- 161,549
1995 (1.16) 10.33 20.80% 1.81% 5.72% 169% -- 153,954
1994 (.59) 9.54 (1.40)% 1.34%(A) 5.71%(A) 127% -- 145,415
1993(D) (.40) 10.27 6.76%(H) .27%(A,I) 5.41%(A,I) 128%(I) -- 161,072
INTERNATIONAL EQUITY
TRUST
Years Ended Dec. 31,
1997 $ (.52) $ 11.78 1.76% 2.17% .17% 59% $.0082 $227,655
1996 (.37) 12.09 16.49% 2.25%(B) .21%(B) 83% .0083 167,926
1995(E) (.11) 10.70 8.11%(H) 2.25%(B,I) .52%(B,I) 58%(I) -- 65,947
EMERGING MARKETS TRUST
Years Ended Dec. 31,
1997 $ (.01) $ 9.85 (6.18)% 2.50%(C) (.76)%(C) 63% $.0054 $ 65,302
1996(F) (.03) 10.51 5.40%(H) 2.50%(C,I) (.68)%(C,I) 46%(I) .0061 21,206
</TABLE>

------------------

(A) NET OF FEES WAIVED BY LMFA FOR EXPENSES IN EXCESS OF VOLUNTARY EXPENSE
LIMITATIONS OF 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%
INDEFINITELY. IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF
EXPENSES TO AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS
FOLLOWS: 1994, 1.82%; AND 1993, 1.93%.
(B) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 2.25%.
IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF EXPENSES TO
AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS FOLLOWS:
1996, 2.32%; AND 1995, 2.91%.
(C) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 2.50%.
IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF EXPENSES TO
AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS FOLLOWS:
1997, 2.86%; AND 1996, 3.71%.
(D) FOR THE PERIOD APRIL 15, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1993.
(E) FOR THE PERIOD FEBRUARY 17, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995.
(F) FOR THE PERIOD MAY 28, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1996.
(G) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE AVERAGE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY THE FUNDS. THE REGULATIONS FOR AVERAGE COMMISSION
RATES ARE NOT APPLICABLE TO NON-EQUITY FUNDS.
(H) NOT ANNUALIZED
(I) ANNUALIZED

<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 and Legg Mason had not
waived certain fees for the periods presented below.
Prior to May 1, 1996, International Equity was named Legg Mason Global
Equity Trust ("Global Equity"). Global Equity invested primarily in common
stocks of companies located anywhere in the world, including the United States.
Since May 1, 1996, with this name change, International Equity invests in common
stocks located outside the United States.
Total returns of Primary Shares as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL GLOBAL INTERNATIONAL EMERGING
RETURN GOVERNMENT EQUITY MARKETS
- ----------------------------------------------------------
<S> <C> <C> <C>
One Year -1.69% +1.76% -6.18%(C)
Life of Class +35.29%(A) +28.16%(B) -1.11%(D)

<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
- ----------------------------------------------------------
<S> <C> <C> <C>
One Year -1.69% +1.76% -6.18%(C)
Life of Class +6.62%(A) +9.02%(B) -0.70%(D)
</TABLE>

- ---------------
(A) INCEPTION OF GLOBAL GOVERNMENT -- APRIL 15, 1993.
(B) INCEPTION OF INTERNATIONAL EQUITY -- FEBRUARY 17, 1995.
(C) NET OF 2.0% REDEMPTION FEE ASSESSED WITHIN TWELVE MONTHS OF PURCHASE.
(D) INCEPTION OF EMERGING MARKETS -- MAY 28, 1996.

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 the Corporation's annual report to shareholders,
which may be obtained without charge by calling your Legg Mason or affiliated
financial advisor or Legg Mason's Funds Marketing Department at 800-822-5544.

<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 any Fund will achieve its investment objective.

Under normal circumstances, 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 Western Asset to be of
comparable quality; and bank certificates of deposit and bankers'
acceptances judged by Western Asset 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 Western Asset 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 16 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 fixed-income securities (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 Union, 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 been issued by numerous emerging market governments, and
other such

<PAGE>
governments are expected to issue them in the future. Brady Bonds
currently are rated below investment grade. As of the date of this
Prospectus, Western Asset 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.

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 Union. The
specific amounts of currencies comprising the ECU may be adjusted to
reflect changes in relative values of the underlying currencies. Western
Asset 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, Futures
and Forward Currency Exchange Contracts," page 15 and "Risks of Futures,
Options and Forward Currency Exchange Contracts," page 16. The Fund may
purchase securities on a when-issued basis and enter into forward
commitments to purchase securities (see page 20); 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."

When Western Asset believes such action is warranted by abnormal
market or economic situations, the Fund may invest temporarily without
limit in cash and U.S. dollar-denominated money market instruments
including repurchase agreements.

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, when
Batterymarch believes such action is warranted by abnormal market or
economic situations, the Fund may invest without limit in cash and U.S.
dollar-denominated money market instruments, including repurchase
agreements of domestic issuers. When Batterymarch believes such action is
warranted by abnormal market or economic situations, 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, judged 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

<PAGE>

15 and "Risks of Futures, Options and Forward Currency Exchange
Contracts," page 16.

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.

Assets not invested in emerging market equity securities may be
invested in any combination of debt securities of the U.S. Government,
equity securities of issuers in developed countries, cash and money market
instruments, including repurchase agreements. Batterymarch intends to be
substantially fully invested in equity securities and convertible
securities of emerging market issuers. The Fund may use options and stock
index futures as discussed below. It may also enter into forward foreign
currency exchange contracts in order to protect against fluctuations in
exchange rates. However, appropriate hedging instruments are not available
with respect to most emerging markets, and the Fund accordingly will not
often employ hedging strategies. See "Options, Futures and Forward
Currency Exchange Contracts," page 15, and "Risks of Futures, Options and
Forward Currency Exchange Contracts," page 16.

The Fund may invest in the following types of equity securities:
common stock, preferred stock, securities convertible into common stock,
rights and warrants to acquire such securities and substantially similar
forms of equity with comparable risk characteristics.
The Fund intends to invest in Asia, Latin America, the Indian
Sub-continent, Southern and Eastern Europe, the Middle East, and Africa,
although it may not invest in all these markets at all times and may not
invest in any particular market when it deems investment in that country
or region to be inadvisable.
More than 25% of the Fund's total assets may be denominated in a
single currency. Concentration in a single foreign currency will increase
the Fund's exposure to adverse developments affecting the value of that
currency. An issuer of securities purchased by the Fund may be domiciled
in a country other than the country in whose currency the securities are
denominated.
When abnormal market or economic situations warrant in the opinion of
Batterymarch, the Fund may invest without limit for temporary defensive
purposes in short-term debt instruments, including government, corporate
and money market securities of domestic issuers, as well as repurchase
agreements. Such short-term instruments will be rated in one of the four
highest rating categories by S&P or Moody's or, if unrated, judged by the
adviser to be of comparable quality.

The fundamental restrictions applicable to each 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).

<PAGE>
As a fundamental policy, each Fund may borrow an amount equal to
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Because of the limited liquidity of
some emerging markets, Emerging Markets, in particular, occasionally may
be required to borrow to meet redemption requests. Borrowing may cause
greater fluctuation in share value, but also may enable the Fund to retain
favorable securities positions rather than liquidating them to meet
redemptions. None of the Funds will borrow for the purpose of leveraging
its portfolio. As a non-fundamental policy, none of the Funds may purchase
securities when outstanding borrowings exceed 5% of total assets.

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.
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.

<PAGE>
emerging market; (2) securities (i) denominated in any emerging market
currency or (ii) denominated in a major currency if issued by companies to
finance operations in an emerging market; (3) securities of companies that
derive a substantial portion of their total revenues from goods or
services produced in, or sales made in, emerging markets; (4) securities
of companies organized under the laws of an emerging market country or
region, which are publicly traded in securities markets elsewhere; and (5)
American depositary receipts ("ADRs") (or similar instruments) with
respect to the foregoing.
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.
Over the last quarter of a century, inflation in many emerging market
countries has been significantly higher than the world average. While some
emerging market countries have sought to develop a number of corrective
mechanisms to reduce inflation or mitigate its effects, inflation may
continue to have significant effects both on emerging market economies and
their securities markets. In addition, many of the currencies of emerging
market countries have experienced steady devaluations relative to the U.S.
dollar, and major devaluations have occurred in certain countries.
Because of the high levels of foreign-denominated debt owed by many
emerging market countries, fluctuating exchange rates can significantly
affect the debt service obligations of those countries. This could, in
turn, affect local interest rates, profit margins and exports which are a
major source of foreign exchange earnings. Although it might be
theoretically possible to hedge for anticipated income and gains, the
ongoing and indeterminate nature of the foregoing risks (and the costs
associated with hedging transactions) makes it virtually impossible to
hedge effectively against such risks.
To the extent an emerging market country faces a liquidity crisis with
respect to its foreign exchange reserves, it may increase restrictions on
the outflow of any foreign exchange. Repatriation is ultimately dependent
on the ability of the Fund to liquidate its investments and convert the
local currency proceeds obtained from such liquidation into U.S. dollars.
Where this conversion must be done through official channels (usually the
central bank or certain authorized commercial banks), the ability to
obtain U.S. dollars is dependent on the availability of such U.S. dollars
through those channels and, if available, upon the willingness of those
channels to allocate those U.S. dollars to the Fund. In such a case, the
Fund's ability to obtain U.S. dollars may be adversely affected by any
increased restrictions imposed on the outflow of foreign exchange. If the
Fund is unable to repatriate any amounts due to exchange controls, it may
be required to accept an obligation payable at some future date by the
central bank or other governmental entity of the jurisdiction involved. If
such conversion can legally be done outside official channels, either
directly or indirectly, the Fund's ability to obtain U.S. dollars may not
be affected as much by any increased restrictions except to the extent of
the price which may be required to be paid for the U.S. dollars.
Many emerging market countries have little experience with the
corporate form of business organization, and may not have well developed
corporation and business laws or concepts of fiduciary duty in the
business context.
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; enforcement of existing regulations has been extremely limited.

<PAGE>
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.

Investment in Japan
International 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 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.

Sovereign Debt Securities
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 a
custodian bank 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.

<PAGE>
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. Global Government 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 Global
Government 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.

Reverse Repurchase Agreements and Other Borrowing
In a reverse repurchase agreement, a 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. Each Fund may also enter into
dollar rolls, in which a 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, that 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.
Each 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.
To avoid potential leveraging effects of borrowing (including reverse
repurchase agreements and dollar rolls), each Fund will not purchase
securities while such borrowing is in excess of 5% of its total assets.
Each Fund will limit its borrowing to no more than one-third of its total
assets.

<PAGE>
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 which cannot
be expected to be sold within seven days at approximately the price at
which it is valued, ("illiquid assets") if such acquisition would cause
the aggregate value of that Fund's 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 may have difficulty disposing of such securities
promptly.

The Funds do not consider foreign securities to be restricted 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, the liquidity of a Fund could be
adversely affected.

Depositary Receipts
The Funds may invest in ADRs or similar non-U.S. instruments issued by
foreign banks or trust companies. ADRs are securities issued by a U.S.
depositary (usually a bank) and represent a specified quantity of
underlying non-U.S. stock on deposit with a custodian bank as collateral.
ADRs may be sponsored or unsponsored. A sponsored ADR is issued by a
depositary which has an exclusive relationship with the issuer of the
underlying security. An unsponsored ADR may be issued by any number of
U.S. depositaries. The Funds may invest in either type of ADR. A foreign
issuer of the security underlying an ADR is generally not subject to the
same reporting requirements in the United States as a domestic issuer.
Accordingly, the information available to a U.S. investor will be limited
to the information the foreign issuer is required to disclose in its own
country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer or the underlying security.
ADRs may also be subject to exchange rate risks if the underlying
securities are denominated in foreign currency. Some of these depositary
receipts may be issued in bearer form. For purposes of their investment
policies, each Fund will treat ADRs and similar instruments as equivalent
to investment in the underlying securities.

Securities of Other Investment Companies
Due to restrictions on direct investment by foreign entities in
certain emerging markets, or other difficulties limiting the availability
of local securities, investment in other investment companies may be the
most practical or only manner in which a Fund can invest in certain
emerging markets. A Fund may invest in the securities of other investment
companies, but it will not own more than 3% of the total outstanding
voting stock of any investment company, invest more than 5% of its total
assets in any one investment company, or invest more than 10% of its total
assets in investment companies in general. Such investments may involve
the payment of substantial premiums above the net asset value of such
issuers' portfolio securities, and the total return on such investments
will be reduced by the operating expenses and fees of such investment
companies, including advisory fees. There can be no assurance that a Fund
will be able to invest in certain emerging markets. A Fund will invest in
such funds when, in the adviser's judgment, the potential benefits of such
investment justify the payment of any applicable premium or sales charge.

<PAGE>
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 amount
of a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. Options, futures and forward currency
exchange contracts are generally considered to be "derivatives."

FOR GLOBAL GOVERNMENT:
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. 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 Western Asset 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 INTERNATIONAL EQUITY AND EMERGING MARKETS:
A 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.
Each Fund may utilize futures contracts and options to a limited
extent. Specifically, a Fund may enter into futures contracts and related
options provided that not more than 5% of its net assets are required as a
futures contract deposit and/or premium; in addition, a Fund may not enter
into futures contracts or related options if, as 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 or option is priced more attractively than the underlying equity
security or index.
As noted above, it may be difficult or impossible to hedge exposures
in emerging markets, both because of the nature of the risks and because
of the limited availability of suitable hedging instruments.

<PAGE>
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, 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; and (6) 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.

THE FOLLOWING DESCRIBES CERTAIN INVESTMENT TECHNIQUES USED PRIMARILY
BY GLOBAL GOVERNMENT:

<PAGE>
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. The Fund may invest in
lower-rated debt securities of domestic issuers, 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. 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.

Although the market for lower-rated debt securities is not new, and
the market has previously weathered economic downturns, there has been in
recent years a substantial increase in the use of such securities to fund
corporate acquisitions and restructurings. Accordingly, the past
performance of the market for such securities may not be an accurate
indication of its performance during future economic downturns or periods
of rising interest rates. Although the prices of lower-rated bonds are
generally less sensitive to interest rate changes than those of
higher-rated bonds, the prices of lower-rated bonds may be more sensitive
to adverse economic changes and developments regarding the individual
issuer. Issuers of lower-rated debt securities are often highly leveraged
and may not have access to more traditional methods of financing.

The market for lower-rated securities may be thinner and less active
than that for higher-rated securities. As a result of the limited
liquidity of high yield securities, the valuation of these securities may
require greater judgment than is necessary with respect to securities
having more active markets. In addition, their prices have at times
experienced rapid decline when a significant number of holders of such
securities decided to sell them. Widespread sales may result from adverse
publicity and investor perceptions, whether or not based on fundamental
analysis.

Debt securities may be subject to mandatory call provisions. If
issuers were to invoke these provisions during periods of declining
interest rates, the Fund would receive redemption proceeds at times when
only lower-yielding securities were available for investment by the Fund.

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, 1997, 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. A further description of Moody's and S&P's ratings is included
in the Appendix to the Statement of Additional Information.

<TABLE>
<CAPTION>
MOODY'S Aaa/
RATINGS Aa/A Baa Ba B Caa Ca C NR
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average 74.2% 4.5% 16.9% 2.9% -- 1.5% -- --%
</TABLE>

<TABLE>
<CAPTION>
AAA/ CC/
S&P RATINGS AA/A BBB BB B CCC C D NR
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average 75.2% 3.8% 17.8% 1.7% -- 1.5% -- --%
</TABLE>

Global Government held no unrated securities during the fiscal year.

<PAGE>

issuer to borrow from the U.S. Treasury (such as securities of the Federal
Home Loan Banks), securities supported solely by the discretionary
authority of the U.S. Treasury to lend to the issuer (such as Fannie Mae
and Freddie Mac securities).

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 Freddie
Mac, Fannie Mae, 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 non-governmental
securities are collateralized by securities issued by Freddie

<PAGE>

Mac, Fannie Mae 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.

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 distributions 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 Western Asset, 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. The value of such securities partly depends on loan
repayments by individuals, which may be adversely affected during general
downturns in the economy. 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.

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. Western Asset 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

<PAGE>
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 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 the
Fund must distribute substantially all of its income to its shareholders
to qualify for pass-through treatment under the federal income tax laws,
the Fund, as an investor 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.

Forward Commitments

The Fund may enter into commitments to purchase U.S. government
securities or other securities on a "forward commitment" basis, including
purchases on a "when-issued" basis or a "to be announced" basis. When such
transactions are negotiated, the price is fixed at the time the commitment
is made, but delivery and payment for the securities takes place at a
later date. Such securities are often the most efficiently priced and have
the best liquidity in the bond market. During the period between a
commitment and settlement, no payment is made by the purchaser for the
securities purchased and, thus, no interest accrues to the purchaser from
the transaction. In a to be announced transaction, the Fund has committed
to purchase securities for which all specific information is not yet known
at the time of the trade, particularly the exact face amount in forward
commitment mortgage-backed securities transactions.

The Fund may sell the securities subject to a forward commitment
purchase, which may result in a gain or loss. When the Fund purchases
securities on a forward commitment basis, it assumes the risks of
ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. Purchases of forward commitment
securities also involve a risk of loss if the seller fails to deliver
after the value of the securities has risen. Depending on market
conditions, the Fund's forward commitment purchases could cause its net
asset value to be more volatile. The Fund will direct its custodian to
place cash or U.S. government obligations in a separate account equal to
the commitments of the Fund to purchase securities as a result of its
forward commitment obligation.

The Fund may also enter into a forward commitment to sell only those
securities it owns and will do so only with the intention of actually
delivering the securities. The use of forward commitments enables the Fund
to hedge against anticipated changes in interest rates and prices. In a
forward sale, the Fund does not participate in gains or losses on the
security occurring after the commitment date. The Fund will direct its
custodian to place the securities in a separate account. Forward
commitments to sell securities also involve a risk of loss if the seller
fails to take delivery after the value of the securities has declined.
Further risks involving forward commitments are discussed in the section
"Risks of Futures, Options and Forward Currency Exchange Contracts,"
above.

The Fund does not expect that its purchases of forward commitments
will at any time exceed, in the aggregate, 20% of its total assets.

<PAGE>
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. The value of such securities may change significantly if
their principal value or rate of return is linked or indexed to relative
exchange rates involving a foreign currency for which there is not a
readily available market.

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 maturity 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.

FOR EACH FUND:

Portfolio Turnover

For the year ended December 31, 1997, Global Government's portfolio
turnover rate was 241%, International Equity's portfolio turnover rate was
59% and Emerging Markets' portfolio turnover rate was 63%. 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, which 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, with an affiliate that has an agreement with Legg
Mason, or with an unaffiliated entity having an agreement with Legg Mason
("Financial Advisor or Service Provider"). Your Financial Advisor or
Service Provider will be pleased to explain the shareholder services
available from the Funds and answer any questions you may have. Documents
available from your Financial Advisor or Service Provider should be
completed if you invest in shares of the Funds through an Individual
Retirement Account, Simplified Employee Pension Plan, Savings Incentive
Match Plan for Employees or tax-qualified retirement plan (collectively
referred to as "Retirement Plans").

Clients of certain institutions that maintain omnibus accounts with
the Funds' transfer agent may obtain shares through those institutions.
Such institutions may receive payments from the Funds' distributor for
account servicing, and may receive payments from their clients for other
services performed. Investors can purchase Fund shares from Legg Mason
without receiving or paying for such other services.

The minimum initial investment in Primary Shares for each Fund
account, including investments made by exchange from other Legg Mason
funds and investments in a Retirement Plan, is $1,000, and the minimum
investment for each purchase of additional shares is $100, except as noted
below. 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

<PAGE>
change these minimum amount requirements at its discretion.
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 FINANCIAL ADVISOR OR SERVICE PROVIDER

Shares may be purchased through a Financial Advisor or Service
Provider. A Financial Advisor or Service Provider 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 an account, you can order shares from your Financial Advisor
or Service Provider 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 transfer funds each month from
your Legg Mason account or from your checking account. Please contact your
Financial Advisor or Service Provider 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 their Financial
Advisor or Service Provider.

Primary Share purchases will be processed at the net asset value next
determined after your Financial Advisor or Service Provider has received
your order; payment must be made within three business days to Legg Mason.
Orders received by your Financial Advisor or Service Provider 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 Financial
Advisor or Service Provider 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 24.

Each Fund reserves the right to reject any order for its shares or to
suspend the offering of shares for a period of time. Some Service
Providers may place other conditions on the purchase of shares. Consult
their program literature for further information.

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. Shares may not be held in, or
transferred to, an account with any brokerage firm that does not have an
agreement with Legg Mason. The Funds do not issue share certificates.

HOW YOU CAN REDEEM YOUR PRIMARY SHARES

There are two ways you can redeem your Primary Shares. First, you may
give your Financial Advisor or Service Provider 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 (or dollar amount) 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 Financial Advisor or Service Provider 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

<PAGE>

share determined as of the close of the Exchange on that day. Requests for
redemption received by your Financial Advisor or Service Provider 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 Financial Advisor or Service Provider
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. 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 10 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 (or
dollar amount) 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 Financial
Advisor or Service Provider.

Emerging Markets' investment objective results in it investing a
substantial portion of its assets in thinly traded stocks which can
experience large price fluctuations and whose purchase and sale can
involve significant transaction costs. The Fund is intended for long-term
investors. Short-term "market timers" who engage in frequent purchases and
redemptions affect the Fund's investment planning and create additional
transaction costs which are borne by all shareholders. For this reason,
the Fund imposes a 2% redemption fee on all redemptions, including
exchanges, of Fund shares held for less than one year.
The redemption fee will be paid directly to the Fund to help offset
the costs imposed on it by short-term trading in emerging markets. The fee
will not be paid to either LMFA or Legg Mason. No fees are charged on
redemptions from Global Government or International Equity.
The Fund will use the "first-in, first-out" (FIFO) method to determine
the one year holding period. Under this method, the date of redemption or
exchange will be compared with the earliest purchase date of shares held
in the account. If this holding period is less than one year, the
redemption fee will be assessed.

The fee will not apply to any shares purchased through reinvestment of
dividends or other distributions or to shares held in Retirement Plans.
The fee does apply to shares held in IRA accounts (including IRA-based
plans) and to shares purchased through automatic investment plans
(described under "How You Can Invest in the Funds"). The fee may apply to
shares in broker omnibus accounts.

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

<PAGE>

should call their Financial Advisor or Service Provider for further
instructions.

To the extent permitted by law, each Fund reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of
each Fund's adviser, the respective Fund could be adversely affected by
immediate payment. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.)

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.

Some Service Providers may have other procedures for redemption,
either in addition to or instead of those described above. Consult your
Service Provider's literature for more information.

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 by
Global Government; and are declared and paid annually by International
Equity and Emerging Markets. 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 Financial
Advisor or Service Provider. 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 a 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, shareholders may reinvest dividends and other
distributions in the Primary Shares of another Legg Mason fund. Please
contact

<PAGE>

your Financial Advisor or Service Provider for additional information
about this option.

If no election is made, both dividends and other distributions are
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 cash,
you will be sent a check or will have your Legg Mason account credited
after the payment date. If a shareholder has elected to receive dividends
and/or other distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be
converted to having all dividends and other distributions reinvested in
additional Primary Shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks.

You may elect at any time to change your option by notifying the
applicable Fund in writing at: [insert complete Fund name], c/o Legg Mason
Funds Processing, P.O. Box 1476, Baltimore, MD 21203-1476. Your election
must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid 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 it
distributes 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 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. Under the Taxpayer Relief Act of 1997 ("Tax
Act"), different maximum tax rates apply to a noncorporate taxpayer's net
capital gain depending on the holding period of the security and the
taxpayer's marginal rate of federal income tax. The relevant holding
period is determined by how long the Fund has held the portfolio security
on which the gain was earned, not by how long you have held your 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. The notice
will tell you what portion of the capital gain falls into each of the
different tax rate categories mentioned above.

Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and
certain other noncorporate shareholders who do not provide 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 of any Fund for shares of any other
Legg Mason fund generally will have similar tax consequences. See
"Shareholder Services -- Exchange Privilege." If Fund shares are purchased
within 30 days before or after redeeming at a loss other shares of the
same Fund (regardless of class), 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 and/or total return 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

<PAGE>
do not impose taxes on capital gains in respect of investments by foreign
investors.

If more than 50% of the value of International Equity's or Emerging
Markets' 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,
alternatively, use the foregoing information in calculating the foreign
tax credit against the shareholder's federal income tax. Each of these
Funds 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. If a Fund makes this election, then pursuant to the Tax Act,
individuals who have no more than $300 ($600 for married persons filing
jointly) of creditable foreign taxes included on Forms 1099 and all of
whose foreign source income is "qualified passive income" will be able to
claim a foreign tax credit without having to file the detailed Form 1116
that otherwise is required.

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.

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 with respect to that Fund. Please contact your Financial
Advisor or Service Provider for further information.

EXCHANGE PRIVILEGE

As a Fund shareholder, you are entitled to exchange your Primary
Shares of a Fund for Primary Shares of any of the Legg Mason Funds,
provided that such shares are eligible for sale in your state of
residence.

<PAGE>

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 Financial
Advisor or Service Provider. To effect an exchange by telephone, please
call your Financial Advisor or Service Provider 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.

Emerging Markets imposes a 2% redemption fee on exchanges of shares
held less than one year. See page 23.

Some Service Providers may not offer all of the Legg Mason funds for
exchange.

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.

MANAGEMENT AGREEMENTS

Each Fund has a management agreement with LMFA which was approved by
the Fund's Board of Directors (each a "Management Agreement"). Under the
Management Agreements, LMFA is obligated to provide the Funds with
investment management and administrative services, and to oversee the
Funds' relationships with outside service providers, such as the
custodian, transfer agent, accountants, and lawyers.

For services under the Management Agreements, LMFA receives a fee from
each Fund, calculated daily and payable monthly, at the following annual
rates:

<TABLE>
<S> <C>
Global Government 0.75%
International Equity 0.75%
Emerging Markets 1.00%
</TABLE>

Because of fee waivers (see below), Emerging Markets paid a management
fee of 0.64% during the fiscal year ended December 31, 1997.

Under its Advisory Agreement, Batterymarch serves as investment
adviser to International Equity and Emerging Markets. Batterymarch
receives an advisory fee from LMFA, computed daily and paid monthly at an
annual rate equal to 0.50% of International Equity's average daily net
assets and 0.75% of Emerging Markets' average daily net assets, prior to
any fee waivers, as discussed below.

Under its Advisory Agreement, Western Asset serves as investment
adviser to Global Government. Western Asset receives an advisory 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 Global Management, Ltd. ("Western Asset Global") serves
as investment sub-adviser to Global Government pursuant to the terms of a
sub-advisory agreement with Western Asset dated May 1, 1997. Western Asset
Global is responsible for providing research, analytical and trading
support for the Fund's investment program, as well as exercising
investment discretion

<PAGE>

for part of the portfolio, subject to the supervision of Western Asset and
LMFA. As compensation for Western Asset Global's services and for expenses
borne by Western Asset Global under the sub-advisory agreement, Western
Asset Global is paid monthly by Western Asset (not the Fund) at an annual
rate equal to 0.20% of the Fund's average daily net assets. Western Asset
Global also receives a sub-administration fee from LMFA at an annual rate
equal to 0.10% of the Fund's average daily net assets for certain
administrative services performed.

FEE WAIVERS

LMFA has agreed to waive its fees in any month to the extent a Fund's
expenses related to Primary Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during that month annual
rates of that Fund's average daily net assets attributable to Primary
shares, as follows:

<TABLE>
<S> <C>
Global Government 1.90%, indefinitely
International Equity 2.25%, indefinitely
Emerging Markets 2.50% until May 1, 1999
</TABLE>

These agreements are voluntary and may be terminated by LMFA at any
time. Each Fund pays all its other expenses which are not assumed by LMFA.

EXPENSE RATIOS

For the fiscal year ended December 31, 1997, the ratio of each Fund's
expenses to its average net assets (after application of any fee waivers)
was:

<TABLE>
<S> <C>
Global Government 1.86%
International Equity 2.17%
Emerging Markets 2.50%
</TABLE>

LMFA

LMFA acts as adviser or manager to seventeen investment company
portfolios which had aggregate assets under management of approximately
$11.2 billion as of March 31, 1998. LMFA's address is 100 Light Street,
Baltimore, Maryland 21202.

Like other mutual funds, financial and business organizations around
the world, the Funds could be adversely affected if the computer systems
used by LMFA and other service providers do not properly process and
calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." LMFA is taking
steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Funds.

WESTERN ASSET

Western Asset renders investment advice to fifteen open-end investment
companies and one closed-end investment company which together had
aggregate assets under management of approximately $5.2 billion as of
March 31, 1998. Western Asset also renders investment advice to private
accounts with fixed-income assets under management of approximately $33.7
billion as of that date. Western Asset has managed fixed-income portfolios
continuously since its founding in 1971, and has focused exclusively on
such accounts since 1984. The address of Western Asset is 117 East
Colorado Boulevard, Pasadena, California 91105.

WESTERN ASSET GLOBAL

Western Asset Global, located at 155 Bishops-gate, London EC2M 3 TY,
also renders investment advice to institutional, private and commingled
fund portfolios with assets of over $3.0 billion as of March 31, 1998.
Western Asset Global has managed global fixed-income assets for U.S. and
non-U.S. clients since 1984.

BATTERYMARCH

Batterymarch acts as investment adviser to institutional accounts,
such as corporate pension plans, mutual funds and endowment funds, as well
as to individual investors. Total assets under management by Batterymarch
were approximately $4.3 billion as of March 31, 1998. The address of
Batterymarch is 200 Clarendon Street, Boston, Massachusetts 02116.

PORTFOLIO MANAGEMENT

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 and Senior Portfolio
Manager at Western Asset since December 1994.

<PAGE>

Batterymarch investment teams are responsible for the day-to-day
management of International Equity and Emerging Markets.

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
financial advisors, 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.
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
attributable to Primary Shares, and 0.75% of International Equity's and
Emerging Markets' average daily net assets attributable to Primary Shares;
and an annual service fee from each Fund equal to 0.25% of its average
daily net assets attributable to Primary Shares. 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 for Primary Shares of 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. Legg Mason may enter into
agreements with unaffiliated dealers to sell Primary Shares of each Fund.
Legg Mason pays such dealers up to 90% of the distribution and shareholder
service fees that it receives from a Fund with respect to shares sold by
the dealers.

NASD rules limit the amount of annual distribution and service 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.

Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., which is
also the parent of LMFA and the advisers. Legg Mason receives a fee from
BFDS for assisting it with its transfer agent and shareholder servicing
functions; for the year ended December 31, 1997, Legg Mason received
$31,000, $68,000 and $23,000 for performing such services in connection
with Global Government, International Equity and Emerging Markets,
respectively.

The President and Treasurer of the Corporation are employed by Legg
Mason.

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 in accordance with SEC rules. 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 perceived political and economic stability of the
countries in which the sub-custodians will be located and perceived risks
of potential nationalization or expropriation of Fund assets are
considered. No assurance can be given that the appraisal of the risks in
connection with foreign custodial arrangements will

<PAGE>
always be correct or that expropriation, nationalization, freezes, or
confiscation of Fund assets will not occur. Securities traded abroad are
more likely to be in bearer form, which heightens the risk of loss through
inadvertance or theft. In such event, a Fund may be dependent on its
foreign custodian, the custodian's business insurance, or foreign law for
any recovery.

Investors may obtain more information concerning the Navigator Class
from their financial advisor or any person making available to them shares
of the Primary Class, or by calling 1-800-822-5544.

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 Board 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 100 Light 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 omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.

<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

THE

NAVIGATOR
CLASS

OF THE

LEGG MASON
GLOBAL
FUNDS

----------

The Art of Investing

Global Funds
Navigator Class of Global
Government Trust
Navigator Class of
International Equity Trust
Navigator Class of
Emerging Markets Trust

Prospectus
May 1, 1998

This wrapper is not part of the prospectus.

Addresses

Distributor:
Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 o 539 o 0000 800 o 822 o 5544

Authorized Dealer:
Fairfield Group, Inc.
200 Gibraltar Road
Horsham, PA 19044

Transfer and Shareholder Servicing Agent:
Boston Financial Data Services
P.O. Box 953
Boston, MA 02103

Counsel:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.,
Washington, DC 20036-1800

Independent Accountants:
Coopers & Lybrand L.L.P.
250 W. Pratt Street
Baltimore, MD 21201

No person has been authorized to give any information or to make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by any Fund or its distributor. The Prospectus does not
constitute an offering by any Fund or by the principal underwriter in any
jurisdiction in which such offering may not lawfully be made.

[LEGG MASON FUNDS LOGO]

<PAGE>
NAVIGATOR GLOBAL FUNDS

PROSPECTUS
MAY 1, 1998
LEGG MASON GLOBAL TRUST, INC.:
LEGG MASON GLOBAL GOVERNMENT TRUST
LEGG MASON INTERNATIONAL EQUITY TRUST
LEGG MASON EMERGING MARKETS TRUST

Shares of Navigator Global Government Trust, Navigator International Equity
Trust and Navigator Emerging Markets Trust (collectively referred to as
"Navigator Shares") represent separate classes ("Navigator Classes") of interest
in the Legg Mason Global Government Trust ("Global Government"), Legg Mason
International Equity Trust ("International Equity") and Legg Mason Emerging
Markets Trust ("Emerging Markets"), respectively. Global Government,
International Equity and Emerging Markets (each a "Fund") are separate,
professionally managed portfolios of Legg Mason Global Trust, Inc.
("Corporation"), an open-end management investment company. Global Government is
a bond fund; International Equity and Emerging Markets are equity funds.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be retained for
future reference. A Statement of Additional Information about the Funds dated
May 1, 1998 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 on the next page).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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, Western Asset
Management Company ("Western Asset"), 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 or political
subdivisions. At least 75% of its 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 Fund may invest up to 25% of
its total assets in debt securities rated below investment grade.

INTERNATIONAL 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 OUTSIDE THE UNITED STATES. THE FUND MAY INVEST UP TO 35% OF
ITS TOTAL ASSETS IN EMERGING MARKET SECURITIES.

<PAGE>
EMERGING MARKETS is a diversified, professionally managed portfolio seeking
long-term capital appreciation. In attempting to achieve the Fund's objective,
Batterymarch, as the Fund's investment adviser, normally invests at least 65% of
the Fund's total assets in equity securities of emerging market companies.
Assets not invested in emerging market equity securities may be invested in any
combination of debt securities of the U.S. Government, equity securities of
issuers in developed countries, cash and money market instruments.

The adviser considers emerging markets to include most of the countries of
Asia, Africa, Latin America, Eastern Europe and the Middle East, as well as
certain countries in Western or Southern Europe. Most emerging market countries
or regions have relatively low gross national products per capita compared to
the world's major economies, and have the potential for rapid but unstable
economic growth. The risks of foreign investing are heightened in emerging
markets.

The Navigator Classes of Shares, described in this Prospectus, are currently
offered for sale only to institutional clients of the Fairfield Group, Inc.
("Fairfield") for investment of their own monies and monies 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 (such institutional investors are referred to collectively as
"Institutional Clients" and accounts of the customers with such Institutional
Clients ("Customers") are referred to collectively as "Customer Accounts"), to
qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million, and to any qualified retirement plan of Legg
Mason, Inc. or of any of its affiliates. Navigator Shares may not be purchased
by individuals directly, but Institutional Clients may purchase shares for
Customer Accounts maintained for individuals.

No initial sales charge is imposed by the Funds on purchases, and no
redemption charge is imposed by Global Government and International Equity on
sales of Navigator Shares. For Emerging Markets, a 2% redemption fee is charged
on the proceeds of Navigator Shares redeemed or exchanged within one year of
purchase. Institutional Clients may charge their Customer Accounts for services
provided in connection with the purchase or redemption of shares. See "How to
Purchase and Redeem Shares." Each Fund pays management fees to Legg Mason Fund
Adviser, Inc. ("LMFA"), but Navigator Classes pay no distribution fees.

TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Performance Information 5
Investment Objectives and Policies 6
How to Purchase and Redeem Shares 19
How Shareholder Accounts are Maintained 21
How Net Asset Value Is Determined 21
Dividends and Other Distributions 21
Taxes 22
Shareholder Services 23
The Funds' Management and Investment Advisers 24
The Funds' Distributor 25
The Funds' Custodian and Transfer Agent 26
Description of the Corporation and its Shares 26

Legg Mason Wood Walker, Inc.
100 Light Street
P.O. Box 1476
Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
800 (Bullet) 822 (Bullet) 5544

<PAGE>
EXPENSES

The purpose of the following table is to assist an investor in
understanding the various costs and expenses that an investor in Navigator
Shares of a Fund will bear directly or indirectly. Other expenses set
forth in the table are based on estimates and fees are adjusted for
current expense limits and fee waiver levels for the initial period of
operations of the Navigator Classes.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES FOR EACH
FUND
Maximum sales charge on purchases or
reinvested dividends None
Redemption and exchange fees:
For Global Government and International
Equity None
For Emerging Markets 2.00%*
</TABLE>

---------------------
* Because of the costs involved in trading emerging market securities,
Emerging Markets assesses a 2% redemption fee on the proceeds of shares
redeemed or exchanged within one year of purchase. The fee is paid
directly to the Fund, and not to LMFA or Legg Mason.

ANNUAL FUND OPERATING EXPENSES -- NAVIGATOR SHARES(A)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
INTER-
GLOBAL NATIONAL EMERGING
GOVERNMENT EQUITY MARKETS
-------------------------------------
<S> <C> <C> <C>
Management fees 0.75% 0.75% 0.64%(B)
12b-1 fees None None None
Other expenses 0.36% 0.42% 0.86%
-------------------------------------
Total operating
expenses 1.11% 1.17% 1.50%(B)
-------------------------------------
</TABLE>

---------------------
(A) After fee waivers. Pursuant to voluntary expense limitations, LMFA and
each Fund's adviser have agreed to waive management fees to the extent
necessary to limit total operating expenses attributable to Navigator
Shares of each Fund (exclusive of taxes, interest, brokerage and
extraordinary expenses) as follows: for Global Government 1.11% of
average daily net assets indefinitely; for International Equity, 1.25%
of average daily net assets indefinitely; and for Emerging Markets,
1.50% of average daily net assets until May 1, 1999. No fee waivers
would be necessary for Global Government and International Equity.
(B) After fee waivers. In the absence of such waivers, the expected
management fee, other expenses, and total operating expenses of Emerging
Markets would be 1.00%, 0.86% and 1.86% of average net assets.

For further information concerning Fund expenses, see "The Funds'
Management and Investment Advisers," page 24.

EXAMPLE
The following example illustrates the expenses that you would pay on a
$1,000 investment in Navigator 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 table above, Global Government and
International Equity charge no redemption fees of any kind.

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Global Government $11 $35 $61 $135
International Equity $12 $37 $64 $142
Emerging Markets $36 $47 $82 $179
Emerging Markets
(Assuming no redemption) $15 $47 $82 $179
</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, the expense figures in the example may 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 NAVIGATOR SHARES OF THE FUNDS. THE
ABOVE TABLES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The actual expenses attributed to Navigator Shares will depend
upon, among other things, the level of average net assets, the levels of
sales and redemptions of shares, whether LMFA and/or a Fund's adviser
waive their fees, and the extent to which Navigator Shares incur variable
expenses, such as transfer agency costs.

<PAGE>
FINANCIAL HIGHLIGHTS

Each Fund offers two classes of shares, Primary Shares and Navigator
Shares. The information shown below is for Primary Shares and reflects
12b-1 fees paid by that class and not by Navigator Shares.
The financial information in the table that follows has been audited by
Coopers & Lybrand L.L.P., independent accountants. Global Government's,
International Equity's and Emerging Markets' financial statements for the
year ended December 31, 1997 and the report of Coopers & Lybrand L.L.P.
thereon are included in the Corporation's Annual Report to Shareholders and
are incorporated by reference into the Statement of Additional Information.
The annual report is available to shareholders without charge by calling a
financial advisor at Fairfield, Legg Mason or Legg Mason's Funds Marketing
Department at 800-822-5544.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS DISTRIBUTIONS FROM:
---------------------------------------------------- ------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVEST- IN EXCESS
NET ASSET NET MENTS, OPTIONS TOTAL IN EXCESS NET OF NET
VALUE, INVESTMENT FUTURES AND FROM NET OF NET REALIZED REALIZED
BEGINNING INCOME FOREIGN CURRENCY INVESTMENT INVESTMENT INVESTMENT GAIN ON GAIN ON
OF YEAR (LOSS) TRANSACTIONS OPERATIONS INCOME INCOME INVESTMENTS INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL GOVERNMENT TRUST
Years Ended Dec. 31,
1997 $ 10.41 $ .54 $ (.71) $ (.17) $ (.48) $ (.05) $(.11) $ --
1996 10.33 .59 .21 .80 (.62) -- (.10) --
1995 9.54 .63 1.32 1.95 (1.16) -- -- --
1994 10.27 .57(A) (.71) (.14) (.59) -- -- --
1993(D) 10.00 .36(A) .31 .67 (.36) -- (.04) --

INTERNATIONAL EQUITY TRUST
Years Ended Dec. 31,
1997 $ 12.09 $ .02 $ .19 $ .21 $ (.08) $ -- $(.44) $ --
1996 10.70 .02(B) 1.74 1.76 (.05) -- (.32) --
1995(E) 10.00 .04(B) .77 .81 (.04) -- -- (.07)

EMERGING MARKETS TRUST
Years Ended Dec. 31,
1997 $ 10.51 $ (.02)(C) $ (.63) $ (.65) $ (.01) $ -- $ -- $ --
1996(F) 10.00 (.03)(C) .57 .54 (.03) -- -- --

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------
NET
NET ASSET INVESTMENT AVERAGE NET ASSETS,
VALUE, EXPENSES INCOME (LOSS) PORTFOLIO COMMISSION END OF
TOTAL END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER RATE YEAR
DISTRIBUTIONS YEAR RETURN NET ASSETS NET ASSETS RATE PAID(G) (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL GOVERNMENT TRUST
Years Ended Dec. 31,
1997 $ (.64) $ 9.60 (1.69)% 1.86% 5.39% 241% $ -- $136,732
1996 (.72) 10.41 8.22% 1.86% 5.80% 172% -- 161,549
1995 (1.16) 10.33 20.80% 1.81% 5.72% 169% -- 153,954
1994 (.59) 9.54 (1.40)% 1.34%(A) 5.71%(A) 127% -- 145,415
1993(D) (.40) 10.27 6.76%(H) 0.27%(A,I) 5.41%(A,I) 128%(I) -- 161,072
INTERNATIONAL EQUITY TRUST
Years Ended Dec. 31,
1997 $ (.52) $ 11.78 1.76% 2.17% .17% 59% $.0082 $227,655
1996 (.37) 12.09 16.49% 2.25%(B) .21%(B) 83% .0083 167,926
1995(E) (.11) 10.70 8.11%(H) 2.25%(B,I) .52%(B,I) 58%(I) -- 65,947
EMERGING MARKETS TRUST
Years Ended Dec. 31,
1997 $ (.01) $ 9.85 (6.18)% 2.50%(C) (.76)%(C) 63% $.0054 $ 65,302
1996(F) (.03) 10.51 5.40%(H) 2.50%(C,I) (.68)%(C,I) 46%(I) .0061 21,206
</TABLE>

------------------
(A) NET OF FEES WAIVED BY LMFA FOR EXPENSES IN EXCESS OF VOLUNTARY EXPENSE
LIMITATIONS OF 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%
INDEFINITELY. IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF
EXPENSES TO AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS
FOLLOWS: 1994, 1.82%; AND 1993, 1.93%.
(B) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 2.25%.
IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF EXPENSES TO
AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS FOLLOWS:
1996, 2.32%; AND 1995, 2.91%.
(C) NET OF FEES WAIVED PURSUANT TO A VOLUNTARY EXPENSE LIMITATION OF 2.50%.
IF NO FEES HAD BEEN WAIVED BY LMFA, THE ANNUALIZED RATIO OF EXPENSES TO
AVERAGE DAILY NET ASSETS FOR EACH PERIOD WOULD HAVE BEEN AS FOLLOWS:
1997, 2.86%; AND 1996, 3.71%.
(D) FOR THE PERIOD APRIL 15, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1993.
(E) FOR THE PERIOD FEBRUARY 17, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1995.
(F) FOR THE PERIOD MAY 28, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1996.
(G) PURSUANT TO SEC REGULATIONS EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER
SEPTEMBER 1, 1995, THIS IS THE AVERAGE COMMISSION RATE PAID ON SECURITIES
PURCHASED AND SOLD BY THE FUNDS. THE REGULATIONS FOR AVERAGE COMMISSION
RATES ARE NOT APPLICABLE TO NON-EQUITY FUNDS.
(H) NOT ANNUALIZED
(I) ANNUALIZED

<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. Performance figures reflect past performance
only and are not intended to indicate future performance. Average annual returns
tend to smooth out variations in the fund's return, so they differ from actual
year-by-year results.
Prior to May 1, 1996, International Equity was named Legg Mason Global
Equity Trust ("Global Equity"). Global Equity invested primarily in common
stocks of companies located anywhere in the world, including the United States.
Since May 1, 1996, with this name change, International Equity invests in common
stocks located outside the United States.
Total returns as of December 31, 1997 were as follows:

<TABLE>
<CAPTION>
CUMULATIVE TOTAL GLOBAL INTERNATIONAL EMERGING
RETURN GOVERNMENT EQUITY MARKETS
- ----------------------------------------------------------
<S> <C> <C> <C>
Primary Class:
One Year -1.69% +1.76% -6.18%(C)
Life of Class +35.29%(A) +28.16%(B) -1.11%(D)
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
- ----------------------------------------------------------
<S> <C> <C> <C>
Primary Class:
One Year -1.69% +1.76% -6.18%(C)
Life of Class +6.62%(A) +9.02%(B) -0.70%(D)
</TABLE>

No adjustment has been made for any income taxes payable by shareholders.
The investment return and principal value of an investment in the Funds will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns would have been lower if LMFA had not waived
certain fees during the periods presented above. Because Navigator Shares have
lower total expenses, they will generally have a higher return than Primary
Shares. As of the date of this Prospectus, Navigator Shares have no performance
history.
Global Government also may advertise its YIELD. Yield reflects net
investment income per share (as defined by applicable SEC regulations) over a
30-day (or one-month) period, expressed as an annualized percentage of net asset
value 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., the compounding effect of
reinvestment). Yield computations differ from other accounting methods and
therefore may differ from dividends actually paid or reported net income.
Further information about each Fund's performance is contained in the
Corporation's annual report to shareholders, which may be obtained without
charge by calling a financial advisor at Fairfield, Legg Mason or Legg Mason's
Funds Marketing Department at 800-822-5544.

<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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 total 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 Western Asset 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 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 Western Asset to be of
comparable quality; and bank certificates of deposit and bankers'
acceptances judged by Western Asset 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 Western Asset 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 fixed-income securities (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 Union, 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 been issued by numerous emerging market governments, and
other such governments are expected to issue them in the future. Brady
Bonds currently are rated below investment grade. As of the date of this
Prospectus, Western Asset 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.
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").

<PAGE>
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. Western Asset 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, Futures
and Forward Currency Exchange Contracts," page 13 and "Risks of Futures,
Options and Forward Currency Exchange Contracts," page 14. The Fund may
purchase securities on a when-issued basis and enter into forward
commitments to purchase securities (see page 18); 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."
When Western Asset believes such action is warranted by abnormal
market or economic situations, the Fund may invest temporarily without
limit in cash and U.S. dollar-denominated money market instruments
including repurchase agreements.

INTERNATIONAL EQUITY'S investment objective is to seek maximum
long-term total return. The Fund attempts to meet this objective by
investing primarily in equity securities of companies located outside the
United States. Under normal circumstances, the Fund will invest at least
65% of its total assets in equity securities of issuers located outside
the United States. In implementing this policy, Batterymarch currently
intends to invest substantially all of the Fund's assets in non-U.S.
equity securities. Batterymarch examines securities from over 20
international stock markets, with emphasis on several of the
largest -- Japan, the United Kingdom, France, Canada and Germany. 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
emerging market securities.
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, when
Batterymarch believes such action is warranted by abnormal market or
economic situations, the Fund may invest without limit in cash and U.S.
dollar-denominated money market instruments, including repurchase
agreements of domestic issuers. When Batterymarch believes such action is
warranted by abnormal market or economic situations, 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, judged 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 Currency Exchange
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.

EMERGING MARKETS' investment objective is long-term capital
appreciation. The Fund attempts to meet this objective by investing at
least 65% of its total assets in emerging market equity securities under
normal conditions.
Assets not invested in emerging market equity securities may be
invested in any combination of debt securities of the U.S. Government,
equity securities of issuers in developed countries, cash and money market
instruments, including repurchase agreements. Batterymarch intends to be
substantially fully invested in equity securities and

<PAGE>
convertible securities of emerging market issuers. The Fund may use
options and stock index futures as discussed below. It may also enter into
forward foreign currency exchange contracts in order to protect against
fluctuations in exchange rates. However, appropriate hedging instruments
are not available with respect to most emerging markets, and the Fund
accordingly will not often employ hedging strategies. See "Options,
Futures and Forward Currency Exchange Contracts," page 13, and "Risks of
Futures, Options, Futures and Forward Currency Exchange Contracts," page
14.
The Fund may invest in the following types of equity securities:
common stock, preferred stock, securities convertible into common stock,
rights and warrants to acquire such securities and substantially similar
forms of equity with comparable risk characteristics.
The Fund intends to invest in Asia, Latin America, the Indian
Sub-continent, Southern and Eastern Europe, the Middle East, and Africa,
although it may not invest in all these markets at all times and may not
invest in any particular market when it deems investment in that country
or region to be inadvisable.
More than 25% of the Fund's total assets may be denominated in a
single currency. Concentration in a single foreign currency will increase
the Fund's exposure to adverse developments affecting the value of that
currency. An issuer of securities purchased by the Fund may be domiciled
in a country other than the country in whose currency the securities are
denominated.
When abnormal market or economic situations warrant in the opinion of
Batterymarch, the Fund may invest without limit for temporary defensive
purposes in short-term debt instruments, including government, corporate
and money market securities of domestic issuers, as well as repurchase
agreements. Such short-term instruments will be rated in one of the four
highest rating categories by S&P or Moody's or, if unrated, judged by
Batterymarch to be of comparable quality.

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, among other things, 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;
these limits do not apply to U.S. government securities. 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 each 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).
As a fundamental policy, each Fund may borrow an amount equal to
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Because of the limited liquidity of
some emerging markets, Emerging Markets, in particular, may occasionally
be required to borrow to meet redemption requests. Borrowing may cause
greater fluctuation in share value, but also may enable the Fund to retain
favorable securities positions rather than liquidating them to meet
redemptions. None of the Funds will borrow for the purpose of leveraging
its portfolio. As a non-fundamental policy, none of the Funds may purchase
securities when outstanding borrowings exceed 5% of total assets.
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.

<PAGE>
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.
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.

Emerging Market Securities
Each Fund may invest in securities of issuers based in emerging
markets (including, but not limited to, countries in Asia, Latin America,
the Indian Sub-continent, Southern and Eastern Europe, the Middle East,
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 any of the
Funds 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. 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 in accordance with the criteria
of those organizations. The following are considered emerging market
securities: (1) securities publicly traded on emerging market stock
exchanges, or whose principal trading market is over-the-counter (i.e.,
off-exchange) in an emerging market; (2) securities (i) denominated in any
emerging market currency or (ii) denominated in a major currency if issued
by companies to finance operations in an emerging market; (3) securities
of companies that derive a substantial portion of their total revenues
from goods or services produced in, or sales made in, emerging markets;
(4) securities of companies organized under the laws of an emerging market
country or region, which are publicly traded in securities markets
elsewhere; and (5) American depositary receipts ("ADRs") (or similar
instruments) with respect to the foregoing.
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.
Over the last quarter of a century, inflation in many emerging market
countries has been significantly higher than the world average. While some
emerging market countries have sought to develop a number of corrective
mechanisms to reduce inflation or mitigate its effects, inflation may
continue to have significant effects both on emerging market economies and
their securities markets. In addition, many of the currencies of emerging
market countries have experienced steady devaluations relative to the U.S.
dollar, and major devaluations have occurred in certain countries.

<PAGE>
Because of the high levels of foreign-denominated debt owed by many
emerging market countries, fluctuating exchange rates can significantly
affect the debt service obligations of those countries. This could, in
turn, affect local interest rates, profit margins and exports which are a
major source of foreign exchange earnings. Although it might be
theoretically possible to hedge for anticipated income and gains, the
ongoing and indeterminate nature of the foregoing risks (and the costs
associated with hedging transactions) makes it virtually impossible to
hedge effectively against such risks.
To the extent an emerging market country faces a liquidity crisis with
respect to its foreign exchange reserves, it may increase restrictions on
the outflow of any foreign exchange. Repatriation is ultimately dependent
on the ability of the Fund to liquidate its investments and convert the
local currency proceeds obtained from such liquidation into U.S. dollars.
Where this conversion must be done through official channels (usually the
central bank or certain authorized commercial banks), the ability to
obtain U.S. dollars is dependent on the availability of such U.S. dollars
through those channels and, if available, upon the willingness of those
channels to allocate those U.S. dollars to the Fund. In such a case, the
Fund's ability to obtain U.S. dollars may be adversely affected by any
increased restrictions imposed on the outflow of foreign exchange. If the
Fund is unable to repatriate any amounts due to exchange controls, it may
be required to accept an obligation payable at some future date by the
central bank or other governmental entity of the jurisdiction involved. If
such conversion can legally be done outside official channels, either
directly or indirectly, the Fund's ability to obtain U.S. dollars may not
be affected as much by any increased restrictions except to the extent of
the price which may be required to be paid for the U.S. dollars.
Many emerging market countries have little experience with the
corporate form of business organization, and may not have well developed
corporation and business laws or concepts of fiduciary duty in the
business context.
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; 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.

<PAGE>
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.

Preferred Stock
Each Fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of its adviser, 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.

<PAGE>
Reverse Repurchase Agreements and Other Borrowing
In a reverse repurchase agreement, a 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. Each Fund may also enter into
dollar rolls, in which a 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, that 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.
Each 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.
To avoid potential leveraging effects of borrowing (including reverse
repurchase agreements and dollar rolls), each Fund will not purchase
securities while such borrowing is in excess of 5% of its total assets.
Each Fund will limit its borrowing to no more than one-third of its total
assets.

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's
custodian. 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 which cannot
be expected to be sold within seven days at approximately the price at
which it is valued ("illiquid assets"), if such acquisition would cause
the aggregate value of that Fund's 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 may have difficulty disposing of such securities
promptly.
The Funds do not consider foreign securities to be restricted 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.

<PAGE>
or the underlying security. ADRs may also be subject to exchange rate
risks if the underlying securities are denominated in foreign currency.
Some of these depositary receipts may be issued in bearer form. For
purposes of their investment policies, each Fund will treat ADRs and
similar instruments as equivalent to investment in the underlying
securities.

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 amount
of a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. Options, futures and forward currency
exchange contracts are generally considered to be "derivatives."

<PAGE>
in exchange rates between foreign currencies and the U.S. dollar.
Each Fund may utilize futures contracts and options to a limited
extent. Specifically, a Fund may enter into futures contracts and related
options provided that not more than 5% of its net assets are required as a
futures contract deposit and/or premium; in addition, a Fund may not enter
into futures contracts or related options if, as 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 or option is priced more attractively than the underlying equity
security or index.
As noted above, it may be difficult or impossible to hedge exposures
in emerging markets, both because of the nature of the risks and because
of the limited availability of suitable hedging instruments.

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, 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.

<PAGE>
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.

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. Western Asset
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. The Fund may invest in
lower-rated debt securities of domestic issuers, 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 8. 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.
Although the market for lower-rated debt securities is not new, and
the market has previously weathered economic downturns, there has been in
recent years a substantial increase in the use of such securities to fund
corporate acquisitions and restructurings. Accordingly, the past
performance of the market for such securities may not be an accurate
indication of its performance during future economic downturns or periods
of rising interest rates. Although the prices of lower-rated bonds are
generally less sensitive to interest rate changes than those of
higher-rated bonds, the prices of lower-rated bonds may be more sensitive
to adverse economic changes and developments regarding the individual
issuer. Issuers of lower-rated debt securities are often highly leveraged
and may not have access to more traditional methods of financing.
The market for lower-rated securities may be thinner and less active
than that for higher-rated securities. As a result of the limited
liquidity of high yield securities, the valuation of these securities may
require greater judgment than is necessary with respect to securities
having more active markets. In addition, their prices have at times
experienced rapid decline when a significant number of holders of such
securities decided to sell them. Widespread sales may result from adverse
publicity and investor perceptions, whether or not based on fundamental
analysis.
Debt securities may be subject to mandatory call provisions. If
issuers were to invoke these provisions during periods of declining
interest rates, the Fund would receive redemption proceeds at times when
only lower-yielding securities were available for investment by the Fund.
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, 1997, 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. A further description of Moody's and S&P's ratings is included
in the Appendix to the Statement of Additional Information.

<TABLE>
<CAPTION>
Aaa/
MOODY'S RATINGS Aa/A Baa Ba B Caa Ca C NR
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average 74.2% 4.5% 16.9% 2.9% -- 1.5% -- --%
</TABLE>

<PAGE>
Global Government held no unrated securities during the fiscal year.

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), securities supported solely by
the discretionary authority of the U.S. Treasury to lend to the issuer of
the issuer (such as Fannie Mae and Freddie Mac securities).

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.
Interest 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
the 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 the Fund to incur a loss on a
mortgage-related security that was purchased at a premium. In determining
the Fund's average maturity, Western Asset 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 Freddie
Mac, Fannie Mae, 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

<PAGE>
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 non-governmental securities are collateralized
by securities issued by Freddie Mac, Fannie Mae 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.

<PAGE>
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 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 the
Fund must distribute substantially all of its income to its shareholders
to qualify for pass-through treatment under the federal income tax laws,
the Fund, as an investor 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.

Forward Commitments
The Fund may enter into commitments to purchase U.S. government
securities or other securities on a "forward commitment" basis, including
purchases on a "when-issued" basis or a "to be announced" basis. When such
transactions are negotiated, the price is fixed, at the time the
commitment is made, but delivery and payment for the securities takes
place at a later date. Such securities are often the most efficiently
priced and have the best liquidity in the bond market. During the period
between a commitment and settlement, no payment is made by the purchaser
for the securities purchased and, thus, no interest accrues to the
purchaser from the transaction. In a to be announced transaction, the Fund
has committed to purchase securities for which all specific information is
not yet known at the time of the trade, particularly the exact face amount
in forward commitment mortgage-backed securities transactions.
The Fund may sell the securities subject to a forward commitment
purchase, which may result in a gain or loss. When the Fund purchases
securities on a forward commitment basis, it assumes the risks of
ownership, including the risk of price fluctuation, at the time of
purchase, not at the time of receipt. Purchases of forward commitment
securities also involve a risk of loss if the seller fails to deliver
after the value of the securities has risen. Depending on market
conditions, the Fund's forward commitment purchases could cause its net
asset value to be more volatile. The Fund will direct its custodian to
place cash or U.S. government obligations in a separate account equal to
the commitments of the Fund to purchase securities as a result of its
forward commitment obligation.
The Fund may also enter into a forward commitment to sell only those
securities it owns and will do so only with the intention of actually
delivering the securities. The use of forward commitments enables the Fund
to hedge against anticipated changes in interest rates and prices. In a
forward sale, the Fund does not participate in gains or losses on the
security occurring after the commitment date. The Fund will direct its
custodian to place the securities in a separate account. Forward
commitments to sell securities also involve a risk of loss if the seller
fails to take delivery after the value of the securities has declined.
Further risks involving forward commitments are discussed in the section
"Risks of Futures, Options and Forward Currency Exchange Contracts,"
above.
The Fund does not expect that its purchases of forward commitments
will at any time exceed, in the aggregate, 20% of its total assets.

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 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. The value of such securities may change significantly if
their principal value or rate of return is linked or indexed to relative
exchange rates involving a foreign currency for which there is not a
readily available market.

<PAGE>
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 maturity 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.

FOR EACH FUND:

PORTFOLIO TURNOVER
For the year ended December 31, 1997, Global Government's portfolio
turnover rate was 241%, International Equity's portfolio turnover rate was
59% and Emerging Markets' portfolio turnover rate was 63%. 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, which 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 TO PURCHASE AND REDEEM SHARES
Institutional Clients of Fairfield may purchase Navigator Shares from
Fairfield, the principal offices of which are located at 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Other investors eligible to purchase
Navigator Shares may purchase them through a brokerage account with Legg
Mason.
Customers of certain Institutional Clients that maintain omnibus
accounts with the Funds' transfer agent may obtain shares through those
Institutions. Such Institutional Clients may receive payments from the
Funds' distributor for account servicing, and may receive payments from
their customers for other services performed. Investors otherwise eligible
to purchase Navigator Shares can purchase them from Legg Mason without
receiving or paying for such other services.
Certain institutions that have agreements with Legg Mason or the Funds
may be authorized to accept purchase and redemption orders on their
behalf. In that case, a Fund will be deemed to have received your purchase
or redemption order when the authorized institution accepts the order, and
your order will receive the next price calculated after the order has been
accepted by the institution. You should consult with your institution to
determine the time by which it must receive your order for you to purchase
or redeem Fund shares at that day's price. It is the institution's
responsibility to transmit your order to the Fund in a timely fashion.
Institutional Clients purchasing or holding Navigator Shares on behalf
of their Customers are responsible for the transmission of purchase and
redemption orders (and the delivery of funds) to each Fund on a timely
basis.

PURCHASE OF SHARES
The minimum investment is $50,000 for the initial purchase of
Navigator Shares of each Fund and $100 for each subsequent investment.
Each Fund may change these minimum amounts at its discretion.
Institutional Clients may set different minimums for their Customers'
investments in accounts invested in Navigator Shares.
Share purchases will be processed at the net asset value next
determined after Legg Mason or Fairfield has received your order; payment
must be made within three business days to the selling organization.
Orders received by Legg Mason or Fairfield 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 Legg Mason or Fairfield 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" on
page 21.

<PAGE>
Each Fund reserves the right to reject any order for its shares, to
suspend the offering of shares for a period of time, or to waive any
minimum investment requirements.
In addition to Institutional Clients purchasing shares directly from
Fairfield, Navigator Shares may be purchased through procedures
established by Fairfield in connection with requirements of Customer
Accounts of various Institutional Clients.
No sales charge is imposed by any of the Funds in connection with the
purchase of Navigator Shares. Depending upon the terms of a particular
Customer Account, however, Institutional Clients may charge their
Customers fees for automatic investment and other cash management services
provided in connection with investments in a Fund. Information concerning
these services and any applicable charges will be provided by the
Institutional Clients. This Prospectus should be read by Customers in
connection with any such information received from the Institutional
Clients. Any such fees, charges or other requirements imposed by an
Institutional Client upon its Customers will be in addition to the fees
and requirements described in this Prospectus.

REDEMPTION OF SHARES
Shares may ordinarily be redeemed by a shareholder via telephone, in
accordance with the procedures described below. However, Customers of
Institutional Clients wishing to redeem shares held in Customer Accounts
at the Institution may redeem only in accordance with instructions and
limitations pertaining to their Account at the Institution.
Fairfield clients can make telephone redemption requests by calling
Fairfield at 1-800-441-3885. Legg Mason clients should call their
financial advisors at 1-800-822-5544. Callers should have available the
number of shares (or dollar amount) to be redeemed and their account
number.
Orders for redemption received by Legg Mason or Fairfield before the
close of the Exchange on any day when the Exchange is open will be
transmitted to Boston Financial Data Services ("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 Legg Mason or Fairfield 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 Legg Mason or
Fairfield 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.
Shareholders may have their telephone redemption requests paid by a
direct wire to a domestic commercial bank account previously designated by
the shareholder, or mailed to the name and address in which the
shareholder's account is registered with the respective Fund. Such
payments will normally be transmitted on the next business day following
receipt of a valid request for redemption. The proceeds of redemption or
repurchase may be more or less than the original cost. If the shares to be
redeemed or repurchased were paid for by check (including certified or
cashier's checks) within 10 business days of the redemption or repurchase
request, the proceeds may not be disbursed unless that Fund can be
reasonably assured that the check has been collected.
Emerging Markets' investment objective results in it investing a
substantial portion of its assets in thinly traded stock which can
experience large price fluctuations and whose purchase and sale can
involve significant transaction costs. The Fund is intended for long-term
investors. Short-term "market timers" who engage in frequent purchases and
redemptions affect the Fund's investment planning and create additional
transaction costs which are borne by all shareholders. For this reason,
the Fund imposes a 2% redemption fee on all redemptions, including
exchanges, of Fund shares held for less than one year.
The redemption fee will be paid directly to the Fund to help offset
the costs imposed on it by short-term trading in emerging markets. The fee
will not be paid to either LMFA or Legg Mason. No fees are charged on
redemptions from Global Government or International Equity.
The fee will not apply to any shares purchased through reinvestment of
dividends or distributions or to shares held in retirement plans such as
401(k), 403(b), 457, SEP-IRA, profit sharing, and money purchase pension
accounts. The fee does apply to shares held in IRA accounts. The fee may
apply to shares in broker omnibus accounts.
The Fund will use the "first-in, first-out" (FIFO) method to determine
the one year holding period. Under this method, the date of redemption or
exchange will be compared with the earliest purchase date of shares held
in the account. If this holding period is less than one year, the
redemption fee will be assessed.
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

<PAGE>
request identifying information from callers or employ identification
numbers. A Fund may be liable for losses due to unauthorized or fraudulent
instructions if it does not follow reasonable procedures. Telephone
redemption privileges are available automatically to all shareholders
unless certificates have been issued. Shareholders who do not wish to have
telephone redemption privileges should call their financial advisor for
further instructions.
To the extent permitted by law, each Fund reserves the right to take
up to seven days to make payment upon redemption if, in the judgment of a
Fund's adviser, the respective Fund could be adversely affected by
immediate payment. (The Statement of Additional Information describes
several other circumstances in which the date of payment may be postponed
or the right of redemption suspended.)
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 the investor. 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 an account, the
shareholder will be notified that the account is below $500 and will be
allowed 60 days in which to make an additional investment in order to
avoid having the account closed.

HOW SHAREHOLDER ACCOUNTS ARE MAINTAINED
A shareholder account is established automatically for each
shareholder. Any shares the shareholder purchases or receives as a
dividend or other distribution will be credited directly to the account at
the time of purchase or receipt. Fund shares may not be held in, or
transferred to, an account with any brokerage firm that does not have an
agreement with Legg Mason or Fairfield. The Funds do not issue share
certificates.
Navigator Shares sold to Institutional Clients acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of persons
maintaining Customer Accounts at Institutional Clients will normally be
held of record by the Institutional Clients. Therefore, in the context of
Institutional Clients, references in this Prospectus to shareholders mean
the Institutional Clients rather than their Customers.

HOW NET ASSET VALUE IS DETERMINED
Net asset value per Navigator 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 Navigator Shares from the
total assets attributable to such shares and dividing the result by the
number of Navigator Shares outstanding. Each Fund's securities are valued
on the basis of market quotations or, lacking such quotations, at fair
value as determined under the guidance of the Board of Directors.
Securities 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 pricing 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 by
Global Government and are declared and paid annually by International
Equity and Emerging Markets. 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 financial
advisor. 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 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 a qualified

<PAGE>
retirement plan and by shareholders maintaining a Systematic Withdrawal
Plan generally are reinvested in Navigator Shares on the payment dates.
Shareholders may elect to:

1. Receive both dividends and other distributions in Navigator Shares
of the distributing Fund;
2. Receive dividends in cash and other distributions in Navigator
Shares of the distributing Fund;
3. Receive dividends in Navigator Shares of the distributing Fund and
other distributions in cash; or
4. Receive both dividends and other distributions in cash.

In certain cases, shareholders may reinvest dividends and other
distributions in Navigator Shares of another Navigator fund. Please
contact a financial advisor for additional information about this option.
Qualified retirement plans that obtained Navigator Shares through exchange
generally receive dividends and other distributions in additional
Navigator Shares.
If no election is made, both dividends and other distributions are
credited to the Institutional Client's account in Navigator 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
will be credited to the account at that net asset value.
If an investor elects to receive dividends and/or other distributions
in cash, a check will be sent. If the postal or other delilvery service is
unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to
having all dividends and other distributions reinvested in additional
Navigator Shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Investors purchasing through Fairfield may elect at any time to change
the distribution option by notifying the applicable Fund in writing at:
[insert complete Fund name], c/o Fairfield Group, Inc., 200 Gibraltar
Road, Horsham, Pennsylvania 19044. Those purchasing through Legg Mason
should write to: [insert complete Fund name], c/o Legg Mason Funds
Processing, P.O. Box 1476, Baltimore, Maryland, 21203-1476. An election
must be received at least 10 days before the record date in order to be
effective for dividends and other distributions paid to shareholders as of
that date.

TAXES
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code so that it will be relieved of federal
income tax on that part of its investment company taxable income
(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 it distributes to its shareholders.
Dividends from each Fund's investment company taxable income (whether
paid in cash or reinvested in Navigator Shares) are taxable to its
shareholders (other than qualified retirement plans or other tax-exempt
investors) as ordinary income to the extent of that Fund's earnings and
profits. Distributions of a Fund's net capital gain (whether paid in cash
or reinvested in Navigator 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. Under the Taxpayer Relief Act of 1997
("Tax Act"), different maximum tax rates apply to a noncorporate
taxpayer's net capital gain depending on the holding period of the
security and the taxpayer's marginal rate of federal income tax. The
relevant holding period is determined by how long the Fund has held the
portfolio security on which the gain was earned, not by how long you have
held your 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. The notice
will tell you what portion of the capital gain falls into each of the
different tax rate categories mentioned above.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and
certain other noncorporate shareholders who do not provide 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 Navigator 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 Navigator Shares of any Fund for shares of another
Legg Mason fund will generally have similar tax consequences. If Fund
shares are

<PAGE>
purchased within 30 days before or after redeeming at a loss other shares
of the same Fund (regardless of class), all or part of that loss will not
be deductible and instead will increase the basis of the newly purchased
shares.
A dividend or other distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to
federal income tax. Accordingly, an investor should recognize that a
purchase of Fund shares immediately prior to the record date for a
dividend or capital gain 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.
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 and/or total return 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.
If more than 50% of the value of International Equity's or Emerging
Markets' 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, such 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. Each of the Funds 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. If a
Fund makes this election, then pursuant to the Tax Act, individuals who
have no more than $300 ($600 for married persons filing jointly) of
creditable foreign taxes included on Forms 1099 and all of whose foreign
source income is "qualified passive income" will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that
otherwise is required.
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
Every shareholder of record will receive a confirmation of each new
share transaction with a Fund, which will also show the total number of
shares being held in safekeeping by the Fund's transfer agent for the
account of the shareholder.
Confirmations for each purchase and redemption transaction (except a
reinvestment of dividends or capital gain distributions) of Navigator
Shares made by Institutional Clients acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of persons maintaining
Customer Accounts at Institutional Clients will be sent to the
Institutional Client by the transfer agent. Beneficial ownership of shares
by Customer Accounts will be recorded by the Institutional Client and
reflected in the regular account statements provided by them to their
Customers.
Reports will be sent to each Fund's shareholders at least semiannually
showing its portfolio and other information; the annual report for each
Fund will contain financial statements audited by 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 or c/o Fairfield Group Inc., 200 Gibraltar Road, Horsham,
Pennsylvania 19044.

EXCHANGE PRIVILEGE
Holders of Navigator Shares are entitled to exchange them for the
corresponding class of shares of any of the Legg Mason Funds (including
the Legg Mason Cash Reserve Trust), the Navigator Money Market Fund, Inc.
and the Navigator

<PAGE>
Tax-Free Money Market Fund, Inc. provided that such shares are eligible
for sale in your state of residence. Some Institutional Clients may not
offer all of the Navigator Funds for exchange.
Investments by exchange into the other Navigator funds 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. To obtain further
information concerning the exchange privilege and prospectuses of other
Navigator funds, or to make an exchange, please contact your financial
advisor. To effect an exchange by telephone, please call your financial
advisor with the information described in the section "How to Purchase and
Redeem Shares," page 19. 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.
Emerging Markets imposes a 2% redemption fee on exchanges of shares
held less than one year. See page 20.

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.

MANAGEMENT AGREEMENTS
Each Fund has a management agreement with LMFA which was approved by
the Fund's Board of Directors (each a "Management Agreement"). Under the
Management Agreements, LMFA is obligated to provide the Funds with
investment management and administrative services, and to oversee the
Funds' relationships with outside service providers, such as the
custodian, transfer agent, accountants, and lawyers.
For services under the Management Agreements, LMFA receives a fee from
each Fund, calculated daily and payable monthly, at the following annual
rates:

<TABLE>
<S> <C>
Global Government 0.75%
International Equity 0.75%
Emerging Markets 1.00%
</TABLE>

Because of fee waivers (see below), Emerging Markets paid a management
fee of 0.64% during the fiscal year ended December 31, 1997.

ADVISORY AGREEMENTS
LMFA has entered into investment advisory agreements with Western
Asset and Batterymarch (each an "Advisory Agreement") to provide
investment advisory services to the Funds. These advisers have the
responsibility for making investment decisions and placing orders to buy
or sell a particular security.
Under its Advisory Agreement, Batterymarch serves as investment
adviser to International Equity and Emerging Markets. Batterymarch
receives an advisory fee from LMFA, computed daily and paid monthly at an
annual rate equal to 0.50% of International Equity's average daily net
assets and 0.75% of Emerging Markets' average daily net assets, prior to
any fee waivers, as discussed below.
Under its Advisory Agreement, Western Asset serves as investment
adviser to Global Government. Western Asset receives an advisory 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 Global Management, Ltd. ("Western Asset Global") serves
as investment sub-adviser to Global Government pursuant to the terms of a
sub-advisory agreement with Western Asset dated May 1, 1997. Western Asset
Global is responsible for providing research, analytical and trading
support for the Fund's investment program, as well as exercising
investment discretion for part of the portfolio, subject to the
supervision of Western Asset and LMFA. As compensation for Western Asset
Global's services and for expenses borne by Western Asset Global under the
sub-advisory agreement, Western Asset Global is paid monthly by Western
Asset (not the Fund) at an annual rate equal to 0.20% of the Fund's
average daily net assets. Western Asset Global also receives a
sub-administration fee from LMFA at an annual rate equal to 0.10% of the
Fund's average daily net assets for certain administrative services
performed.

FEE WAIVERS
LMFA has agreed to waive its fees in any month to the extent a Fund's
expenses related to Navigator Shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during that month annual
rates of that Fund's average daily net assets attributable to Navigator
shares, as follows:

<TABLE>
<S> <C>
Global Government 1.15%, indefinitely
International Equity 1.25%, indefinitely
Emerging Markets 1.50% until May 1, 1999
</TABLE>

<PAGE>
These agreements are voluntary and may be terminated by LMFA at any
time. Each Fund pays all its other expenses which are not assumed by LMFA.

EXPENSE RATIOS
For the fiscal year ended December 31, 1997, the ratio of each Fund's
expenses to its average net assets (after application of any fee waivers)
was:

<TABLE>
<S> <C>
Global Government 1.11%
International Equity 1.17%
Emerging Markets 1.50%
</TABLE>

LMFA
LMFA acts as adviser or manager to seventeen investment company
portfolios which had aggregate assets under management of approximately
$11.2 billion as of March 31, 1998. LMFA's address is 100 Light Street,
Baltimore, Maryland 21202.
Like other mutual funds, financial and business organizations around
the world, the Funds could be adversely affected if the computer systems
used by LMFA and other service providers do not properly process and
calculate date-related information and data from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." LMFA is taking
steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Funds' other,
major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the
Funds.

WESTERN ASSET
Western Asset renders investment advice to fifteen open-end investment
companies and one closed-end investment company which together had
aggregate assets under management of approximately $5.2 billion as of
March 31, 1998. Western Asset also renders investment advice to private
accounts with fixed-income assets under management of approximately $33.7
billion as of that date. Western Asset has managed fixed-income portfolios
continuously since its founding in 1971, and has focused exclusively on
such accounts since 1984. The address of Western Asset is 117 East
Colorado Boulevard, Pasadena, California 91105.

WESTERN ASSET GLOBAL
Western Asset Global, located at 155 Bishops-
gate, London EC2M 3 TY, also renders investment advice to institutional,
private and commingled fund portfolios with assets of over $3.0 billion as
of March 31, 1998. Western Asset Global has managed global fixed-income
assets for U.S. and non-U.S. clients since 1984.

BATTERYMARCH
Batterymarch acts as investment adviser to institutional accounts,
such as corporate pension plan, mutual funds and endowment funds, as well
as to individual investors. Total assets under management by Batterymarch
were approximately $4.3 billion as of March 31, 1998. The address of
Batterymarch is 200 Clarendon Street, Boston, Massachusetts 02116.

PORTFOLIO MANAGEMENT
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 and Senior Portfolio
Manager at Western Asset since December 1994.
Batterymarch investment teams are responsible for the day-to-day
management of International Equity and Emerging Markets.

THE FUNDS' DISTRIBUTOR
Legg Mason is the distributor of each Fund's shares pursuant to a
separate Underwriting Agreement with each Fund. The Underwriting Agreement
obligates Legg Mason to pay certain expenses in connection with the
offering of shares of the Funds, including any compensation to its
financial advisors, the printing and distribution of prospectuses,
statements of additional information and periodic reports used in
connection with the offering to prospective investors, after the
prospectuses, statements of additional information and reports have been
prepared, set in type and mailed to existing shareholders at each Fund's
expense, and for any supplementary sales literature and advertising costs.
Legg Mason also receives a fee from BFDS for assisting it with its
transfer agent and shareholder servicing functions.
Legg Mason is a wholly owned subsidiary of Legg Mason, Inc., which is
also the parent of the Manager, the Advisers, and Fairfield.
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.
Fairfield Group, Inc. is a registered broker-dealer with principal
offices located at 200 Gibraltar Road, Horsham, Pennsylvania 19044.
Fairfield sells Navigator Shares pursuant to a Dealer Agreement with Legg
Mason.
Legg Mason and LMFA may make payments out of their own assets to
Fairfield or others to

<PAGE>
support the distribution of Navigator Shares and shareholder servicing.
The 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 in accordance with SEC rules. 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 perceived political and economic stability of the
countries in which the sub-custodians will be located and perceived risks
of potential nationalization or expropriation of Fund assets are
considered. No assurance can be given that the 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. Securities traded abroad are more likely to be in
bearer form, which heightens the risk of loss through inadvertance or
theft. In such event, a Fund may be dependent on its foreign custodian,
the custodian's business insurance, or foreign law for any recovery.

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 common stock par value $.001 per share and to create
additional series, each of which may issue separate classes of shares.
Each Fund currently offer two classes of shares -- Class Y (known as
"Navigator Shares") and Class A (known as "Primary Shares"). The two
classes represent interests in the same pool of assets. A separate vote is
taken by a class of shares of a Fund if a matter affects just that class
of shares. Each class of shares may bear certain differing class-specific
expenses. Salespersons and others entitled to receive compensation for
selling or servicing Fund shares may receive more with respect to one
class than another.
Investors may obtain more information concerning the Primary Class
from their financial advisor or by calling 1-800-822-5544.
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 Board 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 100 Light 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 omissions regarding another Fund in this
Prospectus or in the joint Statement of Additional Information; however,
the Funds deem this possibility slight.

<PAGE>
Notes

<PAGE>

LEGG MASON GLOBAL FUNDS

LEGG MASON GLOBAL TRUST, INC.:
LEGG MASON GLOBAL GOVERNMENT TRUST
LEGG MASON INTERNATIONAL EQUITY TRUST
LEGG MASON EMERGING MARKETS TRUST

PRIMARY SHARES AND NAVIGATOR SHARES

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectuses for Primary Shares and for
Navigator Shares of the Funds, both dated May 1, 1998, which have been filed
with the Securities and Exchange Commission ("SEC"). Copies of the Prospectuses
are available without charge from the Corporation's distributor, Legg Mason Wood
Walker, Incorporated ("Legg Mason") (address and telephone numbers listed
below).

Legg Mason Global Government Trust ("Global Government"), Legg Mason
International Equity Trust ("International Equity") and Legg Mason Emerging
Markets Trust ("Emerging Markets") (each a "Fund" ) are separate series of Legg
Mason Global Trust, Inc. ("Corporation"), an open-end, management investment
company.

GLOBAL GOVERNMENT, a non-diversified, professionally managed portfolio,
seeks capital appreciation and current income in order to achieve an attractive
total return, consistent with prudent investment risk, by normally investing at
least 75% of its total assets in debt securities issued or guaranteed by foreign
governments, the U. S. Government, their agencies, instrumentalities and
political subdivisions. Under normal circumstances, the Fund invests at least
75% of its assets in debt securities of foreign or domestic governmental
entities, corporations, financial institutions or other issuers 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 ("unrated securities"), judged
by Western Asset Management Company ("Western Asset"), the Fund's investment
adviser, to be of comparable quality.

INTERNATIONAL EQUITY, a diversified, professionally managed portfolio,
seeks 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 at least 65% of its total assets in
common stocks of companies located in countries other than the United States.
The Fund may invest 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").

EMERGING MARKETS is a diversified, professionally managed portfolio
seeking long-term capital appreciation. In attempting to achieve the Fund's
objective, Batterymarch, as investment adviser to the Fund, normally invests at
least 65% of the Fund's total assets in equity securities of emerging markets
companies. The Fund considers emerging markets to include (i) countries that
have an emerging stock market as defined by the International Finance
Corporation, (ii) those markets with low- to middle-income economies according
to the World Bank, (iii) those listed in World Bank publications as developing
and (iv) countries determined by Batterymarch to be emerging markets in
accordance with the criteria of the foregoing organizations. Equity

<PAGE>

securities in which the Fund may invest include common stocks, preferred stocks,
convertible securities and warrants.

Shares of Navigator Global Government, Navigator International Equity
and Navigator Emerging Markets ("Navigator Shares"), described in this Statement
of Additional Information, represent interests in Global Government,
International Equity and Emerging Markets that 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 (such
institutional investors are referred to collectively as "Institutional Clients"
and accounts of the customers with such Clients ("Customers") are referred to
collectively as "Customer Accounts"), to qualified retirement plans managed on a
discretionary basis and having net assets of at least $200 million, and to any
qualified retirement plan of Legg Mason, Inc. or of any of its affiliates. The
Navigator Class of Shares may not be purchased by individuals directly, but
Institutional Clients may purchase shares for Customer Accounts maintained for
individuals.

The Primary Class of shares of Global Government, International Equity
and Emerging Markets ("Primary Shares") is offered for sale to all other
investors and may be purchased directly by individuals.

Primary and Navigator Shares of Global Government and International
Equity are sold and redeemed without any purchase or redemption charge imposed
by the Funds. Primary and Navigator Shares of Emerging Markets are sold without
any purchase charge but may incur a redemption fee of 2% if shares are redeemed
within one year of purchase. Institutional Clients may charge their Customer
Accounts for services provided in connection with the purchase or redemption of
Navigator Shares. Each Fund will pay management fees to Legg Mason Fund Adviser,
Inc. ("LMFA"). Primary Shares pay a 12b-1 distribution fee, but Navigator Shares
pay no distribution fees. See "The Funds' Distributor."

LEGG MASON WOOD WALKER, INCORPORATED
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544

<PAGE>

ADDITIONAL INFORMATION ABOUT INVESTMENT
LIMITATIONS AND POLICIES

The following information supplements the information concerning each
Fund's investment objectives, policies and limitations found in the
Prospectuses. Each Fund has adopted certain fundamental investment limitations
that cannot be changed except by vote of that Fund's shareholders.

Global Government may not:

1. Borrow money, except from banks or through reverse repurchase
agreements or dollar rolls for temporary purposes in an aggregate amount not to
exceed 33 1/3% of the total assets, including borrowings, less liabilities
exclusive of borrowings, of the Fund; provided that borrowings, including
reverse repurchase agreements and dollar rolls, in excess of 5% of such value
will be only from banks (although not a fundamental policy subject to
shareholder approval, the Fund will not purchase securities if borrowings,
including reverse repurchase agreements and dollar rolls, exceed 5% of its total
assets);

2. Issue senior securities, except as permitted by the Investment
Company Act of 1940 ("1940 Act");

3. Underwrite the securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;

4. Buy or hold any real estate other than instruments secured by real
estate or interests therein;

5. Purchase or sell any commodities or commodities contracts, except
that the Fund may purchase or sell currencies, interest rate and currency
futures contracts, options on currencies and securities indexes and options on
interest rate and currency futures contracts;

6. Make loans, except loans of portfolio securities and except to the
extent the purchase of notes, bonds, loans, loan participations and advances in
connection therewith or other evidences of indebtedness, the entry into
repurchase agreements, or deposits with banks and other financial institutions
may be considered loans;

7. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the securities of issuers having their
principal business activities in the same industry. This limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements with respect thereto.

International Equity may not:

1. Borrow money, except from banks or through reverse repurchase
agreements or dollar rolls for temporary purposes in an aggregate amount not to
exceed 33 1/3% of the total assets (including borrowings), less liabilities
(exclusive of borrowings), of the Fund; provided that borrowings, including
reverse repurchase agreements and dollar rolls, in excess of 5% of such value
will be only from banks (although not a fundamental policy subject to
shareholder approval, the Fund will not purchase securities if borrowings,
including reverse repurchase agreements and dollar rolls, exceed 5% of its total
assets);

<PAGE>

(other than, in each case, cash items, securities of the U.S. Government, its
agencies and instrumentalities, and securities issued by other investment
companies);

3. Issue senior securities, except as permitted by the 1940 Act;

4. Engage in the business of underwriting the securities of other
issuers except insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, in disposing of a portfolio security;

5. Buy or hold any real estate other than instruments secured by real
estate or interests therein;

6. Purchase or sell any commodities or commodities contracts, except
that the Fund may purchase or sell currencies; futures contracts on currencies,
securities or securities indexes, options on currencies, securities, and
securities indexes; and options on interest rate and currency futures contracts;

7. Make loans, except loans of portfolio securities and except to the
extent the purchase of notes, bonds, or other evidences of indebtedness, the
entry into repurchase agreements, or deposits with banks and other financial
institutions may be considered loans;

8. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the securities of issuers having their
principal business activities in the same industry. This limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements with respect thereto.

Emerging Markets may not:

1. Borrow money, except from banks or through reverse repurchase
agreements or dollar rolls for temporary purposes in an aggregate amount not to
exceed 33 1/3% of the total assets (including borrowings), less liabilities
(exclusive of borrowings), of the Fund; provided that borrowings, including
reverse repurchase agreements and dollar rolls, in excess of 5% of such value
will be only from banks (although not a fundamental policy subject to
shareholder approval, the Fund will not purchase securities if borrowings,
including reverse repurchase agreements and dollar rolls, exceed 5% of its total
assets);

2. With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at market value) in securities of any one issuer, or
purchase more than 10% of the voting securities of any one issuer (other than,
in each case, cash items, securities of the U.S. Government, its agencies and
instrumentalities, and securities issued by other investment companies);

3. Issue senior securities, except as permitted by the 1940 Act;

5. Buy or hold any real estate other than instruments secured by real
estate or interests therein;

<PAGE>

The foregoing investment limitations of each Fund cannot be changed
without the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or (2) 67% or more of the shares of the Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy. Except with
respect to the 33 1/3% limit in investment limitation number 1, if a percentage
restriction is adhered to at the time of an investment or transaction, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or amount of total assets will not be considered to exceed
any of the foregoing limitations.

Except as otherwise specified, the following investment limitations and
policies, and all other investment limitations and policies of the Funds, are
non-fundamental and may be changed by the Corporation's Board of Directors
without shareholder approval.

Each Fund may not:

1. Buy securities on "margin," except for short-term credits necessary
for clearance of portfolio transactions and except that a Fund may make margin
deposits in connection with the use of permitted futures contracts and options
on futures contracts as well as options on currencies, securities and securities
indexes;

2. Make short sales of securities or maintain a short position, except
that a Fund may (a) make short sales and maintain short positions in connection
with its use of options, futures contracts and options on futures contracts and
(b) sell short "against the box" (Global Government does not intend to make
short sales in excess of 5% of its net assets during the coming year and
International Equity does not intend to make short sales during the coming
year);

In addition, Global Government may not:

3. Purchase any security if, as a result thereof, 25% or more of its
total assets would be invested in the securities of issuers having their
principal business activities in the same industry. This limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements with respect thereto.

RATINGS OF DEBT OBLIGATIONS

Moody's, S&P and other nationally recognized or foreign statistical
rating organizations ("SROs") are private organizations that provide ratings of
the credit quality of debt obligations. A description of the ratings assigned to
corporate debt obligations by Moody's and S&P is included in Appendix A. A Fund
may consider these ratings in determining whether to purchase, sell or hold a
security. Ratings issued by Moody's or S&P represent only the opinions of those
agencies and are not guarantees of credit quality. Consequently, securities with
the same maturity, interest rate and rating may have different market prices.
Credit rating agencies attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value. Also,
rating agencies may fail to make timely changes in credit ratings in

<PAGE>

response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.

The following information about investment policies applies only to Global
Government:

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.

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 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.

SOVEREIGN DEBT

Investments in debt securities issued by foreign governments and their
political subdivisions or agencies ("Sovereign Debt") involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal and/or interest when due
in accordance with the terms of such debt, and the Fund may have limited legal
recourse in the event of a default.

Sovereign Debt differs from debt obligations issued by private entities
in that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, holders of commercial
bank debt issued by the same sovereign entity may contest payments to the
holders of Sovereign Debt in the event of default under commercial bank loan
agreements.

A sovereign debtor's willingness or ability to repay principal and
interest due 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 a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.

<PAGE>

The ability of some sovereign debtors to repay their obligations may
depend on the timely receipt of assistance from international agencies or other
governments, the flow of which is not assured. The willingness of such agencies
to make these payments may depend on the sovereign debtor's willingness to
institute certain economic changes, the implementation of which may be
politically difficult.

The occurrence of political, social or diplomatic changes in one or
more of the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Western Asset intends to manage investments in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause the Fund to suffer a loss of
interest or principal on any of its holdings.

MORTGAGE-RELATED SECURITIES

Mortgage-related securities represent participations in, or are secured
by and payable from, mortgage loans secured by real property. These securities
are designed to provide monthly payments of interest and, in most instances,
principal to the investor. The mortgagor's monthly payments to his/her lending
institution are "passed through" to investors such as the Fund. Many issuers or
poolers provide guarantees of payments, regardless of whether the mortgagor
actually makes the payment. These guarantees are often backed by various forms
of credit, insurance and collateral, although these may be in amounts less than
the full obligation of the pool to its shareholders.

Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of one- to four-family homes. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. In addition to fixed-rate, fixed-term
mortgages, the Fund may purchase pools of variable-rate mortgages,
growing-equity mortgages, graduated-payment mortgages and other types.

All poolers apply standards for qualification to lending institutions
which originate mortgages for the pools. Poolers also establish credit standards
and underwriting criteria for individual mortgages included in the pools. In
addition, many mortgages included in pools are insured through private mortgage
insurance companies.

The average life of mortgage-related securities varies with the
maturities and the nature of the underlying mortgage instruments, as well as
with market interest rates. For example, securities issued by the Government
National Mortgage Association ("GNMAs") tend to have a longer average life than
participation certificates ("PCS") issued by Freddie Mac because there is a
tendency for the conventional and privately- insured mortgages underlying
Freddie Mac PCS to repay at faster rates than the Federal Housing Administration
and Veterans Administration loans underlying GNMAs. In addition, the term of a
security may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Thus, an increase in interest rates can slow prepayments
effectively extending the maturity of mortgage-related securities and making
them more sensitive to changes in value caused by interest-rate fluctuations.

Yields on mortgage-related securities are typically quoted based on the
maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
yield expected on the basis of average life. The compounding effect from
reinvestments of monthly payments received by the Fund will increase the yield
to shareholders compared to bonds that pay interest semi-annually.

<PAGE>

PRIVATE MORTGAGE-RELATED SECURITIES

The private mortgage-related securities in which the Fund may invest
include foreign mortgage pass-through securities ("Foreign Pass-Throughs"),
which are structurally similar to the pass-through instruments described above.
Such securities are issued by originators of and investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers, specialized financial institutions and special purpose
subsidiaries of the foregoing. Foreign Pass-Throughs usually are backed by a
pool of fixed rate or adjustable-rate mortgage loans. The Foreign Pass-Throughs
in which the Fund may invest are not guaranteed by an entity having the credit
status of the Government National Mortgage Association, but generally utilize
various types of credit enhancement.

OTHER DEBT SECURITIES

The rate of return or return of principal on some obligations may be
linked or indexed to the level of exchange rates between the U.S. dollar and a
foreign currency or currencies.

The market for lower-rated securities may be thinner and less active
than that for higher-rated securities, which can adversely affect the prices at
which these securities can be sold, and may make it difficult for the Fund to
obtain market quotations daily. If market quotations are not available, these
securities will be valued by a method that the Corporation's Board of Directors
believes accurately reflects fair market value. Judgment may play a greater role
in valuing lower-rated debt securities than is the case with respect to
securities for which a broader range of dealer quotations and last-sale
information is available.

BANK OBLIGATIONS

Bank obligations in which the Fund may invest include certificates of
deposit, bankers' acceptances and time deposits in U.S. banks (including foreign
branches) which have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation. The Fund also may invest in certificates of deposit of
savings and loan associations (federally or state chartered and federally
insured) having total assets in excess of $1 billion.

The Fund may invest in obligations of domestic or foreign branches of
foreign banks and foreign branches of domestic banks. These investments involve
risks that are different from investments in securities of domestic branches of
domestic banks. These risks include seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions which might
affect the payment of principal or interest on the bank obligations held by the
Fund.

The Fund limits its investments in foreign bank obligations to U.S.
dollar-denominated or foreign currency-denominated obligations of foreign banks
(including U.S. branches of foreign banks) which at the time of investment (1)
have more than $10 billion, or the equivalent in other currencies, in total
assets; (2) have branches or agencies (limited purpose offices which do not
offer all banking services) in the United States; and (3) are judged by Western
Asset to be of comparable quality to obligations of U.S. banks in which the Fund
may invest. Subject to the limitation on concentration of less than 25% of the
Fund's assets in the securities of issuers in a particular industry, there is no
limitation on the amount of the Fund's assets which

<PAGE>

may be invested in obligations of foreign banks which meet the conditions set
forth herein. Foreign banks are not generally subject to examination by any U.S.
government agency or instrumentality.

The following information about investment policies applies to each Fund:

FOREIGN INVESTMENTS

Investors should recognize that investing in foreign companies involves
certain special considerations which are not typically associated with investing
in U.S. companies. Certain countries prohibit or impose substantial restrictions
on investments in their capital markets, particularly their equity markets, by
foreign entities such as the Funds. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the cost and
expenses of the Fund. For example, certain countries require prior governmental
approval before investments by foreign persons may be made, or may limit the
amount of investment by foreign persons in a particular company, or may limit
the investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals. Moreover, the national policies of certain
countries may restrict investment opportunities in issuers or industries deemed
sensitive to national interests.

Some countries require governmental approval for the repatriation of
investment income, capital or the proceeds of securities sales by foreign
investors. In addition, if there is a deterioration in a country's balance of
payments or for other reasons, a country may impose restrictions on foreign
capital remittances abroad. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation.

Certain countries in which a Fund may invest may have groups that
advocate radical religious or political philosophies or support ethnic
independence. Disturbances involving such groups carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to that country or ethnic region and could cause the loss of a
Fund's investment in those areas. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with other countries. Such political, social and economic instability could
disrupt the principal financial markets in which a Fund invests and adversely
affect the value of a Fund's assets.

Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging market countries have
previously expropriated large quantities of real and personal property similar
to the property which will be represented by the securities purchased by the
Funds. The claims of property owners against those governments were never
finally settled. There can be no assurance that any property represented by
securities purchased by a Fund will not also be expropriated, nationalized, or
otherwise confiscated. If such confiscation were to occur, a Fund could lose its
entire investment in such countries.

Although a Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions, commissions on many foreign stock exchanges are
at fixed rates, and generally these are higher than negotiated commissions on
U.S. exchanges.

Delays in settlement could result in temporary periods when assets of a
Fund are uninvested and no return is earned thereon. The inability of a Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value

<PAGE>

of the portfolio security or, if the Fund has entered into a contract to sell
the security, could result in possible liability to the purchaser.

The Funds may use foreign subcustodians, which may involve risks in
addition to those related to the use of U.S. custodians. Such risks include
uncertainties relating to: (I) determining and monitoring the financial
strength, reputation and standing of the foreign custodian; (ii) maintaining
appropriate safeguards to protect the Fund's investments and (iii) possible
difficulties in obtaining and enforcing judgments against such custodians.

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies whose securities are held by a Fund.

CURRENCY FLUCTUATIONS

Each Fund, under normal circumstances, will invest a substantial
portion of its total assets in the securities of foreign issuers which are
denominated in foreign currencies and may temporarily hold uninvested cash in
bank deposits in foreign currencies. Accordingly, the strength or weakness of
the U.S. dollar against such foreign currencies may account for a substantial
part of a Fund's investment performance. The rate of exchange between the U.S.
dollar and other currencies is determined by several factors, including the
supply and demand for particular currencies, central bank efforts to support
particular currencies, the relative movement of interest rates and pace of
business activity in the other countries and the U.S., and other economic and
financial conditions affecting the world economy.

A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of the Fund's holdings of
securities and cash denominated in such currency and, therefore, will cause an
overall decline in the Fund's net asset value and any net investment income and
capital gains derived from such securities to be distributed in U.S. dollars to
shareholders of a Fund. Moreover, if the value of the foreign currencies in
which the Fund receives its income falls relative to the U.S. dollar between
receipt of the income and the making of Fund distributions, a Fund may be
required to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements.

Fluctuations in currency exchange rates may affect the performance of
emerging market issuers in which a Fund invests without regard to the effect
such fluctuations have on income received or gains realized by a Fund. Given the
level of foreign-denominated debt owed by many countries with emerging markets,
fluctuating exchange rates significantly affect the debt service obligations of
those countries. This could, in turn, affect local interest rates, profit
margins and exports which are a major source of foreign exchange earnings.
Although it might be theoretically possible to hedge for anticipated income and
gains, the ongoing and indeterminate nature of the foregoing risk (and the costs
associated with hedging transactions) makes it virtually impossible to hedge
effectively against such risks.

To some extent, if forward markets are available, currency exchange
risk can be managed through hedging operations. However, governmental
regulations and limited currency exchange markets in most emerging markets make
it highly unlikely that International Equity (to the extent it invests in
emerging market securities) or Emerging Markets will be able to engage in any
hedging operations, at least in the foreseeable future. In the event hedging
opportunities become available and a Fund's adviser elects to employ them, a
Fund may incur investment risks and substantial transaction costs to which it
would not otherwise be subject. Whether or not it hedges, each Fund will incur
costs in connection with conversions between various currencies.

<PAGE>

RESTRICTED AND ILLIQUID SECURITIES

Each Fund is authorized to invest up to 15% of its net assets in
securities which cannot be expected to be sold within seven days at
approximately the price at which they are valued, which for this purpose
includes, among other things, repurchase agreements maturing in more than seven
days, over-the-counter ("OTC") options and securities used as cover for such
options. Such securities may include those that are subject to restrictions
contained in the securities laws of other countries. Restricted securities may
be sold in the U.S. only (1) pursuant to SEC Rule 144A or other exemption, (2)
in privately negotiated transactions or (3) in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Securities that are freely marketable in the country where they are principally
traded, but would not be freely marketable in the United States, will not be
considered to be restricted. Where registration is required, a Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell.

Not all restricted securities are illiquid. SEC regulations permit
certain restricted securities to be traded freely among qualified purchasers.
The SEC has stated that an investment company's board of directors, or its
investment adviser acting under authority delegated by the board, may determine
that a security eligible for trading under this rule is not "illiquid." Each
Fund intends to rely on this rule, to the extent appropriate, to deem restricted
securities as not "illiquid." If the newly-developing institutional markets for
restricted securities do not develop as anticipated, it could adversely affect
the liquidity of the Fund.

REPURCHASE AGREEMENTS

When a Fund enters into a repurchase agreement with a foreign or
domestic entity, it will obtain from that entity securities equal in value to
102% of the amount of the repurchase agreement (or 100%, if the securities
obtained are U.S. Treasury bills, notes or bonds). Such securities will be held
for that Fund by a custodian bank, an approved foreign sub-custodian, or an
approved securities depository or book-entry system. Repurchase agreements are
usually for one week or less, but may be for longer periods. Repurchase
agreements maturing in more than seven days may be considered illiquid. In the
event that a foreign counterparty defaults on its repurchase agreement
obligations, the laws of the foreign country where that party resides may not
provide the same favorable treatment to repurchase agreements as are provided
under U.S. bankruptcy laws, which could lead to further delay or losses.

REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWING

A reverse repurchase agreement is a portfolio management technique in
which a Fund temporarily transfers possession of a portfolio instrument to
another person, such as a financial institution or broker-dealer, in return for
cash. At the same time, that Fund agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, including interest
payment. A Fund may also enter into dollar rolls, in which a Fund sells a
security for delivery in the current month and simultaneously contracts to
repurchase a substantially similar security on a specified future date. That
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase. A Fund may engage in reverse
repurchase agreements and dollar rolls as a means of raising cash to satisfy
redemption requests or for other temporary or emergency purposes without the
necessity of selling portfolio instruments. There is a risk that the contraparty
to either a reverse repurchase agreement or a dollar roll will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to a Fund. While engaging in reverse repurchase agreements or dollar rolls, each
Fund will maintain cash and/or appropriate liquid securities in a segregated
account at its custodian bank with a value at least equal to that Fund's
obligation under the agreements, adjusted daily.

<PAGE>

Each Fund may borrow for temporary purposes, which borrowing may be
unsecured. The 1940 Act requires that Fund to maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of at least 300% of the amount borrowed. If the asset coverage
should decline below 300% as a result of market fluctuations or for other
reasons, the Fund may be required to sell some of its holdings within three days
(exclusive of Sundays and holidays) to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase or decrease in the market value of the
portfolio. To avoid the potential leveraging effects of a Fund's borrowings,
each Fund will not make investments while borrowings are in excess of 5% of its
total assets. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. A Fund also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate. For purposes of its borrowing limitation and policies, each Fund considers
reverse repurchase agreements and dollar rolls to constitute borrowing.
International Equity does not currently intend to use reverse repurchase
agreements and dollar rolls.

SHORT SALES

No Fund will sell securities short, other than through the use of
futures and options as described in the Prospectuses, or short sales against the
box. In a short sale against the box, a Fund sells a security and borrows the
security to make delivery, even though the Fund simultaneously owns, or has the
right to acquire, without the payment of any additional consideration,
securities identical in kind and amount to those sold short.

OPTIONS AND FUTURES

As described in the Prospectuses, Global Government may purchase and
sell (write) both put options and call options on securities and bond indices,
may enter into interest rate and bond index futures contracts, may purchase and
sell options on such futures contracts ("futures options") and may purchase and
sell foreign currency options and futures for hedging purposes or in other
circumstances permitted by the Commodity Futures Trading Commission ("CFTC") as
part of its investment strategy.

International Equity and Emerging Markets may enter into futures
contracts, options and options on futures contracts for several reasons: to
maintain cash reserves while remaining fully invested, to facilitate trading, to
reduce transaction costs, or to seek higher investment returns when Batterymarch
believes a futures contract or option is priced more attractively than the
underlying equity security or index. In addition, a Fund may purchase and sell
put and call options on foreign currencies, may enter into futures contracts on
foreign currencies and purchase and sell options on such futures contracts.

Emerging Markets and International Equity are permitted to engage in
forward currency exchange transactions to protect in part against the
uncertainty in the level of future exchange rates. A Fund's dealings in foreign
currency exchange would in all cases be limited to hedges involving either
specific transactions or portfolio positions. A Fund is not permitted to engage
in currency transactions for speculation but only as a hedge against changes in
currency values. A Fund is not permitted to hedge a position to an extent
greater than the aggregate market value (at the time of the hedging transaction)
of the Fund's assets invested in cash or securities denominated in the relevant
currency. Emerging Markets will not often employ hedging strategies because such
instruments are generally not available in emerging markets; however, the Fund
reserves the right to hedge its portfolio investments in the future.

If other types of options, futures contracts or options on futures are
traded in the future, each Fund may also use those investment strategies.
Options and futures are generally considered to be "derivatives."

<PAGE>

OPTIONS ON SECURITIES

A Fund may purchase call options on securities that its adviser intends
to include in that Fund's investment portfolio in order to fix the cost of a
future purchase. Purchased options also may be used as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy would
serve to limit a Fund's potential loss to the option premium paid; conversely,
if the market price of the underlying security increases above the exercise
price and the Fund either sells or exercises the option, any profit realized
will be reduced by the premium.

A Fund may purchase put options in order to hedge against a decline in
the market value of securities held in its portfolio or to enhance income. The
put option enables the Fund to sell the underlying security at the predetermined
exercise price; thus the potential for loss to the Fund below the exercise price
is limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put option, any profit the
Fund realizes on the sale of the security would be reduced by the premium paid
for the put option less any amount for which the put option may be sold.

A Fund may write covered call options on securities in its portfolio.
Because it can be expected that a call option will be exercised if the market
value of the underlying security increases to a level greater than the exercise
price, the Fund might write covered call options on securities generally when
its adviser believes that the premium received by the Fund will exceed the
extent to which the market price of the underlying security will exceed the
exercise price. The strategy may be used to provide limited protection against a
decrease in the market price of the security, in an amount equal to the premium
received for writing the call option less any transaction costs. Thus, in the
event that the market price of the underlying security held by the Fund
declines, the amount of such decline will be offset wholly or in part by the
amount of the premium received by the Fund. If, however, there is an increase in
the market price of the underlying security and the option is exercised, the
Fund would be obligated to sell the security at less than its market value. The
Fund would give up the ability to sell the portfolio securities used to cover
the call option while the call option was outstanding. Such securities would
also be considered illiquid in the case of OTC options written by a Fund, and
therefore subject to its limitation on investing no more than 15% of its net
assets in illiquid securities, unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option agreement.
The cover for an OTC call option written subject to this procedure will be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option. In addition, the Fund
could lose the ability to participate in an increase in the value of such
securities above the exercise price of the call option because such an increase
would likely be offset by an increase in the cost of closing out the call option
(or could be negated if the buyer chose to exercise the call option at an
exercise price below the securities' current market value).

The sale of a put option on a security by a Fund also may serve to
partially offset the cost of a security that the Fund anticipates purchasing. If
the price of the security rises, the increased cost to the Fund of purchasing
the security will be offset, in whole or in part, by the premium received. In
the event, however, that the price of the security falls below the exercise
price of the option and the option is exercised, the Fund will be required to
purchase the security from the holder of the option at a price in excess of the
current market price of the security. A Fund's loss on this transaction will be
offset, in whole or in part, to the extent of the premium received by the Fund
for writing the option.

Global Government may purchase put and call options and write covered
put and call options on bond indices in much the same manner as securities
options, except that bond index options may serve as a hedge against overall
fluctuations in the debt securities markets (or a market sector) rather than
anticipated increases or decreases in the value of a particular security. A bond
index assigns a value to the securities

<PAGE>

included in the index and fluctuates with changes in such values. Settlements of
bond index options are effected with cash payments and do not involve the
delivery of securities. Thus, upon settlement of a bond index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the bond index.
The effectiveness of hedging techniques using bond index options will depend on
the extent to which price movements in the bond index selected correlate with
price movements of the securities in which the Fund invests.

Global Government may purchase and write covered straddles on
securities, currencies or bond indices. A long straddle is a combination of a
call and a put option purchased on the same security, index or currency where
the exercise price of the put is less than or equal to the exercise price of the
call. The Fund would enter into a long straddle when its adviser believes that
it is likely that interest rates or currency exchange rates will be more
volatile during the term of the options than the option pricing implies. A short
straddle is a combination of a call and a put written on the same security,
index or currency where the exercise price of the put is less than or equal to
the exercise price of the call. In a covered short straddle, the same issue of
security or currency is considered cover for both the put and the call that the
Fund has written. The Fund would enter into a short straddle when its adviser
believes that it is unlikely that interest rates or currency exchange rates will
be as volatile during the term of the options as the option pricing implies. In
such cases, the Fund will set aside cash and/or appropriate liquid securities in
a segregated account with its custodian equivalent in value to the amount, if
any, by which the put is "in-the-money," that is, the amount by which the
exercise price of the put exceeds the current market value of the underlying
security. Straddles involving currencies are subject to the same risks as other
foreign currency options.

FOREIGN CURRENCY OPTIONS AND RELATED RISKS

A Fund may purchase and write (sell) options on foreign currencies in
order to hedge against the risk of foreign exchange rate fluctuation on foreign
securities that Fund holds or which it intends to purchase. For example, if a
Fund enters into a contract to purchase securities denominated in a foreign
currency, it could effectively fix the maximum U.S. dollar cost of the
securities by purchasing call options on that foreign currency. Similarly, if a
Fund held securities denominated in a foreign currency and anticipated a decline
in the value of that currency against the U.S. dollar, it could hedge against
such a decline by purchasing a put option on the currency involved. The purchase
of an option on foreign currency may be used to hedge against fluctuations in
exchange rates although, in the event of exchange rate movements adverse to that
Fund's options position, it may forfeit the entire amount of the premium plus
related transaction costs. In addition, Global Government may purchase call
options on foreign currency to enhance income when its adviser anticipates that
the currency will appreciate in value, but the securities denominated in that
currency do not present attractive investment opportunities.

If a Fund writes an option on foreign currency, it will constitute only
a partial hedge, up to the amount of the premium received, and that Fund could
be required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. A Fund may use options on currency for proxy
hedging, which involves writing or purchasing options on one currency to hedge
against changes in exchange rates of a different currency which the Adviser
expects to show a high degree of correlation to the first currency. If a Fund
uses proxy-hedging, it may experience losses on both the currency in which it
has invested and the currency used for hedging, if the two currencies do not
vary within the expected degree of correlation.

A Fund's ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. Although many
options on foreign currencies are exchange traded, the majority are traded on
the OTC market. A Fund will not purchase or write such options unless, in the
opinion of its adviser, the market for them has developed sufficiently. There
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are

<PAGE>

affected by all of those factors that influence foreign exchange rates and
investments generally. These OTC options also involve credit risks that may not
be present in the case of exchange-traded currency options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Global Government:

The Fund will limit its use of futures contracts and options on futures
contracts to hedging transactions or other circumstances permitted by regulatory
authorities. For example, the Fund might use futures contracts to attempt to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities that
the Fund intends to purchase. The Fund's hedging may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates, and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used to
reduce exposure to interest rate fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost by using futures contracts
and options on futures contracts.

The Fund may also purchase call or put options on foreign currency
futures contracts to obtain a fixed foreign exchange rate at limited risk. The
Fund may purchase a call option on a foreign currency futures contract to hedge
against a rise in the foreign exchange rate while intending to invest in a
foreign security of the same currency. The Fund may purchase put options on
foreign currency futures contracts as a hedge against a decline in the foreign
exchange rates or the value of its foreign portfolio securities. The Fund may
write a call option on a foreign currency futures contract as a partial hedge
against the effects of declining foreign exchange rates on the value of foreign
securities. The Fund may sell a put option on a foreign currency to partially
offset the cost of a security denominated in that currency that the Fund
anticipates purchasing; however, the cost will only be offset to the extent of
the premium received by the Fund for writing the option.

The Fund also may use futures contracts on fixed income instruments and
options thereon to hedge its investment portfolio against changes in the general
level of interest rates. A futures contract on a fixed income instrument is a
bilateral agreement pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of the specified type of fixed income security
called for in the contract at a specified future time and at a specified price.
The Fund may purchase a futures contract on a fixed income security when it
intends to purchase fixed income securities but has not yet done so. This
strategy may minimize the effect of all or part of an increase in the market
price of the fixed income security that the Fund intends to purchase in the
future. A rise in the price of the fixed income security prior to its purchase
may be either offset by an increase in the value of the futures contract
purchased by the Fund or avoided by taking delivery of the fixed income
securities under the futures contract. Conversely, a fall in the market price of
the underlying fixed income security may result in a corresponding decrease in
the value of the futures position. The Fund may sell a futures contract on a
fixed income security in order to continue to receive the income from a fixed
income security, while endeavoring to avoid part or all of the decline in the
market value of that security that would accompany an increase in interest
rates.

The Fund may purchase a call option on a futures contract to hedge
against a market advance in debt securities that the Fund plans to acquire at a
future date. The purchase of a call option on a futures contract is analogous to
the purchase of a call option on an individual fixed income security that can be
used as a temporary substitute for a position in the security itself. The Fund
also may write covered call options on futures contracts as a partial hedge
against a decline in the price of fixed income securities held in the Fund's
investment portfolio, or purchase put options on futures contracts in order to
hedge against a decline in the value of fixed income securities held in the
Fund's investment portfolio. The Fund may write a put option on

<PAGE>

a security that the Fund anticipates purchasing to partially offset the cost of
purchasing that security; however, the cost will only be offset to the extent of
the premium the Fund receives for writing the option.

The Fund may sell bond index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of its investments. To the extent that a portion of the Fund's investments
correlate with a given index, the sale of futures contracts on that index could
reduce the risks associated with a market decline and thus provide an
alternative to the liquidation of securities positions. For example, if the Fund
correctly anticipates a general market decline and sells bond index futures to
hedge against this risk, the gain in the futures position should offset some or
all of the decline in the value of the portfolio. The Fund may purchase bond
index futures contracts if a significant market or market sector advance is
anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual debt securities, which debt securities
may then be purchased in an orderly fashion. This strategy may minimize the
effect of all or part of an increase in the market price of securities that the
Fund intends to purchase. A rise in the price of the securities should be partly
or wholly offset by gains in the futures position.

As in the case of a purchase of a bond index futures contract, the Fund
may purchase a call option on a bond index futures contract to hedge against a
market advance in securities that the Fund plans to acquire at a future date.
The Fund may write put options on bond index futures as a partial anticipatory
hedge and may write covered call options on bond index futures as a partial
hedge against a decline in the prices of bonds held in its portfolio. This is
analogous to writing covered call options on securities. The Fund also may
purchase put options on bond index futures contracts. The purchase of put
options on bond index futures contracts is analogous to the purchase of
protective put options on individual securities where a level of protection is
sought below which no additional economic loss would be incurred by the Fund.

The Fund may also write put options on interest rate, bond index or
foreign currency futures contracts while, at the same time, purchasing call
options on the same interest rate, bond index or foreign currency futures
contract in order synthetically to create a long interest rate, bond index or
foreign currency futures contract position. The options will have the same
strike prices and expiration dates. The Fund will engage in this strategy only
when its adviser believes it is more advantageous to the Fund to do so as
compared to purchasing the futures contract.

The Fund may also purchase and write covered straddles on interest
rate, foreign currency or bond index futures contracts. A long straddle is a
combination of a call and a put purchased on the same futures contract where the
exercise price of the put option is less than or equal to the exercise price of
the call option. The Fund would enter into a long straddle when it believes that
it is likely that interest rates or foreign currency exchange rates will be more
volatile during the term of the options than the option pricing implies. A short
straddle is a combination of a call and put written on the same futures contract
where the exercise price of the put option is less than or equal to the exercise
price of the call option. In a covered short straddle, the same futures contract
is considered "cover" for both the put and the call that the Fund has written.
The Fund would enter into a short straddle when it believes that it is unlikely
that interest rates or foreign currency exchange rates will be as volatile
during the term of the options as the option pricing implies. In such case, the
Fund will set aside cash and/or appropriate liquid securities in a segregated
account with its custodian equal in value to the amount, if any, by which the
put is "in-the-money," that is, the amount by which the exercise price of the
put exceeds the current market value of the underlying futures contract.

International Equity and Emerging Markets:

Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific instrument at a specified
future time and at a specified price. Domestic futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures

<PAGE>

exchanges. Domestic futures exchanges and trading are regulated under the
Commodity Exchange Act by the CFTC, a U.S. Government agency. Foreign futures
exchanges and futures contracts may be regulated differently, or may be
unregulated.

Although some futures contracts by their terms call for actual delivery
or acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.

Futures traders are required to make a good faith margin deposit in
cash or government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
security) if it is not closed out prior to the specified delivery date. Minimal
initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold on
margin deposits that may range upward from less than 5% of the value of the
contract being traded.

After a futures contract position is opened, the value of the contract
is marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.

Regulations of the CFTC applicable to each Fund limit the assets that
can be committed to futures transactions that do not constitute bona fide
hedging transactions. A Fund generally will sell futures contracts only to
protect securities it owns against price declines or purchase contracts to
protect against an increase in the price of securities it intends to purchase.
As evidence of this hedging interest, the Fund expects that approximately 75% of
its futures contract purchases will be "completed;" that is, equivalent amounts
of related securities will have been purchased or are being purchased by the
Fund upon sale of open futures contracts.

Although techniques other than the sale and purchase of futures
contracts could be used to control the exposure of Fund income to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a Fund will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of underlying equity
securities.

For each Fund:

A Fund may also purchase and sell futures contracts on a foreign
currency. A Fund may sell a foreign currency futures contract to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, a Fund may sell a foreign currency futures
contract when its adviser anticipates a general weakening of the foreign
currency exchange rate that could adversely affect the market values of that
Fund's foreign securities holdings. In this case, the sale of futures contracts
on the underlying currency may reduce the risk to the Fund caused by foreign
currency variations and, by so doing, provide an alternative to the liquidation
of securities positions in the Fund and resulting transaction costs. When a
Fund's adviser anticipates a significant foreign exchange rate increase while
intending to invest in a security denominated in a foreign currency, the Fund
may purchase a foreign currency futures contract to hedge against a rise in
foreign exchange rates pending completion of the anticipated transaction. Such a
purchase

<PAGE>

would serve as a temporary measure to protect the Fund against any rise in the
foreign exchange rate that may add additional costs to acquiring the foreign
security position.

A Fund may also purchase call or put options on foreign currency
futures contracts to obtain a fixed foreign exchange rate at limited risk. A
Fund may purchase a call option or write a put option on a foreign currency
futures contract to hedge against a rise in the foreign exchange rate while
intending to invest in a foreign security of the same currency. A Fund may
purchase put options on foreign currency futures contracts as a hedge against a
decline in the foreign exchange rates or the value of its foreign portfolio
securities. It may also write a call option on a foreign currency futures
contract as a partial hedge against the effects of declining foreign exchange
rates on the value of foreign securities.

When a purchase or sale of a futures contract is made by a Fund, 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"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract, which is returned to the Fund upon termination of the
contract assuming all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required by an
exchange to increase the level of its initial margin payment. Additionally,
initial margin requirements may be increased generally in the future by
regulatory action. A Fund expects to earn interest income on its initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking-to-market." Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract had expired on that date. In computing daily net asset
value, a Fund will mark-to-market its open futures positions.

A Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts and on certain foreign currencies
written by it. Such margin deposits will vary depending on the nature of the
underlying futures contract or currency (and the related initial margin
requirements), the current market value of the option and other options and
futures positions held by the Fund.

Although some futures contracts call for making or taking delivery of
the underlying securities, generally futures contracts are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(involving the same currency, index or underlying security and delivery month).
If an offsetting purchase price is less than the original sale price, the Fund
realizes a gain, or if it is more, the Fund realizes a loss. If an offsetting
sale price is more than the original purchase price, the Fund realizes a gain,
or if it is less, the Fund realizes a loss. A Fund will also bear transaction
costs for each contract, which must be considered in these calculations.

The Corporation has filed on behalf of each Fund a notice of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the CFTC and the National Futures Association, which regulate
trading in the futures markets. Under Section 4.5 of the regulations under the
Commodity Exchange Act, the notice of eligibility must include representations
that the Fund will use futures contracts and related options solely for bona
fide hedging purposes within the meaning of the CFTC regulations; provided that
a Fund may hold futures contracts and related options that do not fall within
the definition of bona fide hedging transactions if, with respect to such
non-hedging transactions, the initial margin deposits plus premiums paid by that
Fund, less the amount by which any such options positions are "in-the-money" at
the time of purchase, do not exceed 5% of the fair market value of the Fund's
net assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option. Foreign

<PAGE>

currency options traded on a commodities exchange are considered commodity
options for this purpose. In addition, International Equity will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under those contracts would exceed 20% of its total assets.

RISKS ASSOCIATED WITH FUTURES AND OPTIONS

In considering a Fund's use of futures contracts and options,
particular note should be taken of the following:

(1) Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures
contracts. Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.

(2) The ability to establish and close out positions in either futures
contracts or options thereon is also subject to the maintenance of a liquid
secondary market. Consequently, it may not be possible for a Fund to close a
position and, in the event of adverse price movements, that Fund would have to
make daily cash payments of variation margin (except in the case of purchased
options). However, in the event futures contracts or options have been used to
hedge portfolio securities, such securities will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, there is no guarantee that the price of the securities will,
in fact, correlate with the price movements in the contracts and thus provide an
offset to losses on the contracts.

(3) Successful use by a Fund of futures contracts and options thereon
will depend upon its adviser's ability to predict movements in the direction of
the overall securities, currency and interest rate markets, which may require
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the future. There is, in addition, the risk that the movements in the price
of the futures contract will not correlate with the movements in prices of the
securities or currencies being hedged. For example, if the price of the futures
contract moves less than the price of the securities or currencies that are
subject to the hedge, the hedge will not be fully effective; however, if the
price of securities or currencies being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged at
all. If the price of the securities or currencies being hedged has moved in a
favorable direction, this advantage may be partially offset by losses in the
futures position. In addition, if a Fund has insufficient cash, it may have to
sell assets from its investment portfolio to meet daily variation margin
requirements. Any such sale of assets may or may not be made at prices that
reflect the rising market; consequently, that Fund may need to sell assets at a
time when such sales are disadvantageous to it. If the price of the futures
contract moves more than the price of the underlying securities or currencies,
the Fund will experience either a loss or a gain on the futures contract that
may or may not be completely offset by movements in the price of the securities
or currencies that are the subject of the hedge.

(4) The value of an option position will reflect, among other things,
the current market price of the underlying security, index, futures contract or
currency, the time remaining until expiration, the relationship

<PAGE>

of the exercise price to the market price, the historical price volatility of
the underlying security, index, futures contract or currency and general market
conditions. For this reason, the successful use of options as a hedging strategy
depends upon a Fund's adviser's ability to forecast the direction of price
fluctuations in the underlying market or market sector.

(5) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the futures
position and the securities or currencies being hedged, movements in the prices
of futures contracts may not correlate perfectly with movements in the prices of
the hedged securities or currencies due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities or currencies that cause this situation to occur. First, as noted
above, all participants in the futures market are subject to initial and
variation margin requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a significant
number of futures contracts through offsetting transactions, distortions in the
normal price relationship between the securities or currencies and the futures
markets may occur. Second, because the margin deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, there may be increased participation by speculators in the futures
market; such speculative activity in the futures market also may cause temporary
price distortions. Third, participants could make or take delivery of the
underlying securities or currencies instead of closing out their contracts. As a
result, a correct forecast of general market trends may not result in successful
hedging through the use of futures contracts over the short term. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage and other investment strategies may result in temporary price
distortions.

(6) Options normally have expiration dates of up to three years. The
exercise price of the options may be below, equal to or above the current market
value of the underlying security, index, futures contract or currency. Purchased
options that expire unexercised have no value, and a Fund will realize a loss in
the amount paid plus any transaction costs.

(7) Like options on securities and currencies, options on futures
contracts have a limited life. The ability to establish and close out options on
futures will be subject to the development and maintenance of liquid secondary
markets on the relevant exchanges or boards of trade. There can be no certainty
that liquid secondary markets for all options on futures contracts will develop.

(8) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs are all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls that could be substantial in
the event of adverse price movements. In addition, although the maximum amount
at risk when a Fund purchases an option is the premium paid for the option and
the transaction costs, there may be circumstances when the purchase of an option
on a futures contract would result in a loss to the Fund when the use of a
futures contract would not, such as when there is no movement in the value of
the securities or currencies being hedged.

(9) A Fund's activities in the futures and options markets may result
in a higher portfolio turnover rate and additional transaction costs in the form
of added brokerage commissions; however, a Fund also may save on commissions by
using such contracts as a hedge rather than buying or selling individual
securities or currencies in anticipation or as a result of market movements.

(10) A Fund may purchase and write both exchange-traded options and
options traded on the OTC market. The ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Although each Fund intends to purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. Closing transactions may be effected

<PAGE>

with respect to options traded in the OTC markets (currently the primary markets
for options on debt securities and foreign currencies) only by negotiating
directly with the other party to the option contract, or in a secondary market
for the option if such market exists. Although a Fund will enter into OTC
options only with dealers that agree to enter into, and that are expected to be
capable of entering into, closing transactions with that Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. In the event of insolvency of the
contra-party, the Fund may be unable to liquidate an OTC option. Accordingly, it
may not be possible to effect closing transactions with respect to certain
options, with the result that the Fund would have to exercise those options that
it has purchased in order to realize any profit. With respect to options written
by a Fund, the inability to enter into a closing transaction may result in
material losses to the Fund. For example, because a Fund must maintain a covered
position with respect to any call option it writes on a security, futures
contract or currency, the Fund may not sell the underlying security, futures
contract or currency or invest any cash, or appropriate liquid securities used
as cover during the period it is obligated under such option. This requirement
may impair that Fund's ability to sell a portfolio security or make an
investment at a time when such a sale or investment might be advantageous.
Options traded on U.S. or other exchanges may be subject to position and daily
fluctuation limits which may limit the ability of the Fund to reduce risk using
such options and may limit their liquidity.

With respect to Global Government,

(11) Bond index options are settled exclusively in cash. If the Fund
purchases a put or call option on an index, the Fund will not know in advance
the difference, if any, between the closing value of the index on the exercise
date and the exercise price of the option itself. Thus, if the Fund exercises a
bond index option before the closing index value for that day is available, the
Fund runs the risk that the level of the underlying index may subsequently
change.

SPECIAL RISKS RELATED TO FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS ON SUCH
CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on foreign currencies
described below. Further, settlement of a foreign currency futures contract may
be required to occur within the country issuing the underlying currency. Thus, a
Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery that
are assessed in the issuing country.

Options on foreign currency futures contracts may involve certain
additional risks. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, a Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of its adviser, the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or sale
of foreign currency futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of a call or put option on
a foreign currency futures contract would result in a loss, such as when there
is no movement in the price of the underlying currency or futures contract, when
the purchase of the underlying futures contract would not result in a loss.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both

<PAGE>

currencies and may have no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the use of foreign currency options, investors may be disadvantaged by having to
deal in an odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less favorable
than for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.

ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON
FUTURES, FORWARD CURRENCY EXCHANGE CONTRACTS AND FOREIGN CURRENCY OPTIONS TRADED
ON FOREIGN EXCHANGES

Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States, may not involve a clearing mechanism and related guarantees and
are subject to the risk of governmental actions affecting trading in, or the
price of, foreign securities. The value of such positions also could be
adversely affected by (1) other complex foreign political, legal and economic
factors, (2) less available data than in the United States on which to make
trading decisions, (3) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States, (4)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States and (5) less trading volume.

COVER FOR STRATEGIES INVOLVING OPTIONS, FUTURES AND FORWARD CONTRACTS

No Fund will use leverage in its options, futures and forward contract
strategies. A Fund will not enter into an options, futures or forward currency
strategy that exposes it to an obligation to another party unless it owns either
(1) an offsetting ("covering") position in securities, currencies or other
options, futures or forward contracts or (2) cash, receivables and appropriate
liquid securities with a value sufficient to cover its potential obligations.

Each Fund will comply with guidelines established by the SEC with
respect to coverage of these strategies by mutual funds, and, if the guidelines
so require, will set aside cash and/or appropriate liquid securities in a
segregated account with its custodian in the amount prescribed, as
marked-to-market daily. Securities, currencies or other options, futures or
forward positions used for cover and securities held in a segregated account
cannot be sold or closed out while the strategy is outstanding, unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or that Fund's ability to meet redemption requests
or other current obligations.

FORWARD CURRENCY EXCHANGE CONTRACTS

A Fund may use forward currency exchange contracts to hedge against
uncertainty in the level of future exchange rates or, with respect to Global
Government, to enhance income. Forward contracts are generally considered to be
derivatives.

<PAGE>

A Fund may enter into forward currency exchange contracts with respect
to specific transactions. For example, when a Fund anticipates purchasing or
selling a security denominated in a foreign currency, or when it anticipates the
receipt in a foreign currency of dividend or interest payments on a security
that it holds, that Fund may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars or foreign currency, of the amount of foreign currency involved in
the underlying transaction. That Fund will thereby attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the currency exchange rates during the period between the date on which
the security is purchased or sold, or on which the payment is declared, and the
date on which such payments are made or received.

A Fund also may use forward currency exchange contracts to lock in the
U.S. dollar value of its portfolio positions, to increase its exposure to
foreign currencies that its adviser believes may rise in value relative to the
U.S. dollar or to shift its exposure to foreign currency fluctuations from one
country to another. For example, when a Fund's adviser believes that the
currency of a particular foreign country may suffer a substantial decline
relative to the U.S. dollar or another currency, it may enter into a forward
contract to sell the amount of the former foreign currency approximating the
value of some or all of that Fund's securities denominated in such foreign
currency. These investment practices generally are referred to as
"cross-currency hedging" when two foreign currencies are involved. In
cross-currency hedging, a Fund may suffer losses on both currencies if their
values do not move as its adviser anticipates.

At or before the maturity date of a forward contract requiring a Fund
to sell a currency, that Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, a Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. A Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.

The precise matching of the forward contract amount and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.

The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that currency movements
will not be accurately predicted, causing a Fund to sustain losses on these
contracts and transaction costs. A Fund may enter into forward contracts or
maintain a net exposure to such contracts only if (1) the consummation of the
contracts would not obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or (2) the Fund maintains cash or appropriate
liquid securities in a segregated account with the Fund's custodian,
marked-to-market daily, in an amount not less than the value of the Fund's total
assets committed to the consummation of the contracts. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer-term investment decisions made with regard to
overall

<PAGE>

diversification strategies. However, each Fund's adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of that Fund will be served. Some foreign
currency forward contracts into which a Fund enters may be illiquid.

The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does fix a rate
of exchange in advance. In addition, although forward contracts limit the risk
of loss due to a decline in the value of the hedged currencies, at the same time
they limit any potential gain that might result should the value of the
currencies increase.

Although each Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. Each Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should that Fund
desire to resell that currency to the dealer.

The following information applies only to Global Government:

BRADY BONDS

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 CURRENCY EXCHANGE-RELATED SECURITIES AND FOREIGN CURRENCY WARRANTS

Foreign currency warrants entitle the holder to receive from their
issuer an amount of cash (generally, for warrants issued in the United States,
in U.S. dollars) that is calculated pursuant to a predetermined formula and
based on the exchange rate between a specified foreign currency and the U.S.
dollar as of the exercise date of the warrant. Foreign currency warrants
generally are exercisable upon their issuance and expire as of a specified date
and time. Foreign currency warrants have been issued in connection with U.S.
dollar-denominated debt offerings by major corporate issuers in an attempt to
reduce the foreign currency exchange risk that is inherent in the international
fixed income/debt marketplace. The formula used to determine the amount payable
upon exercise of a foreign currency warrant may make the warrant worthless
unless the applicable foreign currency exchange rate moves in a particular
direction.

Foreign currency warrants are severable from the debt obligations with
which they may be offered and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating

<PAGE>

to exercise is determined, during which time the exchange rate could change
significantly, thereby affecting both the market and cash settlement values of
the warrants being exercised.

The expiration date of the warrants may be accelerated if the warrants
are delisted from an exchange or if their trading is suspended permanently,
which would result in the loss of any remaining "time value" of the warrants
(i.e., the difference between the current market value and the exercise value of
the warrants) and, in the case where the warrants were "out-of-the-money," in a
total loss of the purchase price of the warrants. Warrants are generally
unsecured obligations of their issuers and are not standardized foreign currency
options issued by the Options Clearing Corporation ("OCC"). Unlike foreign
currency options issued by OCC, the terms of foreign currency warrants generally
will not be amended in the event of governmental or regulatory actions affecting
exchange rates or in the event of the imposition of other regulatory controls
affecting the international currency markets. The initial public offering price
of foreign currency warrants is generally considerably in excess of the price
that a commercial user of foreign currencies might pay in the interbank market
for a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to significant foreign
exchange risk, including risks arising from complex political and economic
factors.

SWAPS, CAPS, COLLARS AND FLOORS

The Fund may enter into interest rate, currency and index swaps, and
may purchase and sell caps, collars and floors for hedging purposes or in an
effort to increase overall return. Interest rate swap transactions involve an
agreement between two parties under which one makes to the other periodic
payments based on a fixed rate of interest and receives in return periodic
payments based on a variable rate of interest; the rates are calculated on the
basis of a specified amount of principal (the "notional principal amount") for a
specified period of time. A currency swap is an agreement to exchange cash flows
based on changes in the value of an exchange rate; participants in currency
swaps may also exchange the principal amount. Index swaps link one of the
payments to the total return of a market portfolio. Cap and floor transactions
involve an agreement between two parties in which one agrees to pay the other
when a designated market interest rate, currency rate or index value goes above
(in the case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. In an interest rate
collar, one party agrees to pay the other when a designated market interest rate
either goes above a specified cap level or below a specified floor level, either
on predetermined dates or during a specified time period.

As with options and future transactions, successful use of swap
agreements depends on the Adviser's ability to predict movements in the
direction of the overall currency and interest rate markets. There might be
imperfect correlation between the value of a swap, cap, collar or floor
agreement and movements in the underlying interest rate or currency markets.
While swap agreements can offset the potential for loss on a position, they can
also limit the opportunity for gain by offsetting favorable price movements.

Swaps, caps, collars and floors can be highly volatile instruments. The
value of these agreements is dependent on the ability of the counterparty to
perform and is therefore linked to the counterparty's creditworthiness. The Fund
may also suffer a loss if it is unable to terminate an outstanding swap
agreement.

The Fund will enter into swaps, caps, collars and floors only with
parties deemed by its adviser to present a minimal risk of default during the
period of agreement. When the Fund enters into a swap, cap, collar or floor, it
will maintain a segregated account containing cash and appropriate liquid
securities equal to the payment, if any, due to the other party; where contracts
are on a net basis, only the net payment will be segregated. The Fund regards
caps, collars and floors as illiquid, and therefore subject to the Fund's 15%
limit on illiquid securities. There can be no assurance that the Fund will be
able to terminate a swap at the appropriate time. The Fund will sell caps,
collars and floors only to close out its positions in such instruments.

<PAGE>

The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps. The market for all of these
instruments is largely unregulated. Swaps, caps, collars and floors are
generally considered "derivatives."

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.

Special Considerations Affecting Emerging Markets and International Equity:

Investing in equity securities of companies in emerging markets may
entail greater risks than investing in equity securities in developed countries.
These risks include (I) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
the securities of companies in emerging markets may entail special risks
relating to the potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, the Fund could lose its
entire investment in any such country.

Settlement mechanisms in emerging securities markets may be less
efficient and reliable than in more developed markets. In such emerging
securities markets there may be lengthy share registration periods during which
the Fund is unable to sell its securities, and there may be delivery delays or
failures in purchases and sales.

Most Latin American countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain Latin American countries.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Fund offers two classes of shares, known as Primary Shares and
Navigator Shares. Primary Shares are available from Legg Mason and certain of
its affiliates, as well as from certain institutions having agreements with Legg
Mason. Navigator Shares are currently offered for sale only to Institutional
Clients, to qualified retirement plans managed on a discretionary basis and
having net assets of at least $200 million, and to any qualified retirement plan
of Legg Mason, Inc. or of any of its affiliates. Navigator Shares may not be
purchased by individuals directly, but Institutional Clients may purchase shares
for Customer Accounts maintained for individuals. Primary Shares are available
to all other investors.

FUTURE FIRST SYSTEMATIC INVESTMENT PLAN

If you invest in Primary Shares, the Prospectus for those shares
explains that you may buy additional Primary Shares through the Future First
Systematic Investment Plan. Under this plan, you may arrange for automatic
monthly investments in Primary Shares of $50 or more by authorizing Boston
Financial Data Services ("BFDS"), the Funds' transfer agent, to transfer funds
to be used to buy Primary Shares at the per share net asset value determined on
the day the funds are sent by your bank. You will receive a quarterly

<PAGE>

account statement. You may terminate the Future First Systematic Investment Plan
at any time without charge or penalty. Forms to enroll in the Future First
Systematic Investment Plan are available from any Legg Mason or affiliated
office.

PURCHASES BY CHECK

In making purchases of Fund shares by check, you should be aware that
checks drawn on a member bank of the Federal Reserve System will normally be
converted to federal funds and used to purchase shares of the Fund within two
business days of receipt by Legg Mason. Legg Mason is closed on the days that
the New York Stock Exchange ("Exchange") is closed, which are listed under
"Valuation of Fund Shares" on page 36. Checks drawn on banks that are not
members of the Federal Reserve System may take up to nine business days to be
converted.

SYSTEMATIC WITHDRAWAL PLAN

If you own Primary Shares with a net asset value of $5,000 or more, you
may also elect to make systematic withdrawals from your Fund account of a
minimum of $50 on a monthly basis. The amounts paid to you each month are
obtained by redeeming sufficient Primary Shares from your account to provide the
withdrawal amount that you have specified. The Systematic Withdrawal Plan is not
currently available for shares held in an Individual Retirement Account ("IRA"),
Simplified Employee Pension Plan ("SEP"), Savings Incentive Match Plan for
Employees ("SIMPLE") or other qualified retirement plan. You may change the
monthly amount to be paid to you without charge not more than once a year by
notifying Legg Mason or the affiliate with which you have an account.
Redemptions will be made at the Primary Shares' net asset value determined as of
the close of regular trading of the Exchange on the first day of each month. If
the Exchange is not open for business on that day, the shares will be redeemed
at the net asset value determined as of the close of regular trading of the
Exchange on the preceding business day. The check for the withdrawal payment
will usually be mailed to you on the next business day following redemption. If
you elect to participate in the Systematic Withdrawal Plan, dividends and other
distributions on all Primary Shares in your account must be automatically
reinvested in Primary Shares. You may terminate the Systematic Withdrawal Plan
at any time without charge or penalty. Each Fund, its transfer agent, and Legg
Mason also reserve the right to modify or terminate the Systematic Withdrawal
Plan at any time.

Withdrawal payments are treated as a sale of shares rather than as a
dividend or other distribution. These payments are taxable to the extent that
the total amount of the payments exceeds the tax basis of the shares sold. If
the periodic withdrawals exceed reinvested dividends and other distributions,
the amount of your original investment may be correspondingly reduced.

Ordinarily, you should not purchase additional shares of the Fund in
which you have an account if you maintain a Systematic Withdrawal Plan because
you may incur tax liabilities in connection with such purchases and withdrawals.
Each Fund will not knowingly accept purchase orders from you for additional
shares if you maintain a Systematic Withdrawal Plan unless your purchase is
equal to at least one year's scheduled withdrawals. In addition, if you maintain
a Systematic Withdrawal Plan you may not make periodic investments under the
Future First Systematic Investment Plan.

REDEMPTION SERVICES

Each Fund reserves the right to modify or terminate the wire or
telephone redemption services described in the Prospectuses at any time.

The date of payment may not be postponed for more than seven days, and
the right of redemption may not be suspended except (a) for any period during
which the Exchange is closed (other than for

<PAGE>

customary weekend and holiday closings), (b) when trading in markets a Fund
normally utilizes is restricted or an emergency, as defined by rules and
regulations of the SEC, exists, making disposal of that Fund's investments or
determination of its net asset value not reasonably practicable, or (c) for such
other periods as the SEC, by order, may permit for protection of a Fund's
shareholders. In the case of any such suspension, you may either withdraw your
request for redemption or receive payment based upon the net asset value next
determined after the suspension is lifted.

Each Fund reserves the right under certain conditions, to honor any
request or combination of requests for redemption from the same shareholder in
any 90-day period, totaling $250,000 or 1% of the net assets of the Fund,
whichever is less, by making payment in whole or in part by securities valued in
the same way as they would be valued for purposes of computing that Fund's net
asset value per share. If payment is made in securities, a shareholder generally
will incur brokerage expenses in converting those securities into cash and will
be subject to fluctuation in the market price of those securities until they are
sold. Each Fund does not redeem in kind under normal circumstances, but would do
so where its adviser determines that it would be in the best interests of the
shareholders as a whole.

Foreign securities markets may be open for trading on days when the
Funds are not open for business. The net asset value of Fund shares may be
significantly affected on days when investors do not have access to their
respective Fund to purchase and redeem shares.

No charge is made for redemption from Global Government and
International Equity. There is a 2% redemption transaction fee charged for
redemptions within one year of purchase of Emerging Markets. The redemption
transaction fee is paid to the Fund to reimburse the Fund for transaction costs
it incurs entering into positions in emerging market securities and liquidating
them in order to fund redemptions.

ADDITIONAL TAX INFORMATION

The following is a general summary of certain federal tax
considerations affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information regarding any
federal, state or local taxes that may be applicable to them.

GENERAL

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
each Fund (which is treated as a separate corporation for federal income tax
purposes) must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income, net
short-term capital gain, and net gains from certain foreign currency
transactions, if any) ("Distribution Requirement") and must meet several
additional requirements. For each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
currency contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with those other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in the securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.

<PAGE>

If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or other distribution, the investor will pay full
price for the shares and receive some portion of the price back as a taxable
distribution.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. For this and other purposes, dividends and other distributions
declared by a Fund in December of any year and payable to shareholders of record
on a date in that month will be deemed to have been paid by the Fund and
received by the shareholders on December 31 if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.

FOREIGN SECURITIES

Each Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder that, in general, meets
either of the following tests: (I) at least 75% of its gross income is passive
or (ii) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.

If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital loss) --
which probably would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.

Each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
Fund for prior taxable years. A Fund's adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 would
provide a similar election with respect to the stock of certain PFICs.

<PAGE>

Gains or losses (i) from the disposition of foreign currencies, (ii)
from the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (iii) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues dividends, interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.

OPTIONS, FUTURES, FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCIES

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward currency contracts,
involves complex rules that will determine for income tax purposes the amount,
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward currency contracts derived by a Fund with respect
to its business of investing in securities and foreign currencies, will qualify
as permissible income under the Income Requirement.

Certain options and futures in which a Fund may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, must be "marked-to-market" (that is, treated as sold for
their fair market value) for federal income tax purposes, with the result that
unrealized gains or losses will be treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, will
be treated as long-term capital gain or loss, and the balance will be treated as
short-term capital gain or loss. As of the date of this Statement of Additional
Information, it is not entirely clear whether that 60% portion will qualify for
the reduced maximum tax rates on noncorporate taxpayers' net capital gain
enacted by Taxpayer Relief Act of 1997 -- 20% (10% for taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
18 months -- instead of the 28% rate in effect before that legislation, which
now applies to gain recognized on capital assets held for more than one year but
not more than 18 months. However, technical corrections legislation passed by
the House of Representatives late in 1997 would clarify that the lower rates
apply. Section 1256 contracts also may be marked-to-market for purposes of the
Excise Tax.

Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which a Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions are not entirely clear.

If a Fund has an "appreciated financial position"--generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as

<PAGE>

having made an actual sale thereof, with the result that gain will be recognized
at that time. A constructive sale generally consists of a short sale, an
offsetting notional principal contract or futures or forward currency contract
entered into by a Fund or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.

MISCELLANEOUS

If a Fund invests in shares of common stock or preferred stock or
otherwise holds dividend-paying securities as a result of exercising a
conversion privilege, a portion of the dividends from its investment company
taxable income (whether paid in cash or reinvested in additional Fund shares)
may be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by the Fund
from U.S. corporations. However, dividends received by a corporate shareholder
and deducted by it pursuant to the dividends-received deduction are subject
indirectly to the federal alternative minimum tax.

MARKET DISCOUNT, ORIGINAL ISSUE DISCOUNT AND "PAY-IN-KIND" SECURITIES (Global
Government only)

Global Government may invest in Brady Bonds (as described in the
Prospectuses) and other Sovereign Debt that are purchased with "market discount"
(collectively, "market discount securities"). For these purposes, market
discount is the amount by which a security's purchase price is exceeded by its
stated redemption price at maturity or, in the case of a security that was
issued with original issue discount ("OID"), the sum of its issue price plus
accrued OID, except that market discount less than the product of (I) 0.25% of
the redemption price at maturity times (ii) the number of complete years to
maturity after the taxpayer acquired the security is disregarded. Market
discount generally is accrued ratably, on a daily basis, over the period from
the acquisition date to the date of maturity. Gain on the disposition of a
market discount security (other than one with a fixed maturity date within one
year from its issuance), generally is treated as ordinary income, rather than
capital gain, to the extent of the security's accrued market discount at the
time of disposition. In lieu of treating the disposition gain as above, Global
Government may elect to include market discount in its gross income currently,
for each taxable year to which it is attributable.

Global Government may purchase zero coupon or other debt securities
issued with OID. As a holder of those securities, the Fund must include in its
income the OID that accrues thereon during the taxable year, even if it receives
no corresponding payment on the securities during the year. Similarly, the Fund
must include in its gross income securities it receives as "interest" on
pay-in-kind securities. Because the Fund annually must distribute substantially
all of its investment company taxable income, including any OID and other
non-cash income, to satisfy the Distribution Requirement and avoid imposition of
the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from the Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those dispositions, which would increase or
decrease its investment company taxable income and/or net capital gain.

PERFORMANCE INFORMATION

The following performance information relates to Primary Shares. As of
the date of this Statement of Additional Information, Navigator Shares have no
performance history.

TOTAL RETURN CALCULATIONS Average annual total return quotes used in a
Fund's advertising and other promotional materials ("Performance
Advertisements") are calculated according to the following formula:

<PAGE>

n
P(1+T) = ERV

where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of
a hypothetical $1,000 payment made
at the beginning of that period.

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by a Fund are assumed to have been reinvested
at net asset value on the reinvestment dates during the period.

For Global Government:

YIELD Yields used in the Fund's Performance Advertisements are
calculated by dividing the Fund's net investment income for a 30-day period
("Period"), by the average number of shares entitled to receive dividends during
the Period, and expressing the result as an annualized percentage (assuming
semi-annual compounding) of the maximum offering price per share at the end of
the Period. Yield quotations are calculated according to the following formula:

6
YIELD = 2 [(a-b + 1) ] - 1
---
cd

where: a = dividends and interest earned during the Period
b = expenses accrued for the Period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the Period.

Except as noted below, in determining investment income earned during
the Period (variable "a" in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the Period by (1) computing the
obligation's yield to maturity based on the market value of the obligation
(including actual accrued interest) on the last business day of the Period or,
if the obligation was purchased during the Period, the purchase price plus
accrued interest and (2) dividing the yield to maturity by 360, and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, interest earned during the Period is then
determined by totaling the interest earned on all debt obligations. For purposes
of these calculations, the maturity of an obligation with one or more call
provisions is assumed to be the next call date on which the obligation
reasonably can be expected to be called or, if none, the maturity date. The
Fund's yield for the thirty-day period ended December 31, 1997 was 7.38%.

With respect to the treatment of discount and premium on
mortgage-backed and other asset-backed obligations that are expected to be
subject to monthly payments of principal and interest ("paydowns"): (1) the Fund
accounts for gain or loss attributable to actual paydowns as an increase or
decrease in interest income during the period and (2) the Fund accrues the
discount and amortizes the premium on the remaining

<PAGE>

obligation, based on the cost of the obligation, to the weighted average
maturity date or, if weighted average maturity information is not available, to
the remaining term of the obligation.

The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Shares of Global
Government at the Fund's commencement of operations on April 15, 1993. The table
assumes that all dividends and other distributions are reinvested in the Fund.
It includes the effect of all charges and fees applicable to shares the Fund has
paid. (There are no fees for investing or reinvesting in the Fund, and there are
no redemption fees.) It does not include the impact of any income taxes that an
investor would pay on such distributions.

Value of Original Shares Plus
Shares Obtained Through Value of Shares Acquired
Fiscal Year Reinvestment of Capital Gain Through Reinvestment of Total
Distributions Income Dividends Value
- ----------- ------------------------------ ------------------------ -------
1993* $10,311 $365 $10,676
1994 9,578 948 10,526
1995 10,361 2,355 12,716
1996 10,582 3,179 13,761
1997 9,908 3,621 13,529

*April 15, 1993 (commencement of operations) to December 31, 1993.

If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of December 31, 1997 would
have been $9,600, and the investor would have received a total of $3,504 in
distributions. Returns would have been lower if Global Government's adviser had
not waived certain fees during the fiscal years 1993 through 1994.

The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Shares of International
Equity at the Fund's commencement of operations on February 17, 1995. The table
assumes that all dividends and other distributions are reinvested in the Fund.
It includes the effect of all charges and fees applicable to shares the Fund has
paid. (There are no fees for investing or reinvesting in the Fund, and there are
no redemption fees.) It does not include the impact of any income taxes that an
investor would pay on such distributions.

Value of Original Shares Plus
Shares Obtained Through Value of Shares Acquired
Fiscal Year Reinvestment of Capital Gain Through Reinvestment of Total
Distributions Income Dividends Value
- ----------- ----------------------------- ------------------------ -------
1995* $10,771 $40 $10,811
1996 12,501 93 12,594
1997 12,641 174 12,815

*February 17, 1995 (commencement of operations) to December 31, 1995.

<PAGE>

If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of December 31, 1997 would
have been $11,780, and the investor would have received a total of $995 in
distributions. Returns would have been lower if International Equity's adviser
had not waived certain fees during the fiscal years ended 1995 and 1996.

The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Shares of Emerging
Markets at the Fund's commencement of operations on May 28, 1996. The table
assumes that all dividends and other distributions are reinvested in the Fund.
It includes the effect of all charges and fees applicable to shares the Fund has
paid. (There are no fees for investing or reinvesting in the Fund, but there is
a 2% redemption fee if shares are redeemed within one year of purchase. The
following table assumes no redemption fees were paid.) It does not include the
impact of any income taxes that an investor would pay on such distributions.

Value of Original Shares Plus
Shares Obtained Through Value of Shares Acquired
Fiscal Year Reinvestment of Capital Gain Through Reinvestment of Total
Distributions Income Dividends Value
- ----------- ----------------------------- ------------------------ -------
1996* $10,510 $30 $10,540
1997 9,850 39 9,889

*May 28, 1996 (commencement of operations) to December 31, 1996.

If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of December 31, 1997 would
have been $9,850, and the investor would have received a total of $39 in
distributions. Returns would have been lower if Emerging Markets' adviser had
not waived certain fees during the fiscal years ended 1996 and 1997.

The tables above are based only on Primary Shares. As of the date of
this Statement of Additional Information, Navigator Shares have no performance
history.

For each Fund:

In performance advertisements each Fund may compare its total return
with data published by Lipper Analytical Services, Inc. ("Lipper") for U.S.
government funds and corporate bond (BBB) funds, CDA Investment Technologies,
Inc. ("CDA"), Wiesenberger Investment Companies Service ("Wiesenberger"), or
Morningstar Mutual Funds ("Morningstar"), or with the performance of U.S.
Treasury securities of various maturities, recognized stock, bond and other
indexes, including (but not limited to) the Salomon Brothers Bond Index,
Shearson Lehman Bond Index, Shearson Lehman Government/Corporate Bond Index, the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), Morgan Stanley
Capital International World Indices, including, among others, the Morgan Stanley
Capital International Europe, Australasia, Far East Index ("EAFE Index"), Morgan
Stanley Capital International Emerging Markets Free Index ("EMF"), Salomon
Brothers World Government Bond Index, Value Line, the Dow Jones Industrial
Average, and changes in the Consumer Price Index as published by the U.S.
Department of Commerce.

A Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels with
funds having similar investment objectives, published by Lipper, CDA,
Wiesenberger or Morningstar. Performance Advertisements also may refer to
discussions of a Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not

<PAGE>

limited to) THE WALL STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK,
FINANCIAL WORLD, BARRONS, FORTUNE and THE NEW YORK TIMES.

Global Government invests primarily in fixed-income securities and
International Equity and Emerging Markets each invests primarily in global
equity securities, as described in the Prospectuses. Each Fund does not
generally invest in the equity securities that make up the S&P 500 or the Dow
Jones indices. Comparison with such indices is intended to show how an
investment in either Fund behaved as compared to indices that are often taken as
a measure of performance of the equity market as a whole. The indices, like each
Fund's total return, assume reinvestment of all dividends and other
distributions. They do not take into account the costs or the tax consequences
of investing.

Each Fund may include discussions or illustrations describing the
effects of compounding in performance advertisements. "Compounding" refers to
the fact that, if dividends or other distributions on an investment in a Fund
are reinvested in additional Fund shares, any future income or capital
appreciation of that Fund would increase the value, not only of the original
Fund investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.

Each Fund may also compare its performance with the performance of bank
certificates of deposit (CDS) as measured by the CDA Investment Technologies,
Inc. Certificate of Deposit Index and the Bank Rate Monitor National Index. In
comparing a Fund's performance to CD performance, investors should keep in mind
that bank CDS are insured in whole or in part by an agency of the U.S.
Government and offer fixed principal and fixed or variable rates of interest,
and that bank CD yields may vary. Fund shares are not insured or guaranteed by
the U.S. Government and returns and net asset value will fluctuate. The
securities held by a Fund generally have longer maturities than most CDS and may
reflect interest rate fluctuations for longer-term securities. An investment in
each Fund involves greater risks than an investment in certificates of deposit.

Fund advertisements may reference the history of the distributor and
its affiliates, and the education and experience of the portfolio manager.
Advertisements may also describe techniques each Fund's adviser employs in
selecting among the sectors of the fixed-income market and adjusting average
portfolio maturity. In particular, the advertisements may focus on the
techniques of 'value investing'. With value investing, a Fund's adviser invests
in those securities it believes to be undervalued in relation to the long-term
earning power or asset value of their issuers. Securities may be undervalued
because of many factors, including market decline, poor economic conditions,
tax-loss selling, or actual or anticipated unfavorable developments affecting
the issuer of the security. Batterymarch believes that the securities of sound,
well-managed companies that may be temporarily out of favor due to earnings
declines or other adverse developments are likely to provide a greater total
return than securities with prices that appear to reflect anticipated favorable
developments and that are therefore subject to correction should any unfavorable
developments occur.

In advertising, a Fund may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. A Fund may use other recognized
sources as they become available.

A Fund may use data prepared by Ibbotson Associates of Chicago,
Illinois ("Ibbotson") to compare the returns of various capital markets and to
show the value of a hypothetical investment in a capital market. Ibbotson relies
on different indices to calculate the performance of common stocks, corporate
and government bonds and Treasury bills.

<PAGE>

A Fund may illustrate and compare the historical volatility of
different portfolio compositions where the performance of stocks is represented
by the performance of an appropriate market index, such as the S&P 500 and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index.

A Fund may also include in advertising biographical information on key
investment and managerial personnel.

A Fund may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount,
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should consider
their ability to purchase shares through periods of low prices.

A Fund may discuss Legg Mason's tradition of service. Since 1899, Legg
Mason and its affiliated companies have helped investors address their specific
investment goals and have provided a full spectrum of financial services. Legg
Mason affiliates serve as investment advisors for private accounts and mutual
funds with assets of more than $71.0 billion as of March 31, 1998.

In advertising, a Fund may discuss the advantages of saving through
tax-deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.

A Fund may include in advertising and sales literature descriptive
material relating to both domestic and international economic conditions
including but not limited to discussions regarding the effects of inflation as
well as discussions which compare the growth of various world equity markets. A
Fund may depict the historical performance of the securities in which that Fund
may invest over periods reflecting a variety of market or economic conditions
whether alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size, the number and make-up of its
shareholder base and other descriptive factors concerning that Fund.

A Fund may discuss its investment adviser's philosophy regarding
international investing. Recognizing the differing evolutionary stages of the
distinct emerging market segments, each Fund's adviser, intent on participating
in all of these marketplaces, does not apply a uniform investment process and
approach to its different marketplaces. As a result, an adviser's investment
processes for the U.S., non-U.S. developed countries and emerging markets are
distinct. Well-defined disciplines appropriate to the respective markets are
applied within the company's framework of strong, experienced management, sound
fundamental research and analysis, and superior data and modeling resources.

Batterymarch, adviser to International Equity and Emerging Markets, is
recognized as a "pioneer" in international investing and is well-known in the
investment community. Batterymarch has been applying a consistent investment
discipline in the international markets for over 10 years.

<PAGE>

VALUATION OF FUND SHARES

As described in the Prospectuses, securities for which market
quotations are readily available are valued at current market value. Securities
are valued at the last sale price for a comparable position on the day the
securities are being valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
market, the securities are generally valued on the market considered by each
Fund's adviser as the primary market. Trading in securities on European and Far
Eastern securities exchanges and over-the-counter markets is normally completed
well before the close of the business day in New York. Each Fund is open for
business and its net asset value is calculated each day the Exchange is open for
business. The Exchange currently observes the following holidays: New Year's
Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

All investments valued in foreign currency are valued daily in U.S.
dollars on the basis of the foreign currency exchange rate prevailing at the
time such valuation is determined. Foreign currency exchange rates are generally
determined prior to the close of trading on the Exchange. Occasionally, events
affecting the value of foreign investments and such exchange rates occur between
the time at which they are determined and the close of trading on the Exchange.
Such investments will be valued at their fair value, as determined in good faith
by or under the direction of the Board of Directors. Foreign currency exchange
transactions of a Fund occurring on a spot basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market.

Securities trading in emerging markets may not take place on all days
on which the Exchange is open. Further, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days on which the
Exchange is not open. Consequently, the calculation of a Fund's net asset value
therefore may not take place contemporaneously with the determination of the
prices of securities held by the Fund.

TAX-DEFERRED RETIREMENT PLANS

Investors may invest in shares of a Fund through IRAs, SEPs, SIMPLEs
and tax qualified retirement plans. In general, income earned through the
investment in assets of qualified retirement plans is not taxed to the
beneficiaries thereof until the income is distributed to them. Investors who are
considering establishing such a plan should consult their attorneys or tax
advisers with respect to individual tax questions. The option of investing in
these plans through regular payroll deductions may be arranged with your
Financial Advisor or Service Provider and your employer. Additional information
with respect to these plans is available upon request from your Financial
Advisor or Service Provider.

Traditional IRA. Certain Primary Share investors may obtain tax
advantages by establishing an IRA. Specifically, except as noted below, if
neither you nor your spouse is an active participant in a qualified employer or
government retirement plan, or if either you or your spouse is an active
participant in such a plan and your adjusted gross income does not exceed a
certain level, then each of you may deduct cash contributions made to an IRA in
an amount for each taxable year not exceeding the lesser of 100% of your earned
income or $2,000. A married investor who is not an active participant in such a
plan and files a joint income tax return with his or her spouse (and their
combined adjusted gross income does not exceed a $150,000) is not affected by
the spouse's active participant status. In addition, if your spouse is not
employed and you file a joint return, you may establish a separate IRA for your
spouse and contribute up to a total of $4,000 to the two IRAs, provided that the
contribution to either does not exceed $2,000. If your employer's plan qualifies
as a SARSEP, permits voluntary contributions and meets certain other
requirements, you may make voluntary contributions to that plan that are treated
as deductible IRA contributions.

<PAGE>

Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Primary Shares through
non-deductible IRA contributions, up to certain limits, because all dividends
and other distributions on your Primary Shares are then not immediately taxable
to you or the IRA; they become taxable only when distributed to you. To avoid
penalties, your interest in an IRA must be distributed, or start to be
distributed, to you not later than the end of the taxable year in which you
attain age 70 1/2. Distributions made before age 59 1/2, in addition to being
taxable, generally are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability, where the distribution is rolled over
into another qualified plan, or certain other situations.

Roth IRA. A shareholder whose adjusted gross income (or combined
adjusted gross income with his or her spouse) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA. In addition,
for a shareholder whose adjusted gross income does not exceed a $100,000 (or is
not married filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the shareholder's traditional
IRAs may be converted to a Roth IRA; these rollover distributions and
conversions are, however, subject to federal income tax.

Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in a Roth IRA, and withdrawals of earnings are not subject
to federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions from or
conversions of a traditional IRA, the rollover or conversion occurred more than
five years before the withdrawal) and the account holder has reached age 59 1/2
(or certain other conditions apply).

Education IRA. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than the maximum amount allowable under
current law (currently $500) may be contributed for any year to Education IRAs
for the same beneficiary. Contributions are not deductible and may not be made
after the beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or transferred to an Education IRA of a qualified
family member).

SIMPLIFIED EMPLOYEE PENSION PLAN - SEP
- --------------------------------------

Legg Mason also makes available to corporate and other employers a
Simplified Employee Pension Plan for investment in Primary Shares.

SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES - SIMPLE
- ---------------------------------------------------

An employer with no more than 100 employees that does not maintain
another retirement plan may establish a SIMPLE either as separate IRAs or as
part of a Code section 401(k) plan. A SIMPLE, which is not subject to the
complicated nondiscrimination rules that generally apply to qualified retirement
plans will allow certain employees to make elective contributions of up to
$6,000 per year and will require the employer to make either matching
contributions up to 3% of each such employee's salary or a 2% nonelective
contribution.

Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from the foregoing retirement plans (except IRAs and SEPs), unless the
recipient transfers the distribution directly to an "eligible retirement plan"
(including IRAs and other qualified plans) that accepts those distributions.
Other distributions generally are subject to regular wage withholding or to
withholding at the rate of 10% (depending on the type and amount of the
distribution),

<PAGE>

unless the recipient elects not to have any withholding apply. Primary Share
investors should consult their plan administrator or tax advisor for further
information.

THE CORPORATION'S DIRECTORS AND OFFICERS

The Corporation's officers are responsible for the operation of the
Corporation under the direction of the Board of Directors. The officers and
directors and their principal occupations during the past five years are set
forth below. An asterisk (*) indicates those officers and/or directors who are
"interested persons" of the Corporation as defined by the 1940 Act. The business
address of each officer and director is 100 Light Street, Baltimore, Maryland,
unless otherwise indicated.

JOHN F. CURLEY, JR.,* [07/24/39] Chairman of the Board and Director;
Retired Vice Chairman and Director of Legg Mason Wood Walker, Inc. and Legg
Mason, Inc.; President and Director of three Legg Mason funds; Chairman of the
Board and Trustee of one Legg Mason fund; Chairman of the Board, President and
Trustee of one Legg Mason fund; Chairman of the Board and Director of three Legg
Mason funds. Formerly: Director of Legg Mason Fund Adviser, Inc. and Western
Asset Management Company (each a registered investment adviser); officer and/or
Director of various other affiliates of Legg Mason, Inc.

EDWARD A. TABER, III,* [08/25/43] President and Director; Senior
Executive Vice President of Legg Mason, Inc. and Legg Mason Wood Walker, Inc.;
Vice Chairman and Director of Legg Mason Fund Adviser, Inc.; Director of three
Legg Mason funds; Trustee of two Legg Mason funds; President and Director of two
Legg Mason funds. Formerly: Executive Vice President of T. Rowe Price-Fleming
International, Inc. (1986- 1992) and Director of the Taxable Fixed Income
Division at T. Rowe Price Associates, Inc. (1973-1992).

RICHARD G. GILMORE, [06/09/27] Director; 948 Kennett Way, West Chester,
Pennsylvania. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company engaged in the manufacture and sale of decorative
paper products, business forms, and specialty metal packaging); Director of PECO
Energy Company (formerly Philadelphia Electric Company); Director of six Legg
Mason funds; Trustee of two Legg Mason funds. Formerly: Senior Vice President
and Chief Financial Officer of Philadelphia Electric Company (now PECO Energy
Company); Executive Vice President and Treasurer, Girard Bank, and Vice
President of its parent holding company, the Girard Company (bank holding
company) and Director of Finance, City of Philadelphia.

CHARLES F. HAUGH, [12/27/25] Director; 14201 Laurel Park Drive, Laurel,
Maryland. Real Estate Developer and Investor; President and Director of Resource
Enterprises, Inc. (real estate brokerage); Chairman of Resource Realty LLC
(management of retail and office space); Partner in Greater Laurel Health Park
Ltd. Partnership (real estate investment and development); Director of six Legg
Mason funds; Trustee of two Legg Mason funds.

ARNOLD L. LEHMAN, [07/18/44] Director; 200 Eastern Parkway, Brooklyn,
New York. Director of the Brooklyn Museum of Art; Director of six Legg Mason
funds; Trustee of two Legg Mason funds. Formerly: Director of the Baltimore
Museum of Art.

JILL E. McGOVERN, [08/29/44] Director; 400 Seventh St., NW, Washington,
DC. Chief Executive Officer of the Marrow Foundation; Director of six Legg Mason
funds; Trustee of two Legg Mason funds. Formerly: Executive Director of the
Baltimore International Festival (January 1991 - March 1993); Senior Assistant
to the President of The Johns Hopkins University (1986-1991).

T. A. RODGERS, [10/22/34] Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T. A. Rodgers & Associates (management consulting);
Director of six Legg Mason funds; Trustee of two Legg Mason funds. Formerly:
Director and Vice President of Corporate Development, Polk Audio, Inc.
(manufacturer of audio components) (1991-1992).

<PAGE>

The executive officers of the Corporation, other than those who also
serve as directors, are:

MARIE K. KARPINSKI*, [1/1/49] Vice President and Treasurer; Treasurer
of Legg Mason Fund Adviser, Inc.; Vice President and Treasurer of eight Legg
Mason funds; Vice President of Legg Mason.

KATHI D. BAIR*, [12/15/64] Secretary and Assistant Treasurer; Secretary
and/or Assistant Treasurer of three Legg Mason funds; employee of Legg Mason.

Officers and directors of the Corporation who are "interested persons"
thereof, as defined in the 1940 Act, receive no salary or fees from the
Corporation. Directors who are not interested persons of the Corporation receive
an annual retainer and a per meeting fee based on the average net assets of the
Fund at December 31 of the previous year.

The Nominating Committee of the Board of Directors is responsible for
the selection and nomination of disinterested directors. The Committee is
composed of Messrs. Gilmore, Haugh, Lehman and Rodgers and Dr. McGovern.

At April 15, 1998, the directors and officers of the Corporation
beneficially owned, in the aggregate, less than 1% of each Fund's outstanding
shares.

The following table provides certain information relating to the
compensation of the Corporation's directors for the fiscal year ended December
31, 1997. None of the Legg Mason funds has any retirement plan for its
directors.

COMPENSATION TABLE
- ------------------
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
CORPORATION AND FUND
AGGREGATE COMPENSATION COMPLEX PAID TO
NAME OF PERSON AND POSITION FROM CORPORATION(A) DIRECTORS(B)
- ------------------------------------------------------------------------------------------------------------------
<S><C>
John F. Curley, Jr. -
Chairman of the Board and Director None None
- ------------------------------------------------------------------------------------------------------------------
Edward A. Taber, III -
President and Director None None
- ------------------------------------------------------------------------------------------------------------------
Richard G. Gilmore - $3,700 $29,400
Director
- ------------------------------------------------------------------------------------------------------------------
Charles F. Haugh - $3,700 $29,400
Director
- ------------------------------------------------------------------------------------------------------------------
Arnold L. Lehman - $3,700 $29,400
Director
- ------------------------------------------------------------------------------------------------------------------
Jill E. McGovern - $3,700 $29,400
Director
- ------------------------------------------------------------------------------------------------------------------
T. A. Rodgers - $3,700 $29,400
Director
==================================================================================================================
</TABLE>

(A) Represents fees paid to each director during the fiscal year ended
December 31, 1997.

<PAGE>

(B) Represents aggregate compensation paid to each director during the
calendar year ended December 31, 1997. There are nine open-end
investment companies in the Legg Mason Complex (with a total of
seventeen funds).

THE FUNDS' INVESTMENT ADVISER/MANAGER

LMFA

Legg Mason Fund Adviser, Inc. ("LMFA"), a Maryland corporation, is
located at 100 Light Street, Baltimore, Maryland 21202. LMFA is a wholly owned
subsidiary of Legg Mason, Inc., which also is the parent of Legg Mason and each
Fund's adviser. LMFA served as Global Government's investment adviser and
manager under an Investment Advisory and Management Agreement ("Advisory
Agreement") dated April 5, 1993. A revised Management Agreement dated May 1,
1995 ("Management Agreement") between Global Government and LMFA was approved by
the vote of a majority of the Fund's outstanding shares on April 21, 1995.
Pursuant to the revised Management Agreement, and subject to overall direction
by the Board of Directors, LMFA manages the investment and other affairs of
Global Government. Continuation of the Agreement was most recently approved by
the Board of Directors on November 7, 1997. LMFA is responsible for managing the
Fund consistent with the Fund's investment objectives and policies described in
the Prospectuses and this Statement of Additional Information. LMFA also is
obligated to (a) furnish the Fund with office space and executive and other
personnel necessary for the operations of the Fund; (b) supervise all aspects of
the Fund's operations; (c) bear the expense of certain informational and
purchase and redemption services to the Fund's shareholders; (d) arrange, but
not pay for, the periodic updating of prospectuses, proxy material, tax returns
and reports to shareholders and state and federal regulatory agencies; and (e)
report regularly to the Corporation's officers and directors. LMFA and its
affiliates pay all the compensation of directors and officers of the Corporation
who are employees of LMFA. LMFA has delegated the portfolio management functions
for Global Government to its adviser, Western Asset Management Company.

As explained in the Prospectuses, LMFA receives for its services a
management fee, calculated daily and payable monthly, at an annual rate equal to
0.75% of Global Government's average daily net assets. LMFA has voluntarily
agreed to waive indefinitely its fees to the extent the Fund's total operating
expenses attributable to Primary Shares (exclusive of taxes, interest, brokerage
and extraordinary expenses) exceed during any month an annual rate of the Fund's
average daily net assets attributable to Primary Shares of 1.90%. For the years
ended December 31, 1997, 1996 and 1995, LMFA did not waive any management fees.
For the years ended December 31, 1997, 1996 and 1995, the Fund paid management
fees of $1,155,558, $1,150,265 and $1,120,329, respectively.

LMFA also serves as the manager for International Equity and Emerging
Markets under separate Management Agreements (each a "Management Agreement").
Continuation of International Equity's and Emerging Markets' Management
Agreements was most recently approved by the Board of Directors on November 7,
1997. Each Management Agreement provides that, subject to overall direction by
the Board of Directors, LMFA will manage the investment and other affairs of
International Equity and Emerging Markets. LMFA is responsible for managing
International Equity's and Emerging Markets' investments and for making
purchases and sales of securities consistent with the investment objectives and
policies described in the Prospectus and this Statement of Additional
Information. LMFA is obligated to furnish the Funds with office space and
certain administrative services as well as executive and other personnel
necessary for the operation of the Funds. LMFA and its affiliates also are
responsible for the compensation of directors and officers of the Corporation
who are employees of LMFA and/or its affiliates. LMFA has delegated the
portfolio management functions for International Equity and Emerging Markets to
its adviser, Batterymarch Financial Management, Inc.

<PAGE>

As explained in the Funds' Prospectuses, LMFA receives for its services
a management fee, calculated daily and payable monthly, at an annual rate equal
to 0.75% of International Equity's average daily net assets and 1.00% of
Emerging Markets' average daily net assets. LMFA and Batterymarch have
voluntarily agreed to waive their fees if and to the extent necessary to limit
International Equity's and Emerging Markets' total annual operating expenses
attributable to Primary Shares (exclusive of taxes, interest, brokerage and
extraordinary expenses) to 2.25% and 2.50%, respectively, of each Fund's average
daily net assets attributable to Primary Shares. This agreement will expire on
May 1, 1999, unless extended by LMFA and Batterymarch. For the years ended
December 31, 1997, 1996 and the period February 17, 1995 (commencement of
operations of International Equity) to December 31, 1995, LMFA waived $0,
$91,764, and $201,121 respectively, in management fees. For the same periods,
the Fund paid management fees of $1,616,187, $933,951, and $26,166,
respectively.

For the year ended December 31, 1997, Emerging Markets paid management
fees of $554,454 (prior to waiver of $198,734). For the period May 28, 1996
(commencement of operations of Emerging Markets) to December 31, 1996, LMFA
waived all management fees.

Under each Management Agreement, LMFA will not be liable for any error
of judgment or mistake of law or for any loss suffered by any Fund in connection
with the performance of each Management Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or losses resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.

Each Management Agreement terminates automatically upon assignment and
is terminable at any time without penalty by vote of the Corporation's Board of
Directors, by vote of a majority of the outstanding voting securities of that
Fund or by LMFA, on not less than 60 days' written notice to the other party,
and may be terminated immediately upon the mutual written consent of LMFA and
the respective Fund.

Each Fund pays all its other expenses which are not expressly assumed
by LMFA. These expenses include, among others, interest expense, taxes,
brokerage fees, commissions, expenses of preparing and printing prospectuses,
statements of additional information, proxy statements and reports and of
distributing them to existing shareholders, custodian charges, transfer agency
fees, organizational expenses, distribution fees to the Fund's distributor,
compensation of the independent directors, legal and audit expenses, insurance
expenses, expenses of registering and qualifying shares of the Fund for sale
under federal and state law, governmental fees and expenses incurred in
connection with membership in investment company organizations.

Under its Management Agreement, each Fund has the non-exclusive right
to use the name "Legg Mason" until that Agreement is terminated or until the
right is withdrawn in writing by LMFA.

WESTERN ASSET

Western Asset Management Company ("Western Asset"), 117 East Colorado
Boulevard, Pasadena, CA 91105, a wholly owned subsidiary of Legg Mason, serves
as investment adviser to Global Government under an Advisory Agreement dated May
1, 1995, between Western Asset and LMFA ("Advisory Agreement"). The Advisory
Agreement was approved by the Board of Directors, including a majority of the
directors who are not "interested persons" of the Corporation, Western Asset or
LMFA, on February 14, 1995, and was approved by the shareholders of Global
Government on April 21, 1995. Continuation of the Advisory Agreement was most
recently approved by the Board of Directors on November 7, 1997. Under the
Advisory Agreement, Western Asset is responsible, subject to the general
supervision of LMFA and the Corporation's Board of Directors, for the actual
management of Global Government's assets, including the responsibility for
making decisions and placing orders to buy, sell or hold a particular security.
For Western Asset's services, LMFA (not the Fund) pays Western Asset a fee,
computed daily and payable monthly, at an annual rate equal

<PAGE>

to 53 1/3% of the fee received by LMFA or 0.40% of the Fund's average daily net
assets. For the years ended December 31, 1997, 1996 and 1995, LMFA paid Western
$616,282, $613,478 and $407,240, respectively.

Under the Advisory Agreement, Western Asset will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties thereunder.

The Advisory Agreement terminates automatically upon assignment. It
also is terminable at any time without penalty by vote of the Corporation's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities, or by Western Asset, on not less than 60 days' notice to the other
party to the Agreement and may be terminated immediately upon the mutual written
consent of both parties to the Agreement.

BATTERYMARCH

Batterymarch Financial Management, Inc., 200 Clarendon Street, Boston,
Massachusetts 02116, is a wholly owned subsidiary of Legg Mason, Inc., which
also is the parent of Legg Mason. Batterymarch serves as International Equity's
and Emerging Markets' investment adviser under separate Investment Advisory
Agreements (each an "Advisory Agreement"). Under each Advisory Agreement,
Batterymarch is responsible, subject to the general supervision of LMFA and the
Corporation's Board of Directors, for the actual management of International
Equity's and Emerging Markets' assets, including the responsibility for making
decisions and placing orders to buy, sell or hold a particular security. For
Batterymarch's services, LMFA (not the Funds) pays Batterymarch a fee, computed
daily and payable monthly, at an annual rate equal to 0.50% and 0.75% of the
average daily net assets of International Equity and Emerging Markets,
respectively.

For the years ended December 31, 1997, 1996 and the period February 17,
1995 (commencement of operations) to December 31, 1995, Batterymarch received
$1,077,462, $539,873 and $16,946, respectively for its services to International
Equity Trust. For the period May 28, 1996 (commencement of operations) to
December 31, 1996, Batterymarch waived its fees for its services to Emerging
Markets. For the year ended December 31, 1997, Batterymarch received $266,194
for its services to Emerging Markets.

Under each Advisory Agreement, Batterymarch will not be liable for any
error of judgment or mistake of law or for any loss suffered by either Fund in
connection with the performance of the Advisory Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties thereunder.

Each Advisory Agreement terminates automatically upon assignment. It
also is terminable at any time without penalty by vote of the Corporation's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities, or by Batterymarch, on not less than 60 days' notice to the other
party to the Agreement and may be terminated immediately upon the mutual written
consent of both parties to the Agreement.

SUB-ADVISORY AGREEMENT
FOR GLOBAL GOVERNMENT TRUST

Western Asset Global Management, Ltd. ("Western Asset Global"), 155
Bishopsgate, London EC2M 3TY, an affiliate of Legg Mason, serves as an
investment sub-adviser to Global Government under a Sub- Advisory Agreement
dated May 1, 1997, between Western Asset Global and Western Asset ("Sub-Advisory
Agreement"). The Sub-Advisory Agreement was approved by the Board of Directors,
including a majority of the directors who are not "interested persons" of the
Corporation, Western Asset Global, Western Asset or LMFA, on February 14, 1997,
and was approved by the shareholders of Global Government on April 30, 1997.

<PAGE>

Continuation of the Sub-Advisory Agreement was most recently approved by the
Board of Directors on November 7, 1997.

Western Asset Global is responsible for providing research, analytical
and trading support for the Fund's investment program, as well as exercising
investment discretion for part of the portfolio, subject to the supervision of
Western Asset and LMFA and the overall direction of the Board of Directors. As
compensation for Western Asset Global's services and for expenses borne by
Western Asset Global under the Sub-Advisory Agreement, Western Asset pays
Western Asset Global monthly at an annual rate equal to 0.20% of the Fund's
average daily net assets. In addition, LMFA pays Western Asset Global a fee at
an annual rate equal to 0.10% of the Fund's average daily net assets for certain
administrative expenses. Fees paid by LMFA to Western Asset Global for the
period May 1, 1997 to December 31, 1997 totaled $102,219.

Under the Sub-Advisory Agreement, Western Asset Global will not be
liable for any error of judgment or mistake of law or for any loss suffered by
LMFA or by the Fund in connection with the performance of the Sub-Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations or duties thereunder.

The Sub-Advisory Agreement terminates automatically upon assignment and
is terminable at any time without penalty by vote of the Corporation's Board of
Directors, by vote of a majority of the Fund's outstanding voting securities, by
LMFA, by Western Asset or by Western Asset Global, on not less than 60 days'
notice to the Fund and/or the other party(ies). The Sub-Advisory Agreement
terminates immediately upon any termination of the Advisory Agreement or upon
the mutual written consent of LMFA, Western Asset, Western Asset Global and the
Fund.

To mitigate the possibility that a Fund will be affected by personal
trading of employees, the Corporation, LMFA, Batterymarch, Western Asset and
Western Asset Global have adopted policies that restrict securities trading in
the personal accounts of portfolio managers and others who normally come into
advance possession of information on portfolio transactions. These policies
comply, in all material respects, with the recommendations of the Investment
Company Institute.

THE FUNDS' DISTRIBUTOR

Legg Mason acts as distributor of the Funds' shares pursuant to
separate Underwriting Agreements with the Corporation. Each Underwriting
Agreement obligates Legg Mason to promote the sale of Fund shares and to pay
certain expenses in connection with its distribution efforts, including the
printing and distribution of prospectuses and periodic reports used in
connection with the offering to prospective investors (after the prospectuses
and reports have been prepared, set in type and mailed to existing shareholders
at each Fund's expense) and for supplementary sales literature and advertising
costs.

Each Fund has adopted a Distribution and Shareholder Services Plan
("Plan") which, among other things, permits a Fund to pay Legg Mason fees for
its services related to sales and distribution of Primary Shares and the
provision of ongoing services to Primary Class shareholders. Distribution
activities for which such payments may be made include, but are not limited to,
compensation to persons who engage in or support distribution and redemption of
shares, printing of prospectuses and reports for persons other than existing
shareholders, advertising, preparation and distribution of sales literature,
overhead, travel and telephone expenses.

The Plan was adopted, as required by Rule 12b-1 under the 1940 Act, by
a vote of the Board of Directors on February 5, 1993 (for Global Government),
October 21, 1994 (for International Equity) and February 7, 1996 (for Emerging
Markets), including a majority of the directors who are not "interested persons"
of the Corporation as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plan or the
Underwriting Agreement ("12b-1 Directors"). Amendment of the Plan to conform to
new rules of the National Association of Securities Dealers, Inc., was approved
by the Board on May 14, 1993. Continuation of the Plan was most recently
approved by the Board of Directors on November

<PAGE>

7, 1997, including a majority of the 12b-1 Directors. In approving the
continuance of the Plan, in accordance with the requirements of Rule 12b-1, the
directors determined that there was a reasonable likelihood that the Plan would
benefit each Fund and its shareholders. The directors noted that, to the extent
the Plan results in additional sales of Primary Shares of a Fund, the Plan may
enable the Fund to achieve economies of scale that could reduce expenses and to
minimize the prospects that the Fund will experience net redemptions and the
accompanying disruption of portfolio management.

As compensation for its services and expenses, Legg Mason receives from
each Fund an annual distribution fee equivalent to 0.50% (for Global Government)
and 0.75% (for International Equity and Emerging Markets) of its average daily
net assets attributable to Primary Shares and a service fee equivalent to 0.25%
of its average daily net assets attributable to Primary Shares in accordance
with the Plan. The distribution and service fees are calculated daily and
payable monthly. Legg Mason voluntarily agreed to waive its fees and reimburse
each Fund if and to the extent its expenses attributable to Primary Shares
(exclusive of taxes, interest, brokerage and extraordinary expenses) exceeded
during any month an annual rate of each Fund's average daily net assets
attributable to Primary Shares in accordance with the following schedule:

GLOBAL GOVERNMENT: 0.20% until September 30, 1993; 0.35% until December 31,
1993; 0.50% until January 31, 1994; 0.70% until February 28, 1994; 0.90% until
March 31, 1994; 1.10% until April 30, 1994; 1.30% until May 31, 1994; 1.50%
until June 30, 1994, 1.70% until July 31, 1994; and 1.90% indefinitely.

INTERNATIONAL EQUITY: 2.25% indefinitely.

EMERGING MARKETS: 2.50% until May 1, 1999.

For the years ended December 31, 1997, 1996 and 1995, Global Government
paid full distribution and service fees of $1,155,558, $1,150,140 and
$1,120,329, respectively.

For the years ended December 31, 1997, 1996 and the period February 17,
1995 (commencement of operations) to December 31, 1995, International Equity
paid full distribution and service fees of $2,154,916, $1,245,267 and $303,049,
respectively.

For the year ended December 31, 1997 Emerging Markets paid full
distribution and service fees of $554,454. For the period May 28, 1996
(commencement of operations) to December 31, 1996, Emerging Markets paid
distribution and service fees of $84,388 (prior to fees waived of $17,498).

The Plan continues in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated with respect to each
Fund by a vote of a majority of 12b-1 Directors or by vote of a majority of the
outstanding voting Primary Class securities of that Fund. Any change in the Plan
that would materially increase the distribution costs to a Fund requires Primary
Class shareholder approval; otherwise, the Plan may be amended by the directors,
including a majority of the 12b-1 Directors.

Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by a Fund, pursuant to the Plan or any
related agreement shall provide to that Fund's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which the expenditures were made. Rule 12b-1 also
provides that a Fund may rely on that Rule only if, while the Plan is in effect,
the nomination and selection of that Fund's independent directors is committed
to the discretion of such independent directors.

For the year ended December 31, 1997, Legg Mason incurred the following
expenses in connection with distribution and shareholder services for each Fund:

<PAGE>

<TABLE>
<CAPTION>
Global International Emerging
Government Equity Markets
- --------------------------------------------------------------------------------------------------------------
<S><C>
Compensation to sales personnel $697,000 $1,254,000 $322,000
- --------------------------------------------------------------------------------------------------------------
Advertising 32,000 42,000 60,000
- --------------------------------------------------------------------------------------------------------------
Printing and mailing of prospectuses to prospective
shareholders 86,000 116,000 149,000
- --------------------------------------------------------------------------------------------------------------
Other 448,000 1,302,000 710,000
- --------------------------------------------------------------------------------------------------------------
Total $1,263,000 $2,714,000 $1,241,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The foregoing table reflects the allocation of certain items of overhead, using
assumptions believed by Legg Mason to be reasonable.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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. For the years ended December 31, 1997 and 1996, Global
Government's portfolio turnover rates were 241% and 172%, respectively. For the
years ended December 31, 1997 and 1996, International Equity's portfolio
turnover rates were 59% and 83%, respectively. For the year ended December 31,
1997 and the period May 28, 1996 (commencement of operations) to December 31,
1996, Emerging Markets' portfolio turnover rates were 63% and 46% (annualized),
respectively.

Under each Advisory Agreement, each Fund's adviser is responsible for
the execution of portfolio transactions. Corporate and government debt
securities are generally traded on the OTC market on a "net" basis without a
stated commission, through dealers acting for their own account and not as
brokers. Prices paid to a dealer in debt securities will generally include a
"spread," which is the difference between the price at which the dealer is
willing to purchase and sell the specific security at the time, and includes the
dealer's normal profit. Some portfolio transactions may be executed through
brokers acting as agent. In selecting brokers or dealers, each adviser must seek
the most favorable price (including the applicable dealer spread or brokerage
commission) and execution for such transactions, subject to the possible payment
as described below of higher brokerage commissions or spreads to broker-dealers
who provide research and analysis. A Fund may not always pay the lowest
commission or spread available. Rather, in placing orders on behalf of a Fund,
each adviser also takes into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below) and any risk assumed by the executing
broker.

Consistent with the policy of most favorable price and execution, each
adviser may give consideration to research and statistical services furnished by
brokers or dealers to that adviser for its use, may place orders with
broker-dealers who provide supplemental investment and market research and
securities and economic analysis, and may pay to these broker-dealers a higher
brokerage commission than may be charged by other broker-dealers. Such research
and analysis may be useful to each adviser in connection with services to
clients other than the Funds. On the other hand, research and analysis received
by the adviser from broker-dealers executing orders for clients other than the
Funds may be used for the Funds' benefit. Each adviser's fee is not reduced by
reason of its receiving such brokerage and research services. For the years
ended December 31, 1997 and 1996, Global Government paid no brokerage
commissions. For the years ended December 31, 1997 and 1996 , International
Equity paid $556,869 and $498,457, respectively in brokerage commissions. For
the year ended December 31, 1997 and the period May 28, 1996 (commencement of
operations) to December 31, 1996, Emerging Markets paid $496,536 and $90,935 in
brokerage commissions.

Although Global Government does not expect to purchase securities on a
commission basis, each Fund may use Legg Mason to effect agency transactions in
listed securities at commission rates and under circumstances consistent with
the policy of best execution. Commissions paid to Legg Mason will not exceed

<PAGE>

"usual and customary brokerage commissions." Rule 17e-1 under the 1940 Act
defines "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time." In the OTC market, a Fund generally will deal with
responsible primary market makers unless a more favorable execution can
otherwise be obtained.

No Fund may buy securities from, or sell securities to, Legg Mason or
its affiliated persons as principal. However, the Corporation's Board of
Directors has adopted procedures in conformity with Rule 10f- 3 under the 1940
Act whereby a Fund may purchase securities that are offered in certain
underwritings in which Legg Mason or any of its affiliated persons is a
participant.

Section 11(a) of the Securities Exchange Act of 1934 prohibits Legg
Mason from retaining compensation for executing transactions on an exchange for
its affiliates, such as the Funds, unless the affiliate expressly consents by
written contract. Each Advisory Agreement expressly provides such consent in
accordance with Rule 11a2-2(T).

Investment decisions for each Fund are made independently from those of
other funds and accounts advised by LMFA, Batterymarch, Western, or Western
Asset Global. However, the same security may be held in the portfolios of more
than one fund or account. When two or more accounts simultaneously engage in the
purchase or sale of the same security, the prices and amounts will be equitably
allocated to each account. In some cases, this procedure may adversely affect
the price or quantity of the security available to a particular account. In
other cases, however, an account's ability to participate in large-volume
transactions may produce better executions and prices.

THE CORPORATION'S CUSTODIAN AND
TRANSFER AND DIVIDEND-DISBURSING AGENT

State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts, serves as custodian of each Fund's assets. Boston Financial Data
Services, P.O. Box 953, Boston, Massachusetts 02103 serves as transfer and
dividend-disbursing agent and administrator of various shareholder services.
Legg Mason also assists BFDS with certain of its duties as transfer agent, for
which BFDS pays Legg Mason a fee. Each Fund reserves the right, upon 60 days'
written notice, to make other charges to investors to cover administrative
costs.

THE CORPORATION'S LEGAL COUNSEL

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, serves as counsel to the Corporation.

THE CORPORATION'S INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., 250 W. Pratt Street, Baltimore, Maryland
21201, serves as the Corporation's independent accountants.

FINANCIAL STATEMENTS

The Statement of Net Assets as of December 31, 1997; the Statements of
Operations for the year ended December 31, 1997; the Statements of Changes in
Net Assets for the years ended December 31, 1997 and December 31, 1996 ; the
Financial Highlights for the periods presented; the Notes to Financial
Statements and the Report of the Independent Accountants, all of which are
included in the Corporation's annual report for the year ended December 31,
1997, are hereby incorporated by reference in this Statement of Additional
Information.

<PAGE>

APPENDIX A

RATINGS OF SECURITIES

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
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RATINGS:
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Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A-Bonds which are rated A possess many favorable investment attributes
and are to be considered upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa-Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest 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.

Ba-Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.

Caa-Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

DESCRIPTION OF STANDARD & POOR'S ("S&P") CORPORATE BOND RATINGS:
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AAA-This is the highest rating assigned by S&P to an obligation and
indicates an extremely strong capacity to pay principal and interest.

AA -Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

A - 1

<PAGE>

BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB, B, CCC, CC-Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominately speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.

D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.

DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS:
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aaa-An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stock.

aa -An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

a-An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "a " classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

baa-An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

ba-An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
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Prime-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have
a superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation;
well-established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2. Issuers (or supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS
- ---------------------------------------------

A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1. This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for the issues
designated "A-1".

A - 2

<PAGE>

APPENDIX B

The Funds may use the following instruments for the purposes described
on pages 13-21.

OPTIONS ON DEBT SECURITIES AND FOREIGN CURRENCIES (Global Government)

A call option is a short-term contract pursuant to which the purchaser
of the option, in return for a premium, has the right to buy the security or
currency underlying the option at a specified price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to deliver the
underlying security or currency against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security or currency at a specified price
during the option term. The writer of the put option, who receives the premium,
has the obligation, upon exercise of the option during the option term, to buy
the underlying security or currency at the exercise price.

OPTION ON A BOND INDEX (Global Government)

An option on a bond index is similar to an option on a security or
foreign currency, except that settlement of a bond index option is effected with
a cash payment based on the value of the bond index and does not involve the
delivery of the securities included in the index. Thus, upon settlement of a
bond index option, the purchaser will realize, and the writer will pay, an
amount based on the difference between the exercise price of the option and the
closing price of the bond index.

INTEREST RATE, FOREIGN CURRENCY AND BOND INDEX FUTURES CONTRACTS (Global
Government)

Interest rate and foreign currency futures contracts are bilateral
agreements pursuant to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of debt security or currency at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities or
currency, in most cases the contracts are closed out before the settlement date
without the making or taking of delivery. A bond index futures contract is
similar to any other futures contract except that settlement of a bond index
futures contract is effected with a cash payment based on the value of the bond
index and does not involve the delivery of the securities included in the index.

OPTIONS ON FUTURES CONTRACTS

Options on futures contracts are similar to options on securities or
currencies, except that an option on a futures contract gives the purchaser the
right, in return for the premium, to assume a position in a futures contract (a
long position if the option is a call, and a short position if the option is a
put), rather than to purchase or sell a security or currency, at a specified
price at any time during the option term. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by delivery of the accumulated balance that represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the future. The
writer of an option, upon exercise, will assume a short position in the case of
a call, and a long position in the case of a put. An option on a bond index
futures contract is similar to any other option on a futures contract except
that the purchaser has the right, in return for the premium, to assume a
position in a bond index futures contract at a specified price at any time
during the option term.

FORWARD CURRENCY CONTRACTS

A forward currency contract involves an obligation to purchase or sell
a specific currency at a specified future date, which may be any fixed number of
days from the contract date agreed upon by the parties, at a price set at the
time the contract is entered into.

B - 1

<PAGE>

TABLE OF CONTENTS

Page
----

Additional Information About Investment Limitations and
Policies 2
Additional Purchase and Redemption Information 25
Additional Tax Information 27
Performance Information 30
Valuation of Fund Shares 36
Tax-Deferred Retirement Plans 36
The Corporation's Directors and Officers 38
The Funds' Investment Adviser/Manager 40
Sub-Advisory Agreement for Global Government Trust 42
The Funds' Distributor 43
Portfolio Transactions and Brokerage 45
The Corporation's Custodian and Transfer and Dividend-
Disbursing Agent 46
The Corporation's Legal Counsel 46
The Corporation's Independent Accountants 46
Financial Statements 46
Appendix A A-1
Appendix B B-1

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No person has been authorized to give any information or to make any
representations not contained in the Prospectuses or this Statement of
Additional Information in connection with the offerings made by the Prospectuses
and, if given or made, such information or representations must not be relied
upon as having been authorized by any Fund or its distributor. The Prospectuses
and the Statement of Additional Information do not constitute offerings by any
Fund or by the distributor in any jurisdiction in which such offerings may not
lawfully be made.
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