As filed with the Securities and Exchange Commission on April 28, 2000
1933 Act File No. 033-56672
1940 Act File No. 811-7418
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22
LEGG MASON GLOBAL TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
100 Light Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 539-0000
Copies to:
MARC R. DUFFY, ESQ. ARTHUR C. DELIBERT, ESQ.
Legg Mason Wood Walker, Inc. Kirkpatrick & Lockhart LLP
100 Light Street 1800 Massachusetts Ave. N.W.
Baltimore, Maryland 21202 Second Floor
(Name and Address of Washington, D.C. 20036-1800
Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[X] on April 28, 2000, pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] on _____ pursuant to Rule 485(a)(i)
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] on _____ pursuant to Rule 485(a)(ii)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Legg Mason Global Trust, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Legg Mason Global Income Trust
Legg Mason International Equity Trust
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
Part A - Primary Class and Class A Prospectus
Navigator Global Income Trust
Navigator International Equity Trust
Navigator Emerging Markets Trust
Navigator Europe Fund
Part A - Navigator Class Prospectus
Legg Mason Global Income Trust
Legg Mason International Equity Trust
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
Primary, Class A and Navigator Class Shares
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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Legg Mason Global Trust, Inc.:
Legg Mason Global Income Trust
Legg Mason International Equity Trust
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
PRIMARY CLASS AND CLASS A PROSPECTUS April 28, 2000
logo
THE ART OF INVESTING(SM)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>
TABLE OF CONTENTS
About the funds:
xx Investment objectives
xx Principal risks
xx Performance
xx Fees and expenses of the funds
xx Management
About your investment:
xx How to invest
xx How to sell your shares
xx Account policies
xx Services for investors
xx Dividends and taxes
xx Financial highlights
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Legg Mason Global Trust, Inc.
[icon] INVESTMENT OBJECTIVES AND POLICIES
GLOBAL INCOME TRUST
Investment objective: Current income and capital appreciation in order to
achieve an attractive total return consistent with prudent investment risk.
Principal investment strategies:
The fund invests at least 75% of its total assets in fixed income securities
rated investment grade by Moody's Investor's Service, Inc. ("Moody's") or
Standard & Poor's, Inc. ("S&P") or, if unrated by Moody's or S&P, judged by
Western Asset Management Company, the fund's adviser, to be of comparable
quality. Up to 25% of the fund's assets may be invested in below investment
grade securities of foreign and domestic issuers, loans of banks and other
financial institutions (which may be below investment grade), convertible
securities, and common and preferred stock.
The types of fixed income securities in which the fund may invest include:
o U.S. and foreign investment-grade corporate debt securities
o U.S. and foreign high-yield corporate debt securities (including those
commonly known as "junk bonds")
o sovereign debt obligations of developed nations
o sovereign debt obligations of emerging market countries
o mortgage-related and asset-backed securities.
The fund will maintain a minimum of 25% 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 debt securities in
which the fund may invest may be of any maturity, and there are no limits on the
average maturity of the fund's portfolio. The fund may invest in corporate fixed
income securities rated as low as C by Moody's or D by S&P or in non-rated
securities deemed by the adviser to be of comparable quality.
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 assets that may be invested in any one country or currency.
The adviser has a number of proprietary tools which attempt to define the
inter-relationship between bond markets, sectors and maturities. Target
allocation ranges among countries and sector types and prices are established as
part of the adviser's strategy process, monitored daily and re-balanced if
necessary as dictated by macro-economic or company-specific events. This ongoing
screening drives the adviser's discipline for buying, selling or holding any
securities or currency position. The adviser deviates from the discipline only
if exceptional circumstances disrupt the orderly functioning of the markets. The
adviser's management style favors `rotation' among the government, agency,
corporate, and mortgage-backed sectors of the fixed income securities markets,
which may result in high portfolio turnover.
The adviser sells securities when they have realized what the adviser believes
is their potential value or when the adviser believes that they are not likely
to achieve that value in a reasonable period of time.
For temporary defensive purposes, the fund may borrow money or invest without
limit in cash and U.S. dollar-denominated money market instruments including
repurchase agreements. If the fund invests substantially in such instruments,
the fund may not be pursuing its principal investment strategies and the fund
may not achieve its investment objective.
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INTERNATIONAL EQUITY TRUST
Investment objective: Maximum long-term total return.
Principal investment strategies: Batterymarch Financial Management, Inc.
("Batterymarch"), the fund's adviser, currently intends to invest substantially
all of the fund's assets in non-U.S. equity securities.
The primary focus of the adviser is stock selection, with a secondary focus on
country allocation. The adviser uses a bottom-up, quantitative stock selection
process for the developed markets portion of the fund's portfolio. The
cornerstone of this process is a proprietary stock selection model that ranks
more than 2,800 stocks in the fund's principal investable universe by relative
attractiveness on a daily basis. The quantitative factors within this model
measure growth, value, changes in earnings expectations and technical
indicators. Because the same quantitative factors are not effective across all
markets due to individual market characteristics, the adviser adjusts the stock
selection model to include factors in each market that its research indicates
are effective. The adviser runs the stock selection model and re-balances the
portfolio daily, purchasing stocks ranked "buys" by the model and selling stocks
ranked "sells." Stocks are sold when the original reason for purchase no longer
pertains, the fundamentals have deteriorated or portfolio re-balancing warrants.
Region and country allocation for the developed markets portion of the fund is
based on rankings generated by the adviser's proprietary country model. The
adviser examines securities from over 20 international stock markets, with
emphasis on several of the largest: Japan, the United Kingdom, France, Canada
and Germany.
The fund may invest up to 35% of its total assets in emerging market securities.
The adviser's investment strategy for the emerging markets portion of the fund
represents a distinctive combination of tested quantitative methodology and
traditional fundamental analysis. The emerging markets allocation focuses on
higher-quality, dominant companies that the adviser believes to have strong
growth prospects and reasonable valuations. Country allocation for the emerging
markets portion of the portfolio also combines quantitative and fundamental
approaches.
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 adviser may also seek to enhance
portfolio returns through active currency hedging strategies.
The fund is not limited in the amount of its total assets that may be
denominated in a single currency or invested in securities of issuers located in
a single country.
When cash is temporarily available, or for temporary defensive purposes, when
the adviser 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. Such securities will be rated investment grade or, if unrated,
will be determined by the fund's adviser to be investment grade. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
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EMERGING MARKETS TRUST
Investment objective: Long-term capital appreciation.
Principal investment strategies:
Batterymarch, the fund's adviser, intends to invest substantially all of the
fund's assets in equity securities and convertible securities of emerging market
issuers.
The fund intends to invest in Asia, Latin America, the Indian Subcontinent,
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.
The fund is not limited in the amount of its total assets that may be
denominated in a single currency or invested in securities of issuers located in
a single country.
The adviser focuses on higher-quality, dominant emerging markets companies that
the adviser believes to have strong growth prospects and reasonable valuations,
selected from a principal investable universe of approximately 1,000 stocks. The
adviser's emerging markets investment strategy represents a distinctive
combination of quantitative methodology and traditional fundamental analysis.
Traditional "on-the-ground" fundamental research is combined by the adviser with
tested quantitative valuation disciplines in those markets where reliable data
are available. In determining country allocation, the adviser also merges
quantitative and fundamental approaches. In markets with reliable historical
data, buy and sell decisions are driven by a combination of quantitative
valuations and the adviser's fundamental opinions. Stocks are sold when the
original reason for purchase no longer pertains, the fundamentals have
deteriorated or portfolio re-balancing warrants.
When cash is temporarily available, or for temporary defensive purposes, when
the adviser 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. Such securities will be rated investment grade or, if unrated,
will be determined by the adviser to be of comparable quality. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
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EUROPE FUND
Investment objective: Long-term growth of capital.
Principal investment strategies:
Lombard Odier International Portfolio Management, Limited ("Lombard Odier" or
"sub-adviser"), the fund's sub-adviser, under normal circumstances, invests
substantially all of the fund's assets in equity securities of European issuers
that it believes offer above-average potential for capital appreciation. Such
securities include common and preferred stocks, convertible securities, rights
and warrants. The sub-adviser focuses on relatively larger capitalized issuers
with good earnings, growth potential and strong management.
A smaller portion of the fund's assets may be invested in fixed income
securities such as obligations of foreign or domestic governments, government
agencies or municipalities and obligations of foreign or domestic companies. The
sub-adviser will invest in such securities for potential capital appreciation.
Securities in the fund's portfolio may be sold when they attain certain price
targets or when better opportunities arise. Sell decisions also are affected by
the level of subscriptions and redemptions of shares of the fund. The
sub-adviser's investment technique may result in high portfolio turnover.
For temporary defensive purposes, the fund may hold all or a portion of its
total assets in money market instruments, cash equivalents, short-term
government and corporate obligations or repurchase agreements. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
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[icon] PRINCIPAL RISKS
In general:
There is no assurance that a fund will meet its investment objective; investors
can lose money by investing in the funds. As with all mutual funds, an
investment in any of these funds is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Market risk:
International Equity Trust, Emerging Markets Trust and Europe Fund invest
primarily in foreign equity securities. Prices of equity securities generally
fluctuate more than those of other securities, such as debt securities. A fund
may experience a substantial or complete loss on an individual stock. Market
risk may affect a single issuer, industry or section of the economy or may
affect the market as a whole.
Foreign securities risk:
Investments in foreign securities (including those denominated in U.S. dollars)
involve certain risks not typically associated with investments in domestic
issuers. The values of foreign securities are subject to economic and political
developments in the countries and regions where the companies operate, such as
changes in economic or monetary policies, and to changes in exchange rates.
Values may also be affected by foreign tax laws and restrictions on receiving
the investment proceeds from a foreign country. Some foreign governments have
defaulted on principal and interest payments.
In general, less information is publicly available about foreign companies than
about U.S. companies. Foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Transactions in foreign securities may be subject to less efficient settlement
practices, including extended clearance and settlement periods. Foreign stock
markets may be less liquid and less regulated than U.S. stock markets.
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. Even where a security is backed by the full faith and credit
of a foreign government, it may be difficult for a fund to pursue its rights
against a foreign government in that country's courts.
Emerging markets risk:
The risks of foreign investment are greater for investments in emerging markets.
Emerging market countries typically have economic and political systems that are
less fully developed, and can be expected to be less stable, than those of more
advanced countries. Low trading volumes may result in a lack of liquidity and in
price volatility. Emerging market countries may have policies that restrict
investment by foreigners, or that prevent foreign investors from withdrawing
their money at will.
Because each of the funds may invest a significant amount of its total assets in
emerging market securities, investors should be able to tolerate sudden,
sometimes substantial, fluctuations in the value of their investments. An
investment in any fund that invests in emerging market securities should be
considered speculative.
Currency risk:
Because each of the funds invests significantly in securities denominated in
foreign currencies, the funds may incur currency conversion costs, and may be
affected favorably or unfavorably by changes in the rates of exchange between
those currencies and the U.S. dollar. Currency exchange rates can be volatile
and affected by, among other factors, the general economics of a country, the
actions of the U.S. and foreign governments or central banks, the imposition of
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<PAGE>
currency controls, and speculation. A security may be denominated in a currency
that is different from the currency where the issuer is domiciled.
The funds may from time to time hedge a portion of their currency risk, using
currency futures, forwards, or options. However, these instruments may not
always work as intended, and in specific cases a fund may be worse off than if
it had not used a hedging instrument. For most emerging market currencies, there
are not suitable hedging instruments available.
The conversion of certain European currencies into the Euro began on January 1,
1999, and is expected to continue into 2002. Full implementation of the Euro may
be delayed and difficulties with the conversion may significantly impact
European capital markets resulting in increased volatility in world capital
markets. Individual issuers may suffer substantial losses if they or their
suppliers are not adequately prepared for the transition.
Concentration and non-diversification:
Europe Fund invests primarily in securities of European issuers. A fund
concentrating a significant portion of its investment in a single region will be
more susceptible to factors adversely affecting issuers within that region than
would a less concentrated portfolio of securities.
European issuers are subject to the special risks in that region, including
risks related to the introduction of the Euro and the potential for difficulties
in its acceptance and the emergence of more unified economic and financial
governance in the European Monetary Union ("EMU") countries.
Global Income Trust is a non-diversified fund. This means that the percentage of
its assets invested in any single issuer is not limited by the Investment
Company Act of 1940. When the fund's assets are invested in the securities of a
limited number of issuers or it holds a large portion of its assets in a few
issuers, the value of its shares will be more susceptible to any single
economic, political or regulatory event affecting those issuers or their
securities than shares of a diversified fund.
Risks of fixed-income securities:
Global Income Trust invests substantially all of its assets in fixed-income
securities. Europe Fund may invest up to 35% of its total assets in fixed-income
securities. International Equity Trust and Emerging Markets Trust may also
invest in fixed-income securities to a lesser extent.
Interest rate risk -
Fixed income securities are subject to interest rate risk, which is the
possibility that the market prices of the funds' investments may decline due to
an increase in market interest rates. Generally, the longer the maturity of a
fixed-income security, the greater is the effect on its value when rates change.
Certain securities pay interest at variable or floating rates. Variable rate
securities reset at specified intervals, while floating rate securities reset
whenever there is a change in a specified index rate. In most cases, these reset
provisions reduce the effect of market interest rates on the value of the
security. However, some securities do not track the underlying index directly,
but reset based on formulas that can produce an effect similar to leveraging;
others may provide for interest payments that vary inversely with market rates.
The market prices of these securities may fluctuate significantly when interest
rates change.
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<PAGE>
Credit risk -
Fixed income securities are also subject to credit risk, i.e., the risk that an
issuer of securities will be unable to pay principal and interest when due, or
that the value of the security will suffer because investors believe the issuer
is less able to pay. This is broadly gauged by the credit ratings of the
securities in which each fund invests. However, ratings are only the opinions of
the agencies issuing them and are not absolute guarantees as to quality.
Moody's considers debt securities rated in the lowest investment grade category
(Baa) to have speculative characteristics. Debt securities rated below
investment grade are deemed by the ratings agencies to be speculative and may
involve major risk or exposure to adverse conditions. 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.
Call risk -
Many fixed income securities, especially those issued at high interest rates,
provide that the issuer may repay them early. Issuers often exercise this right
when interest rates are low. Accordingly, holders of callable securities may not
benefit fully from the increase in value that other fixed-income securities
experience when rates decline. Furthermore, the fund reinvests the proceeds of
the payoff at current yields, which are lower than those paid by the security
that was paid off.
Investment models:
The proprietary models used by the advisers to evaluate securities markets are
based on the advisers' understanding of the interplay of market factors and do
not assure successful investment. The markets, or the prices of individual
securities, may be affected by factors not foreseen in developing the models.
Portfolio Turnover -
Each fund may have an annual portfolio turnover rate in excess of 100%. High
turnover rates can result in increased trading costs and higher levels of
realized capital gains.
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<PAGE>
[icon] PERFORMANCE
Each fund has two authorized classes of shares: Primary Class shares and
Navigator Class shares; Europe Fund has an additional authorized class of
shares: Class A shares. The information provided below for Europe Fund is
primarily for Class A shares which is the class of shares with the longest
history. Its expenses generally are slightly lower, and its performance higher
than Primary Class shares. Each class is subject to different expenses and a
different sales charge structure. The information below provides an indication
of the risks of investing in a fund by showing changes in the fund's performance
from year to year. Annual returns assume reinvestment of dividends and
distributions. Historical performance of a fund does not necessarily indicate
what will happen in the future. Sales charges have not been deducted from total
returns (in the bar chart) for Class A shares. Returns would have been lower had
these charges been deducted.
GLOBAL INCOME TRUST - PRIMARY CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
24%
21%
20.80
18%
15%
12% 11.50
9% 8.22
6%
3%
0%
-1.40 -1.69
- -3% -3.23
1994 1995 1996 1997 1998 1999
DURING THE PAST SIX CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: March 31, 1995 7.86%
- --------------------------------------------------------------------------------
Worst quarter: March 31, 1999 -4.75%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Salomon Brothers World Government Bond
Index.
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1 Year 5 Years Life of Class
- --------------------------------------------------------------------------------
Global Income Trust -3.23% 6.76% 5.80%(a)
- --------------------------------------------------------------------------------
Salomon Brothers World -4.27% 6.42% 5.96%(b)
Government Bond Index
- --------------------------------------------------------------------------------
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(a) April 15, 1993 (commencement of operations) to December 31, 1999.
(b) For the period April 30, 1993 to December 31, 1999.
INTERNATIONAL EQUITY TRUST - PRIMARY CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
20.58
18%
16.49
15%
12%
9% 8.49
6%
3%
1.76
0% 1996 1997 1998 1999
DURING THE PAST FOUR CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: March 31, 1998 15.70%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1998 -20.06%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
Europe, Australia and the Far East (MSCI EAFE) Index.
- --------------------------------------------------------------------------------
1 Year Life of Class
- --------------------------------------------------------------------------------
International Equity Trust 20.58% 11.19%(a)
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MSCI EAFE Index 26.96% 14.27%(b)
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(a) February 17, 1995 (commencement of operations) to December 31, 1999.
(b) For the period February 28, 1995 to December 31, 1999.
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EMERGING MARKETS TRUST - PRIMARY CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
101.15
100%
75%
50%
25%
0%
-6.18
- -25%
- -50%
- -75%
-29.34
1997 1998 1999
DURING THE PAST THREE CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: December 31, 1999 39.72%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1998 -28.18%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
Emerging Markets Free (MSCI EM Free) Index.
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1 Year Life of Class
- --------------------------------------------------------------------------------
Emerging Markets Trust 101.15% 9.93%(a)
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MSCI EM Free Index 66.41% 1.61%(b)
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(a) May 28, 1996 (commencement of operations) to December 31, 1999.
(b) For the period May 31, 1996 to December 31, 1999.
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EUROPE FUND -- CLASS A SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
50%
40% 41.85
30% 29.91 31.53
20% 19.90 17.52 25.41
10% 7.07
0%
-4.23
- -10% -7.17
- -20% -20.56
- -30%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
DURING THE PAST TEN CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: December 31, 1999 25.98%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1990 -20.21%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
(MSCI) Europe Index.
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years Life of Class
- --------------------------------------------------------------------------------
Europe Fund Class A 25.41% 26.95% 12.47% 11.09% (a)
- --------------------------------------------------------------------------------
Europe Fund Primary Class 24.44% n/a n/a 26.06% (b)
- --------------------------------------------------------------------------------
MSCI Europe Index 15.89% 22.12% 14.05% 14.16% (c)
- --------------------------------------------------------------------------------
(a) August 19, 1986 (commencement of sale of Class A shares) to December 31,
1999.
(b) July 23, 1997 (commencement of sale of Primary Class shares) to December 31,
1999.
(c) For comparison with Class A shares, the index's return shown in the table is
for the period August 31, 1986 to December 31, 1999. For comparison with
Primary Class shares, the index's return for the period July 31, 1997 to
December 31, 1999 was 19.57%.
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<PAGE>
[icon] FEES AND EXPENSES OF THE FUNDS
The table below describes the fees and expenses you will incur directly or
indirectly as an investor in a fund. Each fund pays operating expenses directly
out of its assets so they lower that fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
GLOBAL INCOME TRUST, INTERNATIONAL EQUITY TRUST, EMERGING MARKETS TRUST
SHAREHOLDER FEES (fees paid directly from your investment)
- --------------------------------------------------------------------------------
Emerging Markets Trust redemption fee: 2.00%*
- --------------------------------------------------------------------------------
* Proceeds of shares redeemed or exchanged within one year of purchase will be
subject to a 2% redemption fee. The fee is paid directly to the fund and not to
the manager or distributor.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Global Income International Emerging Markets
Primary Class shares of: Trust Equity Trust Trust
- --------------------------------------------------------------------------------
Management fees (a) 0.75% 0.75% 1.00%
- --------------------------------------------------------------------------------
Distribution and service 0.75% 1.00% 1.00%
(12b-1) fees
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.38% 0.75%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses (a) 1.90% 2.13% 2.75%
- --------------------------------------------------------------------------------
(a) Legg Mason Fund Adviser, Inc., as manager, has voluntarily agreed to waive
fees so that Primary Class share expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) do not exceed the following annual rates
of each fund's average daily net assets attributable to Primary Class shares:
for Global Income Trust, 1.90% indefinitely; for International Equity Trust,
2.25% indefinitely; and for Emerging Markets Trust, 2.50% until April 30, 2001.
These voluntary waivers may be terminated at any time. With these waivers,
management fees and total annual fund operating expenses for the fiscal year
ended December 31, 1999 were 0.75% and 2.50%, for Emerging Markets Trust. No fee
waivers were necessary for Global Income Trust or International Equity Trust.
EXAMPLE:
This example helps you compare the cost of investing in a fund with the cost of
investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in a fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Global Income Trust $193 $597 $1026 $2222
- --------------------------------------------------------------------------------
International Equity Trust $216 $667 $1144 $2462
- --------------------------------------------------------------------------------
Emerging Markets Trust $480 $853 $1454 $3080
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Emerging Markets Trust
(assuming no redemption) $278 $853 $1454 $3080
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EUROPE FUND
SHAREHOLDER FEES
(fees paid directly from your investment)
- --------------------------------------------------------------------------------
Class A Shares Primary Class Shares
- --------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases (as a %
of offering price) (a) 4.75% None
- --------------------------------------------------------------------------------
Maximum deferred sales charge
(as a % of net asset value) (b) None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Class A Shares Primary Class Shares
- --------------------------------------------------------------------------------
Management fees (c) 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution and/or service
(12b-1) fees 0.25% 1.00%
- --------------------------------------------------------------------------------
Other Expenses 0.54% 0.58%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses (c) 1.79% 2.58%
- --------------------------------------------------------------------------------
(a) Sales charge waivers and reduced sales charge purchase plans are available
for Class A shares. See "How to Invest."
(b) A contingent deferred sales charge ("CDSC") of 1% of the net asset value of
Class A shares will be imposed on redemptions of shares purchased pursuant to
the front-end sales charge waiver on purchases of $1 million or more of Class A
shares made within one year of the purchase date. See "How to Invest."
(c) Legg Mason Fund Adviser, Inc., as investment adviser to Europe Fund, has
voluntarily agreed to waive fees so that expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) do not exceed the following annual rates:
1.85% of the fund's average daily net assets attributable to Class A shares; and
2.60% of the fund's average daily net assets attributable to Primary Class
shares. These voluntary waivers will continue until April 30, 2001, and may be
terminated at any time. No fee waivers were necessary for either Class A or
Primary Class shares.
-15-
<PAGE>
EXAMPLE:
This example helps you compare the cost of investing in Europe Fund with the
cost of investing in other mutual funds. Although your actual costs may be
higher or lower, you would pay the following expenses on a $10,000 investment in
the fund, assuming (1) a 5% return each year, (2) the fund's operating expenses
remain the same as shown in the table above, and (3) you redeem all of your
shares at the end of the time periods shown. This example also assumes that the
maximum initial sales charge is deducted at the time of purchase.
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A shares $649 $1014 $1404 $2490
- --------------------------------------------------------------------------------
Primary Class shares $262 $805 $1375 $2925
- --------------------------------------------------------------------------------
-16-
<PAGE>
[icon] M A N A G E M E N T
MANAGEMENT AND ADVISERS:
LEGG MASON FUND ADVISER, INC. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the manager of the funds. LMFA is responsible for investment
management and administrative services and for overseeing the funds'
relationships with outside service providers, such as the custodian, transfer
agent, accountants, and lawyers.
LMFA acts as manager or adviser to investment companies with aggregate assets of
about $18.2 billion as of December 31, 1999.
For its services during the fiscal year ended December 31, 1999, each fund paid
LMFA a percentage of its average daily net assets as follows:
Global Income Trust 0.75%
International Equity Trust 0.75%
Emerging Markets Trust 0.75%
Europe Fund 1.00%
Prior to October 6, 1999, Bartlett & Co. served as Europe Fund's manager under
compensation arrangements substantially similar to those with LMFA.
BATTERYMARCH FINANCIAL MANAGEMENT, Inc. ("Batterymarch"), 200 Clarendon Street,
Boston, Massachusetts 02116, is investment adviser to International Equity Trust
and Emerging Markets Trust. Batterymarch is responsible for the actual
investment management of these funds, which includes making investment decisions
and placing orders to buy or sell a particular security.
LMFA pays Batterymarch a monthly fee of 66 2/3% of the fee it receives from
International Equity Trust and a monthly fee of 75% of the fee it receives from
Emerging Markets Trust. Fees paid to Batterymarch are net of any waivers.
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 $6.6 billion as of December 31, 1999.
WESTERN ASSET MANAGEMENT COMPANY ("Western Asset"), 117 East Colorado Boulevard,
Pasadena, California 91105, is investment adviser to Global Income Trust.
Western Asset is responsible for the actual investment management of the fund,
which includes making investment decisions and placing orders to buy or sell a
particular security. LMFA pays Western Asset a monthly fee of 53 1/3% of the fee
it receives from Global Income Trust, net of any waivers.
Western Asset acts as investment adviser to investment companies and private
accounts with aggregate assets of about $52.5 billion as of December 31, 1999.
WESTERN ASSET MANAGEMENT COMPANY LIMITED ("Western Asset Ltd."), 155
Bishopsgate, London, England, serves as investment sub-adviser to Global Income
Trust. Western Asset Ltd. is responsible for providing research, analytical and
trading support for the fund's investment programs, as well as exercising
investment discretion for part of the portfolio, subject to the supervision of
Western Asset and LMFA.
For its services and for expenses borne by Western Asset Ltd. under its
sub-advisory agreement, Western Asset pays Western Asset Ltd. a fee at an annual
rate of 0.20% of the fund's average daily net assets, net of any waivers. LMFA
also pays Western Asset Ltd. a sub-administration fee at an annual rate of 0.10%
of the fund's average daily net assets, net of any waivers, for certain
administrative services performed.
-17-
<PAGE>
Western Asset Ltd. renders investment advice to institutional, private and
commingled fund portfolios with assets of about $4.5 billion as of December 31,
1999. Western Asset Ltd. has managed global fixed-income assets for U.S. and
non-U.S. clients since 1984.
LOMBARD ODIER INTERNATIONAL PORTFOLIO MANAGEMENT LIMITED, Norfolk House, 13
Southampton Place, London, England, serves as investment sub-adviser to Europe
Fund. For its services, Lombard Odier receives a monthly fee from LMFA equal to
60% of the fee paid to Legg Mason Fund Adviser by the fund, net of any waivers.
Lombard Odier specializes in advising and managing investment portfolios for
institutional clients and mutual funds. Lombard Odier is an indirect wholly
owned subsidiary of Lombard Odier & Cie, a Swiss private bank.
PORTFOLIO MANAGEMENT:
Batterymarch investment teams have been responsible for the day-to-day
management of International Equity Trust and Emerging Markets Trust since their
inception.
An investment committee at Western Asset is responsible for the day-to-day
management of Global Income Trust.
Neil Worsley and William Lovering are responsible for co-managing Europe Fund.
Mr. Worsley has been Director and Senior Investment Manager of Lombard Odier
since June 1, 1996. Prior thereto, he was an Assistant Director and Senior Fund
Manager. He joined Lombard Odier in 1990. Mr. Lovering has been Assistant
Director of Lombard Odier since June 1, 1996. Prior thereto, he was a Senior
Fund Manager. He joined the firm in 1994. Previously, Mr. Lovering was employed
at Arbuthnot Latham Investment Management.
DISTRIBUTOR OF THE FUNDS' SHARES:
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland, 21202, is the distributor of each fund's shares. Each fund
has adopted a plan under Rule 12b-1 that allows it to pay distribution fees
and/or shareholder service fees for the sale of its shares and for services
provided to shareholders. These fees are calculated daily and paid monthly.
Under each plan, the funds may pay Legg Mason an annual fee equal to 0.50% of
Global Income Trust's average daily net assets attributable to Primary Class
shares, and 0.75% of International Equity Trust's, Emerging Markets Trust's and
Europe Fund's average daily net assets attributable to Primary Class shares; and
an annual service fee from each fund equal to 0.25% of its average daily net
assets attributable to Primary Class shares. For Class A shares, Europe Fund may
pay Legg Mason a service fee at an annual rate of 0.25% of its average daily
Class A net assets.
Because these fees are paid out of the fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Legg Mason collects the sales charge imposed on purchases of Class A shares and
any CDSCs that may be imposed on certain redemptions of Class A shares. Legg
Mason reallows a portion of the sales charges on Class A shares to
broker/dealers that have sold such shares in accordance with the Class A
Purchase Schedule and may from time to time reallow the full amount of the sales
charge.
Legg Mason may also pay special additional compensation and promotional
incentives to broker/dealers who sell Class A shares of Europe Fund.
Legg Mason may enter into agreements with other brokers to sell Primary Class
shares of each fund. Legg Mason pays these brokers up to 90% of the service fee
that it receives from a fund for those sales.
-18-
<PAGE>
Each class of shares bears 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.
LMFA, Batterymarch, Western Asset, Western Asset Ltd. and Legg Mason are wholly
owned subsidiaries of Legg Mason, Inc., a financial services holding company.
-19-
<PAGE>
[icon] H O W T O I N V E S T
To open a regular account or a retirement account, contact a Legg Mason
Financial Advisor, Legg Mason Funds Investor Services ("FIS"), or another entity
that has entered into an agreement with the fund's distributor to sell shares of
the fund. The minimum initial investment is $1,000 and the minimum for each
purchase of additional shares is $100.
Retirement accounts include traditional IRAs, spousal IRAs, Education IRAs, Roth
IRAs, simplified employee pension plans, savings incentive match plans for
employees and other qualified retirement plans. The investment amount for an
Education IRA is $500. Contact your financial adviser, FIS, or other entity
offering the funds to discuss which one might be appropriate for you.
Certain investment methods (for example, through certain retirement plans) may
be subject to lower minimum initial and additional investments. Arrangements may
also be made with some employers and financial institutions for regular
automatic monthly investments of $50 or more in shares of the fund. Contact your
financial adviser or FIS with any questions regarding your investment options.
When placing a purchase order for Europe Fund shares, please specify whether the
order is for Class A shares or Primary Class shares. All purchase orders that
fail to specify a class will automatically be invested in Primary Class shares.
Once your account is open, you may use the following methods to purchase shares
of the fund:
- --------------------------------------------------------------------------------
In Person Give your financial adviser a check for $100 or more
payable to the fund.
- --------------------------------------------------------------------------------
Mail Mail your check, payable to the fund, for $100 or more
to your financial adviser or to Legg Mason Funds
Investor Services at P.O. Box 17023, Baltimore, MD
21297-0356.
- --------------------------------------------------------------------------------
Telephone or Wire Call your financial adviser or FIS at 1-800-822-5544
to transfer available cash balances in your brokerage
account or to transfer money from your bank directly.
Wire transfers may be subject to a service charge by
your bank.
- --------------------------------------------------------------------------------
Internet or TeleFund FIS clients may purchase shares of the fund through
Legg Mason's Internet site at
http://www.leggmasonfunds.com or through a telephone
account management service "TeleFund" at
1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Automatic Arrangements may be made with some employers and
Investments financial institutions for regular automatic monthly
investments of $50 or more in shares of the funds. You
may also reinvest dividends from certain unit
investment trust in shares of the fund.
- --------------------------------------------------------------------------------
Future First Contact a Legg Mason Financial Advisor to enroll in
Systematic Legg Mason's Future First Systematic Investment Plan.
Investment Plan Under this plan, you may arrange for automatic monthly
investments in a fund of $50 or more. The transfer
agent will transfer funds monthly from your Legg Mason
account or from your checking/savings account to
purchase shares of the desired fund.
- --------------------------------------------------------------------------------
-20-
<PAGE>
Investments made through entities other than Legg Mason may be subject to
transaction fees or other purchase conditions established by those entities. You
should consult their program literature for further information.
Purchase orders received by your financial adviser, FIS or other authorized
entity before the close of the New York Stock Exchange ("Exchange") (normally
4:00 p.m., Eastern time) will be processed at the fund's net asset value as of
the close of the exchange on that day. Orders received after the close of the
Exchange will be processed at the fund's net asset value as of the close of the
exchange on the next day the exchange is open. Payment must be made within three
business days to Legg Mason.
You will begin to earn dividends on shares of Global Income Trust as of
settlement date, which is normally the third business day after your order is
placed with a financial adviser.
Navigator Class shares, which are not subject to a Rule 12b-1 fee, are offered
through a separate prospectus only to certain investors.
Europe Fund -- Class A Shares Purchase Schedule:
Europe Fund's offering price for Class A share purchases is equal to the net
asset value per share plus a front-end sales charge determined from the
following schedule (which may be amended from time to time):
Sales Charge Sales Charge Dealer Reallowance
as a % of as a % of as a % of
Amount of Purchase Offering Price Net Investment Offering Price
Less than $25,000 4.75% 4.99% 4.00%
$25,000 to $49,999 4.50 4.71 3.75
$50,000 to $99,999 4.00 4.17 3.25
$100,000 to $249,999 3.50 3.63 2.75
$250,000 to $499,999 2.50 2.56 2.00
$500,000 to $999,999 2.00 2.04 1.60
$1 million or more * 0.00 0.00 1.00
* For redemptions made within one year of the purchase date, a CDSC of 1% of the
shares' net value at the time of purchase or sale, whichever is less, may be
charged on redemptions of shares purchased pursuant to the front-end sales
charge waiver for purchases of $1 million or more. See "How to Sell Your Shares"
for a discussion of any CDSC applicable to Class A shares.
Legg Mason will pay the following commissions to brokers that initiate and are
responsible for purchases of Class A shares of any single purchaser of $2
million or more in the aggregate: 0.80% up to $2,999,999, plus 0.50% of the
excess over $3 million up to $20 million, plus 0.25% of the excess over $20
million.
Sales Charge Waivers for Class A Shares:
Purchases of Class A shares made by the following investors will not be subject
to a sales charge:
-21-
<PAGE>
- - certain employee benefit or retirement accounts (subject to the discretion of
Legg Mason)
- - employees of Legg Mason, Inc. and its affiliates
- - registered representatives or full-time employees of broker/dealers that have
dealer agreements with the distributor
- - the children, siblings and parents of such persons
- - broker/dealers, registered investment advisers, financial institutions or
financial planners for the accounts of clients participating in "wrap fee"
advisory programs that adhere to certain standards and that are subject to
agreements between those entities and the distributor
- - purchases of $1,000,000 or more
Investors may be eligible for a reduced sales charge on purchases of Class A
shares through a Right of Accumulation or under a Letter of Intent.
Right of Accumulation:
To receive the Right of Accumulation, investors must give the distributor or
their broker/dealer sufficient information to permit qualification. If
qualified, investors may purchase shares of the fund at the sales charge
applicable to the total of:
o the dollar amount being purchased plus
o the dollar amount of the investors' concurrent purchases of Class A shares of
other Legg Mason funds plus
o the price of all shares of Class A shares of Legg Mason funds already held by
the investor
Letter of Intent:
Investors may execute a Letter of Intent indicating an aggregate amount to be
invested in Class A shares of the fund in the following thirteen months. All
purchases made during that period will be subject to the sales charge applicable
to that aggregate amount.
If a Letter of Intent is executed within 90 days of a prior purchase of Class A
shares, the prior purchase may be included under the Letter of Intent and an
adjustment will be made to the applicable sales charge. The adjustment will be
based on the current net asset value of the fund.
If the total amount of purchases does not equal the aggregate amount covered by
the Letter of Intent after the thirteenth month, you will be required to pay the
difference between the sales charges paid at the reduced rate and the sales
charge applicable to the purchases actually made.
Shares having a value equal to 5% of the amount specified in the Letter of
Intent will be held in escrow during the thirteen month period (while remaining
registered in your name) and will be subject to redemption to assure any
necessary payment to the distributor of a higher applicable sales charge.
-22-
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
You may use any of the following methods to sell shares of the funds:
- --------------------------------------------------------------------------------
Telephone Call your financial adviser or FIS at 1-800-822-5544 or
entity offering a fund to request a redemption. Please have
the following information ready when you call: the name of
the fund, the number of shares (or dollar amount) to be
redeemed and your shareholder account number.
Proceeds will be credited to your brokerage account or a
check will be sent to you, at your direction, at no charge to
you. Wire requests will be subject to a fee of $12. Be sure
that your financial adviser has your bank account information
on file.
- --------------------------------------------------------------------------------
Internet FIS clients may request a redemption of fund shares through
Legg Mason's Internet site at http://www.leggmasonfunds.com
or through TeleFund at 1-877-6-LMFUNDS.
- --------------------------------------------------------------------------------
Mail Send a letter to a fund requesting redemption of your shares.
The letter should be signed by all of the owners of the
account and their signatures guaranteed without
qualification. You may obtain a signature guarantee from most
banks or securities dealers.
- --------------------------------------------------------------------------------
The funds will follow reasonable procedures to ensure the validity of any
telephone or Internet redemption requests, such as requesting identifying
information from users or employing identification numbers. Unless you specify
that you do not wish to have telephone redemption privileges, you may be held
responsible for any fraudulent telephone order.
Fund shares will be sold at the next net asset value calculated after your
redemption request is received by your financial adviser, FIS or other entity
offering the fund.
Redemption orders will be processed promptly. You will generally receive the
proceeds within a week. Payment of the proceeds of redemptions of shares that
were recently purchased by check or acquired through reinvestment of
distributions on such shares may be delayed for up to 10 days from the purchase
date in order to allow for the check to clear.
Additional documentation may be required from corporations, executors,
partnerships, administrators, trustees or custodians.
Redemptions made through entities other than Legg Mason may be subject to
transaction fees or other conditions established by those entities. You should
consult their program literature for further information.
Each fund has reserved the right under certain conditions to redeem its shares
in kind by distributing portfolio securities in payment for redemptions.
-23-
<PAGE>
Europe Fund -- Contingent Deferred Sales Charges:
If you redeem any Class A shares within one year that were purchased without a
sales charge because the purchase totaled $1,000,000 or more, you will be
subject to a Contingent Deferred Sales Charge ("CDSC") of 1% of the lower of the
original purchase price or the net asset value of such shares at the time of
redemption. You may exchange such shares purchased without a sales charge for
Class A shares of another Legg Mason fund without being charged a CDSC. You will
be subject to a CDSC if you redeem shares acquired through exchange.
Class A shares that are redeemed will not be subject to the CDSC to the extent
that the value of such shares represents (i) reinvestment of dividends or other
distributions or (ii) shares redeemed more than one year after their purchase.
The amount of any CDSC will be paid to Legg Mason.
Emerging Markets Trust Redemption Fee:
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. 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 fee will be paid directly to the fund to
help offset the costs imposed on it by short-term trading in emerging markets.
The fund will use the "first-in, first-out" method to determine the one year
holding period for CDSC's and redemptions. The date of redemption or exchange
will be compared with the earliest purchase date of shares held in the account.
The fee will not apply to any shares purchased through reinvestment of dividends
or other distributions or to shares held in retirement plans; however, it will
apply to shares held in IRA accounts (including IRA-based plans) and to shares
purchased through automatic investment plans.
-24-
<PAGE>
[icon] ACCOUNT POLICIES
Calculation of Net Asset Value:
Net asset value per Class A share and Primary Class share is determined daily as
of the close of the Exchange, on every day the Exchange is open. The Exchange is
normally closed on all national holidays and Good Friday. To calculate each
fund's Class A share or Primary Class share price, the fund's assets
attributable to that class of shares are valued and totaled, liabilities
attributable to that class of shares are subtracted, and the resulting net
assets are divided by the number of the class of shares outstanding. Each fund's
securities are valued on the basis of market quotations or, lacking such
quotations, at fair value as determined under policies approved by the Board of
Directors.
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 Income Trust 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.
To the extent that a fund has portfolio securities that are primarily listed on
foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
Other:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.
If your account falls below $500, the fund may ask you to increase your balance.
If, after 60 days, your account is still below $500, the fund may close your
account and send you the proceeds. A fund will not redeem accounts that fall
below $500 solely as a result of a reduction in net asset value per share.
Each fund reserves the right to:
o Reject any order for shares or suspend the offering of shares for a period
of time.
o Change its minimum investment amounts.
o Delay sending out redemption proceeds for up to seven days. Each fund
expects to use this authority only in cases of very large redemptions or
excessive trading or during unusual market conditions. Each fund may delay
redemptions beyond seven days, or suspend redemptions, only as permitted by
the SEC.
-25-
<PAGE>
[icon] SERVICES FOR INVESTORS
For further information regarding any of the services below, please contact your
financial adviser or other entity offering the funds for sale.
Confirmations and Account Statements:
You will receive from Legg Mason a confirmation after each transaction involving
Class A shares or Primary Class shares (except a reinvestment of dividends or
capital gain distributions and purchases made through the Future First
Systematic Investment Plan or through automatic investments).
Legg Mason or the entity through which you invest will send you account
statements monthly unless there has been no activity in the account, in which
case you will receive statements quarterly. Legg Mason will send you statements
quarterly if you participate in the Future First Systematic Investment Plan or
if you purchase shares through automatic investments.
Systematic Withdrawal Plan:
If you are purchasing or already own shares of a fund with a net asset value of
$5,000 or more, you may elect to make systematic withdrawals from the fund. The
minimum amount for each withdrawal is $50. You should not purchase shares of the
fund when you are a participant in the plan.
Exchange Privilege:
Fund shares may be exchanged for the corresponding class of shares of any of the
other Legg Mason funds, provided these funds are eligible for sale in your state
of residence. You can request an exchange in writing or by phone. Be sure to
read the current prospectus for any fund into which you are exchanging.
Other than the redemption fee imposed on exchanges of shares of Emerging
Markets, there is currently no fee for exchanges; however, you may be subject to
a sales charge when exchanging into a fund that has one. A CDSC may apply to the
redemption of Class A shares acquired through an exchange. In addition, an
exchange of a fund's shares will be treated as a sale of the shares and any gain
on the transaction may be subject to tax.
Each fund reserves the right to:
o terminate or limit the exchange privilege of any shareholder who makes more
than four exchanges from the fund in one calendar year
o terminate or modify the exchange privilege after 60 days' written notice to
shareholders
Europe Fund -- Reinstatement Privilege:
If you have redeemed your Class A shares, you may reinstate your fund account
without a sales charge up to the dollar amount redeemed by purchasing shares
within 90 days of the redemption. Within 90 days of a redemption, contact Legg
Mason or your broker/dealer and notify them of your desire to reinstate and give
them an order for the amount to be purchased. The reinstatement will be made at
the net asset value next determined after the notification and purchase order
have been received by the transfer agent.
-26-
<PAGE>
[icon] DIVIDENDS AND TAXES
Global Income Trust declares and pays any dividends from its net investment
income monthly. International Equity Trust, Emerging Markets Trust and Europe
Fund each declares and pays any such dividends on an annual basis.
Distributions of substantially all net capital gain (the excess of any net
long-term capital gain over net short-term capital loss) and any net realized
gains 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 a
federal excise tax.
Your dividends and other distributions will be automatically reinvested in the
same class of shares of a fund, unless you elect to receive your dividends
and/or other distributions in cash. To change your election, you must notify the
fund at least 10 days before the next dividend and/or other distribution is to
be paid. You may also request that your dividends and distributions be
reinvested in shares of another eligible Legg Mason fund.
If the postal or other delivery service is unable to deliver your check, your
distribution option will automatically be converted to having all dividends and
other distributions reinvested in fund shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional shares of a fund. Dividends from investment company
taxable income (which includes net investment income and net short-term capital
gains) are taxable as ordinary income. Distributions of a fund's net capital
gain will be taxable as long-term capital gain, regardless of how long you have
held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.
Each fund's dividend and interest income, and gains realized from disposition of
foreign securities, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions.
A tax statement is sent to you at the end of each year detailing the tax status
of your distributions.
Each fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number. Each fund will also withhold 31% of all dividends and capital gain
distributions payable to shareholders who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
advisor about federal, state and local tax considerations.
-27-
<PAGE>
[GRAPHIC] FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand each
fund's financial performance for the past five years or since inception. Total
return represents the rate that an investor would have earned (or lost) on an
investment in a fund, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is incorporated by reference into
the Statement of Additional Information (see back cover) and is included in the
annual report. The annual report is available upon request by calling toll-free
1-800-822-5544.
Investment Operations
---------------------
Net Realized and
Net Asset Net Unrealized Gain(Loss)
Value, Investment on Investments, Options, Total From
Years Ended Beginning Income Futures and Foreign Investment
Dec. 31, of Year (Loss) Currency Transactions Operations
----------- --------- ---------- --------------------- ----------
Global
Income Trust
Primary Class
1999 $10.14 $0.40 ($0.74) ($0.34)
1998 9.60 0.37 0.70 1.07
1997 10.41 0.54 (0.71) (0.17)
1996 10.33 0.59 0.21 0.80
1995 9.54 0.63 1.32 1.95
International
Equity Trust
Primary Class
1999 $12.64 $-- $2.51 $2.51
1998 11.78 0.01 0.99 1.00
1997 12.09 0.02 0.19 0.21
1996 10.70 0.02B 1.74 1.76
1995C 10.00 0.04B 0.77 0.81
Emerging
Markets Trust
Primary Class
1999 $6.96 $(.08)F $7.12 $7.04
1998 9.85 0.01F (2.90) (2.89)
1997 10.51 (0.02)F (0.63) (0.65)
1996G 10.00 (0.03)F 0.57 0.54
Europe FundH
Primary Class
1999 $24.39 $(0.29)I $5.97 $5.68
1998 20.86 0.11J 8.09 8.20
1997K 26.56 0.10)J 0.23 0.13
Class A
1999 $24.77 $(0.09)I $6.10 $6.01
1998 20.97 0.02L 8.52 8.54
1997 24.24 (0.05)L 4.11 4.06
1996 21.13 0.02 6.34 6.36
1995 17.68 0.01 3.50 3.51
-28-
<PAGE>
Distributions
-------------
In Excess Net
In Excess From Net of Net Asset
Years From Net of Net Realized Realized Value,
Ended Investment Investment Gain on Gain on Total End of
Dec. 31, Income Income Investments Investments Distributions Year
- -------- ---------- ---------- ----------- ----------- ------------- ------
Global
Income Trust
Primary Class
1999 ($0.01) ($0.43) ($0.08) $ -- ($0.52) $ 9.28
1998 (0.47) -- (0.06) -- (0.53) 10.14
1997 (0.48) (0.05) (0.11) -- (0.64) 9.60
1996 (0.62) -- (0.10) -- (0.72) 10.41
1995 (1.16) -- -- -- (1.16) 10.33
International
Equity Trust
Primary Class
1999 ($0.05) $-- ($0.87) $ -- ($0.92) $14.23
1998 (0.14) -- -- -- (0.14) 12.64
1997 (0.08) -- (0.44) -- (0.52) 11.78
1996 (0.05) -- (0.32) -- (0.37) 12.09
1995C (0.04) -- -- (0.07) (0.11) 10.70
Emerging
Markets Trust
Primary Class
1999 $ -- $ -- $ -- $ -- $ -- $14.00
1998 -- -- -- -- -- 6.96
1997 (0.01) -- -- -- (0.01) 9.85
1996G (0.03) -- -- -- (0.03) 10.51
Europe FundH
Primary Class
1999 ($0.07) $ -- ($2.10) $ -- ($2.17) $27.90
1998 (0.36) -- (4.31) -- (4.67) 24.39
1997K -- -- (5.83) -- (5.83) 20.86
Class A
1999 ($0.07) $ -- ($2.10) $ -- ($2.17) $28.61
1998 (0.43) -- (4.31) -- (4.74) 24.77
1997 -- -- (7.33) -- (7.33) 20.97
1996 -- -- (3.25) -- (3.25) 24.24
1995 (0.06) -- -- -- (0.06) 21.13
-29-
<PAGE>
Ratios/Supplemental Data
------------------------
Net
Investment
Expenses Income (Loss) Portfolio Net Assets,
Years Ended Total to Average to Average Turnover End of Year
Dec. 31, ReturnA Net Assets Net Assets Rate (in thousands)
----------- ------- ---------- ---------- -------- ------------
Global
Income Trust
Primary Class
1999 (3.23)% 1.90% 4.58% 354% $ 86,634
1998 11.50% 1.87% 4.51% 288% 120,805
1997 (1.69)% 1.86% 5.39% 241% 136,732
1996 8.22% 1.86% 5.80% 172% 161,549
1995 20.80% 1.81% 5.72% 169% 153,954
International
Equity Trust
Primary Class
1999 20.58% 2.13% (0.06)% 148% $295,236
1998 8.49% 2.14% 0.06% 72% 258,521
1997 1.76% 2.17% 0.17% 59% 227,655
1996 16.49% 2.25%B 0.21%B 83% 167,926
1995C 8.11%D 2.25%B,E .52%B,E 58%E 65,947
Emerging
Markets Trust
Primary Class
1999 101.15% 2.50%F (1.06)%F 123% $120,758
1998 (29.34)% 2.50%F 0.09%F 76% 42,341
1997 (6.18)% 2.50%F (0.76)%F 63% 65,302
1996G 5.40%D 2.50%F,E (0.68)%F,E 46%E 21,206
Europe FundH
Primary Class
1999 24.44% 2.58% (1.15)% 93% $56,871
1998 40.48% 2.51%J (1.15)%J 103% 32,325
1997K 0.68%D 2.50%J,E (1.79)%J,E 123%E 302
Class A
1999 25.41% 1.79% (0.38)% 93% $78,429
1998 41.85% 1.81%L (0.10)%L 103% 57,406
1997 17.52% 1.90%L (0.12)%L 123% 52,253
1996 31.53% 2.00% 0.10% 109% 70,991
1995 19.90% 2.10% 0.10% 148% 62,249
-30-
<PAGE>
A Excluding sales charge for Europe Fund's Class A shares.
B Net of fees waived by LMFA 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 For the period February 17, 1995 (commencement of operations) to December
31, 1995.
D Not annualized.
E Annualized.
F Net of fees waived by LMFA 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:
1999, 2.75%; 1998, 2.78%; 1997, 2. 6%; and 1996, 3.71%.
G For the period May 28, 1996 (commencement of operations) to December 31,
1996.
H The financial information for Europe Fund Class A shares for the years
ended December 31, 1994 through 1996, is for the Worldwide Value Fund,
Bartlett Europe Fund's and Legg Mason Europe Fund's predecessor. The
financial information for the year ended December 31, 1997, is for Bartlett
Europe Fund and Worldwide Value Fund. The financial information for the
year ended December 31, 1998, is for the Bartlett Europe Fund. The
financial information for the year ended December 31, 1999, is for the Legg
Mason Europe Fund and the Bartlett Europe Fund.
I Computed using average monthly shares outstanding.
J Net of fees waived pursuant to a voluntary expense limitation of 2.50%
until April 30, 1998; and 2.60% indefinitely. If no fees had been waived,
the annualized ratio of expenses to average daily net assets for each
period would have been as follows: 1998, 2.59%; 1997, 2.68%.
K For the period July 23, 1997 (commencement of operations of this class) to
December 31, 1997.
L The expense ratio shown reflects both the operations of Worldwide Value
Fund, Bartlett Europe Fund's predecessor, prior to its merger with Bartlett
Europe Fund on July 21, 1997, and Bartlett Europe Fund's operations through
December 31, 1997. For the period July 21 to December 31, 1997, the Fund's
annualized expense ratio was 1.71%, net of fees waived pursuant to a
voluntary expense limitation of 1.75% until April 30, 1998; and 1.85%
indefinitely. If no fees had been waived, the annualized ratio of expense
to average daily net assets for each period would have been as follows:
1998, 1.89%; 1997, 2.08%.
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<PAGE>
Legg Mason Global Trust, Inc.
The following additional information about the funds is available upon request
and without charge:
Statement of Additional Information (SAI) -The SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) the prospectus. The SAI provides further information and
additional details about each fund and its policies.
Annual and Semi-annual Reports - Additional information about each fund's
investments is available in the funds' annual and semi-annual reports to
shareholders. In the funds' annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected each
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, MD 21203-1476
Information about the funds, including the SAI, can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. Reports and other information about the fund are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov. Investors
may also obtain this information, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected] or by writing the
SEC's, Public Reference Section, Washington, DC 20549-0102.
LMF -- SEC file number 811-7418
-32-
<PAGE>
Navigator Global Funds:
- ----------------------
Navigator Class of Legg Mason Global Income Trust
Navigator Class of Legg Mason International Equity Trust
Navigator Class of Legg Mason Emerging Markets Trust
Navigator Class of Legg Mason Europe Fund
NAVIGATOR SHARES PROSPECTUS April 28, 2000
logo
THE ART OF INVESTING(SM)
As with all mutual funds, the Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus, nor has it approved or
disapproved these securities. It is a criminal offense to state otherwise.
<PAGE>
TABLE OF CONTENTS
About the funds:
xx Investment objectives
xx Principal risks
xx Performance
xx Fees and expenses of the funds
xx Management
About your investment:
xx How to invest
xx How to sell your shares
xx Account policies
xx Services for investors
xx Distributions and taxes
xx Financial highlights
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<PAGE>
Legg Mason Global Trust, Inc.
[icon] INVESTMENT OBJECTIVES AND POLICIES
GLOBAL INCOME TRUST
Investment objective: Current income and capital appreciation in order to
achieve an attractive total return consistent with prudent investment risk.
Principal investment strategies:
The fund invests at least 75% of its total assets in fixed income securities
rated investment grade by Moody's Investor's Service, Inc. ("Moody's") or
Standard & Poor's, Inc. ("S&P") or, if unrated by Moody's or S&P, judged by
Western Asset Management Company, the fund's adviser, to be of comparable
quality. Up to 25% of the fund's assets may be invested in below investment
grade securities of foreign and domestic issuers, loans of banks and other
financial institutions (which may be below investment grade), convertible
securities, and common and preferred stock.
The types of fixed income securities in which the fund may invest include:
o U.S. and foreign investment-grade corporate debt securities
o U.S. and foreign high-yield corporate debt securities (including those
commonly known as "junk bonds")
o sovereign debt obligations of developed nations
o sovereign debt obligations of emerging market countries
o mortgage-related and asset-backed securities.
The fund will maintain a minimum of 25% 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 debt securities in
which the fund may invest may be of any maturity, and there are no limits on the
average maturity of the fund's portfolio. The fund may invest in corporate fixed
income securities rated as low as C by Moody's or D by S&P or in non-rated
securities deemed by the adviser to be of comparable quality.
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 assets that may be invested in any one country or currency.
The adviser has a number of proprietary tools which attempt to define the
inter-relationship between bond markets, sectors and maturities. Target
allocation ranges among countries and sector types and prices are established as
part of the adviser's strategy process, monitored daily and re-balanced if
necessary as dictated by macro-economic or company-specific events. This ongoing
screening drives the adviser's discipline for buying, selling or holding any
securities or currency position. The adviser deviates from the discipline only
if exceptional circumstances disrupt the orderly functioning of the markets. The
adviser's management style favors `rotation' among the government, agency,
corporate, and mortgage-backed sectors of the fixed income securities markets,
which may result in high portfolio turnover.
The adviser sells securities when they have realized what the adviser believes
is their potential value or when the adviser believes that they are not likely
to achieve that value in a reasonable period of time.
For temporary defensive purposes, the fund may borrow money or invest without
limit in cash and U.S. dollar-denominated money market instruments including
repurchase agreements. If the fund invests substantially in such instruments,
the fund may not be pursuing its principal investment strategies and the fund
may not achieve its investment objective.
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<PAGE>
INTERNATIONAL EQUITY TRUST
Investment objective: Maximum long-term total return.
Principal investment strategies:
Batterymarch Financial Management, Inc. ("Batterymarch"), the fund's adviser,
currently intends to invest substantially all of the fund's assets in non-U.S.
equity securities.
The primary focus of the adviser is stock selection, with a secondary focus on
country allocation. The adviser uses a bottom-up, quantitative stock selection
process for the developed markets portion of the fund's portfolio. The
cornerstone of this process is a proprietary stock selection model that ranks
more than 2,800 stocks in the fund's principal investable universe by relative
attractiveness on a daily basis. The quantitative factors within this model
measure growth, value, changes in earnings expectations and technical
indicators. Because the same quantitative factors are not effective across all
markets due to individual market characteristics, the adviser adjusts the stock
selection model to include factors in each market that its research indicates
are effective. The adviser runs the stock selection model and re-balances the
portfolio daily, purchasing stocks ranked "buys" by the model and selling stocks
ranked "sells." Stocks are sold when the original reason for purchase no longer
pertains, the fundamentals have deteriorated or portfolio re-balancing warrants.
Region and country allocation for the developed markets portion of the fund is
based on rankings generated by the adviser's proprietary country model. The
adviser examines securities from over 20 international stock markets, with
emphasis on several of the largest: Japan, the United Kingdom, France, Canada
and Germany.
The fund may invest up to 35% of its total assets in emerging market securities.
The adviser's investment strategy for the emerging markets portion of the fund
represents a distinctive combination of tested quantitative methodology and
traditional fundamental analysis. The emerging markets allocation focuses on
higher-quality, dominant companies that the adviser believes to have strong
growth prospects and reasonable valuations. Country allocation for the emerging
markets portion of the portfolio also combines quantitative and fundamental
approaches.
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 adviser may also seek to enhance
portfolio returns through active currency hedging strategies.
The fund is not limited in the amount of its total assets that may be
denominated in a single currency or invested in securities of issuers located in
a single country.
When cash is temporarily available, or for temporary defensive purposes, when
the adviser 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. Such securities will be rated investment grade or, if unrated,
will be determined by the fund's adviser to be investment grade. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
-4-
<PAGE>
EMERGING MARKETS TRUST
Investment objective: Long-term capital appreciation.
Principal investment strategies:
Batterymarch, the fund's adviser, intends to invest substantially all of the
fund's assets in equity securities and convertible securities of emerging market
issuers.
The fund intends to invest in Asia, Latin America, the Indian Subcontinent,
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.
The fund is not limited in the amount of its total assets that may be
denominated in a single currency or invested in securities of issuers located in
a single country.
The adviser focuses on higher-quality, dominant emerging markets companies that
the adviser believes to have strong growth prospects and reasonable valuations,
selected from a principal investable universe of approximately 1,000 stocks. The
adviser's emerging markets investment strategy represents a distinctive
combination of quantitative methodology and traditional fundamental analysis.
Traditional "on-the-ground" fundamental research is combined by the adviser with
tested quantitative valuation disciplines in those markets where reliable data
are available. In determining country allocation, the adviser also merges
quantitative and fundamental approaches. In markets with reliable historical
data, buy and sell decisions are driven by a combination of quantitative
valuations and the adviser's fundamental opinions. Stocks are sold when the
original reason for purchase no longer pertains, the fundamentals have
deteriorated or portfolio re-balancing warrants.
When cash is temporarily available, or for temporary defensive purposes, when
the adviser 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. Such securities will be rated investment grade or, if unrated,
will be determined by the adviser to be of comparable quality. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
-5-
<PAGE>
EUROPE FUND
Investment objective: Long-term growth of capital.
Principal investment strategies:
Lombard Odier International Portfolio Management, Limited ("Lombard Odier" or
"sub-adviser"), the fund's sub-adviser, under normal circumstances, invests
substantially all of the fund's assets in equity securities of European issuers
that it believes offer above-average potential for capital appreciation. Such
securities include common and preferred stocks, convertible securities, rights
and warrants. The sub-adviser focuses on relatively larger capitalized issuers
with good earnings, growth potential and strong management.
A smaller portion of the fund's assets may be invested in fixed income
securities such as obligations of foreign or domestic governments, government
agencies or municipalities and obligations of foreign or domestic companies. The
sub-adviser will invest in such securities for potential capital appreciation.
Securities in the fund's portfolio may be sold when they attain certain price
targets or when better opportunities arise. Sell decisions also are affected by
the level of subscriptions and redemptions of shares of the fund. The
sub-adviser's investment technique may result in high portfolio turnover.
For temporary defensive purposes, the fund may hold all or a portion of its
total assets in money market instruments, cash equivalents, short-term
government and corporate obligations or repurchase agreements. If the fund
invests substantially in such instruments, the fund may not be pursuing its
principal investment strategies and the fund may not achieve its investment
objective.
-6-
<PAGE>
[icon] PRINCIPAL RISKS
In general:
There is no assurance that a fund will meet its investment objective; investors
can lose money by investing in the funds. As with all mutual funds, an
investment in any of these funds is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Market risk:
International Equity Trust, Emerging Markets Trust and Europe Fund invest
primarily in foreign equity securities. Prices of equity securities generally
fluctuate more than those of other securities, such as debt securities. A fund
may experience a substantial or complete loss on an individual stock. Market
risk may affect a single issuer, industry or section of the economy or may
affect the market as a whole.
Foreign securities risk:
Investments in foreign securities (including those denominated in U.S. dollars)
involve certain risks not typically associated with investments in domestic
issuers. The values of foreign securities are subject to economic and political
developments in the countries and regions where the companies operate, such as
changes in economic or monetary policies, and to changes in exchange rates.
Values may also be affected by foreign tax laws and restrictions on receiving
the investment proceeds from a foreign country. Some foreign governments have
defaulted on principal and interest payments.
In general, less information is publicly available about foreign companies than
about U.S. companies. Foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Transactions in foreign securities may be subject to less efficient settlement
practices, including extended clearance and settlement periods. Foreign stock
markets may be less liquid and less regulated than U.S. stock markets.
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. Even where a security is backed by the full faith and credit
of a foreign government, it may be difficult for a fund to pursue its rights
against a foreign government in that country's courts.
Emerging markets risk:
The risks of foreign investment are greater for investments in emerging markets.
Emerging market countries typically have economic and political systems that are
less fully developed, and can be expected to be less stable, than those of more
advanced countries. Low trading volumes may result in a lack of liquidity and in
price volatility. Emerging market countries may have policies that restrict
investment by foreigners, or that prevent foreign investors from withdrawing
their money at will.
Because each of the funds may invest a significant amount of its total assets in
emerging market securities, investors should be able to tolerate sudden,
sometimes substantial, fluctuations in the value of their investments. An
investment in any fund that invests in emerging market securities should be
considered speculative.
Currency risk:
Because each of the funds invests significantly in securities denominated in
foreign currencies, the funds may incur currency conversion costs, and may be
affected favorably or unfavorably by changes in the rates of exchange between
those currencies and the U.S. dollar. Currency exchange rates can be volatile
and affected by, among other factors, the general economics of a country, the
actions of the U.S. and foreign governments or central banks, the imposition of
currency controls, and speculation. A security may be denominated in a currency
that is different from the currency where the issuer is domiciled.
-7-
<PAGE>
The funds may from time to time hedge a portion of their currency risk, using
currency futures, forwards, or options. However, these instruments may not
always work as intended, and in specific cases a fund may be worse off than if
it had not used a hedging instrument. For most emerging market currencies, there
are not suitable hedging instruments available.
The conversion of certain European currencies into the Euro began on January 1,
1999, and is expected to continue into 2002. Full implementation of the Euro may
be delayed and difficulties with the conversion may significantly impact
European capital markets resulting in increased volatility in world capital
markets. Individual issuers may suffer substantial losses if they or their
suppliers are not adequately prepared for the transition.
Concentration and non-diversification:
Europe Fund invests primarily in securities of European issuers. A fund
concentrating a significant portion of its investment in a single region will be
more susceptible to factors adversely affecting issuers within that region than
would a less concentrated portfolio of securities.
European issuers are subject to the special risks in that region, including
risks related to the introduction of the Euro and the potential for difficulties
in its acceptance and the emergence of more unified economic and financial
governance in the European Monetary Union ("EMU") countries.
Global Income Trust is a non-diversified fund. This means that the percentage of
its assets invested in any single issuer is not limited by the Investment
Company Act of 1940. When the fund's assets are invested in the securities of a
limited number of issuers or it holds a large portion of its assets in a few
issuers, the value of its shares will be more susceptible to any single
economic, political or regulatory event affecting those issuers or their
securities than shares of a diversified fund.
Risks of fixed-income securities:
Global Income Trust invests substantially all of its assets in fixed-income
securities. Europe Fund may invest up to 35% of its total assets in fixed-income
securities. International Equity Trust and Emerging Markets Trust may also
invest in fixed-income securities to a lesser extent.
Interest rate risk -
Fixed income securities are subject to interest rate risk, which is the
possibility that the market prices of the funds' investments may decline due to
an increase in market interest rates. Generally, the longer the maturity of a
fixed-income security, the greater is the effect on its value when rates change.
Certain securities pay interest at variable or floating rates. Variable rate
securities reset at specified intervals, while floating rate securities reset
whenever there is a change in a specified index rate. In most cases, these reset
provisions reduce the effect of market interest rates on the value of the
security. However, some securities do not track the underlying index directly,
but reset based on formulas that can produce an effect similar to leveraging;
others may provide for interest payments that vary inversely with market rates.
The market prices of these securities may fluctuate significantly when interest
rates change.
-8-
<PAGE>
Credit risk -
Fixed income securities are also subject to credit risk, i.e., the risk that an
issuer of securities will be unable to pay principal and interest when due, or
that the value of the security will suffer because investors believe the issuer
is less able to pay. This is broadly gauged by the credit ratings of the
securities in which each fund invests. However, ratings are only the opinions of
the agencies issuing them and are not absolute guarantees as to quality.
Moody's considers debt securities rated in the lowest investment grade category
(Baa) to have speculative characteristics. Debt securities rated below
investment grade are deemed by the ratings agencies to be speculative and may
involve major risk or exposure to adverse conditions. 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.
Call risk -
Many fixed income securities, especially those issued at high interest rates,
provide that the issuer may repay them early. Issuers often exercise this right
when interest rates are low. Accordingly, holders of callable securities may not
benefit fully from the increase in value that other fixed-income securities
experience when rates decline. Furthermore, the fund reinvests the proceeds of
the payoff at current yields, which are lower than those paid by the security
that was paid off.
Investment models:
The proprietary models used by the advisers to evaluate securities markets are
based on the advisers' understanding of the interplay of market factors and do
not assure successful investment. The markets, or the prices of individual
securities, may be affected by factors not foreseen in developing the models.
Portfolio Turnover -
Each fund may have an annual portfolio turnover rate in excess of 100%. High
turnover rates can result in increased trading costs and higher levels of
realized capital gains.
-9-
<PAGE>
[icon] PERFORMANCE
The information below provides an indication of the risks of investing in a fund
by showing changes in the fund's performance from year to year. As of the date
of this prospectus, the Navigator Classes of Global Income Trust and Emerging
Markets Trust have not yet commenced operations; the Navigator Classes of
International Equity Trust and Europe Fund commenced operations on May 5, 1998
and August 21, 1997. The returns presented for Global Income Trust and Emerging
Markets Trust are for the funds' Primary Class shares, which are not offered in
this prospectus. Navigator Class and Primary Class shares are invested in the
same portfolio of securities, and the annual returns for each class of shares
would differ only to the extent that the Navigator Class would pay lower
expenses, and therefore would have higher returns. Annual returns assume
reinvestment of dividends and distributions. Historical performance of a fund
does not necessarily indicate what will happen in the future.
GLOBAL INCOME TRUST - PRIMARY CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
24%
21%
20.80
18%
15%
12% 11.50
9% 8.22
6%
3%
0%
-1.40 -1.69
- -3% -3.23
1994 1995 1996 1997 1998 1999
DURING THE PAST SIX CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: March 31, 1995 7.86%
- --------------------------------------------------------------------------------
Worst quarter: March 31, 1999 -4.75%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Salomon Brothers World Government Bond
Index.
-10-
<PAGE>
- --------------------------------------------------------------------------------
1 Year 5 Years Life of Class
- --------------------------------------------------------------------------------
Global Income Trust -3.23% 6.76% 5.80%(a)
- --------------------------------------------------------------------------------
Salomon Brothers World
Government Bond Index -4.27% 6.42% 5.96% (b)
- --------------------------------------------------------------------------------
(a) April 15, 1993 (commencement of operations) to December 31, 1999.
(b) For the period April 30, 1993 to December 31, 1999.
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<PAGE>
INTERNATIONAL EQUITY TRUST - NAVIGATOR CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
25%
21.69
20%
15%
10%
5%
0% 1999
DURING THE PAST CALENDAR YEAR
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: December 31, 1998 15.34%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1998 -19.89%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
Europe, Australia and the Far East (MSCI EAFE) Index.
- --------------------------------------------------------------------------------
1 Year Life of Class
- --------------------------------------------------------------------------------
International Equity
Trust - Navigator Class 21.69% 6.05%(a)
- --------------------------------------------------------------------------------
MSCI EAFE Index 14.27% 18.00%(b)
- --------------------------------------------------------------------------------
(a) May 5, 1998 (commencement of operations of Navigator Class) to December 31,
1999.
(b) For the period April 30, 1998 to December 31, 1999.
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<PAGE>
EMERGING MARKETS TRUST - PRIMARY CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
101.15
100%
75%
50%
25%
0%
-6.18
- -25%
-29.34
- -50%
1997 1998 1999
DURING THE PAST THREE CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: December 31, 1999 39.72%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1998 -28.18%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
Emerging Markets Free (MSCI EM Free) Index.
- --------------------------------------------------------------------------------
1 Year Life of Class
- --------------------------------------------------------------------------------
Emerging Markets Trust 101.15% 9.93%(a)
- --------------------------------------------------------------------------------
MSCI EM Free Index 66.41% 1.61%(b)
- --------------------------------------------------------------------------------
(a) May 28, 1996 (commencement of operations) to December 31, 1999.
(b) For the period May 31, 1996 to December 31, 1999.
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<PAGE>
EUROPE FUND - NAVIGATOR CLASS SHARES
YEAR BY YEAR TOTAL RETURN AS OF DECEMBER 31 OF EACH YEAR (%)
42.51
40%
30%
25.49
20%
10%
0%
1998 1999
DURING THE PAST TWO CALENDAR YEARS:
- --------------------------------------------------------------------------------
Quarter Ended Total Return
- --------------------------------------------------------------------------------
Best quarter: December 31, 1999 26.11%
- --------------------------------------------------------------------------------
Worst quarter: September 30, 1998 -12.96%
- --------------------------------------------------------------------------------
In the following table, average annual total returns for the years ended
December 31, 1999, are compared with the Morgan Stanley Capital International
(MSCI) Europe Index.
- --------------------------------------------------------------------------------
1 Year Life of Class
- --------------------------------------------------------------------------------
Europe Fund -
Navigator Class 25.49% 30.41% (a)
- --------------------------------------------------------------------------------
MSCI Europe Index 15.89% 23.42% (b)
- --------------------------------------------------------------------------------
(a) August 21, 1997 (commencement of operations of Navigator Class) to December
31, 1999.
(b) For the period August 31, 1997 to December 31, 1999.
-14-
<PAGE>
[icon] FEES AND EXPENSES OF THE FUNDS
The table below describes the fees and expenses you will incur directly or
indirectly as an investor in a fund. Each fund pays operating expenses directly
out of its assets so they lower that fund's share price and dividends. Other
expenses include transfer agency, custody, professional and registration fees.
SHAREHOLDER FEES (fees paid directly from your investment)
- --------------------------------------------------------------------------------
Emerging Markets Trust redemption fee: 2.00%*
- --------------------------------------------------------------------------------
* Proceeds of shares redeemed or exchanged within one year of purchase will be
subject to a 2% redemption fee. The fee is paid directly to the fund and not to
the manager or distributor.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Navigator Class Global International Emerging
shares of: Income Trust Equity Trust Markets Trust Europe Fund
- --------------------------------------------------------------------------------
Management fees (a) 0.75% 0.75% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution and
service (12b-1) fees None None None None
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.50% 0.75% 0.52%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses (a) 1.15% 1.25% 1.75% 1.52%
- --------------------------------------------------------------------------------
(a) Legg Mason Fund Adviser, Inc., as manager, has voluntarily agreed to waive
fees so that Navigator Class share expenses (exclusive of taxes, interest,
brokerage and extraordinary expenses) do not exceed the following annual rates
of each fund's average daily net assets attributable to Navigator Class shares:
for Global Income Trust, 1.15% indefinitely; for International Equity Trust,
1.25% indefinitely; and for Emerging Markets Trust, 1.50%, and Europe Fund,
1.60%, until April 30, 2001. The voluntary waivers may be terminated at any
time. With these waivers, management fees and total annual fund operating
expenses for the fiscal year ended December 31, 1999 were 0.75% and 1.50%, for
Emerging Markets Trust. No fee waivers were necessary for Global Income Trust,
International Equity Trust and Europe Fund.
-15-
<PAGE>
EXAMPLE:
This example helps you compare the cost of investing in a fund with the cost of
investing in other mutual funds. Although your actual costs may be higher or
lower, you would pay the following expenses on a $10,000 investment in a fund,
assuming (1) a 5% return each year, (2) the fund's operating expenses remain the
same as shown in the table above, and (3) you redeem all of your shares at the
end of the time periods shown.
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Global Income Trust $117 $365 $633 $1398
- --------------------------------------------------------------------------------
International Equity Trust $127 $397 $686 $1511
- --------------------------------------------------------------------------------
Emerging Markets Trust $381 $551 $949 $2062
- --------------------------------------------------------------------------------
Emerging Markets Trust
(assuming no redemption) $178 $551 $949 $2062
- --------------------------------------------------------------------------------
Europe Fund $156 $483 $834 $1824
- --------------------------------------------------------------------------------
-16-
<PAGE>
[icon] M A N A G E M E N T
MANAGEMENT AND ADVISERS:
LEGG MASON FUND ADVISER, INC. ("LMFA"), 100 Light Street, Baltimore, Maryland
21202, is the manager of the funds. LMFA is responsible for investment
management and administrative services and for overseeing the funds'
relationships with outside service providers, such as the custodian, transfer
agent, accountants, and lawyers.
LMFA acts as manager or adviser to investment companies with aggregate assets of
about $18.2 billion as of December 31, 1999.
For its services during the fiscal year ended December 31, 1999, each fund paid
LMFA a percentage of its average daily net assets as follows:
Global Income Trust 0.75%
International Equity Trust 0.75%
Emerging Markets Trust 0.75%
Europe Fund 1.00%
Prior to October 6, 1999, Bartlett & Co. served as Europe Fund's manager under
compensation arrangements substantially similar to those with LMFA.
BATTERYMARCH FINANCIAL MANAGEMENT ("Batterymarch"), 200 Clarendon Street,
Boston, Massachusetts 02116, is investment adviser to International Equity Trust
and Emerging Markets Trust. Batterymarch is responsible for the actual
investment management of these funds, which includes making investment decisions
and placing orders to buy or sell a particular security.
LMFA pays Batterymarch a monthly fee of 66 2/3% of the fee it receives from
International Equity Trust and a monthly fee of 75% of the fee it receives from
Emerging Markets Trust. Fees paid to Batterymarch are net of any waivers.
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 $6.6 billion as of December 31, 1999.
WESTERN ASSET MANAGEMENT COMPANY ("Western Asset"), 117 East Colorado Boulevard,
Pasadena, California 91105, is investment adviser to Global Income Trust.
Western Asset is responsible for the actual investment management of the fund,
which includes making investment decisions and placing orders to buy or sell a
particular security. LMFA pays Western Asset a monthly fee of 53 1/3% of the fee
it receives from Global Income Trust, net of any waivers.
Western Asset acts as investment adviser to investment companies and private
accounts with aggregate assets of about $52.5 billion as of December 31, 1999.
WESTERN ASSET MANAGEMENT COMPANY LIMITED ("Western Asset Ltd."), 155
Bishopsgate, London, England, serves as investment sub-adviser to Global Income
Trust. Western Asset Ltd. is responsible for providing research, analytical and
trading support for the fund's investment programs, as well as exercising
investment discretion for part of the portfolio, subject to the supervision of
Western Asset and LMFA.
For its services and for expenses borne by Western Asset Ltd. under its
sub-advisory agreement, Western Asset pays Western Asset Ltd. a fee at an annual
rate of 0.20% of the fund's average daily net assets, net of any waivers. LMFA
-17-
<PAGE>
also pays Western Asset Ltd. a sub-administration fee at an annual rate of 0.10%
of the fund's average daily net assets, net of any waivers, for certain
administrative services performed.
Western Asset Ltd. renders investment advice to institutional, private and
commingled fund portfolios with assets of over about $4.5 billion as of December
31, 1999. Western Asset Ltd. has managed global fixed-income assets for U.S. and
non-U.S. clients since 1984.
LOMBARD ODIER INTERNATIONAL PORTFOLIO MANAGEMENT LIMITED, Norfolk House, 13
Southampton Place, London, England, serves as investment sub-adviser to Europe
Fund. For its services, Lombard Odier receives a monthly fee from LMFA equal to
60% of the fee paid to Legg Mason Fund Adviser by the fund, net of any waivers.
Lombard Odier specializes in advising and managing investment portfolios for
institutional clients and mutual funds. Lombard Odier is an indirect wholly
owned subsidiary of Lombard Odier & Cie, a Swiss private bank.
PORTFOLIO MANAGEMENT:
Batterymarch investment teams have been responsible for the day-to-day
management of International Equity Trust and Emerging Markets Trust since their
inception.
An investment committee at Western Asset is responsible for the day-to-day
management of Global Income Trust.
Neil Worsley and William Lovering are responsible for co-managing Europe Fund.
Mr. Worsley has been Director and Senior Investment Manager of Lombard Odier
since June 1, 1996. Prior thereto, he was an Assistant Director and Senior Fund
Manager. He joined Lombard Odier in 1990. Mr. Lovering has been Assistant
Director of Lombard Odier since June 1, 1996. Prior thereto, he was a Senior
Fund Manager. He joined the firm in 1994. Previously, Mr. Lovering was employed
at Arbuthnot Latham Investment Management.
Distributor of the funds' shares:
Legg Mason Wood Walker, Incorporated ("Legg Mason"), 100 Light Street,
Baltimore, Maryland 21202, distributes the fund's shares pursuant to an
Underwriting Agreement. Each Underwriting Agreement obligates Legg Mason to pay
certain expenses in connection with offering fund shares, including compensation
to its financial advisers, the printing and distribution of prospectuses,
statements of additional information and shareholder reports (after these have
been printed and mailed to existing shareholders at the funds' expense),
supplementary sales literature and advertising materials.
Legg Mason, LMFA, Batterymarch, Western Asset, and Western Asset Ltd. may pay
non-affiliated entities out of their own assets to support the distribution of
Navigator Class shares and shareholder servicing.
LMFA, Batterymarch, Western Asset, Western Asset Ltd. and Legg Mason are wholly
owned subsidiaries of Legg Mason, Inc., a financial services holding company.
-18-
<PAGE>
[icon] H O W T O I N V E S T
Navigator Class shares are currently offered for sale only to:
o Institutional Clients of Legg Mason Trust Company for which they exercise
discretionary investment management responsibility and accounts of the
customers with such Institutional Clients ("Customers").
o Qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million.
o Any qualified retirement plan having net assets of at least $300 million.
o Clients of Bartlett & Co. who, as of December 19, 1996, were shareholders
of Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and for
whom Bartlett acts as an ERISA fiduciary.
o Any qualified retirement plan of Legg Mason, Inc. or of any of its
affiliates.
o Certain institutions who were clients of Fairfield Group, Inc. as of
February 28, 1999 for investment of their own monies and monies for which
they act in a fiduciary capacity.
o Shareholders of Class Y shares of Bartlett Europe Fund or Bartlett
Financial Services Fund on October 5, 1999.
o Any open-end management investment company advised or managed by LMFA or
by any person controlling, controlled by, or under common control with
LMFA.
Eligible investors may purchase Navigator Class shares through a brokerage
account at Legg Mason. The minimum initial investment is $50,000 and the minimum
for each purchase of additional shares is $100. Institutional Clients may set
different minimums for their Customers' investments in accounts invested in
Navigator Class shares.
Customers of certain Institutional Clients that have omnibus accounts with the
fund's transfer agent can purchase shares through those Institutions. The
distributor may pay such Institutional Clients for account servicing.
Institutional Clients may charge their Customers for services provided in
connection with the purchase and redemption of shares. Information concerning
these services and any applicable charges will be provided by the Institutional
Clients. This Prospectus should by read by Customers in connection with any such
information received by Institutional Clients. Any such fees, charges or
requirements imposed by Institutional Clients will be in addition to the fees
and requirements of this Prospectus.
Certain institutions that have agreements with Legg Mason or the fund may be
authorized to accept purchase and redemption orders on their behalf. Once the
authorized institution accepts the order, you will receive the next determined
net asset value. You should consult with your institution to determine the time
by which it must receive your order to get that day's share price. It is the
institution's responsibility to transmit your order to the fund in a timely
fashion.
Purchase orders received by Legg Mason before the close of the New York Stock
Exchange ("Exchange") (normally 4:00 p.m. Eastern time) will be processed at the
fund's net asset value as of the close of the Exchange on that day. Each fund is
open for business every day the Exchange is open. Orders received after the
close of the Exchange will be processed at the fund's net asset value as of the
close of the exchange on the next day the Exchange is open. Payment must be made
within three business days to the selling organization.
-19-
<PAGE>
You will begin to earn dividends on shares of Global Income Trust as of
settlement date, which is normally the third business day after you order is
placed.
-20-
<PAGE>
[icon] H O W T O S E L L Y O U R S H A R E S
To redeem your shares by telephone:
o Call 1-800-822-5544
Please have available the number of shares (or dollar amount) to be redeemed and
the account number.
The funds will follow reasonable procedures to ensure the validity of any
telephone redemption request, such as requesting identifying information from
callers or employing identification numbers. Unless you specify that you do not
wish to have telephone redemption privileges, you may be held responsible for
any fraudulent telephone order.
Customers of Institutional Clients may redeem only in accordance with
instructions and limitations pertaining to their account at the Institution.
Redemption orders received by Legg Mason before the close of the Exchange will
be transmitted to the fund's transfer agent. Your order will be processed at
that day's net asset value. Redemption orders received by Legg Mason after the
close of the Exchange will be processed at the closing net asset value on the
next day the Exchange is open.
Your order will be processed promptly and you will generally receive the
proceeds by mail to the name and address on the account registration within a
week. You may also have your telephone redemption requests paid by a direct wire
to a previously designated domestic commercial bank account
Payment of the proceeds of redemptions of shares that were recently purchased by
check or acquired through reinvestment of dividends on such shares may be
delayed for up to 10 days from the purchase date in order to allow for the check
to clear.
Each fund has reserved the right under certain conditions to redeem its shares
in kind by distributing portfolio securities in payment for redemptions.
Emerging Markets Trust Redemption Fee:
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. 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 fee will be paid directly to the fund to
help offset the costs imposed on it by short-term trading in emerging markets.
The fund will use the "first-in, first-out" method to determine the one-year
holding period. The date of redemption or exchange will be compared with the
earliest purchase date of shares held in the account. The fee will not apply to
any shares purchased through reinvestment of dividends or other distributions or
to shares held in retirement plans; however, it will apply to shares held in IRA
accounts (including IRA-based plans) and to shares purchased through automatic
investment plans.
-21-
<PAGE>
[icon] A C C O U N T P O L I C I E S
Calculation of Net Asset Value:
Net asset value per Navigator Class share is determined daily as of the close of
the Exchange on every day the Exchange is open. The Exchange is normally closed
on all national holidays and Good Friday. To calculate each fund's Navigator
Class share price, the fund's assets attributable to Navigator Class shares are
valued and totaled, liabilities attributable to Navigator Class shares are
subtracted, and the resulting net assets are divided by the number of Navigator
Class shares outstanding. Each fund's securities are valued on the basis of
market quotations or, lacking such quotations, at fair value as determined under
policies approved by the Board of Directors.
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 Income Trust 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.
To the extent that a fund has portfolio securities that are primarily listed on
foreign exchanges that trade on days when the fund does not price its shares,
the net asset value of the fund may change on days when shareholders will not be
able to purchase or redeem the fund's shares.
Other:
Fund shares may not be held in, or transferred to, an account with any firm that
does not have an agreement with Legg Mason or its affiliates.
Each fund reserves the right to:
o Reject any order for shares or suspend the offering of shares for a period
of time.
o Change its minimum investment amounts.
o Delay sending out redemption proceeds for up to seven days. This generally
applies only in cases of very large redemptions or excessive trading or
during unusual market conditions. Each fund may delay redemptions beyond
seven days, or suspend redemptions, only as permitted by the SEC.
-22-
<PAGE>
[icon] S E R V I C E S F O R I N V E S T O R S
Confirmations and Account Statements:
Confirmations will be sent to Institutional Clients after each transaction
involving Navigator Class shares which will include the total number of shares
being held in safekeeping by the transfer agent. The transfer agent will send
confirmations of each purchase and redemption transaction (except a reinvestment
of dividends or capital gain distributions). Beneficial ownership of shares by
Customer accounts will be recorded by the Institutional Client and reflected in
their regular account statements.
Exchange Privilege:
Navigator Class shares of this fund may be exchanged for shares of the Legg
Mason Money Market Funds or Navigator Class shares of any of the other Legg
Mason funds, provided these funds are eligible for sale in your state of
residence. You can request an exchange in writing or by phone. Be sure to read
the current prospectus for any fund into which you are exchanging.
Other than the redemption fee imposed on exchanges of Emerging Markets Trust,
there is currently no fee for exchanges; however, you may be subject to a sales
charge when exchanging into a fund that has one. In addition, an exchange of a
fund's shares will be treated as a sale of the shares, and any gain on the
transaction may be subject to tax.
Each fund reserves the right to:
o Terminate or limit the exchange privilege of any shareholder who makes
more than four exchanges from the fund in one calendar year.
o Terminate or modify the exchange privilege after 60 days' written notice
to shareholders.
Some Institutional Clients may not offer all of the Navigator Funds for
exchange.
-23-
<PAGE>
[icon] DISTRIBUTIONS AND TAXES
Global Income Trust declares and pays any dividends from its net investment
income monthly. International Equity Trust, Emerging Markets Trust and Europe
Fund each declares and pays such dividends on an annual basis.
Distributions of substantially all net capital gain (the excess of any net
long-term capital gain over net short-term capital loss) and any net realized
gains 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 a
federal excise tax.
Your dividends and other distributions will be automatically reinvested in
additional Navigator Class shares of a fund, unless you elect to receive them in
cash. If you wish to begin receiving dividends and/or distributions in cash, you
must notify the fund at least 10 days before the next dividend and/or other
distribution is to be paid. You may also request that your dividends and
distributions be reinvested in Navigator Class shares of another Legg Mason
fund.
If the postal or other delivery service is unable to deliver your distribution
check, your distribution option will automatically be converted to having all
dividends and other distributions reinvested in fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Fund dividends and other distributions are taxable to investors (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional Navigator Class shares of a fund. Dividends from
investment company taxable income (which includes net investment income and net
short-term capital gains) are taxable as ordinary income. Distributions of a
fund's net capital gain, if any, will be taxable as long-term capital gain,
regardless of how long you have held your fund shares.
The sale or exchange of fund shares may result in a taxable gain or loss,
depending on whether the proceeds are more or less than the cost of your shares.
Each fund's dividend and interest income, and gains realized from disposition of
foreign securities, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions.
A tax statement is sent to you at the end of each year detailing the tax status
of your distributions.
Each fund will withhold 31% of all dividends, capital gain distributions and
redemption proceeds payable to individuals and certain other non-corporate
shareholders who do not provide the fund with a valid taxpayer identification
number. Each fund will also withhold 31% of all dividends and capital gain
distributions payable to shareholders who are otherwise subject to backup
withholding.
Because each investor's tax situation is different, please consult your tax
adviser about federal, state and local tax considerations.
-24-
<PAGE>
[GRAPHIC] FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand each
fund's financial performance for the past five years or since inception. Total
return represents the rate that an investor would have earned (or lost) on an
investment in a fund, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is incorporated by reference into
the Statement of Additional Information (see back cover) and is included in the
annual report. The annual report is available upon request by calling toll-free
1-800-822-5544.
Investment Operations
---------------------
Net Realized and
Unrealized Gain
(Loss) on Invest-
Net Asset Net ments, Options,
Value, Investment Futures and Total From
Beginning Income Foreign Currency Investment
of Period (Loss) Transactions Operations
--------- ---------- ---------------- ----------
International
Equity Trust
Year Ended
Dec.31, 1999 $12.64 $0.11 $2.52 $2.63
Period Ended
Dec.31, 1998A 14.21 0.10 (1.44) (1.34)
Europe Fund B
Years Ended Dec.31,
1999 $24.78 ($0.03) $6.15 $6.12
1998 21.01 0.22C 8.37 8.59
1997D 25.61 (0.04)C 1.27 1.23
Distributions
-------------
From From Net Net Asset
Net Realized Value,
Investment Gain on Total End of
Income Investments Distributions Period
---------- ----------- ------------- --------
International
Equity Trust
Year Ended
Dec.31, 1999 ($0.14) ($0.87) ($1.01) $14.26
Period Ended
Dec.31, 1998A (0.23) -- (0.23) 12.64
Europe Fund B
Years Ended Dec.31,
1999 ($0.07) ($2.10) ($2.17) $28.73
1998 (0.51) (4.31) (4.82) 24.78
1997D --- (5.83) (5.83) 21.01
-25-
<PAGE>
Ratios/Supplemental Data
------------------------
Net
Investment
Expenses Income (Loss) Portfolio Net Assets,
Total to Average to Average Turnover End of Period
Return Net Assets Net Assets Rate (in thousands)
------ ---------- ------------ -------- ------------
International
Equity Trust
Year Ended
Dec.31, 1999 21.69% 1.25% 0.82% 148% $50
Period Ended
Dec.31, 1998A (9.42)%E 1.04%F 1.17%F 72%F 45
Europe Fund B
Years Ended Dec.31,
1999 25.49% 1.52% -0.10% 93% $389
1998 42.50% 1.55%C 1.31%C 103% 247
1997D 4.9%E 1.31%C,F (0.60)%C,F 123% 8,025
A For the period May 5, 1998 (commencement of sale of Navigator shares) to
December 31, 1998.
B The financial information for Europe Fund Navigator Class for the years
ended December 31, 1997 and 1998, is for Bartlett Europe Fund Class Y. The
financial information for the year ended December 31, 1999, is for the Legg
Mason Europe and the Bartlett Europe Fund Class Y.
C Net of fees waived pursuant to a voluntary expense limitation of 1.50% until
April 30, 1998; and 1.60% indefinitely. If no fee had been waived, the
annualized ratio of expense to average daily net assets for each period
would have been as follows: 1998, 1.63%; 1997, 1.49%.
D For the period August 21, 1997 (commencement of operations of this class) to
December 31, 1997.
E Not annualized.
F Annualized.
-26-
<PAGE>
Legg Mason Global Trust, Inc.
The following additional information about the funds is available upon request
and without charge:
Statement of Additional Information (SAI) -The SAI is filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is
considered part of) the prospectus. The SAI provides further information and
additional details about each fund and its policies.
Annual and Semi-Annual Reports - Additional information about each fund's
investments is available in the funds' annual and semi-annual reports to
shareholders. In the funds' annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected each
fund's performance during its last fiscal year.
To request the SAI or any reports to shareholders, or to obtain more
information:
o call toll-free 1-800-822-5544
o visit us on the Internet via http://www.leggmasonfunds.com
o write to us at: Legg Mason Wood Walker, Incorporated
100 Light Street, P.O. Box 1476
Baltimore, MD 21203-1476
Information about the funds, including the SAI, can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. Reports and other information about the fund are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov. Investors
may also obtain this information, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, DC 20549-0102.
LMF -- SEC file number 811-7418
-27-
<PAGE>
LEGG MASON GLOBAL FUNDS
LEGG MASON GLOBAL TRUST, INC.:
Legg Mason Global Income Trust
Legg Mason International Equity Trust
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
PRIMARY CLASS SHARES, CLASS A SHARES AND NAVIGATOR CLASS SHARES
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus for Primary Class and Class A shares
of the funds and the Prospectus for Navigator Class shares of the funds, both
dated April 28, 2000, which have been filed with the Securities and Exchange
Commission ("SEC"). Each fund's annual report is incorporated by reference into
this Statement of Additional Information. Copies of the Prospectuses and annual
reports are available without charge by writing to or calling the funds'
distributor, Legg Mason Wood Walker, Incorporated ("Legg Mason") (address and
telephone numbers listed below).
Legg Mason Wood Walker,
Incorporated
- --------------------------------------------------------------------------------
100 Light Street
Baltimore, Maryland 21202
(410) 539-0000 (800) 822-5544
<PAGE>
TABLE OF CONTENTS
Page
----
DESCRIPTION OF THE FUNDS.....................................................2
FUND POLICIES................................................................2
INVESTMENT STRATEGIES AND RISKS..............................................6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................33
ADDITIONAL TAX INFORMATION..................................................35
TAX-DEFERRED RETIREMENT PLANS...............................................39
PERFORMANCE INFORMATION.....................................................40
VALUATION OF FUND SHARES....................................................48
MANAGEMENT OF THE FUND......................................................49
THE FUNDS' INVESTMENT ADVISER/MANAGER.......................................51
THE FUNDS' DISTRIBUTOR......................................................56
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................59
CAPITAL STOCK INFORMATION...................................................60
THE CORPORATION'S CUSTODIAN AND TRANSFER AND DIVIDEND-DISBURSING AGENT......60
THE CORPORATION'S LEGAL COUNSEL.............................................61
THE CORPORATION'S INDEPENDENT ACCOUNTANTS...................................61
FINANCIAL STATEMENTS........................................................61
APPENDIX A....................................................................
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 this 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.
-1-
<PAGE>
DESCRIPTION OF THE FUNDS
Legg Mason Global Trust, Inc. ("Global Trust" or "Corporation") is an
open-end management investment company which was incorporated in Maryland on
December 31, 1992. Legg Mason Global Income Trust ("Global Income Trust"), Legg
Mason International Equity Trust ("International Equity Trust"), Legg Mason
Emerging Markets Trust ("Emerging Markets"), and Legg Mason Europe Fund ("Europe
Fund") are separate series of the Corporation. Global Income Trust is
non-diversified; International Equity Trust, Emerging Markets Trust, and Europe
Fund are diversified.
FUND POLICIES
Global Income Trust's investment objective is to seek capital
appreciation and current income in order to achieve an attractive total return
consistent with prudent investment risk. International Equity's investment
objective is to seek to maximize long-term total return. Emerging Market Trust's
investment objective is to seek long-term capital appreciation. Europe Fund's
investment objective is to seek long-term growth of capital.
Each fund has adopted certain fundamental investment limitations that,
like the investment objectives listed above, cannot be changed except by vote of
that fund's shareholders.
Global Income Trust 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,
("1933 Act") 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.
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International Equity Trust 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;
4. Engage in the business of underwriting the securities of other
issuers except insofar as the fund may be deemed an underwriter under the 1933
Act 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 Trust 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;
4. Engage in the business of underwriting the securities of other
issuers except insofar as the fund may be deemed an underwriter under the 1933
Act in disposing of a portfolio security;
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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.
Europe Fund Trust may not:
1. Borrow money, except (a) from a bank, provided that immediately
after such borrowing there is an asset coverage of 300% for all borrowings of
the fund; or (b) from a bank or other persons for temporary purposes only,
provided that such temporary borrowings are in an amount not exceeding 5% of the
fund's total assets at the time when the borrowing is made. The fund will not
borrow money in excess of 15% of the total value of its assets (including the
amount borrowed) less its liabilities (not including its borrowings), and will
not purchase securities at any time when borrowings exceed 5% of its total
assets;
2. Issue senior securities except to evidence borrowings permitted by
limitation (1) above;
3. Act as underwriter of securities issued by other persons. This
limitation is not applicable to the extent that, in connection with the
disposition of portfolio securities (including restricted securities), the fund
may be deemed an underwriter under certain federal securities laws;
4. Purchase, hold or deal in real estate. This limitation is not
applicable to investments in securities which are secured by or represent
interests in real estate or to securities issued by companies, including real
estate investment trusts, that invest in real estate or interests in real
estate. This limitation does not preclude the fund from investing in
mortgage-related securities or investing directly in mortgages;
5. Purchase, hold or deal in commodities or commodities futures
contracts except as described in this Statement of Additional Information. This
does not preclude the fund from investing in futures contracts, put and call
options on foreign currencies or forward currency exchange contracts;
6. Lend money to other persons except through the use of publicly
distributed debt obligations and the entering into of repurchase agreements
consistent with its investment policies;
7. Purchase securities or evidences of interest thereon on "margin."
This limitation is not applicable to short term credit obtained by the fund for
the clearance of purchases and sales or redemption of securities, or to
arrangements with respect to transactions involving options, futures contracts,
short sales and other permitted investments and techniques (including foreign
currency exchange contracts);
8. Invest 25% or more of its total assets in a particular industry.
This limitation is not applicable to investments in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities or
repurchase agreements with respect thereto;
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9. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities), if as a result (a) more than 25%
of the value of the fund's total assets would then be invested in securities of
any singer issuer, or (b) as to 75% of the value of the fund's total assets (i)
more than 5% of the value of the fund's total assets would then be invested in
securities of any single issuer, or (ii) the fund would own more than 10% of the
voting securities of any single issuer. For purposes of this limitation, the
fund will treat both the corporate borrower and the financial intermediary as
issuers of a loan participation interest.
Additional Fundamental Limitations Applicable to Europe Fund:
1. Short Sales. Europe Fund may not make short sales of securities or
maintain a short position in any security.
2. Restricted Securities. Europe Fund will not purchase securities for
which there are legal restrictions on resale and other securities that are not
readily marketable if as a result of such purchase more than 15% of the value of
the fund's net assets would be invested in such securities, provided that
securities that are not subject to restrictions on resale in the country in
which they are principally traded are not considered subject to this
restriction.
3. Oil and Gas Programs. Europe Fund may not invest in oil, gas,
mineral exploration or development programs, except that the fund may invest in
issuers which invest in such programs.
4. "Unseasoned" Companies. Europe Fund may not purchase any security if
as a result the fund would have more than 5% of its net assets invested in
securities of companies which together with any predecessors have been in
continuous operation for less than three years.
5. Warrants. Europe Fund may not invest more than 5% of its net assets
in warrants issued by U.S. entities, provided that no more than 2% of its net
assets will be invested in warrants that are not listed on the New York Stock
Exchange or American Stock Exchange; except that these limitations are not
applicable to warrants issued by non-U.S. issuers.
The foregoing limitations of each fund may be changed by "the vote of a
majority of the outstanding voting securities" of the fund, a term defined in
the 1940 Act to mean the vote (a) of 67% or more of the voting securities
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the fund are present, or (b) of more than 50% of the outstanding
voting securities of the fund, whichever is less.
Except as otherwise stated, if a fundamental or non-fundamental
percentage limitation set forth above is complied with at the time an investment
is made, a later increase or decrease in percentage resulting from a change in
the value of portfolio securities, in the net asset value of a fund, or in the
number of securities an issuer has outstanding, will not be considered to be
outside the limitation. Each fund will monitor the level of borrowing and
illiquid securities in its portfolio and will make necessary adjustments to
maintain required asset coverage and adequate liquidity.
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 without shareholder approval.
Global Income Trust, International Equity Trust and Emerging Markets Trust each
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
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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 Income 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);
International Equity Trust intends to:
1. Under normal circumstances, invest at least 65% of its total assets
in equity securities of issuers located outside the United States.
Emerging Markets Trust intends to:
1. Under normal circumstances, invest at least 65% of its total assets
in emerging market equity securities.
Global Income Trust is a non-diversified fund; however, the fund
intends to continue to qualify for treatment as a regulated investment company
under the Internal Revenue Code of 1986, as amended, which requires that, among
other things, at the close of each quarter of the fund's taxable year, (1) with
respect to 50% of its 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.
INVESTMENT STRATEGIES AND RISKS
THE FOLLOWING INFORMATION APPLIES TO ALL FUNDS, UNLESS OTHERWISE INDICATED:
Illiquid and Restricted Investments
Each fund may invest up to 15% of its net assets in illiquid
investments. For this purpose, "illiquid investments" are those that cannot be
disposed of within seven days for approximately the price at which the fund
values the security. Illiquid investments include repurchase agreements with
terms of greater than seven days, restricted investments other than those a
fund's adviser has determined are liquid pursuant to guidelines established by
the Corporation's Board of Directors, securities involved in swap, cap, floor,
and collar transactions, and over-the-counter ("OTC") options and their
underlying collateral.
Restricted securities may be sold only in privately negotiated
transactions, pursuant to a registration statement filed under the 1933 Act or
pursuant to an exemption from registration, such as Rule 144 or Rule 144A. A
fund may be required to pay part or all of the costs of such registration, and a
considerable period may elapse between the time a decision is made to sell a
restricted security and the time the registration statement becomes effective.
Judgment plays a greater role in valuing illiquid securities than those for
which a more active market exists.
SEC regulations permit the sale of certain restricted securities to
qualified institutional buyers. The investment adviser to a fund, acting
pursuant to guidelines established by the Corporation's Board of Directors, may
determine that certain restricted securities qualified for trading on this newly
developing market are liquid. If the market does not develop as anticipated or
if qualified institutional buyers become uninterested for a time, restricted
securities in a fund's portfolio may adversely affect a fund's liquidity.
The assets used as cover for OTC options written by a fund will be
considered illiquid 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
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an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
Senior Securities
- -----------------
The 1940 Act prohibits the issuance of senior securities by a
registered open-end fund with one exception. A fund may borrow from banks
provided that immediately after any such borrowing there is an asset coverage of
at least 300% for all borrowings of the fund. Borrowing for temporary purposes
only and in an amount not exceeding 5% of the value of the total assets of a
fund at the time the borrowing is made is not deemed to be an issuance of a
senior security.
There are various investment techniques which may give rise to an
obligation of a fund to pay in the future about which the SEC has stated it
would not raise senior security concerns, provided the fund maintains segregated
assets in an amount that covers the future payment obligation. Such investment
techniques include, among other things, when-issued securities, futures and
forward contracts, short-options positions, and repurchase agreements.
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 the fund's custodian. During the time the
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. 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.
Each fund except Europe Fund presently does not expect to have on loan
at any given time securities totaling more than one-third of its net asset
value. For Europe Fund, no loans will be made if, as a result, the aggregate
amount of such loans would exceed 25% of the Fund's total assets.
Securities Of Other Investment Companies
- ----------------------------------------
A fund may invest in the securities of other investment companies only
if it: (i) will not own more than 3% of the total outstanding voting stock of
any investment company, (ii) does not invest more than 5% of its total assets in
any one investment company or (iii) does not 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.
Europe Fund may invest in any closed-end investment company that holds
foreign equity securities in its portfolio. 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. The fund will invest in such companies, when, in an adviser's
judgment, the potential benefits of such investment justify the payment of any
applicable premium or sales charge. Investments in shares of closed-end
investment companies that invest primarily in equity securities of European
issuers will be included in the 65% of total assets that Europe Fund normally
would expect to invest in European issuers.
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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 a term of one week or less, but may be for longer periods.
Repurchase agreements maturing in more than seven days may be considered
illiquid. If 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.
Europe Fund may enter into repurchase agreements with respect to
securities issued by the U.S. Government, its agencies or instrumentalities.
Under normal circumstances, no more than 25% of Europe Fund's total assets will
be invested in repurchase agreements at any time.
Reverse Repurchase Agreements and Other Borrowing (All Funds except Europe Fund)
- -------------------------------------------------
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
contra-party 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.
Each fund may borrow for temporary purposes, which borrowing may be
unsecured. The 1940 Act requires a 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, a 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.
Foreign Securities
- ------------------
Each fund may invest in foreign securities. Investment in foreign
securities presents certain risks, including those resulting from fluctuations
in currency exchange rates, revaluation of currencies, future political and
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economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers, and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or other regulatory practices and requirements comparable to those
applicable to domestic issuers. These risks are intensified when investing in
countries with developing economies and securities markets, also known as
"emerging markets." Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation, confiscatory taxation, withholding taxes and limitations on
the use or removal of funds or other assets.
The costs associated with investment in foreign issuers, including
withholding taxes, brokerage commissions and custodial fees, are higher than
those associated with investment in domestic issuers. In addition, foreign
securities transactions may be subject to difficulties associated with the
settlement of such transactions. 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 it to miss attractive investment opportunities. Inability
to dispose of a portfolio security due to settlement problems could result in
losses to a fund due to subsequent declines in value of the portfolio security
or, if the fund has entered into a contract to sell the security, could result
in liability to the purchaser.
Since each fund may invest in securities denominated in currencies
other than the U.S. dollar and may hold foreign currencies, a fund may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rates between such currencies and the U.S. dollar. Changes in the
currency exchange rates may influence the value of a fund's shares, and also may
affect the value of dividends and interest earned by a fund and gains and losses
realized by a fund. Exchange rates are determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments, other economic and financial conditions,
government intervention, speculation and other factors.
In addition to purchasing foreign securities, a fund may invest in
American Depository Receipts ("ADRs"). Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the domestic market.
Usually issued by a U.S. bank or trust company, ADRs are receipts that
demonstrate ownership of the underlying securities. For purposes of each fund's
investment policies and limitations, ADRs are considered to have the same
classification as the securities underlying them. ADRs may be sponsored or
unsponsored; issuers of securities underlying unsponsored ADRs are not
contractually obligated to disclose material information in the U.S.
Accordingly, there may be less information available about such issuers than
there is with respect to domestic companies and issuers of securities underlying
sponsored ADRs. Each fund may also invest in Global Depository Receipts
("GDRs"), which are receipts, often denominated in U.S. dollars, issued by
either a U.S. or non-U.S. bank evidencing its ownership of the underlying
foreign securities.
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 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 Income, 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 an adviser 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
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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) 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 a 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 a fund.
In such a case, a fund's ability to obtain U.S. dollars may be adversely
affected by any increased restrictions imposed on the outflow of foreign
exchange. If a 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, a 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
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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. 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.
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.
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 the fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to a fund
due to subsequent declines in the 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 than 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.
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 a 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
-11-
<PAGE>
shareholders of a fund. Moreover, if the value of the foreign currencies in
which a 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.
Debt Securities
- ---------------
Each fund may invest in the debt securities of governmental or
corporate issuers. Global Income invests substantially all of its assets in
fixed-income securities. International Equity, Emerging Markets and Europe Fund
may also invest in fixed-income securities to a lesser extent. Corporate debt
securities may pay fixed or variable rates of interest. These securities may be
convertible into preferred or common equity, or may be bought as part of a unit
containing common stock.
The prices of debt securities fluctuate in response to perceptions of
the issuer's creditworthiness and also tend to vary inversely with market
interest rates. The value of such securities is likely to decline in times of
rising interest rates. Conversely, when rates fall, the value of these
investments is likely to rise. The longer the time to maturity the greater are
such variations. 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,
which is commonly the case).
Many fixed-income securities, especially those issued at high interest
rates, provide that the issuer may repay them early. Issuers often exercise this
right when interest rates are low. Accordingly, holders of callable securities
may not benefit fully from the increase in value that other fixed-income
securities experience when rates decline. Furthermore, a fund reinvests the
proceeds of the payoff at current yields, which are lower than those paid by the
security that was paid off.
Certain securities pay interest at variable or floating rates. Variable
rate securities reset at specified intervals, while floating rate securities
reset whenever there is a change in a specified index rate. In most cases, these
reset provisions reduce the effect of market interest rates on the value of the
security. However, some securities do not track the underlying index directly,
but reset based on formulas that can produce an effect similar to leveraging;
others may provide for interest payments that vary inversely with market rates.
The market prices of these securities may fluctuate significantly when interest
rates change.
Europe fund may invest no more than 5% of its net assets in floating
and variable rate obligations, respectively.
-12-
<PAGE>
Each fund may purchase debt securities from the issuers or may purchase
participation interests in pools of these obligations from banks or other
financial institutions. Variable and floating rate obligations usually carry
demand features that permit a fund to sell the obligations back to the issuers
or to financial intermediaries at par value plus accrued interest upon short
notice at any time or prior to specific dates. The inability of the issuer or
financial intermediary to repurchase an obligation on demand could affect the
liquidity of a fund's portfolio. Frequently, obligations with demand features
are secured by letters of credit or comparable guarantees. Floating and variable
rate obligations which do not carry unconditional demand features that can be
exercised within seven days or less are deemed illiquid unless the Board
determines otherwise. A fund's investment in illiquid floating and variable rate
obligations would be limited to the extent that it is not permitted to invest
more than 15% of the value of its net assets in illiquid investments.
Fixed-income securities are also subject to credit risk, i.e., the risk
that an issuer of securities will be unable to pay principal and interest when
due, or that the value of the security will suffer because investors believe the
issuer is less able to pay. This is broadly gauged by the credit ratings of the
securities in which the funds invest. However, ratings are only the opinions of
the agencies issuing them and are not absolute guarantees as to quality.
Debt securities and securities convertible into common stock need not
necessarily be of a certain grade as determined by rating agencies such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's");
however, each fund's adviser does consider such ratings in determining whether
the security is an appropriate investment for the fund. Generally, debt
securities rated below BBB by S&P, or below Baa by Moody's, and unrated
securities of comparable quality, offer a higher current yield than that
provided by higher grade issues, but also involve higher risks. 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. However, debt securities, regardless of their ratings, generally
have a higher priority in the issuer's capital structure than do equity
securities. If an investment grade security purchased by a fund is subsequently
given a rating below investment grade, the fund's adviser will consider that
fact in determining whether to retain that security in the fund's portfolio, but
is not required to dispose of it.
The ratings of S&P and Moody's represent the opinions of those
agencies. Such ratings are relative and subjective, and are not absolute
standards of quality. Unrated debt securities are not necessarily of lower
quality than rated securities, but they may not be attractive to as many buyers.
A description of the ratings assigned to corporate debt obligations by S&P and
Moody's is included in Appendix A.
In addition to ratings assigned to individual bond issues, each adviser
will analyze interest rate trends and developments that may affect individual
issuers, including factors such as liquidity, profitability and asset quality.
The yields on bonds and other debt securities in which a fund invests are
dependent on a variety of factors, including general money market conditions,
general conditions in the bond market, the financial conditions of the issuer,
the size of the offering, the maturity of the obligation and its rating. There
may be a wide variation in the quality of bonds, both within a particular
classification and between classifications. A bond issuer's obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of bond holders or other creditors of an issuer; litigation
or other conditions may also adversely affect the power or ability of bond
issuers to meet their obligations for the payment of principal and interest.
Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) are analyzed by each fund's adviser to determine, to
the extent possible, that the planned investment is sound.
Lower-Rated Debt Securities (Global Income Trust and Europe Fund)
- ---------------------------
The funds may invest in debt obligations (such as corporate debt
securities and municipal obligations) in any rating category of the recognized
rating services, including issues that are in default, and may invest in unrated
-13-
<PAGE>
debt obligations. Most foreign debt obligations are not rated. High-yielding
corporate fixed income securities of foreign issuers in which the funds may
invest include securities of companies that have their principal business
activities and interests outside the U.S.
Generally, investments in securities in the lower rating categories or
comparable unrated securities provide higher yields but involve greater price
volatility and risk of loss of principal and interest than investments in
securities with higher ratings. Securities rated lower than Baa by Moody's or
BBB by S&P (commonly known as "junk bonds"), are below investment grade and have
speculative characteristics, and those in the lowest rating categories are
extremely speculative and may be in default with respect to payment of principal
and interest. Global Income may invest in corporate fixed income securities
rated as low as C by Moody's or D by S&P or in unrated securities deemed by the
fund's adviser to be of comparable quality.
Where one rating organization has assigned an investment grade rating
to an instrument and others have given it a lower rating, a fund may consider
the instrument to be investment grade. The ratings do not include the risk of
market fluctuations. Europe Fund does not intend to invest more than 5% of its
net assets in securities rated below investment grade. Global Income may invest
up to 25% of its total assets in securities rated below investment grade.
Lower ratings reflect a greater possibility that an adverse change in
financial condition will affect the ability of the issuer to make payments of
principal and interest than is the case with higher grade securities. In
addition, lower-rated securities will also be affected by the market's
perceptions of their credit quality and the outlook for economic growth. 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. In the past, economic downturns or
an increase in interest rates have under certain circumstances caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. The
market for lower-rated securities may be less liquid than the market for
securities with higher ratings. Furthermore, the liquidity of lower-rated
securities may be affected by the market's perception of their credit quality.
Therefore, judgment may at times play a greater role in valuing these securities
than in the case of higher-rated securities, and it also may be more difficult
during certain adverse market conditions to sell lower-rated securities at their
face value to meet redemption requests or to respond to changes in the market.
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.
Although the above risks apply to all lower-rated securities, the
investment risk increases when the rating of the security is below investment
grade. The lowest-rated securities (D by S&P and C by Moody's) are regarded as
having extremely poor prospects of ever attaining any real investment standing
and, in fact, may be in default of payment of interest or repayment of
principal. To the extent a fund invests in these lower-rated securities, the
achievement of its investment objective may be more dependent on the fund's
adviser's own credit analysis than in the case of a fund investing in
higher-rated securities.
-14-
<PAGE>
A fund may invest in securities which are in lower rating categories or
are unrated if the fund's adviser determines that the securities provide the
opportunity of meeting the fund's objective without presenting excessive risk.
The respective adviser will consider all factors which it deems appropriate,
including ratings, in making investment decisions for the fund and will attempt
to minimize investment risks through diversification, investment analysis and
monitoring of general economic conditions and trends. While the advisers may
refer to ratings, they do not rely exclusively on ratings, but make their own
independent and ongoing review of credit quality.
Sovereign Debt (Global Income Trust and Europe Fund)
- --------------
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.
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 a 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 the advisers endeavor 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 a fund to suffer a loss of
interest or principal on any of its holdings.
Preferred Stock (All Funds except Europe Fund)
- ---------------
Each fund may purchase preferred stock as a substitute for debt
securities of the same issuer when, in the opinion of the fund's 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. 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
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<PAGE>
prices of debt securities. Under normal circumstances, preferred stock does not
carry voting rights.
Convertible Securities (All Funds except Europe Fund)
- ----------------------
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 of non-convertible debt.
Convertible securities are usually subordinated to comparable-tier
nonconvertible 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. The price of a convertible
security often reflects variations in the price of the underlying common stock
in a way that non-convertible debt does not. 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, which may be less than the ultimate
conversion value.
Many convertible securities are rated below investment grade or, if
unrated, are considered of comparable quality.
Global Income Trust 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. If a convertible
security held by Global Income 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 objective.
Corporate Debt Securities And Short-Term Instruments (Global Income Trust
- ---------------------------------------------------- and Europe Fund)
Corporate debt securities include commercial paper, which consists of
short-term (usually from 1 to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. The funds may invest
in foreign corporate debt securities denominated in U.S. dollars or foreign
currencies. Foreign debt securities include Yankee dollar obligations (U.S.
dollar denominated securities issued by foreign corporations and traded on U.S.
markets) and Eurodollar obligations (U.S. dollar denominated securities issued
by foreign corporations and traded on foreign markets).
The funds also may invest in commercial paper issued in bearer form by
banks or bank holding companies, and finance companies. The funds may purchase
commercial paper issued pursuant to the private placement exemption in Section
4(2) of the 1933 Act. 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 funds may or may not regard such securities as illiquid,
depending on the circumstances of each case.
Bank obligations in which the funds 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 funds 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. A bankers' acceptance is a
-16-
<PAGE>
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 funds will
generally assume positions considerably in excess of the insurance limits.
The funds 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
funds. Foreign banks are not generally subject to examination by any U.S.
government agency or instrumentality.
Global Income Trust 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 the fund's adviser to be of comparable quality to obligations of
U.S. banks in which the fund may invest. Subject to the fund's 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 may be invested in obligations of foreign banks which meet the
conditions set forth herein.
U.S. Government Obligations And Related Securities (Global Income Trust
- -------------------------------------------------- and Europe Fund)
U.S. Government obligations include a variety of securities that are
issued or guaranteed by the U.S. Treasury, by various agencies of the U.S.
Government or by various instrumentalities that have been established or
sponsored by the U.S. Government. U.S. Treasury securities and securities issued
by the GNMA and Small Business Administration are backed by the "full faith and
credit" of the U.S. Government. Other U.S. Government obligations may or may not
be backed by the "full faith and credit" of the U.S. In the case of securities
not backed by the "full faith and credit" of the U.S., the investor must look
principally to the agency issuing or guaranteeing the obligation (such as the
Federal Farm Credit System, the Federal Home Loan Banks, Fannie Mae and Freddie
Mac) for ultimate repayment and may not be able to assert a claim against the
U.S. itself in the event the agency or instrumentality does not meet its
commitments.
Participation interests in U.S. Government obligations are pro rata
interests in such obligations which are generally underwritten by government
securities dealers. Certificates of safekeeping for U.S. Government obligations
are documentary receipts for such obligations. Both participation interests and
certificates of safekeeping are traded on exchanges and in the over-the-counter
market.
Each fund may invest in U.S. Government obligations and related
participation interests. In addition, the funds may invest in custodial receipts
that evidence ownership of future interest payments, principal payments or both
on certain U.S. Government obligations. Such obligations are held in custody by
a bank on behalf of the owners. These custodial receipts are known by various
names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs")
and Certificates of Accrual on Treasury Securities ("CATS"). Custodial receipts
generally are not considered obligations of the U.S. Government for purposes of
securities laws. Generally, each fund will consider all interest-only or
principal-only fixed income securities as illiquid.
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<PAGE>
Municipal Obligations (Europe Fund)
- ---------------------
Municipal obligations are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest that is, in
the opinion of bond counsel to the issuer, exempt from federal income tax. The
fund may invest no more than 5% of its net assets in municipal obligations
(including participation interests). Municipal obligations are issued to obtain
funds to construct, repair or improve various public facilities such as
airports, bridges, highways, hospitals, housing, schools, streets and water and
sewer works, to pay general operating expenses or to refinance outstanding
debts. They also may be issued to finance various private activities, including
the lending of funds to public or private institutions for construction of
housing, educational or medical facilities or the financing of privately owned
or operated facilities. Municipal obligations consist of tax-exempt bonds,
tax-exempt notes and tax-exempt commercial paper. Tax-exempt notes generally are
used to provide short term capital needs and generally have maturities of one
year or less. Tax-exempt commercial paper typically represents short-term,
unsecured, negotiable promissory notes.
The two principal classifications of municipal obligations are "general
obligations" and "revenue" bonds. General obligation bonds are backed by the
issuers full credit and taxing power. Revenue bonds are backed by the revenues
of a specific project, facility or tax. Industrial development revenue bonds are
a specific type of revenue bond backed by the credit of the private user of the
facility, and therefore investments in these bonds have more potential risk that
the issuer will not be able to meet scheduled payments of principal and
interest.
Zero Coupon And Pay-In-Kind Bonds (Global Income Trust and Europe Fund)
- ---------------------------------
Corporate debt securities and municipal obligations include so-called
"zero coupon" bonds and "pay-in-kind" bonds. Zero coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Pay-in-kind bonds allow the issuer, at its option, to make current
interest payments on the bonds either in cash or in additional bonds. The value
of zero coupon and pay-in-kind bonds is subject to greater fluctuation in
response to changes in market interest rates than bonds which make regular
payments of interest. Both of these types of bonds allow an issuer to avoid the
need to generate cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds which make regular payments of
interest. Even though zero coupon and pay-in-kind bonds do not pay current
interest in cash, the fund holding those bonds is required to accrue interest
income on such investments and may be required to distribute that income at
least annually to shareholders. Thus, such fund could be required at times to
liquidate other investments in order to satisfy its dividend requirements.
Europe Fund may invest no more than 5% of its net assets in zero coupon bonds or
pay-in-kind bonds, respectively.
Fixed Income Securities Issued By Supranational Organizations (Global Income
- ------------------------------------------------------------- Trust)
The fund may invest in fixed income securities issued by supranational
organizations. Supranational organizations are entities designated or supported
by a government or governmental group to promote economic development. Included
among these organizations are the Asian Development Bank, the European
Community, the European Investment Bank, the Inter-American Development Bank,
the International Monetary Fund, the United Nations, the World Bank and the
European Bank for Reconstruction and Development. Supranational organizations
have no taxing authority and are dependent on their members for payments of
interest and principal. Further, the lending activities of such entities are
limited to a percentage of their total capital, reserves, and net income.
Brady Bonds (Global Income Trust)
- -----------
The fund may invest in either collateralized or uncollateralized Brady
Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be
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<PAGE>
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.
Indexed Securities (Global Income Trust)
- ------------------
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.
Foreign Currency Exchange-Related Securities And Foreign Currency Warrants
(Global Income Trust)
- --------------------------------------------------------------------------
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 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.
-19-
<PAGE>
Mortgage-Related Securities (Global Income Trust and Europe Fund)
- ---------------------------
Europe fund may invest no more than 5% of its net assets in
mortgage-related securities. Mortgage-related securities provide capital for
mortgage loans made to residential homeowners, including securities which
represent interests in pools of mortgage loans made by lenders such as savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled for sale to investors (such as the funds) by
various governmental, government-related and private organizations, such as
dealers. The market value of mortgage-related securities will fluctuate as a
result of changes in interest rates and mortgage rates. In addition to
fixed-rate, fixed-term mortgages, Global Income may purchase pools of variable
rate mortgages, growing-equity mortgages, graduated-payment mortgages and other
types of mortgages.
Interests in pools of mortgage loans generally provide a monthly
payment which consists of both interest and principal payments. 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 are caused by
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA)
are described as "modified pass-through" because they entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payment.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers, such
as dealers, create pass-through pools of conventional residential mortgage
loans. Pools created by such non-governmental issuers generally offer a higher
rate of interest than government and government-related pools because there are
no direct or indirect government guarantees of payments with respect to such
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance. There can be no assurance that the
private insurers can meet their obligations under the policies. Each fund may
buy mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the persons creating the
pools, the adviser determines that the securities are appropriate investments
for the fund. The private mortgage-related securities in which the funds may
invest include foreign mortgage pass-through securities ("Foreign
Pass-Throughs"), which are structurally similar to the pass-through instruments
described above.
Another type of security representing an interest in a pool of mortgage
loans is known as a collateralized mortgage obligation ("CMO"). CMOs represent
interests in a short-term, intermediate-term or long-term portion of a mortgage
pool. Each portion of the pool receives monthly interest payments, but the
principal repayments pass through to the short-term CMO first and the long-term
CMO last. A CMO permits an investor to more accurately predict the rate of
principal repayments. CMOs are issued by private issuers, such as broker/dealers
and government agencies, such as Fannie Mae and Freddie Mac. Investments in CMOs
are subject to the same risks as direct investments in the underlying
mortgage-backed securities. In addition, in the event of a bankruptcy or other
default of a broker who issued the CMO held by a fund, the fund could experience
both delays in liquidating its position and losses. The funds may invest in CMOs
in any rating category of the recognized rating services and may invest in
unrated CMOs.
The funds also 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
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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 or the "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 the Fund's adviser,
following guidelines and standards established by the Corporation's Board of
Directors.
Each fund's adviser expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be second mortgages or alternative mortgage instruments (for
example, mortgage instruments whose principal or interest payments may vary or
whose terms to maturity may differ from customary long-term fixed rate
mortgages). As new types of mortgage-related securities are developed and
offered to investors, each adviser will, consistent with the fund's investment
objective and policies, consider making investments in such new types of
securities. The Prospectuses will be amended with any necessary additional
disclosure prior to a fund investing in such securities.
The average life of securities representing interests in pools of
mortgage loans is likely to be substantially less than the original maturity of
the mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, a fund may experience a loss (if
the price at which the respective security was acquired by the fund was at a
premium over par, which represents the price at which the security will be
redeemed upon prepayment) or a gain (if the price at which the respective
security was acquired by the fund was at a discount from par). In addition,
prepayments of such securities held by a fund will reduce the share price of the
fund to the extent the market value of the securities at the time of prepayment
exceeds their par value, and will increase the share price of the fund to the
extent the par value of the securities exceeds their market value at the time of
prepayment. Prepayments may occur with greater frequency in periods of declining
mortgage rates because, among other reasons, it may be possible for mortgagors
to refinance their outstanding mortgages at lower interest rates.
Although the market for mortgage-related securities issued by private
organizations is becoming increasingly liquid, such securities may not be
readily marketable. Each fund will not purchase mortgage-related securities for
which there is no established market (including CMOs and direct investments in
mortgages as described below) or any other investments which the sub-adviser
deems to be illiquid pursuant to criteria established by the Board of Directors
if, as a result, more than 15% of the value of the fund's net assets would be
invested in such illiquid securities and investments. Government-related
organizations which issue mortgage-related securities include GNMA, Fannie Mae
and Freddie Mac. Securities issued by GNMA and Fannie Mae are fully modified
pass-through securities, i.e., the timely payment of principal and interest is
guaranteed by the issuer. Freddie Mac securities are modified pass-through
securities, i.e., the timely payment of interest is guaranteed by Freddie Mac,
principal is passed through as collected but payment thereof is guaranteed not
later than one year after it becomes payable.
Direct Investment In Mortgages (Europe Fund)
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Mortgage-related securities include investments made directly in
mortgages secured by real estate. When the fund makes a direct investment in
mortgages, the fund, rather than a financial intermediary, becomes the mortgagee
with respect to such loans purchased by the fund. Direct investments in
mortgages are normally available from lending institutions which group together
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a number of mortgages for resale (usually from 10 to 50 mortgages) and which act
as servicing agent for the purchaser with respect to, among other things, the
receipt of principal and interest payments. (Such investments are also referred
to as "whole loans.") The vendor of such mortgages receives a fee from the
purchaser for acting as servicing agent. The vendor does not provide any
insurance or guarantees covering the repayment of principal or interest on the
mortgages. The fund will invest in such mortgages only if its adviser has
determined through an examination of the mortgage loans and their originators
that the purchase of the mortgages should not present a significant risk of loss
to the fund.
Asset-Backed Securities (Global Income Trust)
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Asset-backed securities 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. The value of such securities partly depends on loan repayments by
individuals, which may be adversely affected during general downturns in the
economy. 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 (Global Income Trust)
- -----------------------------
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 securities.
Forward Commitments (Global Income Trust)
- -------------------
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.
The fund may sell the securities subject to a forward commitment purchase, which
may result in a gain or a 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 commitments also involve a risk of loss if the seller fails to deliver
after the value of the securities has risen. The fund's custodian will place
cash or liquid debt securities in a separate account equal to the commitments to
purchase securities.
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. In a forward sale, the fund does not participate in gains or
losses on the security occurring after the commitment date. The fund's custodian
will place the securities in a separate account. Forward commitments to sell
securities involves a risk of loss if the seller fails to take delivery after
the value of the securities has declined.
The fund does not expect that its purchases of forward commitments will
at any time exceed, in the aggregate, 20% of its total assets.
Options, Futures And Other Strategies
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GENERAL. Each fund may invest in certain options, futures contracts
(sometimes referred to as "futures"), options on futures contracts, forward
currency contracts, swaps, caps, floors, collars, indexed securities and other
derivative instruments (collectively, "Financial Instruments") to attempt to
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enhance its income or yield or to attempt to hedge its investments. The
strategies described below may be used in an attempt to manage a fund's foreign
currency exposure (including exposure to the Euro) as well as other risks of a
fund's investments that can affect its net asset value. 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. 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.
Generally, each fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, a fund will only purchase or sell a
particular Financial Instrument if the fund is authorized to invest in the type
of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since each fund is authorized to invest in foreign
securities, each fund may purchase and sell foreign currency and Euro
derivatives.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in a fund's portfolio. Thus, in a short hedge a fund takes
a position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that a fund intends to acquire.
Thus, in a long hedge, a fund takes a position in a Financial Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, a fund does not own a
corresponding security and, therefore, the transaction does not relate to a
security the fund owns. Rather, it relates to a security that the fund intends
to acquire. If the fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which a fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the SEC, the several exchanges upon which they are traded and the Commodity
Futures Trading Commission (the "CFTC"). In addition, a fund's ability to use
Financial Instruments may be limited by tax considerations. See "Additional Tax
Information."
In addition to the instruments, strategies and risks described below,
the advisers expect to discover additional opportunities in connection with
Financial Instruments and other similar or related techniques. These new
opportunities may become available as the advisers develop new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
Financial Instruments or other techniques are developed. The advisers may
utilize these opportunities to the extent that they are consistent with a fund's
investment objective and permitted by its investment limitations and applicable
regulatory authorities. A fund might not use any of these strategies, and there
can be no assurance that any strategy used will succeed. The funds' Prospectuses
or this Statement of Additional Information will be supplemented to the extent
that new products or techniques involve materially different risks than those
described below or in the Prospectuses.
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SPECIAL RISKS. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general,
these techniques may increase the volatility of a fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon an
adviser's ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting changes
in the prices of individual securities. There can be no assurance that any
particular strategy will succeed, and use of Financial Instruments could result
in a loss, regardless of whether the intent was to reduce risk or increase
return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there is a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a fund's current or anticipated investments exactly. A fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
fund entered into a short hedge because its adviser projected a decline in the
price of a security in the fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the fund could suffer a loss. In either such case, the
fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, a fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a fund's ability to
sell a portfolio security or make an investment at a time when it would
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otherwise be favorable to do so, or require that the fund sell a portfolio
security at a disadvantageous time.
(5) A fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction (the "counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position can
be closed out at a time and price that is favorable to a fund.
COVER. Transactions using Financial Instruments, other than purchased
options, expose a fund to an obligation to another party. A fund will not enter
into any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies or other options, futures contracts or
forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. Each fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in an account with its custodian in the prescribed amount
as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a fund's assets to cover in accounts could impede portfolio
management or the fund's ability to meet redemption requests or other current
obligations.
OPTIONS. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable a fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, a fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid and
Restricted Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid and Restricted
Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
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Each fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
A type of put that a fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to the
fund. An optional delivery standby commitment gives a fund the right to sell the
security back to the seller on specified terms. This right is provided as an
inducement to purchase the security.
RISKS OF OPTIONS ON SECURITIES. Options offer large amounts of
leverage, which will result in a fund's net asset value being more sensitive to
changes in the value of the related instrument. Each fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a fund
as well as the loss of any expected benefit of the transaction.
Each fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. However,
there can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. There can be no assurance that a fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, a fund might be unable to close out
an OTC option position at any time prior to its expiration.
If a fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a fund could cause material losses because the fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDICES. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
a fund buys a call on an index, it pays a premium and has the same rights as to
such call as are indicated above. When a fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the fund's exercise of the put, to deliver to the fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a fund writes a put on an
index, it receives a premium and the purchaser of the put has the right, prior
to the expiration date, to require the fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and exercise
price times the multiplier if the closing level is less than the exercise price.
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RISKS OF OPTIONS ON INDICES. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when a fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, a fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a fund as the call writer will not learn that the fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, a fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows a fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by each fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of a fund's fixed-income portfolio. If an adviser wishes to shorten the
average duration of a fund's fixed-income portfolio, the fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
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futures contract. If an adviser wishes to lengthen the average duration of a
fund's fixed-income portfolio, the fund may buy a debt futures contract or a
call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the fund at the termination of the transaction if
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, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a fund's obligations to or from a futures
broker. When a fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If a fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
However, there can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.
RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
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interest rate, currency exchange rate or stock market trends by an adviser may
still not result in a successful transaction. An adviser may be incorrect in its
expectations as to the extent of various interest rate, currency exchange rate
or stock market movements or the time span within which the movements take
place.
INDEX FUTURES. The risk of imperfect correlation between movements in
the price of an index futures and movements in the price of the securities that
are the subject of the hedge increases as the composition of a fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index futures moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, a fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, a fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before a fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
To the extent that a fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money" at the
time of purchase) may not exceed 5% of the liquidation value of the fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put.) This policy does not limit to 5% the
percentage of a fund's assets that are at risk in futures contracts, options on
futures contracts and currency options.
FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS. Each
fund may use options and futures contracts on foreign currencies (including the
Euro), as described above, and forward currency contracts, as described below,
to attempt to hedge against movements in the values of the foreign currencies in
which that fund's securities are denominated or to attempt to enhance income or
yield. Currency hedges can protect against price movements in a security that a
fund owns or intends to acquire that are attributable to changes in the value of
the currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
Each fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
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Instruments. In such cases, the fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which the fund's
adviser believes will have a high degree of positive correlation to the value of
the currency being hedged. The risk that movements in the price of the Financial
Instrument will not correlate perfectly with movements in the price of the
currency subject to the hedging transaction is magnified when this strategy is
used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a fund could be disadvantaged by having to deal in the 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 generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might
be required to take place within the country issuing the underlying currency.
Thus, a fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Each fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a fund owned securities denominated in Euros, it could enter
into a forward currency contract to sell Euros in return for U.S. dollars to
hedge against possible declines in the Euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the Euro. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
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Global Income Trust also may use forward currency contracts to attempt
to enhance income or yield. The fund could use forward currency contracts to
increase its exposure to foreign currencies that the fund's adviser believes
might rise in value relative to the U.S. dollar, or shift its exposure to
foreign currency fluctuations from one country to another. For example, if the
fund owned securities denominated in a foreign currency and the fund's adviser
believed that currency would decline relative to another currency, it might
enter into a forward currency contract to sell an appropriate amount of the
first foreign currency, with payment to be made in the second foreign currency.
The cost to a fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, a fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Successful use of forward currency contracts depends on an adviser's
skill in analyzing and predicting currency values. Forward currency contracts
may substantially change a fund's exposure to changes in currency exchange rates
and could result in losses to the fund if currencies do not perform as the
fund's adviser anticipates. There is no assurance that an adviser's use of
forward currency contracts will be advantageous to the fund or that the adviser
will hedge at an appropriate time.
COMBINED POSITIONS. Each fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For example, a fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
TURNOVER. Each fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by a fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
a fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
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price. The exercise of puts purchased by a fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
SWAPS, CAPS, FLOORS, COLLARS. Each fund may enter into swaps, caps,
floors, and collars to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the fund anticipates purchasing at a later date or to attempt to
enhance yield. A swap involves the exchange by a fund with another party of
their respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar combines
elements of buying a cap and selling a floor.
Swap agreements, including caps, floors, and collars, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of a fund's
investments and its share price and yield because, and to the extent, these
agreements affect the fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if a fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which a fund enters into swaps,
caps, floors, or collars will be monitored by its adviser. If a firm's
creditworthiness declines, the value of the agreement would be likely to
decline, potentially resulting in losses. If a default occurs by the other party
to such transaction, the fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of a fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the fund's
custodian that satisfies the requirements of the 1940 Act. A fund will also
establish and maintain such accounts with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the fund. The advisers and the funds believe that
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a fund's borrowing
restrictions. Each fund understands that the position of the SEC is that assets
involved in swap transactions are illiquid and are, therefore, subject to the
limitations on investing in illiquid investments. See "Illiquid and Restricted
Investments."
Global Income Trust 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,
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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.
Global Income Trust 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.
Portfolio Turnover
- ------------------
Europe Fund anticipates that in the future its annual portfolio
turnover rate will not exceed 115%. Each other fund may have an annual portfolio
turnover rate significantly in excess of 100%. 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 the fund. It may also increase the amount of short-term
capital gains realized by the fund and thus may 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 strategies.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund offers two classes of shares, known as Primary Class shares
and Navigator Class shares. Europe Fund also offers a third class of shares:
Class A shares. Other classes of shares may be offered in the future. Primary
Class shares and Class A shares are available from Legg Mason, certain of its
affiliates, and unaffiliated entities having an agreement with Legg Mason.
Navigator Class shares are available only to: Institutional Clients of Legg
Mason Trust Company for which they exercise discretionary investment management
responsibility and accounts of the customers with such Institutional Clients;
qualified retirement plans managed on a discretionary basis and having net
assets of at least $200 million; any qualified retirement plan having net assets
of at least $300 million; clients of Bartlett & Co., who as of December 19,
1996, were shareholders of Bartlett Short-Term Bond Fund or Bartlett Fixed
Income Fund and for whom Bartlett acts as an ERISA fiduciary; shareholders of
Class Y shares of Bartlett Europe Fund or Bartlett Financial Services Fund on
October 5, 1999; any qualified retirement plan of Legg Mason, Inc. or of any of
its affiliates; and any open-end management investment company advised or
managed by Legg Mason Fund Adviser, Inc. ("LMFA") or by any person controlling,
controlled by, or under common control with LMFA. Navigator Class shares may not
be purchased by individuals directly, but Institutional Clients may purchase
shares for Customer Accounts maintained for individuals. Primary Class shares
and Class A shares are available to all other investors.
Future First Systematic Investment Plan And Transfer Of Funds From Financial
Institutions
- ----------------------------------------------------------------------------
If you invest in Primary Class shares or Class A shares, the Prospectus
for those shares explains that you may buy additional Primary Class shares or
Class A shares through the Future First Systematic Investment Plan. Under this
plan, you may arrange for automatic monthly investments in Primary Class shares
or Class A shares of $50 or more by authorizing Boston Financial Data Services
("BFDS"), the funds' transfer agent, to transfer funds to be used to buy those
shares at the per share net asset value determined on the day the funds are sent
by your bank. You will receive a quarterly account statement. You may terminate
the Future First Systematic Investment Plan at any time without charge or
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penalty. Forms to enroll in the Future First Systematic Investment Plan are
available from any Legg Mason or affiliated office.
Investors in Primary Class shares, Class A shares and Legg Mason
Employees investing in Navigator Class shares may also buy shares through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow the investor, on a pre-authorized basis, to have $50 or
more automatically transferred monthly for investment in shares of a fund to:
Legg Mason Wood Walker, Incorporated
Funds Processing
P.O. Box 1476
Baltimore, Maryland 21203-1476
If the investor's check is not honored by the institution it is drawn on, the
investor may be subject to extra charges in order to cover collection costs.
These charges may be deducted from the investor's shareholder account.
Systematic Withdrawal Plan
- --------------------------
Investors in Primary Class shares, Class A shares and Legg Mason
Employees investing in Navigator Class shares with a net asset value of $5,000
or more may elect to make systematic withdrawals of a minimum of $50 on a
monthly basis. The amounts paid to you each month are obtained by redeeming
sufficient 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 Class shares' or Class A shares' or Navigator Class shares', whichever
is applicable, net asset value per share determined as of the close of regular
trading of the Exchange (normally 4:00 p.m., eastern time) ("Close 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 per share 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 shares in your Primary Class shares, Class A shares and Navigator Class
shares account must be automatically reinvested in the respective class of
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.
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<PAGE>
Other Information Regarding Redemption
- --------------------------------------
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 for redemption may not be postponed for more than
seven days, and the right of redemption may not be suspended by a fund or its
distributor except (i) for any period during which the Exchange is closed (other
than for customary weekend and holiday closings), (ii) 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 (iii) 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 for redemption 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 should expect to 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 that fund's 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 of any class of shares of Global
Income or International Equity. No charge is made for redemption of Primary
Class shares or Navigator Class shares of Europe Fund. Class A shares of Europe
Fund that were purchased pursuant to the front-end sales charge waiver on
purchases of $1 million or more and are redeemed within one year of their
purchase are subject to a CDSC of 1.00% of the shares' net asset value at the
time of purchase or redemption, whichever is less. 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.
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 shares from Legg Mason without receiving or
paying for such other services.
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, local or foreign taxes that may apply to them.
General
- -------
For federal tax purposes, each fund is treated as a separate
corporation. To continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"), a
fund must distribute annually to its shareholders at least 90% of its investment
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<PAGE>
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 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. By
qualifying for treatment as a RIC, a fund (but not its shareholders) will be
relieved of federal income tax on the part of its investment company taxable
income and net capital gain (i.e., the excess of net long-term capital gain over
net short-term capital loss) that it distributes to its shareholders. If any
fund failed to qualify for that treatment for any taxable year, (1) it would be
taxed at corporate rates on the full amount of its taxable income for that year
without being able to deduct the distributions it makes to its shareholders and
(2) the shareholders would treat all those distributions, including
distributions of net capital, as dividends (that is, ordinary income) to the
extent of the fund's earnings and profits. In addition, the fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying for RIC treatment.
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 its 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 fund pays the distributions
during the following January. Accordingly, those distributions will be taxed to
shareholders for the year in which that December 31 falls.
A portion of the dividends from each fund's investment company taxable
income (whether paid in cash or reinvested in fund shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
for any fund may not exceed the aggregate dividends received by that fund from
domestic 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. Distributions of net capital
gain do not qualify for the dividends-received deduction.
Foreign Securities
- ------------------
FOREIGN TAXES. Interest and dividends received by a fund, and gains
realized thereby, may be subject to income, withholding or other taxes imposed
by foreign countries and U.S. possessions ("foreign taxes") that would reduce
the yield and/or total return on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate 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 a fund's
total assets at the close of any taxable year consists of securities of foreign
corporations, the fund will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
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receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to any such election, a 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 foreign 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. If a fund makes this election, it will report to its
shareholders shortly after each taxable year their respective shares of the
foreign taxes it paid and its income from sources within foreign countries and
U.S. possessions. 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" may make an
election that would enable them to claim a foreign tax credit without having to
file the detailed Form 1116 that otherwise is required.
PASSIVE FOREIGN INVESTMENT COMPANIES. Each fund may invest in the stock
of "passive foreign investment companies" ("PFICs"). A PFIC is any foreign
corporation (with certain exceptions) that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) 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 it distributes that income 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 --
which the fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if the QEF did not
distribute those earnings and gain to the fund. 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 may 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 year under the election (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICs). A
fund's adjusted basis in each PFIC's stock subject to the election would be
adjusted to reflect the amounts of income included and deductions taken
thereunder.
FOREIGN CURRENCIES. Gains or losses (1) from the disposition of foreign
currencies, including forward contracts, (2) on the disposition of a debt
security denominated in foreign currency that are attributable to fluctuations
in the value of the foreign currency between the dates of acquisition and
disposition of the security and (3) that are attributable to fluctuations in
exchange rates between the time a fund accrues dividends, interest or other
receivables, or 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, will increase or
decrease the amount of a fund's investment company taxable income to be
distributed to its shareholders, as ordinary income, rather than affecting the
amount of its net capital gain.
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<PAGE>
Options, Futures, Forward Contracts And Foreign Currencies
- ----------------------------------------------------------
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward 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 contracts derived by a fund with respect to its business of
investing in securities or foreign currencies -- will qualify as permissible
income under the Income Requirement.
Certain futures and foreign currency contracts in which a fund may
invest will be subject to section 1256 of the Code ("section 1256 contracts").
Section 1256 contracts held by a fund at the end of its 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 having been 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. These rules may operate to increase the amount a fund must
distribute to satisfy the Distribution Requirement (i.e., with respect to the
portion treated as short-term capital gain), which will be taxable to its
shareholders as ordinary income, and to increase the net capital gain a fund
recognizes, without in either case increasing the cash available to the fund.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax.
When a covered call option written (sold) by a fund expires, it will
realize a short-term capital gain equal to the amount of the premium it received
for writing the option. When a fund terminates its obligations under such an
option by entering into a closing transaction, it will realize a short-term
capital gain (or loss), depending on whether the cost of the closing transaction
is less than (or exceeds) the premium received when it wrote the option. When a
covered call option written by a fund is exercised, it will be treated as having
sold the underlying security, producing long-term or short-term capital gain or
loss, depending on the holding period of the underlying security and whether the
sum of the option price received upon the exercise plus the premium received
when it wrote the option is more or less than the basis of the underlying
security.
Code section 1092 (dealing with straddles) also may affect the taxation
of options, futures and forward contracts in which a fund may invest. That
section defines a "straddle" as offsetting positions with respect to actively
traded personal property; for these purposes, options, futures and forward
contracts are personal property. Under that section, 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.
In addition, these rules may postpone the recognition of loss that otherwise
would be recognized under the mark-to-market rules discussed above. The
regulations under section 1092 also provide 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 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 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 position, the
fund will be treated as 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
contract entered into by a fund or a related person with respect to the same or
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<PAGE>
substantially identical property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction of
a fund during any taxable year that otherwise would be treated as a constructive
sale if the transaction is closed within 30 days after the end of that year and
the fund holds the appreciated financial position unhedged for 60 days after
that closing (i.e., at no time during that 60-day period is the fund's risk of
loss regarding that position reduced by reason of certain specified transactions
with respect to substantially identical or related property, such as having an
option to sell, being contractually obligated to sell, making a short sale or
granting an option to buy substantially identical stock or securities).
Original Issue Discount And Pay-In-Kind Securities
- --------------------------------------------------
Each fund may purchase zero coupon or other debt securities issued with
original issue discount ("OID"). As a holder of those securities, a 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, a fund must include in its gross income securities it receives as
"interest" on pay-in-kind securities. Because each 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 a fund's cash assets
or from the proceeds of sales of portfolio securities, if necessary. A 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.
TAX-DEFERRED RETIREMENT PLANS
Investors may invest in Primary Class shares or Class A shares of a
fund through IRAs and through SEPs, SIMPLEs and other qualified retirement plans
(collectively, "qualified plans"). In general, income earned through the
investment of assets of qualified plans is not taxed to their beneficiaries
until the income is distributed to them. Investors who are considering
establishing a plan should consult their attorneys or other tax advisors with
respect to individual tax questions. Please contact your Financial Advisor or
other entity offering the funds for further information with respect to these
plans.
Individual Retirement Accounts - IRAs
- -------------------------------------
TRADITIONAL IRA. Certain 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.
However, 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 $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 SIMPLE, permits voluntary contributions and meets certain requirements, you
may make voluntary contributions to that plan that are treated as deductible IRA
contributions.
Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Primary Class shares or
Class A shares of a fund through non-deductible IRA contributions, up to certain
limits, because all dividends and other distributions on your fund 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
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<PAGE>
distributed, or start to be distributed, to you not later than April 1 following
the calendar 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 $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, an
Education IRA provides 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 $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 a qualified family
member).
Simplified Employee Pension Plan - SEP
- --------------------------------------
Legg Mason also makes available to corporate and other employers a SEP
for investment in Primary Class shares or Class A shares of a fund.
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 matching contributions up
to 3% of each such employee's salary or a 2% non-elective contribution.
Withholding at the rate of 20% is required for federal income tax
purposes on certain distributions (excluding, for example, certain periodic
payments) from qualified 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), unless the recipient elects not to have any withholding apply.
Investors in Primary Class shares or Class A shares should consult their plan
administrator or tax adviser for further information.
PERFORMANCE INFORMATION
TOTAL RETURN CALCULATIONS. Average annual total return quotes used in a fund's
advertising and other promotional materials ("Performance Advertisements") are
calculated separately for each class according to the following formula:
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<PAGE>
P(1+T)n = 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 Income Trust:
- -----------------------
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:
YIELD = 2 [(a-b + 1)6] - 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, 1998 was 4.31%.
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 obligation, based on the
cost of the obligation, to the weighted average maturity date or, if weighted
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<PAGE>
average maturity information is not available, to the remaining term of the
obligation.
GLOBAL INCOME TRUST
-------------------
The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Class shares of Global
Income Trust 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.
Global Income Trust - Primary Class shares
- ------------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total 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
- --------------------------------------------------------------------------------
1998 10,556 4,529 15,085
- --------------------------------------------------------------------------------
1999 9,784 4,814 14,598
- --------------------------------------------------------------------------------
* 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, 1999 would
have been $9,280, and the investor would have received a total of $4,557 in
distributions. Returns would have been lower if Global Income Trust's adviser
had not waived certain fees during the fiscal years 1993 through 1994.
INTERNATIONAL EQUITY TRUST
--------------------------
The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Class 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.
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<PAGE>
International Equity Trust - Primary Class shares
- -------------------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1995* $10,771 $ 40 $10,811
- --------------------------------------------------------------------------------
1996 12,501 93 12,594
- --------------------------------------------------------------------------------
1997 12,641 174 12,815
- --------------------------------------------------------------------------------
1998 13,564 339 13,903
- --------------------------------------------------------------------------------
1999 16,321 444 16,765
- --------------------------------------------------------------------------------
* February 17, 1995 (commencement of operations) to December 31, 1995.
If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of December 31, 1999 would
have been $14,230, and the investor would have received a total of $2,180 in
distributions. Returns would have been lower if International Equity Trust's
adviser had not waived certain fees.
The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Navigator Class shares of
International Equity Trust at the class's commencement of operations on May 5,
1998. 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.
International Equity Trust - Navigator Class shares
- ---------------------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1998* $8,895 $163 $9,058
- --------------------------------------------------------------------------------
1999 10,724 298 11,022
- --------------------------------------------------------------------------------
* May 5, 1998 (commencement of sale of Navigator Class shares) to December 31,
1998.
If the investor had not reinvested dividends and other distributions,
the total value of the hypothetical investment as of December 31, 1999 would
have been $10,035 and the investor would have received a total of $885 in
distributions.
EMERGING MARKETS TRUST
----------------------
The following table shows the value, as of the end of each fiscal year,
of a hypothetical investment of $10,000 made in Primary Class shares of Emerging
Markets Trust 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
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<PAGE>
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.
Emerging Markets Trust - Primary Class Shares
- ---------------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1996* $10,510 $30 $10,540
- --------------------------------------------------------------------------------
1997 9,850 39 9,889
- --------------------------------------------------------------------------------
1998 6,960 27 6,987
- --------------------------------------------------------------------------------
1999 14,000 55 14,055
- --------------------------------------------------------------------------------
* 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, 1999 would
have been $14,000, and the investor would have received a total of $40 in
distributions. Returns would have been lower if Emerging Markets Trust's adviser
had not waived certain fees during the fiscal years ended 1997, 1998 and 1999.
EUROPE FUND
-----------
The following tables show the value, as of the end of the fiscal year,
of a hypothetical investment of $10,000 made in the Europe Fund at commencement
of operations of Primary Class shares and for Class A shares of the Fund. The
table shows the value of a $10,000 investment made on August 19, 1986 (the date
of the initial public offering of shares of Worldwide Value Fund, Inc., the
fund's predecessor), as of the end of the specified period. Sales charges for
Class A shares have not been deducted from total returns for the periods ended
December 31, 1986 through December 31, 1997. For the years ended December 31,
1998 and 1999, total returns do reflect the sales charge. The tables assume that
all dividends and other distributions are reinvested in the Fund. They include
the effect of all charges and fees applicable to the respective class of shares
the Fund has paid except as indicated above. They do not include the effect of
any income tax that an investor would have to pay on distributions. Performance
data is only historical, and is not intended to indicate the Fund's future
performance.
Europe Fund - Primary Class shares
- ----------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1997* $10,068 $0 $10,068
- --------------------------------------------------------------------------------
1998 13,959 184 14,143
- --------------------------------------------------------------------------------
1999 17,341 258 17,599
- --------------------------------------------------------------------------------
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<PAGE>
* July 23, 1997 (commencement of sale of Primary Class shares) to December 31,
1997.
Europe Fund - Class A shares
- ----------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1986* $8,705 $0 $8,705
- --------------------------------------------------------------------------------
1987 8,869 56 8,925
- --------------------------------------------------------------------------------
1988 11,142 67 11,209
- --------------------------------------------------------------------------------
1989 12,394 213 12,607
- --------------------------------------------------------------------------------
1990 9,801 214 10,015
- --------------------------------------------------------------------------------
1991 10,329 394 10,723
- --------------------------------------------------------------------------------
1992 9,560 394 9,954
- --------------------------------------------------------------------------------
1993 12,349 582 12,931
- --------------------------------------------------------------------------------
1994 11,828 557 12,385
- --------------------------------------------------------------------------------
1995 14,135 714 14,849
- --------------------------------------------------------------------------------
1996 18,713 819 19,532
- --------------------------------------------------------------------------------
1997 22,245 709 22,954
- --------------------------------------------------------------------------------
1998 31,224 1,337 32,561
- --------------------------------------------------------------------------------
1999 39,182 1,651 40,833
- --------------------------------------------------------------------------------
* August 19, 1986 (initial public offering of shares of Worldwide Value Fund,
Inc., Europe Fund's predecessor) to December 31, 1986.
Europe Fund - Navigator Class shares
- ------------------------------------
Value of Original Shares Value of Shares
Plus Shares Obtained Acquired Through
Through Reinvestment of Reinvestment of
Fiscal Year Capital Gain Distributions Income Dividends Total Value
- --------------------------------------------------------------------------------
1997* $10,476 $0 $10,476
- --------------------------------------------------------------------------------
1998 14,659 271 14,930
- --------------------------------------------------------------------------------
1999 18,373 362 18,735
- --------------------------------------------------------------------------------
* August 21, 1997 (commencement of sale of Navigator Class shares) to December
31, 1997.
With respect to Primary Class shares, if the investor had not
reinvested dividends and other distributions, the total value of the
hypothetical investment as of December 31, 1999 would have been $10,505, and the
investor would have received a total of $4,770 in distributions. With respect to
Class A shares, if the investor had not reinvested dividends and other
distributions, the total value of the hypothetical investment as of December 31,
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<PAGE>
1999 would have been $14,305, and the investor would have received a total of
$11,500 in distributions. With respect to Navigator Class shares, if the
investor had not reinvested dividends and other distributions, the total value
of the hypothetical investment as of December 31, 1999 would have been $11,201,
and the investor would have received a total of $4,998 in distributions. If the
adviser had not waived certain fees in the 1998-1999 fiscal year, returns would
have been lower.
For all funds:
A fund may also cite rankings and ratings, and compare the return of a
class 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 Company Services
("Wiesenberger"), Value Line or 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 limited to) THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRONS, FORTUNE and THE
NEW YORK TIMES.
Global Income invests primarily in fixed-income securities, Europe Fund
invests primarily in European equity 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.
-46-
<PAGE>
From time to time, the total return of a fund may be quoted in
advertisements, shareholder reports, or other communications to shareholders.
Fund advertisements may reference the history of the distributor and
its affiliates, the education, experience, investment philosophy and strategy of
the portfolio manager, and the fact that the portfolio manager engages in
certain approaches to investing. 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 independent third parties such as
Ibbotson Associates and Frontier Analytics, Inc. to compare the returns of
various capital markets and to show the value of a hypothetical investment in a
capital market. Typically, different indices are used to calculate the
performance of common stocks, corporate and government bonds and Treasury bills.
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 to private accounts and mutual
funds with assets of approximately $104.2 billion as of December 31, 1999.
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
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<PAGE>
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.
VALUATION OF FUND SHARES
Net asset value of a fund share is determined daily for each class as
of the close of the Exchange, on every day the Exchange is open, by dividing the
value of the total assets attributable to that class, less liabilities
attributable to that class, by the number of shares of that class outstanding.
Pricing will not be done on days when the Exchange is closed. The Exchange
currently observes the following holidays: New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. As described in the Prospectuses,
securities for which market quotations are readily available are valued at
current market value. Securities traded on an exchange or the NASDAQ Stock
Market securities are normally valued at last sale prices. Other
over-the-counter securities, and securities traded on exchanges for which there
is no sale on a particular day (including debt securities), are valued at the
mean of latest closing bid and asked prices. Securities with remaining
maturities of 60 days or less are valued at amortized cost. Securities and other
assets quoted in foreign currencies will be valued in U.S. dollars based on the
currency exchange rates prevailing at the time of the valuation. All other
securities are valued at fair value as determined by or under the direction of
the Corporation's Board of Directors. Premiums received on the sale of call
options are included in the net asset value of each class, and the current
market value of options sold by a fund will be subtracted from net assets of
each class.
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. 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
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<PAGE>
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.
MANAGEMENT OF THE FUND
The Corporation's officers are responsible for the operation of the
Corporation under the direction of the Board of Directors. The officers and
directors, their dates of birth 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;
President and/or Chairman of the Board and Director/Trustee of all Legg Mason
retail funds. Retired: Vice Chairman and Director of Legg Mason Wood Walker,
Inc. and Legg Mason, Inc. 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.;
Chairman and Director of Legg Mason Fund Adviser, Inc. and Director of Western
Asset Management Company (each a registered investment adviser); President
and/or Director/Trustee of all Legg Mason retail funds except Legg Mason Tax
Exempt Trust. Formerly: Executive Vice President of T. Rowe Price-Fleming
International, Inc. (1986-1992) and Director of the Taxable Income Division at
T. Rowe Price Associates, Inc. (1973-1992).
ARNOLD L. LEHMAN, [07/18/44], Director; 200 Eastern Parkway, Brooklyn,
NY. Director, The Brooklyn Museum of Art; Director/Trustee of all Legg Mason
retail funds. Formerly: Director, 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/Trustee of all Legg Mason retail funds. Formerly: Executive Director of
the Baltimore International Festival (January 1991 - March 1993); and Senior
Assistant to the President of The Johns Hopkins University (1986 - 1991).
RICHARD G. GILMORE [6/9/27], Director; 10310 Tamo Shanter Place,
Bradenton, Florida. Independent Consultant. Director of CSS Industries, Inc.
(diversified holding company whose subsidiaries are 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/Trustee of all Legg Mason retail 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; and Director of
Finance, City of Philadelphia.
T.A. RODGERS [10/22/34], Director; 2901 Boston Street, Baltimore,
Maryland. Principal, T.A. Rodgers & Associates (management consulting).
Director/Trustee of all Legg Mason retail funds. Formerly: Director and Vice
President of Corporate Development, Polk Audio, Inc. (manufacturer of audio
components).
G. PETER O'BRIEN [10/13/45], Director; Trustee of Colgate University;
Director/Trustee of all Legg Mason retail funds except Legg Mason Income Trust,
Inc., and Legg Mason Tax Exempt Trust, Inc. Retired: Managing Director/Equity
Capital Markets Group of Merrill Lynch & Co. (1971-1999).
NELSON A. DIAZ [5/23/47], Director; One Logan Square, Philadelphia, PA.
Partner, Blank Rome Comisky, & McCauley LLP since 1997. Trustee of Temple
University and of Philadelphia Museum of Art. Board member of U.S. Hispanic
-49-
<PAGE>
Leadership Institute, Democratic National Committee, and National Association
for Hispanic Elderly. Formerly: General Counsel, United States Department of
Housing and Urban Development (1993 - 1997). Director/Trustee of all Legg Mason
retail funds except Legg Mason Income Trust, Inc. and Legg Mason Tax Exempt
Trust, Inc.
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 LMFA; Vice President and Treasurer of all Legg Mason retail funds; Vice
President of Legg Mason.
PATRICIA A. MAXEY*, [7/10/67], Secretary, employee of Legg Mason, Inc.
since November 1999. Formerly: employee of Select Appointments International
(1998-1999) and Fidelity Investments (1995-1997).
BRIAN M. EAKES*, [12/9/69], Assistant Treasurer and Assistant
Secretary; employee of Legg Mason, Inc. since July 1995. Formerly: Senior
Associate - Audit of Coopers & Lybrand L.L.P. (Aug. 1992 - June 1995).
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 each
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, Lehman, Rodgers, O'Brien, Diaz and Dr. McGovern.
On April 1, 2000, the directors and officers of the Corporation
beneficially owned, in the aggregate, less than 1% of each fund's outstanding
shares.
Set forth below is a table which contains the name, address and
percentage ownership of each person who is known by each fund to own
beneficially and/or of record five percent or more of its outstanding shares as
of March 31, 2000:
<TABLE>
<CAPTION>
NAME OF FUND NAME OF SHAREHOLDER SHAREHOLDER ADDRESS % OF OWNERSHIP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Legg Mason Trust, fsb Charitable Remainder Unitrust 100.00%
Equity--Navigator Shares S Peter Reenalda PO Box 1476
Baltimore, MD 21203-1476
Europe Fund-Class A First Union National 1525 W. WT Harris Blvd 13.64%
FBO DSM Mutual Fund Charlotte, NC 28262-8522
Charles Schwab & Co. Inc. 101 Montgomery St 9.86%
C/O ADP Proxy Services San Francisco, CA 94104
Europe Fund-Navigator Lou Spitz TTEE 3001 Highland Ave 34.20%
Shares Cincinnati CNTR Cincinnati, OH 45219-2315
FBO Clayton K Gotwals
-50-
<PAGE>
James B Hochman TTEE 8795 Frederick Pike 21.44%
Hochman & Roach Co PSP Dayton, OH 45414-1245
Hartford Research Group Inc 10550 Montgomery Rd. 17.64%
Cincinnati, OH 45242
HC Murrer & DL Murrer TTEE 44 Arcadia Place 15.29%
The MMC Inc Cash/Deferred Cincinnati, OH 45208
Permanent Fund
6.68%
Barbara Y Lichtenstein & 601 Stanley Ave.
Margaret Y Ouimette TTEES Cincinnati, OH 45226
Sarah Elizabeth Lichtenstein
</TABLE>
The following table provides certain information relating to the
compensation of the Corporation's directors. None of the Legg Mason funds has
any retirement plan for its directors.
- --------------------------------------------------------------------------------
TOTAL COMPENSATION FROM
NAME OF PERSON AGGREGATE COMPENSATION CORPORATION AND FUND
AND POSITION FROM CORPORATION* COMPLEX PAID TO DIRECTORS**
- --------------------------------------------------------------------------------
John F. Curley, Jr. - None None
Chairman of the Board
and Director
- --------------------------------------------------------------------------------
Edward A. Taber, III - None None
President and Director
- --------------------------------------------------------------------------------
Richard G. Gilmore - $5,400 $41,100
Director
- --------------------------------------------------------------------------------
Arnold L. Lehman - $5,400 $41,100
Director
- --------------------------------------------------------------------------------
Jill E. McGovern - $5,400 $41,100
Director
- --------------------------------------------------------------------------------
T. A. Rodgers - $5,400 $41,100
Director
- --------------------------------------------------------------------------------
G. Peter O'Brien*** - $3,000 $15,000
Director
- --------------------------------------------------------------------------------
Nelson A. Diaz - Director**** None None
- --------------------------------------------------------------------------------
* Represents compensation paid to the directors for the fiscal year ending
December 31, 1999.
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<PAGE>
** Represents aggregate compensation paid to each director during the calendar
year ended December 31, 1999. There are twelve open-end investment companies in
the Legg Mason Complex (with a total of twenty-four funds).
*** Mr. O'Brien was appointed to the Board on November 11, 1999.
**** Mr. Diaz was appointed to the Board on February 10, 2000.
THE FUNDS' INVESTMENT ADVISER/MANAGER
Legg Mason Fund Adviser ("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 serves as Global Income's investment adviser and manager under a
Management Agreement. LMFA also serves as the manager for International Equity
and Emerging Markets under separate Management Agreements, and for Europe Fund
under an Investment Advisory and Administration Agreement (each a "Management
Agreement").
Each Management Agreement provides that, subject to overall direction
by the Board of Directors, LMFA manages or oversees the investment and other
affairs of the respective fund. LMFA is responsible for managing each fund
consistent with each fund's investment objectives and policies described in the
Prospectuses and this Statement of Additional Information. LMFA also is
obligated to (a) furnish each fund with office space and executive and other
personnel necessary for the operations of the fund; (b) supervise all aspects of
each 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. In addition, LMFA
and its affiliates pay all compensation of directors and officers of the
Corporation who are officers, directors or employees of LMFA. Each fund pays all
of its expenses which are not expressly assumed by LMFA. These expenses include,
among others, interest expense, taxes, brokerage fees and commissions, expenses
of preparing and printing prospectuses, proxy statements and reports to
shareholders and of distributing them to existing shareholders, custodian
charges, transfer agency fees, distribution fees to Legg Mason, each fund's
distributor, compensation of the independent directors, legal and audit
expenses, insurance expense, shareholder meetings, proxy solicitations, expenses
of registering and qualifying fund shares for sale under federal and state law,
governmental fees and expenses incurred in connection with membership in
investment company organizations. A fund also is liable for such nonrecurring
expenses as may arise, including litigation to which the fund may be a party. A
fund may also have an obligation to indemnify its directors and officers with
respect to litigation. LMFA has delegated the portfolio management functions for
Global Income to its adviser, Western Asset Management Company ("Western
Asset"). LMFA has delegated the portfolio management functions for International
Equity and Emerging Markets to its adviser, Batterymarch Financial Management,
Inc. ("Batterymarch"). LMFA has delegated the portfolio management functions for
Europe Fund to the fund's sub-adviser, Lombard Odier International Portfolio
("Lombard Odier").
LMFA receives for its services a management fee, calculated daily and
payable monthly, at an annual rate equal to 0.75% of Global Income Trust's
average daily net assets, 0.75% of International Equity Trust's average daily
net assets, 1.00% of Emerging Markets Trust's average daily net assets and 1.00%
of Europe Fund's average daily net assets. LMFA has voluntarily agreed to waive
indefinitely its fees to the extent the Global Income Trust's total operating
expenses attributable to Primary Class shares (exclusive of taxes, interest,
brokerage and extraordinary expenses) exceed during any month an annual rate of
1.90% of the fund's average daily net assets attributable to Primary Class
shares. LMFA has voluntarily agreed to waive its fees if and to the extent
necessary to limit International Equity Trust's and Emerging Markets Trust's
total annual operating expenses attributable to Primary Class 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
Class shares. The agreement for Emerging Markets Trust will expire on April 30,
2001, unless extended by LMFA. LMFA has voluntarily agreed to waive its fees to
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<PAGE>
the extent that Europe Fund's total annual operating expenses attributable to
Class A shares, Primary Class shares and Navigator Class shares exceed 1.85%,
2.60% and 1.60%, respectively until April 30, 2001. Under IRS positions,
expenses that are not class specific, if reimbursed to one class must be
reimbursed to the other class(es). These waivers are voluntary and may be
terminated at any time.
For the years ended December 31, 1999, 1998, and 1997, LMFA did not
waive any management fees for Global Income Trust. For the same periods, the
fund paid management fees of $772,289, $934,846, and $1,155,558, respectively.
For the years ended December 31, 1999, 1998, and 1997, LMFA did not
waive any management fees for International Equity Trust. For the same periods,
the fund paid management fees of $1,931,805, $1,950,682, and $1,616,187,
respectively.
For the years ended December 31, 1999, 1998, and 1997, LMFA waived
$166,432, $156,468, and $198,734, respectively, in management fees for Emerging
Markets Trust under the agreement. For the same periods, the fund paid
management fees of $507,381, $397,446 and $355,720, respectively.
From July 18, 1997 through October 5, 1999, Bartlett & Co. served as
the manager of Europe Fund under compensation arrangements substantially similar
to those with LMFA. For the period January 1, 1999 to October 5, 1999, the
fiscal year ended December 31, 1998, and the period July 18, 1997 through
December 31, 1997, Europe Fund paid management fees of $774,784, $674,633 and
$846,703, respectively, to Bartlett & Co. For the period October 6, 1999 to
December 31, 1999, the fund paid LMFA management fees in the amount of $304,131.
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.
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 Management Company ("Western Asset"), 117 East Colorado
Boulevard, Pasadena, CA 91105, a wholly owned subsidiary of Legg Mason, serves
as investment adviser to Global Income under an Advisory Agreement between
Western Asset and LMFA ("Advisory Agreement"). 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 Income'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 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, 1999, 1998, and 1997,
LMFA paid Western Asset $411,877, $498,550, and $616,282, respectively.
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<PAGE>
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 Financial Management, Inc. ("Batterymarch"), 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's 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 Trust's and Emerging Markets Trust's 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 Trust and Emerging Markets Trust, respectively.
For the years ended December 31, 1999, 1998, and 1997, Batterymarch
received $1,287,870, $1,300,455, and $1,077,462, respectively for its services
to International Equity. For the years ended December 31, 1999, 1998 and 1997,
Batterymarch received $380,536, $298,085 and $266,194, respectively for its
services to Emerging Markets Trust.
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 Income Trust
- ----------------------------------------------
Western Asset Management Company Limited ("Western Asset Ltd."), 155
Bishopsgate, London EC2M 3TY, an affiliate of Legg Mason, serves as an
investment sub-adviser to Global Income Trust under a Sub-Advisory Agreement
between Western Asset Ltd. and Western Asset ("Sub-Advisory Agreement").
Western Asset Ltd. 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 Ltd.'s services and for expenses borne by Western
Asset Ltd. under the Sub-Advisory Agreement, Western Asset pays Western Asset
Ltd. monthly at an annual rate equal to 0.20% of the fund's average daily net
assets. In addition, LMFA pays Western Asset Ltd. a fee at an annual rate equal
to 0.10% of the fund's average daily net assets for certain administrative
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expenses. Fees paid by LMFA to Western Asset Ltd. for the years ended December
31, 1999, and 1998 and the period May 1, 1997 to December 31, 1997 totaled
$102,971, $124,637 and $102,219, respectively.
Under the Sub-Advisory Agreement, Western Asset Ltd. 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 Ltd., 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 Ltd. and the
fund.
Sub-Advisory Agreement For Europe Fund
- --------------------------------------
Lombard Odier, Norfolk House, 13 Southampton Place, London WC1A 2AJ,
England, serves as investment sub-adviser to Europe Fund under a Sub-Advisory
Agreement between Lombard Odier and LMFA.
Lombard Odier is responsible for providing investment advice to Europe
Fund in accordance with its investment objective and policies, and for placing
orders to purchase and sell portfolio securities pursuant to directions from the
fund's officers. For Lombard Odier's services to Europe Fund, LMFA (not the
fund) pays Lombard Odier a fee, computed daily and payable monthly, at an annual
rate equal to 60% of the monthly fee actually paid to LMFA under the Management
Agreement. From July 18, 1997 to October 5, 1999, Bartlett & Co. served as
manager to Europe Fund under compensation arrangements substantially similar to
those currently in place for the fund. For the year ended December 31, 1998 and
the period July 18, 1997 to December 31, 1997, Bartlett & Co. paid $407,642 and
$151,145 to Lombard Odier. For the period January 1, 1999 to October 5, 1999,
Bartlett & Co. paid $462,725 to Lombard Odier. For the period October 6, 1999 to
December 31, 1999, LMFA paid Lombard Odier $182,479, for its services to the
fund.
Under the Sub-Advisory Agreement, Lombard Odier 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, or by Lombard Odier 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 Management Agreement or upon the mutual written consent of
LMFA, Lombard Odier 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.
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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.
Under the Underwriting 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 Legg Mason.
Each fund has adopted a Distribution Plan for Primary Class shares
("Primary Class Plans"), and Europe Fund has also adopted a Distribution Plan
for Class A shares ("Class A Plan"), each of which, among other things, permits
a fund to pay Legg Mason fees for its services related to sales and distribution
of Primary Class shares or Class A shares and the provision of ongoing services
to the holders of those shares. Payments are made only from assets attributable
to a respective fund's Primary Class shares or Class A shares. 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 all with respect to the respective class
of shares only.
The Primary Class Plans and the Class A Plan were each adopted, as
required by Rule 12b-1 under the 1940 Act, by a vote of the Board of Directors
("Board"), 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 any Plan or the
Underwriting Agreement ("12b-1 Directors"). In approving the continuance of the
Primary Class Plans and the Class A Plan, in accordance with the requirements of
Rule 12b-1, the directors determined that there was a reasonable likelihood that
each Plan would benefit the applicable fund, class and its shareholders. The
directors considered, among other things, the extent to which the potential
benefits of each Plan to each fund's Primary Class and Class A shareholders, as
applicable, could offset the costs of the Plan; the likelihood that the Plan
would succeed in producing such potential benefits; the merits of certain
possible alternatives to the Plan; and the extent to which the retention of
assets and additional sales of the fund's Primary Class and Class A shares, as
applicable, would be likely to maintain or increase the amount of compensation
paid by the fund to LMFA.
In considering the costs of each Plan, the directors gave particular
attention to the fact that any payments made by a fund to Legg Mason under a
Plan would increase that fund's level of expenses in the amount of such
payments. Further, the directors recognized that LMFA would earn greater
management fees if a fund's assets were increased, because such fees are
calculated as a percentage of a fund's assets and thus would increase if net
assets increase. The directors further recognized that there can be no assurance
that any of the potential benefits described below would be achieved if each
Plan was implemented.
Among the potential benefits of Plans, the directors noted that the
payment of commissions and service fees to Legg Mason and its investment
executives could motivate them to improve their sales efforts with respect to
each fund's Primary Class and Class A shares, as applicable, and to maintain and
enhance the level of services they provide to a fund's respective class of
shareholders. These efforts, in turn, could lead to increased sales and reduced
redemptions, eventually enabling a fund to achieve economies of scale and lower
per share operating expenses. Any reduction in such expenses would serve to
offset, at least in part, the additional expenses incurred by a fund in
connection with its Plan. Furthermore, the investment management of a fund could
be enhanced, as net inflows of cash from new sales might enable its portfolio
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manager to take advantage of attractive investment opportunities, and reduced
redemptions could eliminate the potential need to liquidate attractive
securities positions in order to raise the funds necessary to meet the
redemption requests.
As compensation for its services and expenses, Legg Mason receives from
each fund an annual distribution fee equivalent to 0.50% (for Global Income),
0.75% (for International Equity, Emerging Markets and Europe Fund) of its
average daily net assets attributable to Primary Class shares and a service fee
equivalent to 0.25% of its average daily net assets attributable to Primary
Class shares in accordance with each Primary Class Plan. For Legg Mason's
services in connection with Class A shares, Legg Mason receives from Europe Fund
an annual service fee equivalent to 0.25% of its average daily net assets
attributable to Class A shares in accordance with the Class A Plan. All
distribution and service fees are calculated daily and paid monthly.
For the years ended December 31, 1999, 1998, and 1997, Global Income
Trust paid Legg Mason distribution and/or service fees under the Plan of
$772,289, $934,846, and $1,155,558, respectively, from assets attributable to
Primary Class shares.
For the years ended December 31, 1999, 1998, and 1997, International
Equity Trust paid Legg Mason distribution and/or service fees under the Plan of
$2,575,284, $2,600,611, and $2,154,916, respectively, from assets attributable
to Primary Class shares.
For the years ended December 31, 1999, 1998 and 1997, Emerging Markets
Trust paid Legg Mason distribution and/or service fees under the Plan of
$673,813, $553,914 and $554,454, respectively, from assets attributable to
Primary Class shares.
Until October 5, 1999, LM Financial Partners, Inc. ("LMFP") served as
distributor of Europe Fund's Class A and Primary Class shares under arrangements
with LMFP substantially similar to those with Legg Mason. For the period January
1, 1999 to October 5, 1999 and for the years ended December 31, 1998, and 1997,
Europe Fund paid $325,735, $140,204, and $826, in distribution and/or service
fees under the Primary Class Plan, from assets attributable to Primary Class
shares; and $112,906, $135,362, and $69,217, in distribution and/or service fees
under the Class A Plan, from assets attributable to Class A shares. For the
period October 6, 1999 to December 31, 1999, Europe Fund paid Legg Mason $44,340
and $125,905, in distribution and/or service fees under the Plans, from assets
attributable to Class A shares and Primary Class shares, respectively.
Each 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 that Plan. A 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 securities of the applicable class of that fund. Any change
in a Plan that would materially increase the distribution costs to a fund
requires approval by the shareholders of the applicable class of the fund;
otherwise, a 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 a Plan or any
related agreement shall provide to that fund's Board, 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 a Plan is in effect, the nomination
and selection of that fund's independent directors is committed to the
discretion of such independent directors.
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For the year ended December 31, 1999, Legg Mason incurred the following
expenses in connection with distribution and shareholder services for each of
the following funds:
Global International Emerging
Income Trust Equity Trust Markets Trust
Sales and commissions $421,000 $1,334,000 $350,000
Retail branch distribution/ 296,000 793,000 258,000
Sales Management
Promotion and advertising/ 381,000 342,000 391,000
Funds Marketing
Printing and mailing 137,000 133,000 141,000
Administration and overhead 92,000 255,000 113,000
---------------------------------------------------
Total expenses $1,327,000 $2,857,000 $1,253,000
---------------------------------------------------
During the period January 1, 1999 to October 5, 1999, LMFP incurred the
following expenses with respect to Primary Class shares and Class A shares of
Europe Fund:
Primary Class
Shares Class A Shares
Sales and commissions $79,987 $28,206
Retail branch distribution/ 33,645 47,446
Sales Management
Promotion and advertising/ 31,021 43,748
Funds Marketing
Printing and mailing 4,812 6,786
Administration and overhead 11,594 16,351
---------------------------------------------
Total expenses $161,059 $142,537
During the period October 6, 1999 to December 31, 1999, Legg Mason
incurred the following expenses with respect to Primary Class shares and Class A
shares of Europe Fund:
Primary Class
Shares Class A Shares
Sales and commissions $25,031 $8,827
Retail branch distribution/ 10,529 14,848
Sales Management
Promotion and advertising/ 9,709 13,691
Funds Marketing
Printing and mailing 1,506 2,124
Administration and overhead 3,629 5,117
-------------------------------------------
Total expenses $50,404 $44,607
The foregoing are estimated and do not include all expenses fairly
allocable to LMFP's, Legg Mason's or their affiliates' efforts to distribute
Primary Class shares or Class A shares.
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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, 1999 and 1998, Global Income
Trust's portfolio turnover rates were 354% and 288%, respectively. For the years
ended December 31, 1999 and 1998, International Equity Trust's portfolio
turnover rates were 148% and 72%, respectively. For the years ended December 31,
1999 and 1998, Emerging Market Trust's portfolio turnover rates were 123% and
76%, respectively. For the years ended December 31, 1999 and 1998, Europe Fund's
portfolio turnover rates were 93% and 103%, 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 services
include, without limitation, advice as to the value of securities; the
advisability of investing in, purchasing, or selling securities; advice as to
the availability of securities or of purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Such research and analysis may be useful to each adviser or sub-adviser in
connection with services to clients other than the funds whose brokerage
generated the service. 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 or sub-adviser's fee is not
reduced by reason of its receiving such brokerage and research services. For the
years ended December 31, 1999, 1998, and 1997, Global Income Trust paid no
brokerage commissions.
For the years ended December 31, 1999, 1998, and 1997, International
Equity Trust paid $1,055,660, $627,793 and $556,869, respectively in brokerage
commissions. For the years ended December 31, 1999, 1998, and 1997, Emerging
Markets Trust paid $709,134, $297,253, and $496,536 in brokerage commissions.
For the years ended December 31, 1999, 1998, and 1997, Europe Fund paid
$449,256, $700,947, and $363,662 in brokerage commissions.
Although Global Income does not expect to purchase securities on a
commission basis, each fund may use Legg Mason 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. Commissions paid to
Legg Mason will not exceed "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
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fund generally deals with responsible primary market-makers unless a more
favorable execution can otherwise be obtained.
Except as permitted by SEC rules or orders, no fund may buy securities
from, or sell securities to, Legg Mason or its affiliated persons as principal.
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. These procedures, among other things, limit the fund's
investment in the amount of securities of any class of securities offered in an
underwriting in which Legg Mason or any of its affiliated persons is a
participant so that the fund, together with all other registered investment
companies having the same adviser, may not purchase more than 25% of the
principal amount of the offering of such class. In addition, the fund may not
purchase securities during the existence of an underwriting if Legg Mason is the
sole underwriter for those securities.
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.
Investment decisions for each fund are made independently from those of
other funds and accounts advised by LMFA, Batterymarch, Western, Western Asset
Ltd. or Lombard Odier. 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.
CAPITAL STOCK INFORMATION
The Articles of Incorporation authorize the Corporation to issue one
billion two hundred fifty million 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 offers Primary Class shares and Navigator Class
shares. Europe Fund also offers Class A shares. Classes of shares of each fund
represent interests in the same pool of assets of that fund. 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.
The Board 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 actions. 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.
Shareholder meetings will not be held except where the Investment
Company Act of 1940 requires a shareholder vote on certain matters (including
the election of directors, approval of an advisory contract, and certain
amendments to a plan of distribution pursuant to Rule 12b-1), at the request of
25% or more of the shares entitled to vote as set forth in the bylaws of the
corporation; or as the Board of Directors from time to time deems appropriate.
THE CORPORATION'S CUSTODIAN AND
TRANSFER AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, serves as the custodian of the Trust. The Chase
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Manhattan Bank, N.A., 1 Chaseside, Bournemouth, Dorset BH7 7DB, England, is the
sub-custodian for Europe Fund. Boston Financial Data Services ("BFDS"), P.O. Box
953, Boston, Massachusetts 02103, as agent for State Street, serves as transfer
and dividend-disbursing agent and administrator of various shareholder services.
Legg Mason assists BFDS with certain of its duties as transfer agent and
receives compensation from BFDS for its services. 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
PricewaterhouseCoopers LLP, 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, 1999; the Statements of
Operations for the year ended December 31, 1999; the Statements of Changes in
Net Assets for the years ended December 31, 1999 and December 31, 1998; the
Financial Highlights for the periods presented; the Notes to Financial
Statements and the Report of the Independent Accountants, with respect to each
Fund, are included in the Corporation's annual report for the year ended
December 31, 1999, and are hereby incorporated by reference in this Statement of
Additional Information.
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APPENDIX A
RATINGS OF SECURITIES
Description of Moody's Investors Service, Inc. ("Moody's") corporate bond
ratings:
- --------------------------------------------------------------------------------
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 by an
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 risk appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as 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 some time 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 as 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 of
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.
A-1
<PAGE>
Description of Standard & Poor's ("S&P") corporate bond ratings:
- ---------------------------------------------------------------
AAA-An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A-An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB-An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB-An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B-An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC-An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC-An obligation rated CC is currently highly vulnerable to nonpayment.
C-A subordinated debt or preferred stock obligation rated C is
currently highly vulnerable to nonpayment. The C rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A C also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.
D-An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r-This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
A-2
<PAGE>
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R.-This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular obligation as a matter of policy.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
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 stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the 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 "aa" 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
PRIME-1: Issuers (or supporting institutions) rated Prime-1 (P-1) have
a superior capacity for repayment of short-term debt obligations. P-1 repayment
capacity will often 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 ability for repayment of senior short-term debt 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, may 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-1
A short-term obligation rated `A-1' is rated in the highest category by S&P. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
A-2
A short-term obligation rated `A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3
<PAGE>
A-3
A short-term obligation rated `A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
A-4
<PAGE>
Legg Mason Global Trust, Inc.
Part C. Other Information
-----------------
Item 23. Exhibits
--------
(a) (i) Articles of Incorporation (4)
(ii) Articles Supplementary (4)
(iii) Articles of Amendment (4)
(iv) Articles Supplementary (2)
(v) Articles of Amendment (4)
(vi) Articles of Amendment (7)
(vii) Articles of Amendment (9)
(b) By-Laws (4)
(c) Specimen security -- not applicable
(d) (i) Investment Advisory Agreement -- International Equity Trust
(1)
(ii) Management Agreement -- International Equity Trust (1)
(iii) Amended Investment Advisory Agreement -- Global Trust (4)
(iv) (A) Investment Sub-Advisory Agreement -- Global Income
Trust (9)
(B) Sub-Administration Agreement -- Global Income Trust (5)
(v) Management Agreement -- Global Income Trust (1)
(vi) Investment Advisory Agreement -- Emerging Markets Trust (3)
(vii) Management Agreement -- Emerging Markets Trust (3)
(viii) Ivestment Advisory and Administration Agreement -- Europe
Fund - filed herewith
(ix) Sub-Advisory Agreement -- Europe Fund - filed herewith
(e) Underwriting Agreement
(i) Global Income Trust (4)
(ii) International Equity Trust (4)
(iii) Emerging Markets Trust (3)
(iv) Europe Fund - filed herewith
(f) Bonus, profit sharing or pension plans -- none
(g) (i) Custodian Agreement (4)
(ii) Amendment to Custodian Agreement (4)
(h) (i) Transfer Agency and Service Agreement (4)
(ii) Credit Agreement (5)
(iii) Credit Agreement Amendment (6)
(iv) Amendment and Restatement of Credit Agreement (10)
(i) Opinion and consent of counsel - filed herewith
(j) Accountant's consent - filed herewith
(k) Financial statements omitted from Item 22 -- none
(l) Agreement for providing initial capital (4)
(m) Plan pursuant to Rule 12b-1
(i) Global Income Trust (4)
(ii) International Equity Trust (4)
(iii) Emerging Markets Trust (3)
<PAGE>
(iv) Europe Fund - Class A Shares - filed herewith
(v) Europe Fund - Primary Class Shares - filed herewith
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan
(i) Rule 18f-3 Plan - Europe Fund - filed herewith
(ii) Form of Rule 18f-3 Plan - Global Income Trust, International
Equity Trust and Emerging Markets Trust (8)
(p) Code of Ethics for the fund, its investment advisers, and its
principal underwriter
(1) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 7 to the registration statement, SEC File No. 33-56672, filed
August 31, 1995.
(2) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 8 to the registration statement, SEC File No. 33-56672, filed
February 16, 1996.
(3) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 9 to the registration statement, SEC File No. 33-56672, filed
November 18, 1996.
(4) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 12 to the registration statement, SEC File No. 33-56672, filed
April 30, 1997.
(5) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 13 to the registration statement, SEC File No. 33-56672, filed
April 30, 1998.
(6) Incorporated by reference to corresponding exhibit of Bartlett Capital
Trust's Registration Statement, Post-Effective Amendment No. 27, SEC File No.
2-80648, filed March 2, 1999.
(7) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 16 to the registration statement, SEC File No. 33-56672, filed
July 2, 1999.
(8) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 18 to the registration statement, SEC File No. 33-56672, filed
September 15, 1999.
(9) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 19 to the registration statement, SEC File No. 33-56672, filed
February 28, 2000.
(10) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 2 to the registration statement of Legg Mason Investment Trust,
Inc., SEC File No. 33-88715, filed March 28, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. Indemnification
---------------
This item is incorporated by reference to Item 25 of Part C of
Post-Effective Amendment No. 15 to the registration statement, SEC File No.
33-56672, filed April 30, 1999.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
I. Legg Mason Fund Adviser, Inc. ("LMFA"), 100 Light Street,
Baltimore, Maryland 21202, investment manager to the Registrant, is a registered
investment adviser incorporated on January 20, 1982. LMFA is engaged primarily
in the investment advisory business. Information as to the officers and
directors of LMFA is included in its Form ADV that was most recently amended on
November 9, 1999 and is on file with the Securities and Exchange Commission
(registration number 801-16958) and is incorporated herein by reference.
II. Western Asset Management Company ("Western"), 117 East Colorado
Boulevard, Pasadena, California 91105-1938, investment adviser to Registrant's
Legg Mason Global Income Trust, is a registered investment adviser incorporated
on October 5, 1971. Western is engaged primarily in the investment advisory
business. Information as to the officers and directors of Western is included in
its Form ADV that was most recently amended on June 22, 1999 and is on file with
the Securities and Exchange Commission (registration number 801-08162) and is
incorporated herein by reference.
III. Batterymarch Financial Management, Inc. ("Batterymarch"), 200
Clarendon Street, Boston, Massachusetts 02116, investment adviser to
Registrant's Legg Mason International Equity Trust and Legg Mason Emerging
Markets Trust, is a registered investment adviser incorporated on September 19,
1994. Batterymarch is engaged primarily in the investment advisory business.
Information as to the officers and directors of Batterymarch is included in its
Form ADV that was most recently amended on June 25, 1999 and is on file with the
Securities and Exchange Commission (registration number 801-48035) and is
incorporated herein by reference.
IV. Western Asset Management Company Limited ("Western Asset Global"),
155 Bishopsgate, London, England EC2M 3XG, investment sub-adviser to the
Registrant's Legg Mason Global Income Trust, is a corporation organized under
the laws of the United Kingdom, is registered with the Securities and Exchange
commission as an investment adviser and is regulated by the Investment
Management Regulatory Organization under the UK Financial Services Act of 1986.
Western Asset Global has provided management of global and international fixed
income portfolios since its inception. It does not manage assets for any other
investment company. Information as to the officers and directors of Western
Asset Global is included in its Form ADV that was most recently amended on June
22, 1999 and is on file with the Securities and Exchange Commission
(registration number 801-21068) and is incorporated herein by reference.
V. Lombard Odier International Portfolio Management Limited ("Lombard
Odier"), 13 Southampton House, London, England WC1A 2AJ, serves as investment
sub-adviser to the Registrant's Legg Mason Europe Fund. Lombard Odier, which was
incorporated in England and Wales in 1978, is a registered investment adviser
and a wholly owned subsidiary of Lombard Odier Holdings U.K., Ltd. which in turn
is wholly owned by Lombard, Odier & Cie. Lombard Odier specializes in advising
and managing investment portfolios for institutional clients. Information as to
the officers and managing directors of Lombard Odier is included in its Form
ADV, as filed with the SEC (registration number 801-14606), and is incorporated
herein by reference.
Item 27. Principal Underwriters
----------------------
(a) Legg Mason Cash Reserve Trust
Legg Mason Special Investment Trust, Inc.
Legg Mason Value Trust, Inc.
Legg Mason Tax-Exempt Trust, Inc.
Legg Mason Income Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Investors Trust, Inc.
Legg Mason Focus Trust, Inc.
<PAGE>
Legg Mason Light Street Trust, Inc.
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.
(b) The following table sets forth information concerning each director and
officer of the Registrant's principal underwriter, Legg Mason Wood
Walker, Incorporated ("LMWW").
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
Raymond A. Mason Chairman of the None
Board and Director
James W. Brinkley President, Chief None
Operating Officer
and Director
Edmund J. Cashman, Jr. Senior Executive None
Vice President and
Director
Richard J. Himelfarb Senior Executive None
Vice President and
Director
Edward A. Taber III Senior Executive Director
Vice President
Robert G. Donovan Executive Vice None
President
Robert A. Frank Executive Vice None
President
Robert G. Sabelhaus Executive Vice None
President
Timothy C. Scheve Executive Vice None
President and
Treasurer and
Director
Manoochehr Abbaei Senior Vice President None
Charles A. Bacigalupo Senior Vice None
President and
Secretary
<PAGE>
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
F. Barry Bilson Senior Vice President None
D. Stuart Bowers Senior Vice President None
W. William Brab Senior Vice President None
Deepak Chowdhury Senior Vice President None
Thomas M. Daly, Jr. Senior Vice President None
Jeffrey W. Durkee Senior Vice President None
Harry M. Ford, Jr. Senior Vice President None
Dennis A. Green Senior Vice President None
Thomas E. Hill Senior Vice President None
218 N. Washington Street
Suite 31
Easton, MD 21601
Arnold S. Hoffman Senior Vice President None
1735 Market Street
Philadelphia, PA 19103
Carl Hohnbaum Senior Vice President None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Theodore S. Kaplan Senior Vice President None
Laura L. Lange Senior Vice President None
<PAGE>
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
Horace M. Lowman, Jr. Senior Vice None
President and Asst.
Secretary
Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Thomas P. Mulroy Senior Vice President None
Jonathan M. Pearl Senior Vice None
President
Mark I. Preston Senior Vice President None
Robert F. Price Senior Vice None
President and
General Counsel
Thomas L. Souders Senior Vice None
President and Chief
Financial Officer
Elisabeth N. Spector Senior Vice President None
Joseph A. Sullivan Senior Vice President None
Richard L. Baker Vice President None
William H. Bass, Jr. Vice President None
Nathan S. Betnun Vice President None
John C. Boblitz Vice President None
Andrew J. Bowden Vice President and None
Deputy General
Counsel
Edwin J. Bradley, Jr. Vice President None
Carol A. Brown Vice President None
Scott R. Cousino Vice President None
Thomas W. Cullen Vice President None
<PAGE>
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
Charles J. Daley, Jr. Vice President and None
Controller
Norman C. Frost, Jr. Vice President None
James E. Furletti Vice President None
John R. Gilner Vice President None
Daniel R. Greller Vice President None
Richard A. Jacobs Vice President None
C. Gregory Kallmyer Vice President None
56 West Main Street
Newark, DE 19702
Kurt A. Lalomia Vice President None
Edward W. Lister, Jr. Vice President None
Theresa McGuire Vice President None
Julia A. McNeal Vice President None
Gregory B. McShea Vice President None
Edward P. Meehan Vice President None
12021 Sunset Hills Road
Suite 100
Reston, VA 20190
Thomas C. Merchant Vice President and None
Assistant General
Counsel
Paul Metzger Vice President None
Mark C. Micklem Vice President None
1747 Pennsylvania Ave., N.W.
Washington, DC 20006
John A. Moag, Jr. Vice President None
Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163
Ann O'Shea Vice President None
<PAGE>
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
Robert E. Patterson Vice President and None
Deputy General
Counsel
Gerard F. Petrik, Jr. Vice President None
Douglas F. Pollard Vice President None
Judith L. Ritchie Vice President None
Thomas E. Robinson Vice President None
Theresa M. Romano Vice President None
James A. Rowan Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Douglas M. Schmidt Vice President None
B. Andrew Schmucker Vice President None
1735 Market Street
Philadelphia, PA 19103
Robert W. Schnakenberg Vice President None
Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103
Chris A. Scitti Vice President None
Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510
Lawrence D. Shubnell Vice President None
Jane Soybelman Vice President None
Alexsander M. Stewart Vice President None
L. Kay Strohecker Vice President None
Joseph E. Timmins III Vice President None
Joyce Ulrich Vice President None
William A. Verch Vice President None
<PAGE>
Name and Principal Position and Positions and Offices
Business Address* Offices with Registrant
with Underwriter -
LMWW
- --------------------------------------------------------------------------------
Sheila M. Vidmar Vice President and None
Deputy General
Counsel
Lewis T. Yeager Vice President None
Carol Converso-Burton Assistant Vice None
President
Diana L. Deems Assistant Vice None
President and
Assistant Controller
Ronald N. McKenna Assistant Vice None
President
Suzanne E. Peluso Assistant Vice None
President
Lauri F. Smith Assistant Vice None
President
Janet B. Straver Assistant Vice None
President
Leslee Stahl Assistant Secretary None
* All addresses are 100 Light Street, Baltimore, Maryland 21202, unless
otherwise indicated.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of
such an affiliated person.
Item 28. Location of Accounts and Records
--------------------------------
State Street Bank and Trust Company and Legg Mason Fund Adviser, Inc.
P.O. Box 1713 100 Light Street
Boston, Massachusetts 02105 Baltimore, Maryland 21202
Item 29. Management Services
-------------------
None
Item 30. Undertaking
-----------
None
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Legg Mason Global Trust, Inc.,
certifies that it meets all the requirements for effectiveness of this
Post-Effective Amendment No. 20 to its Registration Statement under Rule 485(b)
under the Securities Act of 1933 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Baltimore and State of Maryland, on the 28th day of April, 2000.
LEGG MASON GLOBAL TRUST, INC.
By: /s/ Marie K. Karpinski
----------------------------------
Marie K. Karpinski
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
- --------- ----- ----
/s/ John F. Curley, Jr. * Chairman of the Board April 28, 2000
- ----------------------------- and Director
John F. Curley, Jr.
/s/ Edward A. Taber, III* President and Director April 28, 2000
- -----------------------------
Edward A. Taber, III
/s/ Richard G. Gilmore* Director April 28, 2000
- -----------------------------
Richard G. Gilmore
/s/ Arnold L. Lehman* Director April 28, 2000
- -----------------------------
Arnold L. Lehman
/s/ Jill E. McGovern* Director April 28, 2000
- -----------------------------
Jill E. McGovern
/s/ T.A. Rodgers* Director April 28, 2000
- -----------------------------
T. A. Rodgers
/s/ G. Peter O'Brien* Director April 28, 2000
- -----------------------------
G. Peter O'Brien
- ----------------------------- Director --------------
Nelson A. Diaz
/s/ Marie K. Karpinski Vice President April 28, 2000
- ----------------------------- and Treasurer
Marie K. Karpinski
* Signatures affixed by Marc R. Duffy pursuant to a power of attorney dated
November 12, 1999, a copy of which is filed herewith.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director/Trustee of one or more of the following investment
companies (as set forth in the companies' Registration Statements on form N-1A):
LEGG MASON CASH RESERVE TRUST LEGG MASON VALUE TRUST, INC.
LEGG MASON INCOME TRUST, INC. LEGG MASON TOTAL RETURN TRUST, INC.
LEGG MASON GLOBAL TRUST, INC. LEGG MASON SPECIAL INVESTMENT TRUST, INC.
LEGG MASON TAX EXEMPT TRUST, INC. LEGG MASON INVESTORS TRUST, INC.
LEGG MASON TAX-FREE INCOME FUND LEGG MASON LIGHT STREET TRUST, INC.
LEGG MASON FOCUS TRUST, INC. LEGG MASON INVESTMENT TRUST, INC.
plus any other investment company for which Legg Mason Fund Adviser, Inc. acts
as investment adviser or manager and for which the undersigned individual serves
as Director/Trustee hereby severally constitute and appoint each of MARIE K.
KARPINSKI, MARC R. DUFFY, ANDREW J. BOWDEN, ARTHUR J. BROWN and ARTHUR C.
DELIBERT my true and lawful attorney-in-fact, with full power of substitution,
and with full power to sign for me and in my name in the appropriate capacity
and only for those above-listed companies for which I serve as Director/Trustee,
any Registration Statements on Form N-lA, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, and any and all supplements or other
instruments in connection therewith, to file the same with the Securities and
Exchange Commission and the securities regulators of appropriate states and
territories, and generally to do all such things in my name and behalf in
connection therewith as said attorney-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, all related requirements of the Securities and Exchange
Commission and all requirements of appropriate states and territories. I hereby
ratify and confirm all that said attorney-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
SIGNATURE DATE
- --------- ----
/s/ Edmund J. Cashman, Jr. November 12, 1999
- --------------------------
Edmund J. Cashman, Jr.
/s/ John F. Curley, Jr. November 12, 1999
- --------------------------
John F. Curley, Jr.
/s/ Richard G. Gilmore November 12, 1999
- --------------------------
Richard G. Gilmore
/s/ Arnold L. Lehman November 12, 1999
- --------------------------
Arnold L. Lehman
/s/ Raymond A. Mason November 12, 1999
- --------------------------
Raymond A. Mason
/s/ Jill E. McGovern November 12, 1999
- --------------------------
Jill E. McGovern
/s/ Jennifer W. Murphy November 12, 1999
- --------------------------
Jennifer W. Murphy
/s/ G. Peter O'Brien November 12, 1999
- --------------------------
G. Peter O'Brien
/s/ T. A. Rodgers November 12, 1999
- --------------------------
T. A. Rodgers
/s/ Edward A. Taber, III November 12, 1999
- --------------------------
Edward A. Taber, III
<PAGE>
Legg Mason Global Trust, Inc.
Exhibits
(a) (i) Articles of Incorporation (4)
(ii) Articles Supplementary (4)
(iii) Articles of Amendment (4)
(iv) Articles Supplementary (2)
(v) Articles of Amendment (4)
(vi) Articles of Amendment (7)
(vii) Articles of Amendment (9)
(b) By-Laws (4)
(c) Specimen security - not applicable
(d) (i) Investment Advisory Agreement - International Equity Trust (1)
(ii) Management Agreement - International Equity Trust (1)
(iii) Amended Investment Advisory Agreement - Global Trust (4)
(iv) (A) Investment Sub-Advisory Agreement - Global Income Trust (9)
(B) Sub-Administration Agreement - Global Income Trust (5)
(v) Management Agreement - Global Income Trust (1)
(vi) Investment Advisory Agreement - Emerging Markets Trust (3)
(vii) Management Agreement - Emerging Markets Trust (3)
(viii) Investment Advisory and Administration Agreement - Europe
Fund - filed herewith
(ix) Sub-Advisory Agreement - Europe Fund - filed herewith
(e) Underwriting Agreement
(i) Global Income Trust (4)
(ii) International Equity Trust (4)
(iii) Emerging Markets Trust (3)
(iv) Europe Fund - filed herewith
(f) Bonus, profit sharing or pension plans - none
(g) (i) Custodian Agreement (4)
(ii) Amendment to Custodian Agreement (4)
(h) (i) Transfer Agency and Service Agreement (4)
(ii) Credit Agreement (5)
(iii) Credit Agreement Amendment (6)
(iv) Amendment and Restatement of Credit Agreement (10)
(i) Opinion and consent of counsel - filed herewith
(j) Accountant's consent - filed herewith.
(k) Financial statements omitted from Item 22 - none.
(l) Agreement for providing initial capital (4)
(m) Plan pursuant to Rule 12b-1:
(i) Global Income Trust (4)
(ii) International Equity Trust (4)
<PAGE>
(iii) Emerging Markets Trust (3)
(iv) Europe Fund, Class A Shares - filed herewith
(v) Europe Fund, Primary Class Shares - filed herewith
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan
(i) Rule 18f-3 Plan - Europe Fund - filed herewith
(ii) Form of Rule 18f-3 Plan - Global Income Trust, International Equity
Trust and Emerging Markets Trust (8)
(p) Code of Ethics for the fund, its investment advisers and its principal
underwriter (10)
(1) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 7 to the registration statement, SEC File No. 33-56672, filed
August 31, 1995.
(2) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 8 to the registration statement, SEC File No. 33-56672, filed
February 16, 1996.
(3) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 9 to the registration statement, SEC File No. 33-56672, filed
November 18, 1996.
(4) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 12 to the registration statement, SEC File No. 33-56672, filed
April 30, 1997.
(5) Incorporated by reference to corresponding Exhibit of Post-Effective
Amendment No. 13 to the registration statement, SEC File No. 33-56672, filed
April 30, 1998.
(6) Incorporated by reference to corresponding exhibit of Bartlett Capital
Trust's Registration Statement,
Post-Effective Amendment No. 27, SEC File No. 2-80648, filed March 2, 1999.
(7) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 16 to the registration statement, SEC File No. 33-56672, filed
July 2, 1999.
(8) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 18 to the registration statement, SEC File No. 33-56672, filed
September 15, 1999.
(9) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 19 to the registration statement, SEC File No. 33-56672, filed
February 28, 2000.
(10) Incorporated by reference to corresponding exhibit of Post-Effective
Amendment No. 2 to the registration statement of Legg Mason Investment Trust,
Inc., SEC File No. 33-88715, filed March 28, 2000.
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
This INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT ("Agreement") is made
this 5th day of October, 1999, by and between Legg Mason Global Trust, Inc., a
Maryland corporation (the "Corporation"), on behalf of Legg Mason Europe Fund
("Fund"), and Legg Mason Fund Adviser, Inc., a Maryland corporation (the
"Manager").
WHEREAS, the Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
currently consisting of four portfolios; and
WHEREAS, the Corporation wishes to retain the Manager to provide investment
advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed as follows:
1. The Corporation hereby appoints the Manager as manager of the Fund for
the period and on the terms set forth in this Agreement. The Manager accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with regard
to the securities owned by it, its funds available, or to become available, for
investment, and generally as to the condition of its affairs. It shall furnish
the Manager with such other documents and information with regard to its affairs
as the Manager may from time to time reasonably request.
3. (a) Subject to the supervision of the Corporation's Board of Directors,
the Manager shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment program for
the Fund's portfolio of securities consistent with the Fund's investment goals
and policies. The Manager shall determine from time to time what securities will
be purchased, retained or sold by the Fund, and shall implement those decisions,
all subject to the provisions of the Corporation's Articles of Incorporation and
By-Laws, the 1940 Act, the applicable rules and regulations of the Securities
and Exchange Commission, and other applicable federal and state law, as well as
the investment goals and policies of the Fund. The Manager will place orders
pursuant to its investment determinations for the Fund either directly with the
issuer or with any broker or dealer. In placing orders with brokers and dealers
<PAGE>
the Manager will attempt to obtain the best net price and the most favorable
execution of its orders; however, the Manager may, in its discretion, purchase
and sell portfolio securities from and to brokers and dealers who provide the
Fund with research, analysis, advice and similar services, and the Manager may
pay to these brokers, in return for research and analysis, a higher commission
or spread than may be charged by other brokers. The Manager shall also provide
advice and recommendations with respect to other aspects of the business and
affairs of the Fund, and shall perform such other functions of management and
supervision as may be directed by the Board of Directors of the Corporation.
(b) The Fund hereby authorizes any entity or person associated with the
Manager which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 or Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention by such person
associated with the Manager of all permissible compensation for such
transactions, including compensation in accordance with Rule
11a2-2(T)(a)(2)(iv).
4. The Manager may enter into a contract ("Sub-Advisory Agreement") with
an investment sub-adviser in which the Manager delegates to such investment
sub-adviser any or all of its duties specified in Paragraph 3 above, provided
that such Sub-Advisory Agreement imposes on the investment sub-adviser bound
thereby all duties and conditions to which the Manager is subject hereunder, and
further provided that such Sub-Advisory Agreement meets all requirements of the
1940 Act and rules thereunder.
5. (a) The Manager, at its expense, shall supply the Board of Directors
and officers of the Corporation with all statistical information and reports
reasonably required by them and reasonably available to the Manager and shall
furnish the Fund with office facilities, including space, furniture and
equipment and all personnel reasonably necessary for the operation of the Fund.
The Manager shall maintain or oversee the maintenance of all books and records
with respect to the Fund's securities transactions and the keeping of the Fund's
books of account in accordance with all applicable federal and state laws and
regulations. In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Manager hereby agrees that any records which it maintains for the Fund
are the property of the Fund, and further agrees to surrender promptly to the
Fund any of such records upon the Fund's request. The Manager further agrees to
arrange for the preservation of the records required to be maintained by Rule
31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940
Act. The Manager shall authorize and permit any of its directors, officers and
employees, who may be elected as directors or officers of the Fund, to serve in
the capacities in which they are elected.
(b) Other than as herein specifically indicated, the Manager shall not
be responsible for the Fund's expenses. Specifically, the Manager will not be
responsible, except to the extent of the reasonable compensation of employees of
the Fund whose services may be used by the Manager hereunder, for any of the
following expenses of the Fund, which expenses shall be borne by the Fund:
advisory fees; distribution fees; interest; taxes; governmental fees; voluntary
assessments and other expenses incurred in connection with membership in
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<PAGE>
investment company organizations; the cost (including brokerage commissions or
charges, if any) of securities purchased or sold by the Fund and any losses in
connection therewith; fees of custodians, transfer agents, registrars or other
agents; legal expenses; expenses relating to the redemption or repurchase of the
Fund's shares; expenses of registering and qualifying the Fund's shares for sale
under applicable federal and state law; expenses of preparing, setting in print,
printing and distributing prospectuses, reports, notices and dividends to the
Fund's shareholders; costs of stationery; costs of stockholders and other
meetings of the Fund; directors' fees; audit fees; travel expenses of officers,
directors and employees of the Corporation, if any; and the Corporation's pro
rata portion of premiums on any fidelity bond and other insurance covering the
Corporation and its officers, directors and employees. Any and all expenses of
the Fund advanced by the Manager shall be reimbursed by the Fund at such time or
times agreed to by the Fund and the Manager.
6. No director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such director,
officer or employee while he is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This paragraph
shall not apply to directors, executive committee members, consultants and other
persons who are not regular members of the Manager's or any affiliated company's
staff.
7. As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Fund shall pay the Manager, as promptly as possible
after the last day of each month, a fee, computed daily at an annual rate of
1.00% of the average daily net assets of the Fund. The first payment of the fee
shall be made as promptly as possible at the end of the month succeeding the
effective date of this Agreement and shall constitute a full payment of the fee
due the Manager for all services prior to that date. If this Agreement is
terminated as of any date not the last day of a month, such fee shall be paid as
promptly as possible after such date of termination, shall be based on the
average daily net assets of the Fund in that period from the beginning of such
month to such date of termination, and shall be that proportion of such average
daily net assets as the number of business days in such period bears to the
number of business days in such month. The average daily net assets of the Fund
shall in all cases be based only on business days and be computed as of the time
of the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Board of Directors of the Corporation. Each
such payment shall be accompanied by a report prepared either by the Fund or by
a reputable firm of independent accountants which shall show the amount properly
payable to the Manager under this Agreement and the detailed computation
thereof.
8. The Manager assumes no responsibility under this Agreement other than
to render the services called for hereunder, in good faith, and shall not be
responsible for any action of the Board of Directors of the Corporation in
following or declining to follow any advice or recommendations of the Manager;
provided, that nothing in this Agreement shall protect the Manager against any
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<PAGE>
liability to the Fund or its shareholders to which it would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a director,
officer, or employee of the Corporation or the Fund, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, nor to limit or restrict the right of the Manager to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
10. As used in this Agreement, the term "net assets" shall have the meaning
ascribed to it in the Articles of Incorporation of the Corporation and the terms
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have the meanings given to them by Section 2(a) of the 1940
Act, subject to such exemptions or other modifications as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
11. This Agreement will become effective with respect to the Fund on the
date first written above, provided that it shall have been approved by the
Corporation's Board of Directors and by the shareholders of the Fund in
accordance with the requirements of the 1940 Act and, unless sooner terminated
as provided herein, will continue in effect for two years from the above written
date. Thereafter, if not terminated, this Agreement shall continue in effect
with respect to the Fund for successive annual periods ending on the same date
of each year, provided that such continuance is specifically approved at least
annually (i) by the Corporation's Board of Directors or (ii) by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act), provided that in either event the continuance is also approved by a
majority of the Corporation's Directors who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval.
12. This Agreement is terminable with respect to the Fund without penalty
by the Corporation's Board of Directors, by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act), or by
the Manager, on not less than sixty (60) days' notice to the other party and
will be terminated upon the mutual written consent of the Manager and the
Corporation. This Agreement shall terminate automatically in the event of its
assignment by the Manager and shall not be assignable by the Corporation without
the consent of the Manager.
13. In the event this Agreement is terminated by either party or upon
written notice from the Manager at any time, the Corporation hereby agrees that
it will eliminate from its corporate name any reference to the name of "Legg
Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part so long as this Agreement is effective or until such
notice is given.
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<PAGE>
14. The Manager agrees that for services rendered to the Fund, or indemnity
due in connection with service to the Fund, it shall look only to assets of the
Fund for satisfaction and that it shall have no claim against the assets of any
other portfolios of the Corporation.
15. Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
16. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no material amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the Fund's outstanding voting
securities.
17. This Agreement embodies the entire agreement and understanding between
the parties hereto, and supersedes all prior agreements and understandings
relating to the subject matter hereof. Should any part of this Agreement be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement shall be binding
on and shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: LEGG MASON GLOBAL TRUST, INC.
By: /s/ Brian M. Eakes By: /s/ Marie K. Karpinski
------------------------- --------------------------------
Brian M. Eakes Marie K. Karpinski
Secretary Vice President and Treasurer
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Marc R. Duffy By: /s/ Jennifer W. Murphy
------------------------- --------------------------------
Jennifer W. Murphy
Senior Vice President
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SUB-ADVISORY AGREEMENT
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
AGREEMENT made this 5th day of October, 1999 by and between Legg Mason Fund
Adviser, Inc. ("Manager"), a Maryland corporation, and Lombard Odier
International Portfolio Management Limited ("Adviser"), an England corporation,
each of which is registered as an investment adviser under the Investment
Advisers Act of 1940.
WHEREAS, Manager is the manager of the Legg Mason Europe Fund ("Fund"), a
series of Legg Mason Global Trust, Inc. (the "Corporation"), an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, Manager wishes to retain Adviser to provide it with certain
investment advisory services in connection with Manager's management of the
Fund; and
WHEREAS, Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment. Manager hereby appoints Adviser as investment adviser for
the Fund for the period and on the terms set forth in this Agreement. Adviser
accepts such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. Manager has furnished the Adviser with copies
properly certified or authenticated of each of the following:
(a) The Corporation's Articles of Incorporation, as filed with the
State Department of Assessments and Taxation of the State of Maryland on
December 31, 1992 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to time
be amended, are herein called the "Articles"):
(b) The Corporation's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Corporation's Board of Directors authorizing
the appointment of Adviser as investment adviser and approving this
Agreement;
<PAGE>
(d) The Corporation's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended, and the 1940 Act (File No. 811-7418) as
filed with the Securities and Exchange Commission on September 15, 1999,
including all exhibits thereto, relating to shares of common stock of the
Fund, par value $.001 per share (herein called "Shares") and all amendments
thereto;
(e) The Fund's most recent prospectus (such prospectus, as presently
in effect and all amendments and supplements thereto are herein called the
"Prospectus"); and
(f) The Fund's most recent statement of additional information (such
statement of additional information, as presently in effect and all
amendments and supplements thereto are herein called the "Statement of
Additional Information").
The Manager will furnish the Adviser from time to time with copies of all
amendments of or supplements to the foregoing.
3. Investment Advisory Services. (a) Subject to the supervision of the
Corporation's Board of Directors and the Manager, the Adviser shall regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund's portfolio of
securities consistent with the Fund's investment objective, policies and
limitations as stated in the Fund's current Prospectus and Statement of
Additional Information. The Adviser shall determine from time to time what
securities will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objective, policies, and limitations of the Fund.
The Adviser will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In placing
orders with brokers and dealers, the Adviser will attempt to obtain the best net
price and the most favorable execution of its orders; however, the Adviser may,
in its discretion, purchase and sell portfolio securities from and to brokers
and dealers who provide the Fund with research, analysis, advice and similar
services, and the Adviser may pay to these brokers, in return for research and
analysis, a higher commission than may be charged by other brokers. In no
instance will portfolio securities be purchased from or sold to the Adviser or
any affiliated person thereof except in accordance with the rules, regulations
or orders promulgated by the Securities and Exchange Commission pursuant to the
1940 Act. The Adviser shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by the Adviser.
(b) The Adviser will maintain or oversee the maintenance of all books and
records with respect to the securities transactions of the Fund in accordance
with all applicable federal and state laws and regulations, and will furnish the
Board of Directors of the Corporation with such periodic and special reports as
the Board or the Manager reasonably may request.
(c) The Corporation has authorized any entity or person associated with
the Adviser which is a member of a national securities exchange to effect any
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<PAGE>
transaction on the exchange for the account of the Corporation which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 or Rule
11a2-2(T) thereunder, and the Corporation hereby consents to the retention by
such person associated with the Adviser of all permissible compensation for such
transactions, including compensation, in accordance with Rule
11a2-2(T)(a)(2)(iv).
4. Services Not Exclusive. The Adviser's services hereunder are not
deemed to be exclusive, and the Adviser shall be free to render similar services
to others. It is understood that persons employed by the Adviser to assist in
the performance of its duties hereunder might not devote their full time to such
service. Nothing herein contained shall be deemed to limit or restrict the right
of the Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other business or to render services of whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all books and records which
it maintains for the Fund are property of the Fund and further agrees to
surrender promptly to the Fund or its agents any of such records upon the Fund's
request. The Adviser further agrees to preserve for the period prescribed by
Rule 31a-2 under the 1940 Act, any such records required to be maintained by
Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund.
7. Compensation. For the services which the Adviser will render to the
Manager and the Fund under this Agreement, the Manager will pay the Adviser a
fee, computed daily and paid monthly, at an annual rate equal to 60% of the fee
received by the Manager from the Fund, net of any waivers or reimbursements by
the Manager of its fee. Fees due to the Adviser hereunder shall be paid promptly
to the Adviser by the Manager following its receipt of fees from the Fund. If
this Agreement is terminated as of any date not the last day of a calendar
month, a final fee shall be paid promptly after the date of termination and
shall be based on the percentage of days of the month during which the contract
was still in effect.
8. Limitation of Liability. The Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Manager or by the
Fund in connection with the performance of this Agreement; provided, that
nothing in this Agreement shall protect the Adviser against any liability to the
Manager, the Fund or its shareholders for 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 under this Agreement.
9. Definitions. As used in this Agreement, the terms "securities" and
"net assets" shall have the meanings ascribed to them in the Articles of
Incorporation of the Corporation; and the terms "assignment," "interested
person," and "majority of the outstanding voting securities" shall have the
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<PAGE>
meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions or modifications as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
10. Duration and Termination. This Agreement will become effective October
5, 1999, provided that it shall have been approved by the Corporation's Board of
Directors and by the shareholders of the Fund in accordance with the
requirements of the 1940 Act and, unless sooner terminated as provided for
herein, shall continue in effect for two years from the above-written date.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods, provided that such continuance is specifically
approved at least annually (i) by the Corporation's Board of Directors or (ii)
by a vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance is also
approved by a majority of the Corporation's Directors who are not interested
persons (as defined in the 1940 Act) of the Corporation or of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable without penalty, by vote of the
Corporation's Board of Directors, by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund, by the Manager or by the
Adviser, on not less than 60 days' notice to the Fund and/or the other
party(ies) and will be terminated immediately upon any termination with respect
to the Fund of the Investment Advisory and Administration Agreement between
Manager and the Fund dated October 5, 1999 or upon the mutual written consent of
the Adviser, the Manager, and the Fund. Termination of this Agreement with
respect to the Fund shall in no way affect continued performance with regard to
any other portfolio of the Corporation. This Agreement will automatically and
immediately terminate in the event of its assignment.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their constitution or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding on and shall inure to the
benefit of the parties hereto and their respective successors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed
by their officers thereunto duly authorized.
Attest: LEGG MASON FUND ADVISER, INC.
By: /s/ Marc R. Duffy By: /s/ Jennifer W. Murphy
----------------------------- -------------------------------------
Jennifer W. Murphy
Senior Vice President
Attest: LOMBARD ODIER INTERNATIONAL
PORTFOLIO MANAGEMENT LIMITED
By: /s/ illegible By: /s/ Ronnie Armist
------------------------------ -------------------------------------
Ronnie Armist
Managing Director
-5-
UNDERWRITING AGREEMENT
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
This UNDERWRITING AGREEMENT, made this 5th day of October, 1999 by and
between Legg Mason Global Trust, Inc., a Maryland corporation ("Corporation"),
on behalf of Legg Mason Europe Fund ("Fund"), and Legg Mason Wood Walker,
Incorporated, a Maryland corporation ("Distributor").
WHEREAS, the Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered shares of common stock of
the Fund for sale to the public under the Securities Act of 1933 (the "1933
Act") and filed appropriate notices under various state securities laws; and
WHEREAS, the Corporation wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of common
stock of the Fund ("Shares") and to furnish certain other services to the
Corporation as specified in this Agreement; and
WHEREAS, this Agreement has been approved by separate votes of the
Corporation's Board of Directors and of certain disinterested directors in
conformity with Section 15 of, and paragraph (b)(2) of Rule 12b-1 under, the
1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and to
furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. (a) The Corporation hereby appoints the Distributor as principal
underwriter in connection with the offering and sale of Shares of the Fund, and
the Distributor accepts the appointment. The Distributor, as exclusive agent for
the Corporation, upon the commencement of operations of the Fund and subject to
applicable federal and state law and the Articles of Incorporation and By-Laws
of the Corporation, shall: (i) promote the Fund; (ii) solicit orders for the
purchase of the Shares subject to such terms and conditions as the Corporation
may specify; and (iii) accept orders for the purchase of the Shares on behalf of
the Corporation (collectively, "Distribution Services"). The Distributor shall
comply with all applicable federal and state laws and offer the Shares of the
Fund on an agency or "best efforts" basis under which the Corporation shall
issue only such Shares as are actually sold. The Distributor shall have the
right to use any list of shareholders of the Corporation or the Fund or any
other list of investors which it obtains in connection with its provision of
services under this Agreement; provided, however, that the Distributor shall not
sell or knowingly provide such list or lists to any unaffiliated person without
the consent of the Corporation's Board of Directors.
<PAGE>
(b) The Distributor shall provide ongoing shareholder liaison services,
including responding to shareholder inquiries, providing shareholders with
information on their investments, and any other services now or hereafter deemed
to be appropriate subjects for the payments of "service fees" under Conduct Rule
2830 of the National Association of Securities Dealers, Inc. ("NASD")
(collectively, "Shareholder Services").
2. The Distributor may enter into dealer agreements with registered and
qualified securities dealers it may select for the performance of Distribution
and Shareholder Services and may enter into agreements with qualified dealers
and other qualified entities to perform recordkeeping and sub-accounting
services, as well as Shareholder Services, the form of such agreements to be as
mutually agreed upon and approved by the Corporation and the Distributor. In
making such arrangements, the Distributor shall act only as principal and not as
agent for the Corporation. No such dealer or other entity is authorized to act
as agent for the Corporation in connection with the offering or sale of Shares
to the public or otherwise, except for the limited purpose of determining the
time as of which Shares are to be priced, and then only if the agreement
expressly provides in writing that it shall so act.
3. The public offering price of the Shares of the Fund shall be the net
asset value per share (as determined by the Corporation) of the outstanding
Shares of the Fund plus any applicable sales charge as described in the
Registration Statement of the Corporation. The Corporation shall furnish the
Distributor with a statement of each computation of public offering price and of
the details entering into such computation.
4. As compensation for providing Distribution Services under this
Agreement, the Distributor shall retain the sales charge, if any, on purchases
of Shares as set forth in the Registration Statement. The Distributor is
authorized to collect the gross proceeds derived from the sale of the Shares,
remit the net asset value thereof to the Corporation upon receipt of the
proceeds and retain the sales charge, if any. The Distributor shall receive from
the Fund a distribution fee and a service fee at the rates and under the terms
and conditions of the Distribution Plans ("Plans") adopted by the Corporation
with respect to the Fund, as such Plans are in effect from time to time, and
subject to any further limitations on such fees as the Corporation's Board of
Directors may impose. The Distributor may reallow any or all of the sales
charge, distribution fee and service fee that it has received under this
Agreement to such dealers or sub-accountants as it may from time to time
determine; provided, however, that unless permitted under the rules of the NASD,
the Distributor may not reallow to any dealer for Shareholder Services an amount
in excess of .25% of the average annual net asset value of the shares with
respect to which said dealer provides Shareholder Services.
5. As used in this Agreement, the term "Registration Statement" shall mean
the registration statement most recently filed by the Corporation with the
Securities and Exchange Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to the Fund filed by the Corporation as part
of the Registration Statement, or as they may be amended from time to time.
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<PAGE>
6. The Distributor shall print and distribute to prospective investors
Prospectuses, and shall print and distribute, upon request, to prospective
investors Statements of Additional Information, and may print and distribute
such other sales literature, reports, forms and advertisements in connection
with the sale of the Shares as comply with the applicable provisions of federal
and state law. In connection with such sales and offers of sale, the Distributor
and any dealer or sub-accountant shall give only such information and make only
such statements or representations as are contained in the Prospectus, Statement
of Additional Information, or in information furnished in writing to the
Distributor by the Corporation, and the Corporation shall not be responsible in
any way for any other information, statements or representations given or made
by the Distributor, any dealer or sub-accountant, or their representative or
agents. Except as specifically provided in this Agreement, the Corporation shall
bear none of the expenses of the Distributor in connection with its offer and
sale of the Shares.
7. The Corporation agrees at its own expense to register the Shares with
the Securities and Exchange Commission, state and other regulatory bodies, and
to prepare and file from time to time such Prospectuses, Statements of
Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Fund shall bear all
expenses related to preparing and typesetting such Prospectuses, Statements of
Additional Information, and other materials required by law and such other
expenses, including printing and mailing expenses, related to the Fund's
communications with persons who are shareholders of the Fund.
8. The Corporation agrees to indemnify, defend and hold the Distributor,
its several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact
required to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in this Agreement
be construed so as to protect the Distributor against any liability to the
Corporation or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement, and further provided that the
Corporation shall not indemnify the Distributor for conduct as set forth in
paragraph 9. The Distributor agrees that it shall look only to assets of the
Fund, and not to any other series of the Corporation, for satisfaction of any
obligation created by this paragraph or otherwise arising under this Agreement.
9. The Distributor agrees to indemnify, defend and hold the Corporation,
its several officers and directors, and any person who controls the Corporation
within the meaning of Section 15 of the 1933 Act, free and harmless from and
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<PAGE>
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Corporation, its
officers or directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, on account of any wrongful act of the
Distributor or any of its employees or arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Corporation for use in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement or necessary to make such information not misleading. As
used in this paragraph, the term "employee" shall not include a corporate entity
under contract to provide services to the Corporation or any series, or any
employee of such a corporate entity, unless such person is otherwise an employee
of the Corporation.
10. The Corporation reserves the right at any time to withdraw all
offerings of the Shares of the Fund, or limit the offering of Shares, by written
notice to the Distributor at its principal office.
11. The Corporation shall not issue certificates representing Shares.
12. The Distributor may at its sole discretion, directly or through
dealers, repurchase Shares offered for sale by the shareholders or dealers.
Repurchase of Shares by the Distributor shall be at the net asset value next
determined after a repurchase order has been received. The Distributor will
receive no commission or other remuneration for repurchasing Shares. At the end
of each business day, the Distributor shall notify, by telex or in writing, the
Corporation and State Street Bank and Trust Company, the Corporation's transfer
agent, of the orders for repurchase of Shares received by the Distributor since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders or dealers offering Shares for repurchase. Upon such notice,
the Corporation shall pay the Distributor such amounts as are required by the
Distributor for the repurchase of such Shares in cash or in the form of a credit
against moneys due the Corporation from the Distributor as proceeds from the
sale of Shares. The Corporation reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Corporation to receive and transmit promptly to the
Corporation's transfer agent shareholder and dealer requests for redemption of
Shares.
13. The Distributor is an independent contractor and shall be agent for the
Corporation only in respect to the sale and redemption of the Shares.
14. The services of the Distributor to the Corporation under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
15. The Distributor shall prepare reports for the Corporation's Board of
Directors on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board of Directors.
-4-
<PAGE>
16. As used in this Agreement, the terms "assignment," "interested person"
and "majority of the outstanding voting securities" shall have the meanings
given to them by Section 2(a) of the 1940 Act, subject to such exemptions or
other modifications as may be granted by the Securities and Exchange Commission
by any rule, regulation or order.
17. This Agreement will become effective with respect to the Fund on the
date first written above and, unless sooner terminated as provided herein, will
continue in effect for one year from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to the Fund for
successive annual periods ending on the same date of each year, provided that
such continuance is specifically approved at least annually (i) by the
Corporation's Board of Directors or (ii) by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Corporation's Directors who are not interested persons (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval.
18. This Agreement is terminable, without penalty by the Corporation's
Board of Directors, by vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act), or by the Distributor, on not less
than 60 days' notice to the other party and will be terminated upon the mutual
written consent of the Distributor and the Corporation. This Agreement will also
automatically and immediately terminate in the event of its assignment.
19. No provision of this Agreement may be changed, waived, discharged or
terminated orally, except by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
20. In the event this Agreement is terminated by either party or upon
written notice from the Distributor at any time, the Corporation hereby agrees
that it will eliminate from its corporate name any reference to the name of
"Legg Mason." The Corporation shall have the non-exclusive use of the name "Legg
Mason" in whole or in part only so long as this Agreement is effective or until
such notice is given.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed
by their officers thereunto duly authorized.
Attest: LEGG MASON GLOBAL TRUST, INC.
By: /s/ Brian M. Eakes By: /s/ Marie K. Karpinski
------------------------------ -------------------------------------
Brian M. Eakes Marie K. Karpinski
Secretary Vice President and Treasurer
Attest: LEGG MASON WOOD WALKER, INC.
By: /s/ Marc Duffy By: /s/ Andrew J. Bowden
------------------------------ -------------------------------------
Andrew J. Bowden
Vice President
-6-
Kirkpatrick & Lockhart
1800 Massachusetts Avenue N.W.
Washington, DC 20006
ARTHUR C. DELIBERT
(202) 778-9042
[email protected]
April 27, 2000
Legg Mason Global Trust, Inc.
100 Light Street
Baltimore, MD 21202
Dear Sir or Madam:
Legg Mason Global Trust, Inc. (the "Corporation") is a corporation
organized under the laws of the State of Maryland by Articles of Incorporation
dated December 31, 1992. You have requested our opinion as to certain matters
regarding the issuance of certain Shares of the Corporation. As used in this
letter, the term "Shares" means the Class A, Primary Class and Navigator Class
shares of common stock of the Legg Mason Europe Fund series of the Corporation
and the Primary Class and Navigator Class shares of common stock of the Legg
Mason Global Income Trust, Legg Mason International Equity Trust, and Legg Mason
Emerging Markets Trust series of the Corporation issued during the time that
Post-Effective Amendment No. 20 to the Corporation's Registration Statement is
effective. This opinion terminates with respect to any class or series of the
Corporation on the earlier of May 1, 2001 or the effective date of a
registration statement that purports to register shares of the same class or
series set forth herein.
We have, as counsel, participated in various corporate and other
matters relating to the Corporation. We have examined certified copies of the
Articles of Incorporation and By-Laws, the minutes of meetings of the directors
and other documents relating to the organization and operation of the
Corporation, and we are generally familiar with its business affairs. Based upon
the foregoing, it is our opinion that, when sold in accordance with the
Corporation's Articles of Incorporation, By-Laws and the terms contemplated by
Post-Effective Amendment No. 20 to the Corporation's Registration Statement, the
Shares will have been legally issued, fully paid and nonassessable by the
Corporation.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 20 to the Corporation's Registration Statement on
Form N-1A (File No. 33-56672) being filed with the Securities and Exchange
Commission. We also consent to the reference to our firm in the Statement of
Additional Information filed as part of the Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
/s/ Kirkpatrick & Lockhart LLP
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 20 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 10, 2000, relating to the financial
statements and financial highlights which appear in the December 31, 1999 Annual
Report to Shareholders of Legg Mason Global Trust, Inc., also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "The Corporation's Independent Accountants" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
April 26, 2000
DISTRIBUTION PLAN OF
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
CLASS A SHARES
WHEREAS, Legg Mason Global Trust, Inc. (the "Corporation") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established a fourth
Series of shares of common stock of the Corporation: Legg Mason Europe Fund (the
"Fund");
WHEREAS, the Corporation has employed Legg Mason Wood Walker,
Incorporated ("Legg Mason") as principal underwriter of the shares of the
Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the 1940 Act on the following
terms and conditions:
1. A. The Fund shall pay to Legg Mason, as compensation for ongoing
services provided to the investors in Class A Shares of the Fund, a service fee
at the rate of 0.25% on an annualized basis of the average daily net assets
attributable to Class A Shares of the Fund, such fees to be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
B. The Corporation may pay a service fee to Legg Mason at a lesser
rate than the fee specified in paragraph 1.A of this Plan, as agreed upon by the
Board and Legg Mason and as approved in the manner specified in paragraph 3 of
this Plan. The service fee payable hereunder is payable without regard to the
aggregate amount that may be paid over the years.
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Fund and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
<PAGE>
3. This Plan shall take effect on October 5, 1999 and shall continue in
effect for successive periods of one year from its execution for so long as such
continuance is specifically approved at least annually together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Corporation and (b) those Directors who are not "interested persons" of the
Corporation, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements; and only if the
Directors who approve the Plan taking effect have reached the conclusion
required by Rule 12b-1(e) under the 1940 Act.
4. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Corporation's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "service activities," as defined in this
paragraph 4, to the Board in support of the service fee payable hereunder.
For purposes of this Plan, "service activities" shall mean activities
covered by the definition of "service fee" contained in Conduct Rule 2830 of the
National Association of Securities Dealers, Inc., including the provision by
Legg Mason of personal, continuing services to investors in the Corporation's
shares. Overhead and other expenses of Legg Mason related to its "service
activities," including telephone and other communications expenses, may be
included in the information regarding amounts expended for such service
activities.
5. This Plan may be terminated with respect to the Fund at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding voting securities of the Fund.
6. After the issuance of Class A Shares of the Fund, this Plan may not
be amended to increase materially the amount of service fees provided for in
paragraph 1.A. hereof unless such amendment is approved by a vote of at least a
majority of the outstanding securities, as defined in the 1940 Act, of the Fund,
and no material amendment to the Plan shall be made unless such amendment is
approved in the manner provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
8. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 4 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
-2-
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan
to be effective as of the day and year set forth below:
Date: /s/ October 5, 1999 LEGG MASON GLOBAL TRUST, INC.
-------------------
Attest: By: /s/ Marie K. Karpinski
-------------------------------
Marie K. Karpinski
By: /s/ Brian M. Eakes Vice President and Treasurer
--------------------------------
Brian M. Eakes
Secretary
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Andrew J. Bowden
-------------------------------
Andrew J. Bowden
Vice President
-3-
DISTRIBUTION PLAN OF
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
PRIMARY CLASS SHARES
WHEREAS, Legg Mason Global Trust, Inc. (the "Corporation") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"), and has offered, and intends to continue
offering, for public sale distinct series of shares of common stock ("Series"),
each corresponding to a distinct portfolio;
WHEREAS, the Corporation has registered the offering of its shares of
common stock under a Registration Statement filed with the Securities and
Exchange Commission and that Registration Statement is in effect as of the date
hereof;
WHEREAS, the Corporation's Board of Directors has established a fourth
Series of shares of common stock of the Corporation: Legg Mason Europe Fund (the
"Fund");
WHEREAS, the Corporation has employed Legg Mason Wood Walker, Incorporated
("Legg Mason") as principal underwriter of the shares of the Corporation;
NOW, THEREFORE, the Corporation hereby adopts this Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the 1940 Act on the following terms
and conditions:
1. A. The Fund shall pay to Legg Mason, as compensation for Legg Mason's
services as principal underwriter of the Fund's Primary Class Shares, a
distribution fee at the rate of 0.75% on an annualized basis of the average
daily net assets attributable to Primary Class Shares of the Fund, such fee to
be calculated and accrued daily and paid monthly or at such other intervals as
the Board shall determine.
B. The Fund shall pay to Legg Mason, as compensation for ongoing
services provided to the investors in Primary Class Shares of the Fund, a
service fee at the rate of 0.25% on an annualized basis of the average daily net
assets attributable to Primary Class Shares of the Fund, such fees to be
calculated and accrued daily and paid monthly or at such other intervals as the
Board shall determine.
C. The Corporation may pay a distribution or service fee to Legg Mason
at a lesser rate than the fees specified in paragraphs 1.A and 1.B,respectively,
of this Plan, in either case as agreed upon by the Board and Legg Mason and as
approved in the manner specified in paragraph 3 of this Plan. The distribution
and service fees payable hereunder are payable without regard to the aggregate
amount that may be paid over the years, provided that, so long as the
limitations set forth in Conduct Rule 2830 of the National Association of
Securities Dealers, Inc. ("NASD") remain in effect and apply to distributors or
dealers in the Corporation's shares, the amounts paid hereunder shall not exceed
those limitations, including permissible interest.
<PAGE>
2. As principal underwriter of the Corporation's shares, Legg Mason may
spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the shares of the Fund and/or the
servicing and maintenance of shareholder accounts, including, but not limited
to, compensation to employees of Legg Mason; compensation to Legg Mason, other
broker-dealers and other entities that engage in or support the distribution of
shares or who service shareholder accounts or provide sub-accounting and
recordkeeping services; expenses of Legg Mason and such other broker-dealers and
other entities, including overhead and telephone and other communication
expenses; the printing of prospectuses, statements of additional information,
and reports for other than existing shareholders; and preparation and
distribution of sales literature and advertising materials.
3. This Plan shall take effect on October 5, 1999 and shall continue in
effect for successive periods of one year from its execution for so long as such
continuance is specifically approved at least annually together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Corporation and (b) those Directors who are not "interested persons" of the
Corporation, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements; and only if the
Directors who approve the Plan taking effect have reached the conclusion
required by Rule 12b-1(e) under the 1940 Act.
4. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Corporation's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made. Legg Mason shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 4, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 4, to the Board in support of the
service fee payable hereunder.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with Legg Mason's performance of its obligations under
the underwriting agreement, dated October 5, 1999, by and between the
Corporation and Legg Mason, with respect to the Fund, that are not deemed
"service activities." As used herein, "distribution activities" also include
sub-accounting or recordkeeping services provided by an entity if the entity is
compensated, directly or indirectly, by the Fund or Legg Mason for such
services. Such entity may also be paid a service fee if it provides appropriate
services. Nothing in the foregoing is intended to or shall cause there to be any
implication that compensation for such services must be made only pursuant to a
plan of distribution under Rule 12b-1. "Service activities" shall mean
activities covered by the definition of "service fee" contained in Conduct Rule
2830 of the NASD, including the provision by Legg Mason of personal, continuing
services to investors in the Corporation's shares. Overhead and other expenses
of Legg Mason related to its "distribution activities" or "service activities,"
including telephone and other communications expenses, may be included in the
information regarding amounts expended for such distribution or service
activities, respectively.
-2-
<PAGE>
5. This Plan may be terminated with respect to the Fund at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding voting securities of the Fund.
6. After the issuance of Primary Class Shares of the Fund, this Plan may
not be amended to increase materially the amount of distribution fees provided
for in paragraph 1.A. hereof or the amount of service fees provided for in
paragraph 1.B. hereof unless such amendment is approved by a vote of at least a
majority of the outstanding securities, as defined in the 1940 Act, of the Fund,
and no material amendment to the Plan shall be made unless such amendment is
approved in the manner provided for continuing approval in paragraph 3 hereof.
7. While this Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation, as defined in the
1940 Act, shall be committed to the discretion of directors who are themselves
not interested persons.
8. The Corporation shall preserve copies of this Plan and any related
agreements for a period of not less than six years from the date of expiration
of the Plan or agreement, as the case may be, the first two years in an easily
accessible place; and shall preserve copies of each report made pursuant to
paragraph 4 hereof for a period of not less than six years from the date of such
report, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Corporation has executed this Distribution Plan to
be effective as of the day and year set forth below:
Date: October 5, 1999 LEGG MASON GLOBAL TRUST, INC.
Attest: By:/s/ Marie K. Karpinski
---------------------------------
Marie K. Karpinski
By: /s/ Brian M. Eakes Vice President and Treasurer
--------------------------------
Brian M. Eakes
Secretary
Agreed and assented to by
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ Andrew J. Bowden
--------------------------------
Andrew J. Bowden
Vice President
-3-
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
LEGG MASON GLOBAL TRUST, INC.
LEGG MASON EUROPE FUND
Legg Mason Global Trust, Inc. hereby adopts this Multiple Class Plan
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), on behalf of Legg Mason Europe Fund (the "Fund").
A. GENERAL DESCRIPTION OF CLASSES THAT ARE OFFERED:
-----------------------------------------------
1. CLASS A SHARES. Class A shares of the Fund are generally offered and
sold subject to an initial sales charge. This initial sales charge may be waived
for certain eligible purchasers and reduced for certain other eligible
purchasers.
Class A shares of the Fund are available to all investors except those
qualified to purchase Navigator Class shares.
The maximum sales charge is 4.75% of the public offering price for Class A
shares of the Fund.
Class A shares of the Fund which were purchased pursuant to the sale charge
waiver for purchases of $1 million or more are subject to a contingent deferred
sales charge ("CDSC") of 1.00% of net asset value of the Class A shares of the
Fund at the time of the purchase or sale, whichever is less, on shares redeemed
within one year of such purchase. Class A shares of the Fund held one year or
longer and Class A shares of the Fund acquired through reinvestment of dividends
or capital gains distributions on shares otherwise subject to this Class A CDSC
are not subject to the CDSC.
Class A shares of the Fund are subject to an annual service fee of 0.25% of
the average daily net assets of the Class A shares of the Fund under a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940Act.
2. PRIMARY CLASS SHARES. Primary Class shares of the Fund are offered and
sold without imposition of an initial sales charge or a contingent deferred
sales charge.
Primary Class shares of the Fund are available to all investors except
those qualified to purchase Navigator Class shares.
Primary Class shares of the Fund are subject to an annual distribution fee
of up to 0.75% of the average daily net assets of the Primary Class shares of
the Fund and an annual service fee of 0.25% of the average daily net assets of
the Primary Class shares of the Fund under a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
<PAGE>
3. NAVIGATOR CLASS SHARES. Navigator Class shares are offered and sold
without imposition of an initial sales charge or a contingent deferred sales
charge and are not subject to any service or distribution fees.
Navigator Class shares are currently offered for sale only to: (i)
Institutional Clients of Legg Mason Trust Company for which they exercise
discretionary investment management responsibility and accounts of the customers
with such Institutional Clients ("Customers"); (ii) Qualified retirement plans
managed on a discretionary basis and having net assets of at least $200 million;
(iii) Clients of Bartlett & Co. who, as of December 19, 1996, were shareholders
of Bartlett Short Term Bond Fund or Bartlett Fixed Income Fund and for whom
Bartlett acts as an ERISA fiduciary; (iv) Any qualified retirement plan of Legg
Mason, Inc. or of any of its affiliates; (v) Certain institutions who were
clients of Fairfield Group, Inc. as of February 28, 1999 for investment of their
own monies and monies for which they act in a fiduciary capacity; and (vi)
Shareholders of Class Y shares of Bartlett Europe Fund or Bartlett Financial
Services Fund on October 5, 1999. Navigator Class shares are also available for
purchase by exchange as described below.
B. EXPENSE ALLOCATIONS OF EACH CLASS:
---------------------------------
Certain expenses may be attributable to a particular Class of shares of the
Fund ("Class Expenses"). Class Expenses are charged directly to the net assets
of the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
In addition to the distribution and service fees described above, each
Class may also pay a different amount of the following other expenses:
(1) legal, printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses,
and proxies to current shareholders of a specific Class;
(2) Blue Sky fees incurred by a specific Class of shares;
(3) SEC registration fees incurred by a specific Class of shares;
(4) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(5) Directors' fees incurred as a result of issues relating to a
specific Class of shares;
(6) litigation expenses or other legal expenses relating to a specific
Class of shares;
(7) transfer agent fees and shareholder servicing expenses identified
as being attributable to a specific Class; and
-2-
<PAGE>
(8) such other expenses actually incurred in a different amount by a
Class or related to a Class' receipt of services of a different
kind or to a different degree than another Class.
All other expenses are allocated between the classes on the basis of their
relative net assets.
C. EXCHANGE PRIVILEGES:
-------------------
Class A, Primary Class and Navigator Class shares of the Fund may be
exchanged for shares of the corresponding Class of other Legg Mason funds, or
may be acquired through an exchange of shares of the corresponding Class of
other Legg Mason funds.
Legg Mason U.S. Government Money Market Portfolio, Legg Mason Cash Reserve
Trust and Legg Mason Tax Exempt Trust (collectively referred to as "Legg Mason
Money Market Funds") currently offer only one class of shares. So long as a Legg
Mason Money Market Fund offers only a single class of shares, Class A, Primary
Class and Navigator Class shares of the Fund may be exchanged for shares of that
Legg Mason Money Market Fund, or may be acquired through an exchange of shares
of that Money Market Fund. An investor exchanging from a Legg Mason Money Market
Fund may exchange only into the class of shares the investor is eligible to
purchase.
These exchange privileges may be modified or terminated by the Fund in
certain instances, and exchanges may be made only into funds that are legally
available for sale in the investor's state of residence.
D. CLASS DESIGNATION:
-----------------
Subject to approval by the Board of Directors, the Fund may alter the
nomenclature for the designations of one or more of its Classes of shares.
E. ADDITIONAL INFORMATION:
----------------------
This Multiple Class Plan is qualified by and subject to the terms of the
then current prospectus for the applicable Classes; provided, however, that none
of the terms set forth in any such prospectus shall be inconsistent with the
terms of the Classes contained in this Plan. The prospectus for the Fund
contains additional information about the Classes and the Fund's multiple class
structure.
-3-
<PAGE>
F. DATE OF EFFECTIVENESS:
---------------------
This Multiple Class Plan is effective on October 5, 1999, provided that
this Plan shall not become effective with respect to the Fund unless such action
has first been approved by the vote of a majority of the Board of Directors of
Legg Mason Global Trust, Inc. and by vote of a majority of those directors who
are not interested persons.
October 5, 1999
-4-
